A specter is haunting Europe: secular stagnation. The term, coined in 1938 by economist Alvin Hansen, was reactivated by Lawrence Summers, former Treasury Secretary of the United States. Felice Roberto Pizzuti used the term in the “Social Status Report 2017.” This is the 12th edition, published by Editrice La Sapienza University and presented Monday at the Faculty of Economics in Rome. It describes the consequences of the “second great recession” of 2007- 2008.
The return to growth, claimed by major global financial institutions and governments, has not seemed to produce significant progress in terms of wage increases and productivity, while employment growth is achieved through the proliferation of temporary work, which hides the anomaly of a “growth without fixed employment.”
“Secular stagnation” is a useful expression for describing the imbalance resulting from excess savings compared to the sharp decline in investment that pushes down the real interest rate.
Today, partly because of the “liquidity trap” generated by monetary easing policies (“Quantitative Easing”) undertaken by central banks (and by the European Central Bank in Europe) and the use of restrictive fiscal policy, demand is discouraged.
The project, also expressed during the last meeting of the G7 finance ministers in Bari, to boost growth with a wider “social inclusion” is scarcely credible because the underlying causes that led to the crisis remain in place. In addition to fiscal consolidation policies, there is the idea of a development based on exports, low wages and trade surpluses.
This vision is rooted in the tradition German ordoliberal tradition, and it will continue to lay down the trend, even after this year’s election. The strategy is clear, and tremendous.
Countries like Italy, which have adopted it since the nineties, will find themselves in a few years precisely in the position described in the report: The legions of working poor today, in precarious and intermittent work, with little or no protection, will turn into legions of pensioners over 70 unable to survive. They will have to keep working, who knows how.
The report exposes, in brutal terms, the consequences of the Fornero reform. There are more young people unemployed than in the over-50s bracket, another consequence of the Jobs Act. They will have to work longer in precarious contracts and will be unable to secure a supplementary private pension fund. Before the material reality, the neoliberal utopia of the subject-enterprise fades, the pillar of pension reforms and labor market.
We are sitting on a social bomb, and we’re ignoring it.
The solution, as suggested in the report, is “to broaden and redefine the role of the public.” The recovery of an economic policy could alleviate the imbalances in the market, adopting a welfare system aimed at the redistribution of income and an investment policy toward research, innovation and development.
These goals were not included in Juncker’s plan and remain in the background of the E.U.’s cherished “two-speed” reform. The European Union needs solutions of institutional and constitutional importance.
Guaranteed basic income is one of the solutions supported by the report. It is still a thorny issue for the left that confuses it with its liberal treatment.
Income distribution would have “a negative educational effect on individual behavior and collective growth.” This would be a “welfare benefit,” while the income is “to stimulate demand,” free the individual from the blackmail of insecurity and “support growth and employment,” especially when the depressive tendencies of the economy are so strong.
This measure is not applied in Italy, a country that suffers from the fragmentation of social safety nets and interventions against poverty. The report argues that this fragmentation, confirmed by the inclusion income (Rei) approved by the Gentiloni Government, which is severely underfunded (€1.7 billion, when it would take at least €7 billion per year) and has a welfare and selective approach.
To this we must add another Italian peculiarity: at the peak of the crisis, welfare funding was cut: the funding of social policies dropped from €1 billion in 2004 to €278 million in 2016. And, even today, there is no certainty it will be refinanced.