Friday, January 22, 2016

A Neoliberal Vision for Europe

The Swiss global financial services company UBS has put out a report called “The Future of Europe” on 13 January, 2016:
“The Future of Europe,” UBS, Chief Investment Office, January 2016.
If you want to see one example of a neoliberal vision for the future of Europe, read it.

At one level, there is some very interesting analysis in it and at least the recognition that the EU needs some central fiscal policy.

But, in its other economic proposals, it makes horrifying reading. Because of the alleged population crisis, Europe, they argue, has two choices, as follows:
(1) huge mass immigration or

(2) massive neoliberal deregulation and labour market deregulation (“The Future of Europe,” p. 6).
Unfortunately, under present economic orthodoxy, option (1) is just as likely to lead to (2), so really (1) boils down to (2).

Option (2) means smashing labour market regulation, job security, minimum wages, and cutting business regulations. In other words, let the corporations and big business do whatever they want.

Option (1), as proposed in the report, would involve mass immigration of 1.8 million new migrants of working age each year for 10 years (“The Future of Europe,” p. 7). So Europe must have 18 million new migrants in the next 10 years, a number which is 38% of the current population of Spain, about 27% of the population of France, or 22% of the current population of Germany. That number is bigger than the current individual populations of Sweden, Netherlands, Belgium, Austria or Denmark. Just think about the catastrophe caused by just 1.1 million people coming into Germany last year: Europe must increase this number to 1.8 million a year for 10 years, under this proposal.

Bizarrely missing from the analysis is the crippling mass unemployment Europe is already experiencing, as we can see from some data here:
Nation | Unemployment Rate
Greece | 24.5% (October, 2015)
Spain | 21.6% (October, 2015)
Portugal | 12.4% (October, 2015)
Italy | 11.3% (November, 2015)
France | 10.8% (October, 2015)
Ireland | 8.9% (October, 2015)
Finland 8.2% | (November, 2015)
Sweden | 7.2% (October, 2015)
Netherlands | 6.9% 2015 (October
United Kingdom | 5.1% (January, 2016)
Denmark 6.0% | (October, 2015)
Across the EU, the unemployment rate is about 9.1% (as of November, 2015), and youth unemployment even higher. If we were to add in (1) long-term discouraged workers who have given up looking for work and (2) the underemployed, the data would be even more horrifying.

So presumably this vast army of people will be thrown into an underclass of long-term unemployed, as vast numbers of new workers are brought in? Naturally in the process, they want to smash up what’s left of labour and business regulations.

This ingenious “solution” to Europe’s economic ills will not work, however, because neoclassical economics is clueless in its inability to manage a capitalist economy.

Only massive fiscal policy and a jobs guarantee can fix the problem of mass unemployment, but it is unlikely this will happen any time soon.

A final issue is this: the irrational obsession running through most economic and demographic analysis of the West today is the fact of ageing populations.

But when you look hard at the economic problems allegedly being caused by this demographic trend, you’ll quickly discover most of the concerns are grossly exaggerated and the result of an inability to see the long-run consequences of trends that even now are visible all around us.

Does Europe need endless mass immigration because of an ageing population? Probably not, and for two reasons.

First, there is every reason to think that historically unprecedented and soaring productivity will occur this century as sector after sector is hit by mass unemployment, because artificial intelligence, robotics, automation and machine intelligence will make huge swathes of human labour obsolete. If anything, by 2050 we will be hit by a terrifying mass unemployment crisis and resulting failure of aggregate demand.

The “ageing crisis” that neoclassical economists are concerned about now will probably be easily dealt with by massive productivity growth and a shift in employment by part of the new mass of the unemployed to old age care.

Secondly, if Europe needs more children, then governments can switch to social policies that encourage families to have more children, e.g., full employment, job security, generous welfare policies for new children, paid maternity leave, and child care. In contrast, mass immigration is more likely to increase the trend of mass unemployment and cripple the welfare state.


  1. Anyone notice the contradiction:

    (a) We need to pay everyone a state income - because in the future robots will do all the work.

    (b) We need open borders and more immigration - because in the future we won't have enough working age people to do all the work.

  2. Long time reader, first time comment. This post mentions automation and productivity and unemployment and so does this past post - -inspire a few musings:

    If all work is done by robots then who gets to have the robots? I think it will likely be that without a job or income guarantee - those who own resources will have the robots. Similarly, they won't demand the labor of those who don't own resources.

    But can the economy really be tiered like this? This "Elysium" vision? On the one hand, we clearly see such high unemployment in other countries. In theory, these unemployed could group together and make resources for each other, but in reality we don’t really see this happen. Unless there is a strong underground economy I never heard of.

    How much of the unemployment is due to tight monetary policy? Perhaps a more expansionary monetary policy in this region would make a job guarantee less needed.

    If the jobs and skills people need to be employed are changing rapidly, then I see an opportunity for government to help people go from one set of skills to another.