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Francisco Louçã: A deliberate policy of using the crisis to break the social contract is causing mass unemployment

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Washington.

Last week in Portugal, a general strike took place against austerity measures and high unemployment. On March 29, there will be a general strike in Spain on the same issues—unemployment generally in Spain, the official rate, around 23 percent, young people at over 49 percent unemployment. And the government is introducing new labor laws which unions say will even further restrict workers’ rights to organize, as well as undercut their existing benefits and working conditions.

Now joining us to talk about the strike movement in Portugal and Spain is Francisco Louçã. He’s a professor of economics at the Higher Institute of Economics and Management in Lisbon. He belongs to the Technical University of Lisbon. He’s a member of the Portuguese parliament since 1999. He’s the author of many books and scientific articles on economic thought. And he comes to us now from the PERI institute in Amherst, Massachusetts. Thanks for joining us, Francisco.


JAY: So what’s driving this upsurge in popular resistance in Portugal and Spain? The austerity measures themselves are not new. Why this increased resistance?

LOUÇÃ: Well, no, they are not new, but the dimension of the crisis, that’s new. You said 23 percent of unemployment in Spain. It’s certainly true, although the real unemployment will be much larger if you consider the number of workers who do not have any social benefits at all, who are not anymore inscribed in the center for employment. And that happens in Portugal as well.

And that’s not an event from crisis coming from Mars. That’s the real consequence of deliberate policy in order to destroy employment, to lower wages, because the liberal governments believe that if the wage is very low, then there will be investment, and then there will be new jobs. But, of course, as the unemployment is increasing, there is no investment at all. There’s no public investment. There’s no private investment. And the consequence is that we have both unemployment and the paralysis of the economy. And that’s the reason for the conflict in Portugal and Spain, to fight for an economy for the people, for jobs, and for a reaction against austerity. That’s the popular feeling. That’s why these general movements are so important.

JAY: Now, you say a deliberate policy. What is in the brains of these bankers and political elites, in the sense that they’re obviously destroying their own markets? Even for the Germans, the peripheral countries, who are sort of their primary export markets, and they’re—these countries aren’t going to be able to buy German products when you have such high unemployment. But they believe in this catharsis, this sort of creative destruction or something. What is their endgame here? They have to realize that this is a decade of recession they’re giving rise to.

LOUÇÃ: Well, you know, even creative destruction cannot be applied, because poor Schumpeter thought that creation was the dynamics of capitalism. Here we have just destruction. And the destruction is indeed not only because of the—there is a dislocation of the economy.

There’s a transfer of wealth from labor to capital because of the increase of the rate of profitability, the lowering of the wages, and all that. Indeed what’s happening is that the IMF intervening in Greece or Portugal or Ireland and the general austerity plans in Spain—but that will be the case in Italy, that will be the case in France, and it’s certainly the case in Germany—impose the idea that if the economy is based on very low wages, we have a new social regime, and the new social regime is the end of the social contract as such—working with no rights; working with no guarantees, with no protection, with no health system, which is so important in Europe since the last world war; working with no public education for the kids.

So it’s a change of the function of the democratic and socially controlled working of the state as such. We pay taxes and we don’t have representation, we don’t have devolution, we don’t have the social welfare system, which was the basis of the common life in Europe and in so many countries. So that’s changing the regime. It’s an enormous operation of changing the basis of functioning of the economies and the society and such.

JAY: So I assume the argument that at least they would give in private, if not in public—and to some extent in the business pages you see this in public, but the European elite will argue this is what they have to do to be competitive. American wages are going down. Certainly the other places where you have expanding economies and production—Brazil and Asia, China and such—the wages are very low relative to Europe. And so the European elites are saying, well, to play in this game you need to have low wages. I mean, how do you answer that?

LOUÇÃ: Well, that’s right. But if low wages were the condition for a good economy, Sri Lanka would be the best economy in the world, or Mozambique, would be the best economies in the world. And of course we know that’s not true. We need to have competitive capacities of the economy. We need to have innovation. We need to have social capabilities. We need to have social systems which are based on democracy. And if the dream of liberalism would be an authoritarian system with no rights at all, that would mean no democracy as well.

So what we need is to develop new capable economies with the project of full employment, which cooperate in the world, and which are able to construct different advantages and different capabilities. Indeed, of course, it’s not possible for Portugal to produce shoes as China will do. But China does not produce machine tools as Germany does. Perhaps in the future it will be able to balance the economy and different countries will be able to balance their economy. But the combination of different developments is possible in a world with employment and with rights for the people. The idea of destructing the contracts, it’s the idea of getting back the civilization to the dark ages of the 19th century in Europe or whatever, in the United States. And that’s not the way of progress of—or of accepting a common standard of life for the common people.

JAY: Can Europe maintain this social contract when obviously China has nothing really resembling it and United States’ social contract was not so strong to begin with and it’s also unraveling and, as I said, wages are going down? But can Europe maintain the social contract in that world?

LOUÇÃ: Well, things must change. Of course, China itself will change. If you see how rapidly the workers in China are demanding democratic rights and new wages, they will not live forever with wages of $100 for high-standard production. So there will be changes in China as well, and they are most welcome, because they are very important for the world as such. There will be changes in Germany. There is a strike this week in Germany for rise in wages of 6 percent. And we’ll see what happens after that. But, of course, if the wages in Germany increase, so the internal demand will increase. Possibilities of export for countries such as France or Portugal or Greece will be best possibilities.

So these sort of changes should be seen in a very dynamic system of people engaged all over the world in a better economy for jobs. And if that’s possible, the answer for those who say that you should lower the wages because in China it’s so or because in the United States it’s so is just that we need to have common trends of development all over the world. And, of course, we cannot give up such ways of living such as the national health system, which provides health care for different people [independent of] if they are rich or poor, or good public university for all those able and willing to attend university. All that must be seen as part of the democracy and part of our common way of living. So that’s a fight for responsibility and a fight for democracy.

JAY: And what is the state of that fight in Portugal, in Spain, general strikes? How much popular support to the general strikes have? And in terms of—is there any force emerging at the political level, like, electorially, that might contend for power with a different vision?

LOUÇÃ: Well, I hope that will happen. The public support for the strikes changes very quickly. It was very large in Portugal, and indeed although the wages are so low and unemployment is so threatening, transports, the transport system, railways and underground, was totally paralyzed, a lot of public services. And, well, very many people supported and participated in the strike. We’ll see in Spain. But what’s happening is that while—people tend to understand that if they don’t fight together for their rights, they will face brutal attack by these governments.

Now, the Portuguese government was elected less than one year ago, so there are no close elections. And the Spanish election, as you know, was one month ago, or one month and a half, so there will be no elections in Spain unless there is a political crisis, and we’ll see in the future. But there are some new changes, mostly because of the participation of young movements, many of them inspired by the Occupy movement in the United States, many remembering the alternative globalization movement, the movement against the war in Iraq, different social movements against liberal policies, very well rooted popular movements for the national health system. All, they combine in different forms, claiming for new authority in the political stance. So I believe this is a period of quick change and dramatic change.

JAY: Alright. Thanks very much for joining us, Francisco.

LOUÇÃ: Thank you.

JAY: And thank you for joining us on The Real News Network.


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Francisco Louca is a Professor of Economics in Lisbon's Instituto Superior de Economia e Gestão ("Higher Institute of Economics and Management"), which belongs to the Technical University of Lisbon and a member of the Portuguese Parliament since 1999. He is also the author of several books and scientific articles[1] on the history of economic thought, the dynamics of complex adaptive systems and the nature of long-term techno-economic change.