MYTHS.doc

MYTHS OF THE ECONOMY


On Intellectual Self-Defense in Economic Questions


Edited by Beigewum/ Advisory council on social, economic and environmental
alternatives, Vienna, www.beigewum.at, 2005, Hamburg, vsa.de


[The following 2005 excerpt is translated abridged from the German on the
Internet by Marc Batko. Beigewum is an Austrian community organization,
portal and advisory council for social-, economic- and environmental
alternatives.]



Translator's Foreword


"The old gives way to the new as the snow gives way to the spring"
(Rilke). "The swan that floats and doesn't sink represents the
intransitory in the transitory" (Heidegger). "The penultimate depends on
the ultimate" (Dietrich Bonhoeffer). "The cynic knows the price of
everything and the value of nothing" (Oscar Wilde).
 
In Jacob Wasserman's "Kaspar Hauser," a town was impoverished by drought,
wells dried up and people were filled with rage and aggressiveness until a
little boy played so beautifully on his flute that water surged again in
the wells.
 
We find ourselves at the end of the brutal epoch of the neoliberal
rollback. State myths, labor myths, business myths and social myths have
caused the re-feudalization and destruction of democracy, exploding
inequality, precariousness of labor, endangerment of the atmosphere and the
environment and generalized cynicism and depression. The Austrian
community organization beigewum discussed these myths for one and a half
years. In the 29 myths that were distilled over that time, the myth
arguments are presented in quotations. Bernie Sanders, Franklin D.
Roosevelt and the Occupy movement identified and resisted these myths in
their different contexts.
 
According to the neoliberal myth, higher profits would lead to greater
investments and more jobs. In truth, corporations bought back their own
stocks, speculated on foreign currencies and rewarded their CEOs with
extravagant bonuses. Now is the time for counter-measures, for recognizing
market failure and state violence, for quantitative easing for the people,
for reducing working hours, community centers and abandoning the naïve
trust in profits and corporate beneficence.
 
What seems rational from a micro-economic perspective can prove irrational
from a macro-perspective. If all countries seek unbridled competition,
there will be mass unemployment. In Europe, Germany's export success is
based on widespread European unemployment (average 11% in 2015). Without
regulation, we would not have healthy forests or fish in the lakes. States
are different from businesses and Schwabian housewives and can contract
debts and build a future from which new generations profit.
 
A future-friendly and environment-friendly economic policy that abandons
myths is necessary along with circulating money. Persons as actors and
subjects are no longer corn to be used up or "cost factors" to be reduced
just as CEOs are not beneficent "job creators." The social contract and our
interdependence are threatened when we are wolves to each other and when
the public interest is confused with the interests of one or several
corporations.
 
In the long run we must find some way besides jobs to distribute the wealth
generated by our increasingly automated productivity, something like a
guaranteed annual income. But to make any political changes, we have to
change the way we think and talk about economic reality.
 
By involving and not distracting one another, we become people of hope. By
abandoning myths and false promises, half-truths and fish stories, we can
change assumptions, priorities and policies and live in a future-friendly
world with generalized security.





CONTENTS - FOREWORD


STATE MYTHS


1. "The economic location is in danger without reforms"


2. "State indebtedness is bad"


3. "The taxes are too high"


4. "Taxes are paid according to income"


5. "The budget has no gender"


6. "State regulations hinder the economy and inhibit innovations"


7. "A strong currency is imperative"


8. "The best way to development is free trade"


9. "Economic policy should be left to the experts"


LABOR MYTHS


1. "Labor costs too much"


2. "Unemployment arises through too little flexibility on the labor
market"


3. "Wages are paid according to performance"


4. Eastern expansion of the EU threatens our jobs"


5. "We achieved the economic miracle and reconstruction under our own
steam"


6. "Immigration controls and laws protect the labor market"


BUSINESS MYTHS


1. "If the economy prospers, everything is good for us"


2. "No technical progress without patents"


3. "Privatization improves public services"


4. "Small is beautiful instead of big business"


5. "The best product prevails on the market"


6. "The stock exchange makes everyone rich"


7. "Longer store hours create more jobs"



SOCIAL MYTHS


1. "Social benefits are often misused"


2. "Aging makes financing the welfare state impossible"


3. "Private old age provisions are more stable than state provisions"


4. ""We need more personal responsibility"


5. "Tax competition undermines financing the welfare state"


6. "State child benefits encourage more children"


7. "The public health system needs more market economy!"


FOREWORD


Myths – symbolically charged narratives with dubious real foundations – are
not phenomena limited to the dim and distant past. In their classic
"Dialectic of Enlightenment," Adorno and Horkheimer made the pessimistic
diagnosis decades ago that science today has become the central myth today.
Science has taken the place of religion in generating blind obedience
toward the higher powers [Max Horkheimer/ Theodor W. Adorno: Dialectic of
Enlightenment, first edition 1947].


We know how contemporary myths function from Roland Barthes' analysis
"Mythologies" [Roland Barthes, Mythologies, first edition 1957]. Myths
have the tinge of innocence and naturalness and divert attention from the
social and historical causes and conditions. They like to appeal to so-
called common sense and make phenomena appear obvious, self-evident and
unalterable which they are not. They make the specific interests behind a
statement disappear. They promote passivity since language in myths acts
more as intimidation than communication.

The search for examples is not hard when we realize these characteristics.
A debate on economic reforms can hardly be avoided in TV channel-hopping.

MYTHS OF THE ECONOMY

The economy is a special area of society. On one hand, economic processes
influence the day-to-day life of all people. On the other hand, knowledge
of economic connections is considered a matter for experts. The pressures
and troubles the economy often imposes on us and the simultaneous
impossibility of expert discourse about the economy leads many people to
want "to have nothing to do with the whole subject." The "terror of the
economy" is discussed and reluctant turning away is often the result. But
thinking, speaking and acting is left to others that way. For example,
businesses often know what they want and can hire experts to publically
justify their desires and demands. This is also true for some individual
persons, groups and political parties. They adopt the language of experts
to emphasize their demands with certain arguments. Political and interest-
based decisions are justified with supposed practical economic constraints
or necessities. Counter-arguments that stand up to those constraints often
appear. However the quality of public debates and participation in
conflicts become feeble now and then with increasing media concentration,
decreasing substantive differences between the parties and the political
weakening of counter-voices. Certain views of economic experts are
unopposed until they assume the character of popular myths. They become
natural truths seemingly unchangeable that lie outside our sphere of
influence and are hardly questioned by anyone.

The right to join the conversation is vital because the economy concerns
all of us. Like all disciplines, the economy has developed a technical
language. Only those who learn it understand it. Despite this exclusive
language and methodology, the underlying arguments and reflections are
mostly generally understandable.

A second objection should be added to this first scratch of the expert
Olympiad. Most economic questions are controversial. As in many other
social questions, much in the economy depends on the vantage point.
Economic arguments can be used for panic-mongering, justifying
discrimination and spreading feelings of powerlessness, as happens daily –
or to better understand society and grapple critically with it and change
society.

This second approach inspired this book. In a study group over one-and-a-
half years, we collected the most important myths that circulate in the
media and everyday discourse. The core arguments were sifted out and
counter-arguments drawn from economic research.

We hope to contribute to a broad economic education of the population and
their participation in political-economic debates and decisions.

STATE MYTHS

1. "The economic location is in danger without reforms"

"The competitiveness of our country as an economic location will be in
danger if no radical reforms are introduced. To stay on top in the
international ranking, lowering business taxes, reducing regulations and
driving down wage costs are unavoidable."

Veiling Conflicts of Interest

The term "competitiveness" is common on the business plane. Firms are
mainly established by their owners to gain profits and must stand the test
in competition. However transferring the term to a whole national economy
and the silent assumption of a clear distinction between "competitive" and
"non-competitive " states are problematic [Paul Krugman, The Myth of the
Global Economic War, 1994].

Firstly, the economic relations between states as a rule lead to growth
from which all participants can profit and isn't a zero-sum game where one
loses and another wins. If China is presently going through a rapid
economic development, the exchange can benefit both and does not mean the
EU suffers losses [see the myth "Eastern expansion of the EU threatens our
jobs"].

Secondly, a business that loses its competitiveness files for bankruptcy
and is forced to withdraw from the market. However a state and its
population cannot "go bust" and disappear from the market. Thus the term
"natural competitiveness" is vague.

In addition, that a state or national economy has different goals and
functions than a business is undisputed. While clear hierarchies of
command and the model of profit-making rules in businesses, modern states
claim a democratic decision-making and follow a great variety of goals that
go beyond economic success.

The anxiety around "national competitiveness" is deceptive because it fades
out conflicts of interest and assumes a homogeneous national interest.
Every measure to increase "competitiveness" has advantages and
disadvantages. There are hardly any political-economic decisions without a
goal conflict. All political-economic measures have an effect on
distribution between different sectors of the population. For example,
lowering the business tax brings advantages for the affected businesses but
revenue shortfalls for the state. Different groups suffer because they
either must compensate for these revenue shortfalls with new taxes or must
endure lower state spending necessitated by the revenue shortfalls.
Whether a circumstance is rated good or bad depends on the interests.
"National interest" is given as a supportive argument in political
lobbying. What is good for some businesses is said to be automatically
good for the whole national economy.

Narrowed Focus on Location Factors

The factors described as threats to competitiveness change in the course of
time and depend on who is speaking. Excessive (non-) wage labor costs,
exorbitant taxes and too many regulations are frequently mentioned. One of
these factors cannot claim to be the decisive determinant of
"competitiveness." Different states take different paths in the concrete
development of these "location factors" that provoke many discussions.

The argument "all businesses migrate where wages are lowest" is too
simplistic. Low wage costs and the supposed cost advantage are often
explained by low productivity [see myth "Labor costs too much"]. State
regulations can be an obstacle to developing entrepreneurship but are often
spurs for profitable innovations. Strict conditions for environmental
protection are an example. These conditions press to inventing new
environmentally-friendly technologies [see the myth "State regulations
hinder the economy and innovation"].

Two deficiencies of the discussion are striking regarding the comparison of
wage levels or non-wage labor costs (particularly the employer contribution
to social security). Firstly, the wage costs are only convincing in
relation to productivity… Secondly, the contribution of piece-labor costs
to the "competitiveness" of states should not be overrated. In industry
and trade, wage costs only amount to 10-30% of the production costs and are
not the crucial cost factor.

2. "State Indebtedness is Bad"

"The state should not contract any new debts because state indebtedness is
harmful to the economy, politically unstable and irresponsible as well as
an unjust burden for future generations."

The EU Stability Pact insists member states may not post medium-term budget
deficits. States should avoid "contracting debts" as much as possible. In
Austria the government's budget policy in 2000-2002 stood under the "zero
deficits" guideline. Is a balanced budget the best budgetary policy?

Good Reasons for State Indebtedness

Economic stabilization and bridging over economic crisis times is an
important justification for temporary state deficits. The state must help
out when private households and businesses spend too little in phases of
economic slack periods. Firstly, this allows its budget deficit to grow
through business cycle shortfalls in tax revenues and additional spending
for unemployment. Secondly, the state through borrowing can finance which
keep the economic dynamic going at the right time and in the right area.

Financing investments is a second important justification for heavy debts.
The argument is often made that state deficits are unjust because they
shift budgetary burdens to future generations who then have to repay the
credits (as today's taxpayers use credits that the state has taken in the
last decades). Costs are partly shifted to future generations of taxpayers
in the framework of credit financing – as well as benefits.

Credit-financed state investments are not a threat for the future and do
not mean "living at the expense of future generations." Rather they are
often a prerequisite of future prosperity. When public investments are
financed with credits, future generations also inherit the benefits from
the expenditures and not only the debts. They can use the rebuilt
infrastructure; education spending supports their training etc. Thus
indebtedness is a way for future generations to share in the costs of
today's future investments from which they will profit.

Moreover future generations also "inherit" the assets held by the creditors
of the state (private persons and banks). When a distribution question is
raised, distribution is between the taxpayers who must answer for interests
and repayment of state debts, not between different generations. In
general, the wealthy make credits available to the state and profit from
the interest payments while all taxpayers are liable for the interest
payments. This has greater effects on redistribution, the more unjustly
the tax burden is apportioned.

Special Features of State Debts

State debts are neither good nor bad economically. Where the credits are
spent is crucial.

In public debates, it is often said the state like a private household
cannot spend more than it earns. However state budgetary policy has other
functions than the financial conduct of private households [cf. Heiner
Flassbeck]. A state does not need a balanced budget. From an economic
perspective, what the state does with the budget – from which it gains
revenue and for what it makes expenditures – is central. Budgets have to
fulfill public tasks – welfare, distribution, infrastructure etc. Unlike
private households or businesses with their budgets, the state has the task
of steering the total economy. Gaining profits (budget surpluses) or zero
deficits are not state goals.

The desire to reduce the deficit and save is different for private persons
than for the state. While the economic effect of savings efforts of an
individual private household are negligible on account of its trifling
size, this is different with the state. Because of its enormous economic
magnitude, state savings plans can have economic consequences that under
some circumstances frustrate its own savings intentions. State austerity
measures (cuts of social benefits) lead to income- and expenditure cuts for
many impacted private persons that can negatively affect economic
development with a bad aggregate economic mood – which becomes noticeable
in falling tax revenues and increasing state spending for unemployment
assistance. This diminishing revenue and rising expenditures could thwart
the original effects of savings so the deficit is not reduced at the end.
Many European states reacted to the economic crisis in the 1930s by
attempting to balance their budgets – with disastrous aggregate economic
consequences. As another example, the upper limits for state indebtedness
of the EU Stability and Growth Pact forced states to make savings efforts
in bad economic times so the rules of the pact would not be violated. This
weakened the economy, led to losses in taxes and blocked the planned
reduction of the state deficit. On the backdrop of this experience, a
reform of the Stability Pact was resolved in 2005 to increase the
possibilities for budgetary policy.

The state is better prepared than others to take over public tasks and the
necessity of running into debt. Unlike private persons, the state never
has to pay back its debts – because it has a "perpetual life." The state
only needs to pay the current interest on state debts. It can cover the
total credits through new credits again and again. This is possible
without any problems as long as the interests and the annual new
indebtedness do not grow faster than the tax revenues.

The relation of the debt state to the gross domestic product is the
decisive factor in judging state indebtedness in a growing economy, not the
growing indebtedness of the state in itself…

Permanent new indebtedness in itself does not lead to "exploding debts," as
is often argued. State indebtedness is only problematic when the new
indebtedness is permanently higher than the economic growth. Then the
indebtedness share in the GDP rises. The interest level also plays a role…
The framing economic conditions, above all economic growth and the interest
level, play a crucial role in whether state indebtedness is sound or not.
That state policy can influence these framing conditions is often not
mentioned.

State indebtedness does not mean the impacted population, the whole
national economy, "lives above its means." The debts of one are the assets
of another. State indebtedness mean the state accepts credits and loans
from banks and private persons that represent assets for those banks and
private actors. Thus the national economies of Germany and Austria mainly
have debts "with themselves."

The Real Budget Problems

Concentration on the budget balance drowns out a necessary discussion
abou8t the effects of budgetary policy on the economy and society – for
what money is spend and who should finance this [cf. the myths "Taxes are
paid according to income" and "The budget has no gender"].

These arguments do not mean budget deficits are always positive. Budget
deficits imply redistribution to the owners of capital. The creditors of
the state obtain interests that are financed from tax payments…

Budget deficits are often consciously produced by governments and used as a
strategic instrument to dismantle public services. First, the taxes are
lowered. The resulting revenue shortfalls for the state lead to a budget
deficit. In a next step, this deficit then serves as an argument for
reducing state spending (that is now described as "impossible to finance").

Budgetary policy is one of the central political developmental instruments.
All budgetary goals including the desire for a balanced budget mainly
follow political motives and are not expressions of economic necessities.

3. "The Taxes are Too High"

"In Germany and Austria, the taxes are too high. They strangle economic
power and destroy competitiveness. Therefore the share of taxes in the
gross domestic product ("the tax rate") must be unconditionally lowered."

One of the most prominent budgetary goals of the Austrian government is
lowering the tax rate. The share of tax- and social security revenue in
the gross domestic product (GDP) should be reduced to 40% by 2010.

The tax rate is one of the most important indicators for judging the size
of the state sector – alongside the state spending rate that sets all
public spending in relation to the GDP. From the perspective of taxpayers
(businesses and private persons), taxes and social security contributions
represent a burden that reduces economic revenue. From the view of the
public sector, taxes and social security contributions are the most
important revenue sources for financing public functions.

The political goal of lowering the tax rate in the medium term pushes the
financing function of taxes and social security contributions to the
background. Taxes and social contributions must either be permanently
balanced by increasing revenue or by reducing expenditures…

A Low Tax Rate Only Benefits the Rich

The medium term strategy of the Austrian government is reducing spending
parallel to the taxes. The spending rate should be lowered in keeping with
the decline of the tax rate to reach a "zero deficit" in the medium term.
While some of the introduced austerity measures are certainly sensible, the
negative social and employment effects of most of these "spending reforms"
(pension- and health reform and administrative reform or reduction of
public employees) should be underscored. Redistribution in Germany and
Austria occurs through public expenditures. These expenditures mainly
benefit the less socially favored (for example social services)…

Lowering the tax rate as a strategic concept for reorganizing state
spending – the central point – implies a program of redistribution to the
top that is helped with this newly devised number fetish. This
redistribution program has negative effects on people with low incomes,
particularly women. Possible tax cuts benefit those who are well-organized
and can lodge their grievances. The business side demands again the long
promised tax cuts. Many tax cuts were justified with the argument that
capital and wealth could evade taxation through migration…

Political parties and governments should be judged whether and in what form
tax rate change is in their program…

Tax Rate and Economic Growth

… Can lowering the tax rate promote economic growth and improve Germany's
and Austria's international competitiveness? If the height of the tax rate
were actually a seal of economic quality, then states in Africa must be the
most dynamic economic regions of the world – because the tax burdens there
are unbeatably low.

The following theory is found in many economic textbooks. Up to a certain
height, a higher tax rate is positive for economic growth. The state with
the realized revenue can finance expenditures that increase growth as for
example education- or infrastructure spending. But if the tax rate exceeds
a certain "critical" level, this has negative incentives for the working
population and for entrepreneurial engagement and thus dampens economic
growth.

First of all, this argumentation is theoretically contested. Determining
the "optimal" height of the tax rate is empirically impossible. A simple
international comparison shows an unequivocal connection does not exist
between the height of the tax rate and economic growth. For example, the
Scandinavian countries and France – countries with tax rates above 40% -
have a dynamic economic growth. On the other hand, the growth performance
of Switzerland and Japan whose tax rates are under 30% was rather weak in
the last years… In Austria and Germany, the structure of the taxes is
problematic in distribution- and employment policy, not the height of the
tax rate…

4. "Taxes are paid according to income"

5. "The budget has no gender"

6. "State Regulations Hinder the Economy and Inhibit Innovations"

"Laws and regulation entail more and more costs and burdens for businesses.
They impede entrepreneurial economic activity and act as innovation-
brakes. Their reduction is overdue."

…Rules and legal regulations often have unexpectedly positive side-effects
like innovation incentives. Secondly, a free market does not protect from
misuse and side-effects (see the scandals around the falsified balance
sheets of the American Enron). Thirdly, much time can pass until the
positive effect of regulation appears. This means regulation can be felt
to be negative in the short-term although in the end it has positive
effects for those subject to the rules.

De-Regulation is Often Deceptive

The introduction or increase of competition by removing state regulation
(so-called deregulation_ in one branch often makes more regulations
necessary in the end. The deregulation or liberalization of the network
industries (telecommunications, electricity, gas, postal service etc) was a
re-regulation. The state monopoly of these markets was simply transferred
into a system with several suppliers… Regulation is often necessary to
guide competition in socially useful paths.

Regulation and Social Goals

In undifferentiated criticism, regulations are generally presented as
bureaucratic arbitrariness. Social goals that conflict with the goal of
realizing profit are covered for economic enterprises through regulation:
protection of the atmosphere, employee rights, public safety etc. This
goal must be weighed against the economic burden arising from the
regulation.

Without regulatory conditions for environmental protection, there would
probably be no fish in European rivers and no healthy forests. "Free"
markets do not function when the production process has negative side-
effects that do not burden the causal agents with any costs or only
trifling costs (for example, toxic waste water from factories could be
drained off free of charge into rivers). There is even a regulated market
for pollution rights. Thus regulation is often necessary to curb harmful
side-effects of the economy and reach socially desired goals…

Positive Side-Effects of Regulation

Beside their contributions to socially desired goals, regulations can also
fulfill an economically useful function for the regulated businesses.
Instead of harming profit realization, they could even contribute to
gaining profit. A deregulation does not always lead to economic success.
In many cases, regulations for attaining social goals can prove to be
economically advantageous.

As one example, the motivation of employees in developed economic sectors
can play a great role for business success. That labor relations are
considered fair by the employees is crucial. Diverse employee rights,
social services, protection from unlawful termination, joint-determination
on the job, collective bargaining and minimum wages provide work
satisfaction and are prerequisites for high personal motivation and
creativity and are regarded as foundations for business success in a modern
knowledge-based economy. Thus regulations could protect the legitimacy of
arrangements that are important for a successful economy. By acting as
innovation incentives, regulations can make a positive economic
contribution…

In Germany, high wages and labor laws that make dismissals difficult act as
innovation incentives. Manufacturers try to produce high quality products
for which they can charge high prices to cover their higher costs. In many
countries, strict norms for products, product safety and protection of the
atmosphere often force businesses to new ideas for products, services and
production processes that then prove to be market successes.

Regulations as market coordination measures are very similar to competition
in many regards. Competition at least in the short-term can be
economically detrimental for every individual business. Competition puts
businesses under pressure, usually leads to lower prices and lost profits
and therefore is not welcome for any business. Nevertheless
Competition can have a positive effect on the total economy because it
prevents monopolies demanding high prices and forces businesses to
innovations. This is also true at least potentially for regulations. At
first they represent a burden for a business. But in the long run they
press to adjustments that can prove economically and socially positive.

All in all regulations are often necessary to combat harmful side-effects
of the economy and reach social goals. They also often act as innovation
incentives and contribute to entrepreneurial success.

7. "A Strong Currency is Imperative"

"The stronger the shilling, the mark or the euro, the more prosperous is
the respective national economy. A strong currency is a reason for job and
an expression of prosperity."

8. "The Best Way to Development is Free Trade"

"Unrestricted free trade leads to increased prosperity for all
participating countries. Therefore all countries should specialize in
foreign trade corresponding to their comparative advantage. The optimal
development policy consists of market opening and free trade."

David Ricardo's theory of comparative cost-advantages is the most
influential theory on world trade. It claims that free trade benefits all
participants since every country can produce at least one good especially
well on account of its location and production factors. International
prosperity could be maximized if every country would specialize and all
states would pursue worldwide free trade. According to the theory, this
would also lead to better development of poorer states.

Obviously there are different location advantages and trade makes sense in
many areas. But a complete opening of markets and specialization in goods
with comparative advantages can bring disadvantages and lead to
underdevelopment, not development.

International Division of Labor

Most "developing countries" have comparative advantages in raw materials or
agricultural- and forestry products. This is also reflected in the
international division of labor. Industrial countries (EU, US, Japan)
export top flight goods with a high technological input while poorer
countries export simple commodities…
Judgment depends strongly on the economic perspective of the observer. For
owners of financial assets, the shift to an upgraded currency abroad is
positive… Devaluations can lead to higher inflation through higher import
prices… and press to ever new devaluations…

Since the 1970s the "terms of trade" have shifted dramatically. Raw
materials have lost much value compared to finished products…

A report of UNCTAD (Conference of United Nations on the Environment and
Development) showed terms of trade fell 28% in Africa, south of the Sahara
from 1980 to 1989 which led to an income loss of $16 billion for 1989
alone. In the 1990s, the prices of primary goods fell even more intensely
compared with industrial goods.

Specialization in certain agricultural products leads to monocultures.
Crucial resources for production on the domestic market are often lost.
The consequence is an inadequate food supply for the population, dependence
on an export product whose price4 is dictated by the world market and
destruction of the environment. A way out of this vicious circle is hardly
possible under conditions of free trade. Native or indigenous industries
and an extension of the value-creation chain can hardly be developed on
open markets since the imports of industrial countries are more competitive
and industries are often destroyed.

Transportation Costs

Trade requires transportation. The current extent of world trade and the
international division of labor is based very strongly on the massive
subsidy of transportation and location advantages – at the expense of the
environment and sustainable development. With complete truth in
transportation costs, a series of price advantages in foreign trade would
be cancelled and regional products would be more competitive…

History

The greatest deficit in the discussion about the magic formula/ panacea
free trade is that historical developments are faded out. The postulate
that free trade and market opening lead to growth and sustainable
development in poor countries is refuted by the experiences of all
industrialized countries today. Not a single industrialized country today
followed this policy in its industrialization phase that is prescribed to
developing countries by the IMF, the World Bank and WTO agreements.

Great Britain and the US are the two countries that had the strongest
protectionism in critical phases of their development. From 1830 to the
First World War, US tariffs were the highest in the world. Trade relations
were first liberalized after its uncontested hegemony was secured.

The Southeast Asian so-called tiger states (South Korea, Hong Kong, Taiwan,
and Singapore) that were named again and again as models for development
also went a very different way. National industries were consciously
protected and developed before markets were opened. The export of
unfinished products was never the goal of development [Ha-Joon Chang,
Kicking Away the Ladder: Development Strategy in Historical Perspective,
London 2002]. The recent successes of China and India refer back to
targeted industrial policy, not to unrestricted free trade. Experiences
show that comparative advantages are determined by socio-economic, cultural
and historical factors and are not static or decreed by nature. Their
selection and development depended on political decisions.

The present situation is described by Cambridge economist Chang as "kicking
away the ladder." Developed countries kick away the ladder (protectionism)
on which they climbed themselves. They first became advocates of free trade
when their industries were competitive on the world market. Even today
they are only competitive in those sectors where this is the case. From
the US steel industry to the agriculture of the EU, there is no free trade
where their own business interests would be harmed. Thus power is really
central, not free trade [Attac Austria: The Secret Rules of World Trade.
WTO-GATS-TRIPS-MAI, Vienna 2004].

Goal versus Instrument

Export and free trade do not automatically lead to development and
prosperity. They are not political goals. Sustainable development,
prosperity, social security and preservation of the ecological foundations
of life are political goals. Free trade – like protectionism – can only be
an instrument to their attainment under certain conditions. At best the
export of simple commodities can be part of a broader concept of
development ensuring the connection of the export sector with the local
economy where the incomes of broad population sectors flow and are guided
in building local economic structures and in the higher development of the
export economy. Political-economic regulations are needed to safeguard
this. However these options for independent economic policy are massively
restricted by international politics and multilateral agreements oriented
in market opening.

The advantages and disadvantages of free trade and protectionism for the
economic development of a country should be analyzed by the impacted
themselves without pressure from outside. There is no magic formula for
development of such different countries as China and Haiti. Differentiated
and well-planned economic policy opposes an unqualified free trade
ideology7 that is empirically untenable.

9. "Economic Policy Should Be Left to the Experts"

"Economic policy is a matter for experts. Experts make more objective
decisions than politicians recruited out of political parties. Because
politicians must be reelected by the people, they are directed by what
favors their reelection and cannot make objectively correct decisions.
They serve their own interests or the interests of their clientele instead
of making efficient, optimal economic policy in the public interest.
Therefore important decisions should be made by experts."

Impartial Knowledge and "Objectively Correct" Solutions
Impartial knowledge is assumed in the argument for leaving political-
economic decisions to experts. Thus the persons possessing this knowledge
would be the only ones who can find socially relevant solutions. Still the
situation is not so simple particularly in economics since there are
different scholarly theories here with different implications. Nobel Prize
winner for economics Joseph Stiglitz remarked: "These `technocratic'
solutions – seen more closely – often have an ideological foundation that
is not economic… Economic policy is normally not technocratic in this
sense. Considerations are always involved. A political measure may have
the consequence that inflation increases or unemployment falls. One helps
investors; the other helps employees" [Joseph Stiglitz, Mistrust the
Technocrats, in: Der Standard, 7/23/2003].

Economics is a social science, not a natural science where there may be
"objectively correct" or "false" solutions. Different and often
conflicting theoretical approaches exist from which completely different
political-economic conclusions can be drawn. Specific interests and social
groups profit from every decision. Therefore there are no "objectively
correct" decisions. Rather the question which population groups should
profit in economic policy is central – particularly when we assume the
financial resources are limited. The "most efficient solution" for one
group can give the worst results for another group.

So decisions that were legitimated by "experts" also contain values. If
the solutions of economic problems are simply left to them, their own
values or values of their patrons will flow in their decisions.

Experts, Lobbying and Democratic Decisions

Thus the problem is the missing democratic foundation of applied value
systems. The use of experts often veils interest-policy. Delegation of
economic policy to expert groups facilitates the influence of lobby
organizations because influencing these screened groups is easier to
influence than a broad public discussion offering protection from
implementing clientele interests. Lobbying often disguises itself as
expertise. The best experts are usually economically active serving the
dominant businesses. How independent can their judgment be?

Experts presenting recommendations really only benefit one small solvent
group as "objectively correct" decisions.

Political-economic decisions that directly affect the material life
foundation of people should be based on another foundation. The real core
of democracy is that people determine their life themselves in common
dialogue and not alone. This assumes that defining the life foundations is
not left to a few "knowledgeable ones." Rather this should be defined by
the people themselves on the broadest possible basis.

Economic policy always takes place amid uncertainty. There is no agreement
among the different economic schools of thought about many connections.
Data is lacking for much empirical proof. Many decisions have to be made
on the basis of mere forecasts or suppositions about the future. Every
measure produces winners and losers. Under these conditions, the
mobilization and integration of the knowledge and opinions of as many
participants as possible can only contribute to the improvement of
decisions.

Political-economic decisions and their effects should not be made with
exclusion of the general public. Instead they should be discussed
publically so those affected by the respective decision are included..
Decisions should be made democratically on the basis of this discussion.
Experts have a place in this process. They can serve as advisors of the
population and strengthen democracy.

LABOR MYTHS

1. "Labor Costs Too Much"

"High wage costs are one of the most important triggers for problems on the
labor market. Labor is often simply too expensive. On one hand, high
wages and salaries hinder the competitiveness of local goods on the world
markets. They lead to expanding production in low wage locations and
unemployment at home. On the other hand, high wage costs make hiring
additional employees in the service sector unattractive."

Wage Costs Have to be Seen in Relation

Wages in western European industry facing international competition are
actually relatively high. For example, a working hour in Austria in 2003
cost an average 20.6 E. That was a quarter less than in Germany but five
times as much as in Chechnya and thirteen times as much as in Rumania.
Labor costs per hour rose 1.6% per year since 1995 in Austria and 2.6% on
average in its trading partners…

Wage costs in industry are falling in relation to the trading partners and
in relation to local production. In the Austrian economy, piece-labor
costs corrected for inflation have fallen 9% since 1995 and 18% since 1980.
Costs for labor have clearly declined in relation to the value of produced
goods and services. Labor becomes increasingly cheap. A similar picture
appears in Germany. Inflation-corrected piece-labor costs in the whole
economy fell 15% since 1980 and 6% since 1995.

The decline in the price of labor measured in produced goods and services
was reflected in the rise of unemployment in the last 25 years…

Lower Wages and More Employment?

For the total economy, there is no evidence that excessively high wage
costs generally have negative effects on the labor market. In
"neoclassical" economic theory, there is the notion that a reduced price of
workers leads to businesses using more persons instead of machines and so
increasing employment… Most human work is coupled with technology whose
deployment can only be expanded. More information workers need more
computers, not fewer computers.
In addition, wages are only one cost factor among many and should not be
overrated in its significance for the competitiveness of businesses. In
the manufacturing industry, the share of wages only amounts to one-fiftieth
of total costsThus a considerable reduction of wages only brings trifling
savings in the total costs.

2. "Unemployment arises through too little flexibility on the labor
market"

3. "Wages are paid according to performance"

4. "Eastern expansion of the EU threatens our jobs"

5. "We achieved the economic miracle and reconstruction under our own
steam!'

"That Germany and Austria are among the richest states of the world has
much to do with virtues like diligence and eagerness to work. The
`economic miracle' is due to the bustle and zeal of the `builder
generation' in the reconstruction after the war. Conversely, the poverty
in other states is mainly because the population there is less industrious
and diligent."

Economic Success and Dependence on Others

NS War Industry and Forced Labor as Foundations

The Role of the Marshall Plan

The neediness of war-damaged Western Europe after 1945 occurred in the
favorable circumstance that the US had a political and economic interest in
rebuilding Europe. On one hand, a strong counter-pole to command socialism
should be established. On the other hand, a receptive and solvent market
was needed for its own exports and investments. On the basis of these
considerations, the US began the "Marshall Plan" (the European Recovery
Program – ERP) to provide western European states with the urgently
necessary financial resources in the form of loans and grants. The
Marshall Plan was the central anchor for reviving crushed West German and
Austrian economies. Imported goods (both food and investment goods) were
paid for by the US government… Between 1948 and 1952, around $12.4 billion
was provided in the scope of the Marshall Plan. Around $1.5 billion flowed
to West Germany…

Concerning financial aspects, West Germany was granted gigantic debt
relief. Its foreign debts were reduced 50% to 30 billion DM at the 1953
London Conference of Creditor States…

Economic postwar development in West Germany and Austria profited both from
the considerable use of forced labor and from the post war system with its
US financial assistance program and the growth of Western industrial states
based on exports and investments. A prosperous world economy was and
remains an essential condition for economic success for export-oriented
states like Germany and Austria.
6. "Immigration Controls and Laws Protect the Labor Market"

"In industrial states like Germany and Austria, controls rightly exist for
immigration and for people with foreign citizenship, special laws in the
areas of residence, work, social life and political rights. Only in this
way can a stream of workers be prevented that would lead to wage-dumping
and unemployment on the native labor market."

In this myth, an affluent chauvinistic way of looking at things is
reflectedbysetting the perspective of native workers above the perspective
of persons from abroad. In a similar way, we were warned earlier that
greater involvement of women in the labor market would lead to repression
and lower wages.

This argument suppresses the fact that competition by foreign workers
occurs when businesses migrate. In addition, the effect of an increased
number of workers on the wage level and employment depends on whether the
economic situation is favorable or unfavorable and whether the state
economic policy bears essential responsibility.

This argumentation misunderstands the effects of state screening measures.
Stopping illegal immigration has not succeeded either in the US or Europe
despite very restrictive measures blocking immigration. Migration
obviously follows its own laws that are hardly be influenced by political
measures. The notion of complete screening and control of immigration
according to criteria of economic usefulness is a myth for the country open
to immigrants unless the whole society is not changed into a police state…
The screening policy has not reached its supposed goal of substantially
limiting immigration. Rather it leads to a successful illegalization of
immigrants.

Reasons for Migration

Those responsible for the screening policy assume migration is triggered by
differences in affluence between the immigration and emigration countries.
Therefore they hope for higher costs for migration in the form of making
access harder and reducing the incentives for immigration. Still migration
has other motivations than only a prosperity difference.

Important circumstantial evidence of this reality is that the majority of
migration movements occur between states with the same or similar
prosperity levels mainly in the southern hemisphere and not between poor
and rich states. Historically in Europe, only a few people from poorer
regions migrated to richer regions within Europe despite inoperative
controls, short distances and a considerable wealth differential between
the individual countries.

Migration is a side-effect or accompaniment of socio-economic change, of
intensified enforcement of market conditions in the emigration states,
factors such as the commercialization and mechanization of farming and
repression of the subsistence economy through markets for goods and
workers. These changes release whole population groups from their local
anchoring. Often these changes are touched off by international
developments. The drivers of these developments are those states that
later became goals for migration movements… The French and British role as
former colonial powers was a central factor for establishing extra-legal
networks. In the 20th century, there were periods (after Germany had been
an emigration country for a long time) when the state actively sought to
"import" foreign workers: from the seasonal work at the beginning of the
20th century in East Prussia, the extreme variant of abduction to forced
labor in the Third Reich, recruiting "guest workers" from Italy, Yugoslavia
and Turkey in the 1960s and the debate over a "Green card" for skilled
foreign IT-workers at the end of the 1990s.

In this arrangement, people were brought into countries and their labor
power was used (and their tax payments and sales taxes collected). Before
and after the use of their labor power, they were forced to remain or
return to their original countries. Socialization-, training- and supply
costs were shifted to these countries.

The demand for workers in the host countries represents one of the most
important driving forces for migration. The majority of immigrants would
not have had any reason to emigrate without information about job prospects
with businesses in the host countries…

Legal Discrimination

The state classifies immigrants from non-EU states in different groups:
workers, family arrivals, students and political refugees or asylum-
seekers. In a graduated system, states like Germany and Austria
discriminate through refusal, complications or temporal restrictions on the
labor market.

To work legally, immigrants need a work permit. The principle that
domestic citizens are preferred is in force for job approvals.

On the basis of this criterion, immigrants rarely receive a work permit and
as a rule are excluded from the official labor market with the exception of
seasonal work quotas in branches like harvest work and tourism…

Effects of Discrimination

The screening policy and the special legal treatment of immigrants have an
effect on the labor market but not on the number of immigrants. In part,
they are declared "illegals" and in part given lesser rights. They are
forced to accept lower wages and poorer working conditions than the native
working population. They are made a discriminated lower class that is
useful for some businesses. On one hand, gaps are filled that were avoided
by native workers. On the other hand, a potential underbidding competition
is carried out in some segments.

Whoever may not work officially but must work to survive is pushed to the
unofficial labor market, the shadow economy. This means no social
standards, no health standards, no tax benefits and no insurance coverage,
extortion and low wages, no social benefits, terminability at any time,
partial wage robbery, no retraining and no political representation.
Businesses exploit this outlawed segment of workers to produce more cheaply
and exert downward pressure on the wages and working conditions of the
officially employed. Punishment for illegal employment is trifling…

Because immigrants in many regions have no access to social housing, they
are limited to a narrow segment of the housing market and consequently must
often pay higher rents (in Austria over 60%) than the native population.

Thus immigration controls and foreigner laws on the labor market result in
discriminations and force immigrants into outlawed low wage segments gladly
exploited by businesses.

BUSINESS MYTHS

1. "If the economy prospers, we all prosper"

"What benefits business is also in the general interest since businesses
create prosperity that helps the whole society. Therefore demands for
political-economic preferential treatment of businesses are legitimate and
businesses may not be overstrained by societal demands."

Economic Growth as a Prosperity Indicator?

With this argument, economic prosperity is declared the essential standard
for well-being. We generally associate quality of life with good
education, health, a proper relation of work and free time and life in a
safe environment. Indicators like the gross domestic product give little
information about these. Although the US population has a higher per-
capita income than the population of the EU, other indicators point to a
higher quality of life in the EU. People in Europe work less, have longer
vacations, general health care is more widely accessible, child mortality
is lower and the number of murders and prisoners is fewer.

Survey results and theoretical models of so-called "happiness research"
show that economic growth is not or is not necessarily reflected in higher
subjective human well-being. For example, the gross domestic product
multiplied in industrial states since 1950 while the subjective well-being
of the population, according to the surveys, has been almost constant since
that time.

For decades, it was criticized that the gross domestic product is hardly
convincing as the central barometer of economic prosperity… Economic growth
does not automatically mean higher prosperity and higher quality of life.
Higher growth can go along with a worsening of prosperity. On the other
hand, high-value economic activities are not paid (for example, unpaid
housework is not counted in the GDP).

Faded out Conflicts of Interest and Distribution Questions

Since its beginnings, capitalism has been dominated by the conflict between
capital and labor. In the course of its history, different social
compromises and political regulations were negotiated to deal with this
fundamental conflict of interests. In western industrial states of the
postwar era, the attempt to bring peace to the conflict dominated so that
employees shared an economic growth through higher wages, social benefits
and welfare state securities.

"Redistribution of part of the gained wealth in favor of the labor factor
has the function of supporting total demand and making possible an
extension of the market and development of the productive forces" [Birgit
Mahnkopf]. So the conflict over power between capital and labor in
production was left to the command of businesses and was shifted to the
plane of distribution and consumption. Concessions were made to employees
so what benefits the economy was understood by employees in big businesses
as their own interest.

This became increasingly clear in the last decades as businesses shifted or
cancelled this compromise to their advantage. Increasing profits at the
expense of wages, worsening of working conditions, dismissals and
resistance of businesses against taxation and welfare state benefits has
became dominant. At the same time the claim that what is in the interest
of the economy is also in the general interest has become increasingly
implausible.

Not all population groups are equally affected by economic events or
political-economic measures. For example, a tax cut for businesses means
that the lost state tax revenues must be recouped either through higher
taxes on other tax groups (for example, income taxes) or cutting state
spending benefiting others. If conditions and regulations for businesses
are reduced or abolished, those who long profited from these rules will be
harmed. Loosening protection against unlawful termination relieves
businesses but increases the pressure and insecurity for wage-earners.
Claiming all reforms that benefit the economy are in the public interest
ignores such distribution questions.

Dubious Benefits

Referring to distribution questions, the objection is often raised that
business-promoting measures have positive aggregate economic effects that
are greater than the harm of negatively impacted individual actors. Thus
it pays off in the end for society generally to accept these burdens.
Relief for businesses that leads to higher profits is good because profits
are used for investments that create jobs. Even if preferential treatment
for businesses (tax cuts, dismantling regulations, sponsorship etc.) harm
other groups of the population, positive job effects in a roundabout way
more than compensate for this harm.
If this were true, high business profits would always have a positive
effect on the total economy. But that is not reality.

Although the profits of businesses in industrial states have been very high
in the last years after a decline in the 1970s, their investments are
continuously low. Higher profits can end up in the pockets of owners
instead of in investments (cf. Engelbert Stockhammer). The fact that
announcement of higher unemployment or dismissals often ensures higher
prices on the stock exchanges is a manifestation of opposing particular
interests that take a back seat to a supposed general interest [John H.
Boyd/ Ravi Jagannathan/ Jian Hu: The Stock Market's Reaction to
Unemployment News: Why Bad News is Usually Good for Stocks, NBER Working
Paper No. W8092, 2001].

There is also no evidence for the frequent claim that too much
redistribution harms the economic dynamic and that income inequalities are
positive on account of their effect as performance-incentives. Rather
redistribution to poorer groups of the population increases growth since
their income becomes purchasing power benefiting the economic cycle and
because the social costs of criminality of the impoverished lower class are
reduced.

2. "No Technical Progress without Patents"

3. "Privatizations Make Public Services Better"

"Liberalization and privatization lead to more efficiency in services.
This makes possible cost- and price reductions as well as a higher quality
of service. On the other hand, the state is a poor entrepreneur. Private
parties can provide qualitatively high-grade services at a more reasonable
price."

For 15 years, liberalizations and privatizations of public services were
carried out in Europe's different states. Hardly one sector was spared.
Public infrastructure services like water supply, railroads, energy
production and distribution, telecommunications, postal service and public
food dispensaries are open for private competitors (liberalization). Past
public monopoly firms are sold to private businesses (privatizations).
The prejudice that liberalization and privatization bring better and more
inexpensive outcomes fits in the current neoliberal view of the world. It
is empirically unjustified. An unpublished study of the Vienna Institute
for Higher Studies could not find any difference in efficiency between
public and private enterprises…

Separation from Network and Services as the Liberalization Concept

More Disadvantages than Advantages

Regulation Dilemmas Increase

… Negotiating power lies one-sidedly with firms. Small communities and
cities can hardly control the activity of these firms. They are afraid of
suing corporations to enforce contract obligations out of fear of
compensatory payments and court costs… Countrywide water supply falls by
the wayside like postal services.

In the final analysis, liberalization and privatization of public services
mean that the pursuit of profit is the predominant goal of businesses.
Public goals, like countrywide service and supply security that are not
profitable for businesses, fall behind. Government regulation in the
liberalized market is increasingly unable to safeguard these public
services.

4. "Small is beautiful instead of big businesses"

"For powerful anonymous big businesses, there is only profit and power.
For society, strengthening small enterprises is better: Small is
beautiful!"…

Market Conduct

A certain dualism usually exists between small and big businesses instead
of direct competition… Sometimes services are decentralized and connected
with locations where individual solutions are desired rather than
standardized mass production.

Small businesses are sources of innovations. However big businesses are
needed to develop and diffuse these ideas in new products on the mass
market, particularly in very complex market segments. As to innovation,
small and big are mostly complementary.

Political Power

Big businesses have a negotiating power vis a vis the state. Whoever is
big has resources that are useful in different ways. Concessions can be
negotiated, for example tax relief or subsidies for investments promising
jobs in a certain location. Large firms on account of their greater
significance as employers can threaten location relocations more
effectively. This has become easier and easier for capital in the last
decades under conditions of far-reaching liberalization, freedom of
movement and international contractual agreements. Resources can be
invested by businesses in lobbying that influence state and international
rules and decisions in their favor.

Simultaneously big businesses are also subject to incentives to prove
themselves as "good citizens" of their location. Firstly, brand-name firms
live from a good image that could be endangered by disclosures of abuse of
power. Secondly, big international firms are dependent on "their" state in
many regards. Thus they have an interest in not scaring them off, for
example regarding diverse approvals (for new investment projects, subsidies
and mergers with other firms) or in representing their interests in
international negotiations (for example, trade- and investment protection
agreements). These and other mechanisms act as brakes on abuse of power by
big business, even if the latter prove stronger in many cases.

All in all, both small and big businesses have their advantages and
disadvantages. Small businesses are often less efficient, volatile and
unstable and offer less favorable conditions for employees. Big businesses
have market power that they can use to harm competitors, consumers and the
state. They are under competitive pressure and must work in a profit-
oriented way. Therefore businesses of whatever size are not idyllic.

5. "The Best Product Prevails on the Market"

"The market is the epitome of efficiency. Competition on the market
represents the most effective selection mechanism ensuring the best and
socially desirable outcome will prevail at the end. The best product will
be purchased most often, the best service will be called upon most of the
time and the best technical solution implemented. Competition constantly
produces and spreads new ideas, solutions and improvements."

Market Faith and Path-Dependent Development

The assumption of the authority of the best products is misleading and
cannot claim to be universally valid or common practice. It is an
expression of an ideological attitude that sees the market as a remedy or
cure of all economic problems as also in questions of technological
development. This cannot be supported scientifically. For a long while,
there was the assumption that big businesses can bring any product to a man
or woman independent of its usefulne4ss through aggressive advertising
strategies and a mammoth advertising budget. Thus marketing success
depends more on the advertising budget than on the quality of the product
[cf. John Kenneth Galbraith, The Affluent Society, 1971]. Gaining adequate
information is usually hard for the consumer and involves massive expense.
All comparable products are not equally available. However theoretical and
empirical studies in the late 1980s and 1990s in innovation- and industrial
economics have shown that a large number of other factors can lead to
"market failure." Often the most productive or technically sophisticated
products and technologies do not prevail…

The technical development of writing technology has a path-dependent
character. Path-dependency means positive feedback effects between a
technology and the technological, historical and social environment in
which it arose and is embedded resulting in strengthening specific
characteristics that afterwards turn o0ut to be undesirable trends. This
is usually hard to cancel…

Network Effects and "Lock-IN"

… Positive feedback effects always arise where people learn from the
experience of others…

Tricks of Product Systems

… The "best technology" or the "best product" does not necessarily prevail
on the market…

6. "The Stock Exchange Makes Everyone Rich"

"The most important news is the news of the stock exchange. Everyone can
become rich through the stock market. The stock exchange animates the
economy."

Stock Exchange and Resentment against the Financial Circles

While the world of the stock exchange is decried by some as a sinister
conspiratorial circle, it is represented by others as a source of "riches
for everyone."

The term "trade exchange" refers to a trading center for securities. These
securities could be property titles of businesses (stocks), raw materials
like oil and gold, currencies or bonds (tradable credits).

From their inception at the beginning of capitalism to the middle of the
20th century, stock exchanges as a rule had the characteristics of a little
club with limited membership. A little group of stock exchange actors
managed the property of a relatively small group of property owners who
with their shares held partial ownership in one or several businesses.
Reservations and resentment toward the financial sphere nourished partly
out of religious conviction (for example, the catholic interest
prohibition) and partly out of a notion identifying "honest work" with
artisan activity and rejecting everything "abstract." This resentment
found simple targets. Ultimately anti-Semitism implies a comparison of
"predatory" and "creative" capital and imagines a linked "Jewish financial
capital" that governs the world internationally by the stock exchange.

Stock exchanges did not arise – as in the contrived comparison of
"creative" and "rapacious" capital – to manipulate businesses through
outward extraneous interests. Rather they represent a special form for
organizing and managing the profit-oriented management of businesses for
the group of owners.

Shareholders as owners of businesses on the stock exchange are interested
in profit like all other business owners. For the wealthy, stocks offer
the advantage of holding and exchanging shares of different firms at any
time instead of being tied to the property of a certain firm.

Speculation on profit is an essential motive for acquiring stocks. That is
part of its nature… A stock is purchased in the hope that its value will
rise in the future or will yield dividends. A business also invests in new
production facilities in the hope that products will be produced that can
be sold with profit. Both follow a speculative motive…

Stock Exchange and the "Shareholder Value Revolution"

Stock exchanges are very popular in times of rising stock prices. Large
population groups are encouraged to buy stocks with propagandistic methods.
Trust was shaken for decades in the US in the 1920s and 1930s before the
stock crash on "Black Friday." In the last two decades, the role of the
stock exchange and financial markets in general changed again. This can be
seen very clearly in their position in the media. If stock exchange
reports were limited in the past to special branch media, they are an
element of the main news on television today. The financial industry is an
expanding branch and owning shares is more dispersed today than in the past
in many states.

This has different causes. Firstly, far-reaching economic prosperity
concentrated enormous wealth in private hands in the decades of the postwar
era. Management of this wealth contributed to the growth of a financial
industry that acts in the name of investors and strives for political-
economic influence and expansion of its business model: dismantling
regulations for financial market transactions, opening up new growth areas
(above all privatization of pensions) and privatizations of public
enterprises through the stock exchange.

Secondly, the idea of spreading ownership of shares more widely in the
population has become an important component of neoconservative policy.
Important examples include the introduction of private pensions – that
moved into the center of reform efforts beginning in 1981 in Chile and
since the 1990s in Europe and the US. Then there was the privatization of
state enterprises through the stock exchange joined with "people's stocks"
campaigns to spread stock ownership in new groups of the population first
in Great Britain under Thatcher in the 1980s and in many countries like
Germany and Austria, imitated in the 1990s in the scope of the Telecom
privatization. The goal is to move more people to an individualist
attitude and make them allies of a capital-friendly policy. The stock
exchange has an increasingly symbolic function: as a model of a world where
the "free market" rules.

In the 1990s, this development was compressed in the term "shareholder
value." With its diffusion, the idea was accepted that businesses only
exist to benefit their shareholders. This is an attack on development in
the postwar era in which businesses on the stock exchange were often
exposed to the claims of the state, employees and other so-called
stakeholders.

The "shareholder value" motto went along with an extraordinary stock boom
particularly in the US. The stock exchange appeared as a machine that
makes all participants rich. New technologies (including the possibility
of buying stocks on the Internet), great media attention and political
initiatives seduced new groups of customers to purchase shares.
"Shareholder value" was a popular slogan that transported the faith or
demand that property ownership leads to a right to profit to which all
other goals and claims are subordinated. This claim to profit is declared
identical with the public interest or common good.

These claims are exaggerated for many reasons.

Who Becomes Rich through the Stock Exchange?

The Stock Exchange doesn't Stimulate Economic Growth

Insignificant for Financing Businesses

Not a Reliable "Economic Barometer"

The function of an "economic barometer" is often ascribed to the stock
market because stock transactions are based on expectations about economic
development in the future and buying or selling today on the basis of these
future expectations. Rising prices would point to good general economic
prospects. Since price expectations on the stock exchange are made from a
business owner perspective, it is a relative one-sided and hardly
representative indicator. Higher prices are based on expectations that
later turned out wrong again and again.

Limited Effects of Price Fluctuations

Stock Exchange Only Covers a Part of the Economy

Structural Limits of "Shareholder Value"

Declaring "shareholder value" the highest business goal is justified in
that businesses would not become "lazy" and fall back economically.
Instead "value enhancement" would be continually realized by management's
focus on "shareholder value."

In the economic press and the management advice literature, "doer types"
play an important role in business leadership. However the economic
development of big businesses is usually hardly influenced by management
(apart from isolated cases). In many branches, structural limits are set
to the increase of profits on account of intense competition and stagnant
demand in fully developed markets. Therefore a value upgrading through
better management is hardly possible. The possibility of raising stock
prices depends strongly on the general stock exchange environment. To
increase "shareholder value," the following options are considered: balance-
sheet tricks, redistribution within the firm, selling unprofitable parts of
the business, taking over other firms and pressure on employees. These
were all used in different configurations, not always successfully…

"Shareholder value" seems to have the main function of legitimating
redistribution from groups like employees to shareholders. This
redistribution cannot be ascribed per se to the autonomous effect of the
stock exchange or limited to the stock exchange. Rather the "shareholder
value" principle joins a series of measures and developments in all social
areas and is an expression of a forced power shift from labor to capital.

7. "Longer Store Hours Create More Jobs"

"If businesses are open longer, more will be sold. More sales personnel
will be needed. Thus additional work will be created."

Reality looks different. Longer business hours lead to fewer jobs, not
more, to worse working conditions, to concentration of ownership, reduction
of the locations and a thinning of the local supply.

Precarious Employment with Constant Sales Volumes

Increased Pressure on Wages and Small Businesses

… Thus longer store hours would burden already existing jobs without
bringing additional jobs. They primarily serve the interests of the big
chains and prepare the way for the destruction of local supply structures.
The variety of goods and services will be further undermined.

SOCIAL MYTHS

1. "Social Benefits are Frequently Misused"

"The abuse of social- and insurance benefits is enormous. Everyone knows
such cases: achievements like unemployment benefits and income support are
often claimed illegitimately. What we need are benefit restrictions and
more controls because problems like unemployment and poverty are often
pleaded as excuses. The impacted are responsible themselves."

Who Lives at our Expense?

…The labor market has become more insecure. In Austria, times of
unemployment are fixed elements of nearly every gainful career and not
special cases or exceptions any more… Twice as many persons are available
for low wage segments…

Unemployment is a result of social changes and is not an individual
problem. Consequently the benefits of unemployment insurance are
increasingly an important element of life income and are not merely
bridging assistance…

The social parasite discourse stigmatizes the affected, creates a climate
for benefit cuts and hardly thematicizes an important economic problem.

The labor market closes on account of structural problems of many people
who depend on that market. When this fact is recognized, the question
about the function of unemployment insurance appears in a new way. Can
unemployment benefits serving as a foundation of existence for many at
least in phases be a means of disciplining? Can the basis of existence for
these persons be cut off for up to eight weeks? Why should not persons who
refuse a job – and social recognition, certain elements of social
participation and economic advantages – be supported by society?

Celebrating Health and Slaving Away Sick?

"Do you know people who celebrated being sick although they were really
healthy? Here is a little conscience test: Have you ever done that?"

Do Immigrants Only Want "Our' Social benefits?

… Calculations in which state fees paid by immigrants are offset by the
social benefits they receive are very questionable for two principal
reasons. Firstly, they fade out the fact that immigrants bring other
economic advantages for the immigration country (they represent a young
population able to work that an immigration country with an aging
population needs as workers and pension contributors). Secondly, the
question can be posed: can migrants and their right to remain be viewed
only under an economic cost-benefit calculus for the native population?

Other calculations show immigrants cannot be regarded as a cost-causal
agent from the view of the social state according to narrow cost-benefit
considerations…

The system of social security functions exclusively on the basis of
payments in the course of gainful activity. Without contributions, there
would be no benefits…

Migrants take benefits of the health- and education system to a much lesser
extent than native citizens… While migrants paid more into the social
system in Austria in the 1980s than they received, the relation changed in
the 1990s in extremely modest dimensions – with changed age distribution
among migrants and higher unemployment…

Migrants as immigrants often do not spend or experience the "cost-
intensive" times of their life (birth, school) in the immigration country
and therefore do not cause any costs there. Most social benefits arise in
life periods when people are not able to work: in childhood (child grants,
school costs etc) and in old age (pensions).

The picture of immigration as a rapacious invasion of native social systems
is drawn out of social-psychological and political motives and is not a
true reflection of reality.

2. "Aging Makes Financing the Welfare State Impossible"

"Demographic predictions seem depressing; they assume an ever higher share
of older persons. The welfare state with its benefits for pensions, health
and social security will soon not be financed any more."…

Financing the welfare state depends more on whether sufficient revenue is
produced in the national economy to finance welfare state benefits like
pensions than on the numerical relation of young and seniors. Whether
enough people are in jobs paying into social security is crucial…

All Europe's aging societies have a potential in future workers that is now
unused – entirely apart from possible immigration. Given the increasing
work demand in the next 30 to 50 years, people who do not participate now
in working life will be needed. These will above all be women who have
long performed lower paying work than men…

That enough people gain a work income is not the only factor to assure the
financing of the welfare state despite an aging population. A second
important factor is how high their incomes will be… Our per-capita income
will probably increase because of productivity increases that appear in an
innovation-oriented economy. Technical progress and new work methods
ensure that more prosperity will be gained from year to year with the same
work volume.

3. "Private Old-Age Pensions are More Secure than State Pensions"

"Private capital-covered pension systems offer more secure old-age incomes
than the transfer-financed system. They are immune against the aging of
the population, cheaper, more economically efficient and socially more
just."

As in the previous myth "Aging makes financing the welfare state
impossible," demographic arguments serve to veil the real economic and
social-political problems in connection with the transfer-financed pension
system… To the advantage of capital-covered old-age pensions, it is argued
the insured could finance their pensions themselves, that they could
provide individually uncoupled from the framing economic condition s.
Technical-financial considerations cofve3r over real economic realities…

Transfer System and the Capital-Covering System

…In the transfer system, employees can finance their old-age pensions
through the contributions of active persons in the future ("generational
contract"). In this system, unemployment, sickness etc for individuals
does not automatically mean (old age) poverty. These risks can be
apportioned on a solidarity basis since all gainfully employed persons are
insured. Problems for the transfer system resulted in the last years
through weak income development, wage reserve and increased unemployment.
Contribution payments for pension insurance are lower than the potential
and narrow the financing capacity of the transfer system. Wage development
fell behind productivity growth since the end of the 1970s. Redistribution
toward profits occurred and these profits are not tied to financing the
transfer system (cf. Markus Marterbauer).
These macro-economic causes are often faded out. The public transfer-
financed system is represented as "impossible to finance" per se and
conversion to private provisions praised as a secure alternative. Whoever
saves now can expect to live well from his or her savings. He acts with
personal responsibility and does not depend on others. That is the picture
implied by capital-covered schemes…

Additional Savings Have Not Stimulated Europe's Economy!

To the advantage of capital-covered systems, it is argued that total
economic savings increase through the spread of private old age provisions.
With the savings, additional investments could be financed that stimulate
the economy. That is the argument.

This argument is not true for Europe and is even counter-productive. When
individuals save, they have less money to spend and consume less. For the
total economy, increased savings activity means reduced demand for goods
and services. Less is purchased, less is produced and less must be
invested. In Europe, investments are not made because they cannot be
financed on account of deficient savings activity. Rather Europe is marked
by an under-capacity of the economy because too much is saved and too
little is consumed.

Capital Yields Fall When the Population Ages!

Individuals may be able to live well in old age from their savings. But
the yield prospects change if a whole generation shifts to capital-
covering. Then a generation buys masses of stocks to provide for old age.
The prices of stocks rise and their profits fall because higher demand
leads to higher prices according to the basic rules of the market. The
problems are immense if everyone with private old age insurance retires…

In Europe, the number of those in the gainful working population declines.
A certain worker scarcity could occur. When workers are scarce, the price
for labor, wages, must rise – according to simple market mechanisms. Less
would remain for profits. This means losses for private old age provisions
since business profits provide the yields of pension treasuries…

Not Everyone Can Afford Private Provisions

Experiences of other countries show the change to covering expenses
(Kapitaldeckung) leads to drastic pension losses or increasing old age
poverty for the majority of the population, as shown in a recent World Bank
study of Chile and many of its Latin American neighbors once celebrated as
model students of private provisions. The promise of stimulating the
respective financial markets was not fulfilled.

High Costs of Capital Covering

… When the stock exchange falls at the wrong time, the expected pension
level must suddenly be adjusted downwards.

…and No One is Responsible for the Plight

Developments on the capital markets over decades are risky and hardly
predictable. Pension funds themselves do not assume any risks.
Uncertainties and risks must be borne by the insured individuals. Low
yields and premium hikes in the insurances are sold to the insured as
practical necessities of the capital market. Unlike pensions, private
insurances are not subject to any legitimation pressure.

Several motives of advocates of capital covering can be identified. They
support pension funds' profit-mongering or force the reduction of state
spending in the area of social security or they welcome the growing
economic inequality in rich Europe. The resistance of private persons
against the access of politics or the short-term election interests of
politicians represented as an advantage is a shift of insecurities and
risks (and costs) to the insured individuals. The claim of capital-covered
schemes of being independent of the aging of society as well as the promise
of cushioning benefit cuts of transfer-financed systems through capital-
covered provisions is without any economic foundation. For Europe, forcing
private provisions is counter-productive from a macro-economic perspective.
The salvation promises for the population are not fulfilled. A huge
profitable market opens up only for insurance companies, banks, funds etc.
Since the mechanisms of capital-covered systems are less recognizable
compared with the transfer system because they appear with a temporal delay
of decades, politics can conveniently bid farewell to its task of
stabilizing living standards in old age with false economic arguments [cf.
Peter R. Orszag/ Joseph E. Stiglitz: Rethinking Pension Reform: Ten Myths
About Social Security Systems in: New Ideas About Old Age Security,
Washington D.C., The World Bank, 2001, worldbank.org].

4. "We Need More Personal Responsibility"

"The welfare state incapacitates citizens. The `cradle-to-grave mentality'
expects too little of people. In state paternalism for decades, individual
abilities waste away. Therefore more personal responsibility must replace
past welfare state services and social security systems. Instead of
relying on the state and other collective institutions, every citizen
should provide for his or her own decent living and advancement and cover
private costs for sickness, accidents and old age."

In the 19th century, Alexis de Tocqueville wrote that the "welfare state
was a powerful patronizing power that alone ensured the pleasures of the
subjects and monitored their fate. The welfare state holds people
irrevocably in the state of childhood" [Alexis de Tocqueville, On Democracy
in America, 1835].

Meanwhile the demand for personal responsibility exists in the programs of
nearly all political parties. German President of the Republic Koehler
sought to "strengthen the personal responsibility and venturesomeness of
Germans." Personal initiative is urged particularly in the labor market,
education and health- and pension services.

The principle of personal responsibility is a contradictory word husk. A
foreign ascription of responsibility occurs, not responsibility expected of
individuals. Elites do not urge personal responsibility for themselves
since they already have it but in an individualizing way for the broad
majority of the population.

The Presuppositions for Personal Responsibility are Lacking

How far can the current appeals to personal responsibility be justified
rationally? The emphasis on personal responsibility must consistently aim
at those areas where people can act powerfully. Only self-determined
persons can act with personal responsibility. Sufficient existing social
resources first allow us to speak of self-determination.

As an example, private provisions that prevent old age poverty have a
series of presuppositions, namely a continuous adequate income (private
pensions are only affordable for around 40% of the population), sufficient
knowledge, long-oriented investment conduct, good performance of private
supply chains and favorable financial market developments. Obviously
success depends on a multitude4 of factors outside the personal sphere of
influence and only very restrictedly on the responsible conduct of
individuals (in this case on their will for austerity and circumspection in
selecting the pension fund).

Demanding personal responsibility is directed at the motivation of people.
It is assumed that success is a question of good will and individual
effort. However human actions are bound to individual and social
presuppositions. Being provided with resources like money, influence,
personal friendships, relations, socialization and personality is crucial.

The more the economy and social division of labor develop, the greater the
mutual dependence of people. The demand for personal economic
responsibility starts implicitly from the notion of a rural-artisan society
where there is enough land for irrigation for everyone and people mainly
produce for their own needs. Thus there is work for everyone who can work
and the effort of individuals is crucial for success or their own survival.
In this model marked by pre-industrial conditions, work only leads to
success
under certain presuppositions (everyone has enough or comparable land) and
framing conditions (no bad harvests or crop failures).

This is not the case at all in an industrialized capitalist economy where
goods and services are produced in an advanced division of labor that must
be sold on the market. The success of individuals largely depends on
circumstances outside one's sphere of influence. The risk is high that no
demand will be found at least in phases for certain persons and abilities,
regions and times when people no longer produce so they are self-sufficient
but depend on solvent demand for their skills. In such cases, admonishing
"personal responsibility" mischaracterizes the state of affairs [Herbert
Schui, Mythos Eigenverantwortung, March 2004].

Does Personal Responsibility Mean Freedom?

As long as people still have something to lose, most will be risk-shy in
their conduct. Without freedom, there can be no responsibility.

Who Decides Over New Apportionment of Responsibility?

The sociologist Ulrich Beck pleads for a "New Pact of Insecurity" in which
a social consensus about acceptable risks can be found since the mutual
social dependences have multiplied in the course of capitalist
modernization [Die Zeit, 5/13/2004]. In any case, the appeal to more
personal responsibility in political discourse starts from an elite and is
directed to the population. People are morally admonished and confronted
with demands and are not included in a discussion or negotiation process.
The risks have to be faced. This moralizing discourse that appears in the
name of criticism by the so-called authoritarian state is extremely
paternalistic and "authoritarian."

The State in New Clothes

The redefinition of state controls and goals occurs contrary to the claim
encountered in the personal responsibility discourse that the state expands
the realm of individual personal responsibility. Social services are cut
or abolished but state intervention with a patronizing character is
retained or strengthened. Between individuals and the planned social
changes, the catalysor of state and private advisory organs, faculty and
promoting authors is built that should adjust people to the demands of the
market.

In the area of labor market management, a system of testing, monitoring and
setting the unemployed under pressure increasingly flanks unemployment
benefits with the goal of "activation." The current reforms on reducing
benefits from the public pension system are justified by alleged budgetary
burdens.

Aids for More Personal Responsibility: Continuing Education

As a substitute for welfare state benefits, the state admonishes people to
continuing education. This is the key for success on the labor market.
That is the promise. Whoever corresponds to the demands of the labor
market does not need any social security any more. "Lifelong learning" is
the solution in this adjustment that provides no way out up to death (and
whether it's financing is a social task or a "personal responsibility" of
individuals mediating equal opportunities remains unclear). Consequently,
people are considered as individuals needing advice and education who
should not trust collective institutions any more. They should be
committed to lifelong adjustment without any right to their own decision
whether and what they should know and learn. The main goal of learning is
the capacity for individual economic self-management.

The question is raised here what is worse the personal "narrowing" or
"restriction" by the welfare state or control by the imponderabilities of
the market, flanked by a controlling state.

While the poor have to learn to only direct their claims for a successful
life to themselves, the personally responsible elites (only responsible to
themselves in their exercise of power) limit the social framework anew.
Those who are materially independent and secure try to bid farewell to
economic, social and democratic dependencies, obligations and connections
with the slogan "personal responsibility." Responsibility for the arising
or growing economic inequality is assigned to the impacted themselves and
compulsorily overtaxes them.

On the other hand, a personally responsible society must raise the question
how does it deal with increasing poverty and the new forms of exclusion and
how can the materially favored be socially responsible for removing these
phenomena [see Jorg Lau, Farewell to Panic-mongering in: Die Zeit,
5/13/2004].

5. "Tax Competition Undermines Financing the Welfare State"

"Taxes for businesses must be lowered since the states are in a (tax-)
competition. Therefore we can not afford the welfare state any more."

Tax competition can be seen as part of the "location competition" myth. It
is assumed nation states are in competition with each other – interpreted
as a zero-sum game. All areas of politics must aim exclusively at
achieving this "competitiveness." Wage reserves or wage cuts and/or
extension of working hours are the central weak points. Moreover taxes –
above all business taxes – should be reduced to increase the
competitiveness of the state or prevent the migration of businesses. We
are in a downward tax competition that undermines the foundations of the
welfare state (see the myth "The Economic Location is in Danger without
Reforms")… "Tax competition" is a contrived myth that encourages further
tax cuts.

The Social State is Primarily Financed by Mass Taxes

Most tax and fee revenue comes either directly from wage-earners (in the
form of wage taxes and social security contributions) or indirectly through
consumption (in the form of sales taxes). The share of business- and
property taxes in all tax revenue is trifling (in the US, the corporate
share in federal revenue fell from 40% in the 1960s to 11% in 2014). In
the OECD average in 2002, only 13.8% of the total tax revenue came from
profit- and property taxation. In Austria, it was only 6.4% and in Germany
only 5.2%. If the tax revenue from these areas is trifling, that is a
problem but does not put the welfare state in question. For mass taxes,
the tax competition argument is not credible in any way…

Two further considerations even speak for increasing taxes. Firstly, the
Keynesian argument is that the consumption rate tends to tall with
increasing income and therefore higher collective or governmental
consumption is necessary. Secondly, the need for public goods (as for
example education, health care, cultural possibilities) increases with
increasing income and must be financed through taxes.

No Pressure for Business Tax Cuts
The myth of tax competition may favor businesses and property owners at
least in the short-term by reducing their tax burden and possibly
increasing short-term profits. Whether this works for larger economic
zones – like the EU – can be doubted. If a similar tax-cutting policy is
pursued in many places, this can lead to the reduction of aggregate
economic demand, less growth and lower profits. Independent of that,
lowering business taxes happens at the expense of the majority. Tax cuts
for businesses must either be offset by tax- or fee increases for the
multitude or state services must be limited. Therefore the effects of
business tax cuts can be viewed as negative.

In addition, business taxes only represent one factor – and a rather
unimportant factor according to business surveys – in the choice of
locations. For businesses, how much profit they make after taxes is
crucial, not how much taxes they pay…

The macro-economic consequences of tax cuts in Germany were very
problematic since the expenditure side lacked funds through the lower tax
revenues. The budget deficit deepened without positive effects on the
economy [cf. Stephan Schulmeister].

Tax Harmonization is Desirable

A tax harmonization "upwards" within the EU is important even though nation
states have considerable possibilities with business taxes.

While there is no downward tax competition because of the economic
pressures, attempts at tax harmonization in the scope of the EU should be
strongly welcomed. The contrived basis was obviously successfully taken
away from the myth of tax competition. One-sided business tax cuts can be
prevented by governments in individual countries. In addition, a
coordinated procedure in closing tax havens – and preventing tax evasion –
would undoubtedly be important. A European tax harmonization should be
welcomed because it discursively undermines the basis of the myth of tax
competition. Still we introduce higher taxes on the national plane and can
afford a high state benefit level. The welfare state is in no way
undermined by tax competition. Despite conflicting theoretical and
empirical evidence, the myth of tax competition is loudly proclaimed by
business associations and national governments. In Germany and Austria,
tax cuts and dismantling the welfare state are propagated as seemingly
unavoidable.

6. "State Child Benefits Encourage More Children"

"Fewer and fewer children and more and more seniors means the costs of an
ever-aging population (pensions, health care etc) cannot be financed and
our society dies out in the long term. More payments for families are the
only way out."

All western capitalist countries have posted a slow but steady decline in
their birth rate since the 1960s. To counter this development, pithy
slogans like F-k for the Future" (Sweden at the end of the 1990s) are used
or incentives for children are set with family policy measures. In our
latitudes, the myth "More Money for Families Brings More Children" is
dominant. Austria has the highest state payment for families compared with
the rest of Europe…

Birth Rate and Financial Support for Families

Seen empirically, there is no connection between the amount of payments for
families and fertility (height of birth rate) within a state… Practically
all western capitalist states have birth rates below the natural
replacement rate of 2.1 children per woman. The "natural replacement rate"
is that number needed to keep the population constant. It obviously
changes with time on account of changed life expectancy. In Europe, only
Denmark and the Netherlands did not have declining birth rates in the past
twenty years.

What Family Policy Brings Success?

Denmark, Sweden and France are states with a very active family policy.
This policy is focused more on the compatibility of vocation and family
than on payments.

Comprehensive, quality and affordable child care institutions – also for
infants – enable mothers to quickly reenter professional or active life…
Therefore the Scandinavian countries have both comparatively high birth
rates and rates of female employment that are close to the rates of men.
This is not a contradiction contrary to conservative judgments… In
Scandinavian countries, there is still a high share of families with
several children…

Politicians are not entirely wrong when they believe family policy can
influence the birth rates. However improving the compatibility of vocation
and family is central. Child-care facilities, parent-friendly working
hours possibilities, periods of rest or sick leave models, adequate
possibilities for the initial child-rearing
phase and fathers with family duties are all active measures that
encourage diverse and fulfilling life projects.

7. "The Public Health System Needs More Market Economy"

"Investing more money in the public health system is neither possible nor
sensible. Containing spending is necessary because the high inefficiencies
in the public health system are crucial for the growth of health
expenditures. Their removal would curb the cost dynamic at last. Through
the correct free enterprise incentives for increased efficiencies among
providers and clients, there could be considerable cost savings without
diminishing services.'

What Really Leads to More "Efficiency" in the Public Health System?

The market does not lead to overall social cost efficiency. The US Public
Citizen Report from 2002 clearly shows that the pharmaceutical industry
invests its extraordinary profits more in marketing and sales departments
than in risky and expensive basic research…

What are the Potentials for More Efficiency?

…The political discussion must grapple with all these questions without
regard for the priorities or self-interest of individual lobbies to have a
comprehensive social health system that can be financed in the long term.