|ECB's Mario Draghi|
So how does Mario see his role as the lender of last resort and, as Atlas-like, the supporter of European capitalism? Well, Mario gave a speech on Tuesday in Bayern, Munich, the home of BMW and the heart of conservative Catholic Germany. He told his audience at the Catholic Academy, at the time of the resignation Pope Benedict (“a great son of Bavaria”) that the Pope had been very concerned about the ‘ethical’ nature of modern capitalism, and so was he, Mario. Mario was particularly concerned about the ethical role of the ECB during “the economic and financial crisis that now extends into its fifth year.”
Mario noted that “the crisis has dented people’s confidence in the capacity of markets to generate prosperity for all. It has strained Europe’s social model. Alongside the accumulation of staggering wealth by some, there is widespread economic hardship. Entire countries have been suffering from the consequences of misguided past actions – but also from market forces that are sometimes beyond their control.” So Mario asked the question of himself and the audience: “what is the right framework for reconciling free enterprise and individual profit motives with concerns for the common good and solidarity with the weak?”
The answer, Mario, tells us is not to rely on the ‘invisible hand of the market’ to solve all; we need an ethical approach, something that Adam Smith, the father of political economy, was also concerned about. As a Jesuit, Mario follows that Catholic order’s “fundamental guiding principle: our striving for excellence had to be paired with integrity and a moral message – an ultimate sense of purpose in the service of social justice and fairness….Ultimately, we must be guided by a higher moral standard and a profound belief in creating an economic order that serves every person.”
So who does Mario turn to in the current crisis for a guiding hand towards a ‘moral capitalism’? “Here I find myself in the company of Marx. Not Karl, but Reinhard. Cardinal Reinhard Marx has rightly insisted that “the economy is not an end in itself, but is in the service of all mankind.”
At this point, let me tell you who Cardinal Reinhart Marx is. He is the Archbishop of Munich who wrote a book at the depth of the Great Recession entitled “Das Kapital: A Plea for Man”, named after Karl’s work but designed to reject Karl’s ideas. Reinhart Marx wants a market economy that is “kinder to the weak and downtrodden” instead of “heaping even more rewards on those who behave immorally.” As we review the results of the global slump, the grotesque greed of the rich and cruel realities of austerity in Greece, Italy, Spain, Portugal and elsewhere on the ‘weak and downtrodden’ , we would hope that Reinhart can tell us how to reconcile the ‘free market’ and capitalism with “the welfare of the world”. Unfortunately, I have to tell you that Reinhart in his book provides no answers, except vague platitudes. At least, he does not repeat the line of the head of Goldman Sachs, Lloyd Blankfein, who when asked whether it was right for his investment bank to make huge amounts of money and deliberately sell financial products to customers knowing they were toxic, Blankfein, as the chief vampire squid of capitalism (but a very devout man), replied that he was “doing God’s work”.
Anyway, Mario went on to explain to his Catholic audience how he applied Reinhart’s ethical principles to his job at the ECB. You see, Mario told them, the main job of the ECB is establish ‘price stability’ and achieving that was “the basis for a just and fair society. It is a common good for all Europeans.” And of course, it is true that if there is no inflation, households obtain full purchasing power on what they earn and do not see their savings eroded. That’s important for those that live on the interest of past savings. However, the ECB can hardly claim that the current low level of inflation (and even deflation) in Europe is down to the work of Mario and his colleagues. It is the result of the total collapse of ‘effective demand’ as the Keynesians would put it, or down to a strike by capitalist investment (as we followers of Karl, not Reinhart, might put it). Balanced against the ‘moral good’ of low inflation lies the ‘moral bad’ of extreme unemployment, collapsing public services and falling real incomes. How do we reconcile these apparent contradictions in a ‘moral way’?
Mario recognises that the ECB was failing. It was failing to get all the liquidity (money) that it had pumped into the hands of bankers onwards to the wider economy: “our low interest rates have simply not been getting through to people in some parts of the euro area.” Something had to be done. So we come to the great ethical policy of Mario Draghi: Outright Monetary Transactions (OMT). OMT is the proposed tool of the ECB to buy the bonds of governments that have been deserted by the ‘free market’. The ECB will buy as much as is necessary to shore up these governments so they can meet their obligations at reasonable rates of interest and keep economies going.
So far this ‘ethical’ measure has not had to be used because financial markets are still expecting Eurozone governments to enforce austerity. But moral Mario is ‘concerned’. After all, “economic adjustment is coming at a heavy social cost.” Euro area GDP is currently lower than it was in 2008. Almost 19 million people are unemployed – more than the population of the Netherlands. “Unemployment is a tragedy. It squanders the vitality of our workers. It prevents people from playing a full and meaningful part in society. It induces a sense of hopelessness, which drains the inspiration from our young.”
So what is the moral path out of this slough of despond? For Mario, it is ‘reform’. By this, Mario does not mean replacing the ‘free market’ with an organisation of society that benefits the majority who create the wealth, as Karl Marx would have it. He means a bigger role for the ‘free market’, namely “reforms that make doing business easier. That guarantee that those who owe taxes actually pay taxes. That ensure that public services actually serve the public.” In practice, these are ‘reforms’ that reduce labour’s rights to work; lower pensions; reduce public services and privatise the rest.
Mario says “it is wrong to claim that countries are undertaking reforms only to please the markets or to satisfy the demands of technocrats in Brussels, Frankfurt or Washington. They are doing it for their own benefit.” Really? Who are the ‘reforms’ that attack the incomes of workers and pensioners and the ‘social wage’ beneficial to? To the majority or to rich tiny minority? Are the economic policies of the ECB and Eurozone governments that Mario supports really “in the service of humanity” ?
Are they what the good Cardinal Marx would recognise as ‘moral’? “Capitalism without humanity, solidarity and justice has no morals and no future,” the Cardinal wrote. Unfortunately for Cardinal Marx and Mario, the history of capitalism cannot be divorced from inhumanity, class division, injustice and immorality – as even the last five years has confirmed.
So it has no future.