Political Economy

The European Union, Refugee Flows and Institutional Inadequacy

A preliminary assessment of the long- term consequences of refugee flows on the European political terrain presupposes, first and foremost, a critical evaluation of the EU’S current conjuncture. What reigns at present in the EU is a neo-capitalist model of political economy. The arbitrary selectivity of economic policies is at the core of this model. It is a model based on a modality that generates unprecedented wealth for the elites and one that transfers burden and strain to the lower and middle social strata. It is rapidly becoming a system of institutional inequality where, if I were to describe it geometrically, the social rhombus is differentiating into a social triangle. In other words, the vital socioeconomic and cultural space of the vast majority of Europeans is shrinking. Consequently and inevitably an ethnocentric mind-set, to say the least, emerges as a mechanism to address the widespread social insecurity. The semi-anarchic manner refugee flows take place, most probably could facilitate further the reinforcement of centrifugal tendencies in the Union. Indeed one might logically argue that Brexit is a living testament of this. Brexit, contrary to the EU’s institutional narrative, poses a severe structural threat to the Union’s political and economic cohesion. And even more so, it weakens the coherence of its collective geostrategic interests. Beyond doubt, the way the EU has been handling the refugee crisis, in which itself is a contributing factor to, is a vivid manifestation of the Union’s prevailing institutional deficits.

The EU’s population currently stands (the UK included) at 508.2 million people. Ceteris paribus, the flow of 2-3 million refugees constitutes a negligible population aggregate if one considers the application of the principle of proportionality in the placement of refugees across the EU. The difficulty in implementing this principle has its roots to the evident uneven economic growth and multi tier socio-cultural development. The migration flows generally are directed towards the most developed member states whose integration structures and welfare services are more competent and efficient in managing the flows. Germany, France, The UK, Italy and Spain represent approximately 63% of the EU’s population. Adding Poland to that, it brings the population percentage to 71%. With the formal completion of Brexit the percentage goes down to 60%. There is a paradox though. The polish flow to the UK surpasses the million and along with a free rider mind-set, the British welfare system has been violently abused. In fact this predicament which was crucial in determining Brexit, it compromises also Europe’s geo-strategic leverage. Furthermore, Poland is adamant not to accept any refugee flow. Instead we witness Greece with a 2.1% of the EU population bearing (along with Italy) the largest burden, not withstanding its severe economic crisis. European neo-capitalism transforms Greece into a soul warehouse. We should not lose sight of the existing 125million poor in the EU, i.e., 25% of its population, let alone the unprecedented pauperization of children. According to the Nobelist economist Angus Deaton, the younger generation (20-35) in Europe, and not only, is steadily marginalized and deprived of a fair share of the produced wealth. This circumstance creates frustration and aggression. It also leads to a sui generis Social Darwinism as a mechanism of managing politically the middle and lower social strata as well as pensioners. This social dynamic will delimit the future prospects of Europe in terms of its capacity to integrate refugees but all the same, to preserve its cultural character.

It seems however, that the ruling elites are hesitant and not willing to risk the internal political stability of an economic edifice that is substantiated and materialized on a greedy redistribution of wealth on the one hand, and the widening of poverty on the other. The refugee flow apart from the further constraining impact it causes on the socioeconomic and cultural space of Europeans, particularly in the most developed member states, paradoxically it might as well lead to an awakening of the dormant European values of humanism and solidarity, which for quite some time have been crippled by the reigning totalitarian neo-capitalist model, a direct descendant of the Maastricht Treaty.

This model has a very limited resemblance to and theoretical affinity with the neoliberal doctrine. It negates competitive politics, the pillar of western liberal democracy, in determining economic and social policy and it superimposes what I call a de-facto ‘apolitical’ cybernitism in favor of the volition of vested economic and financial interests. This neo-capitalism not only abolishes social equilibriums by shrinking the domain of the middle class, but it unfortunately operates on the pretext of the democratic observance. Based on what has been stated so far, one could easily deduce the necessity of bringing back to the central political scene the nation-state as a trench to re-introduce into the social agenda the principle of the greater good for the greater number of people.

The EU institutional organs fettered by the economic priorities of neocapitalism freeze unlawfully the Schengen Treaty in order to contain emerging destabilizing tendencies from within. By doing so, and given Turkey’s special geostrategic weight, it has bestowed upon Turkey the role of a strategic partner in addressing the refugee crisis. All these reflect the overall institutional inadequacy of European Institutions, something which Turkey is well aware of and uses it to advance its own geostrategic interests.

To sum it up, the refugee crisis that confronts the EU is the consequent outcome of the political asymmetry that was the product of the German hegemony in imposing its political will on the widening rather than on the deepening of the Union. Currently, the European project is experiencing a severe setback and suffers from an ill-defined politically coherent orientation.

Soteris Kattos
Ph.D., Political Sociology
Senior Fellow of the Center for European and International Affairs
University of Nicosia

First Published at “In Depth Volume 14, Issue 2, April 2017″

From Technological Revolution to Armageddon and Back: Unbreakable Vicious Circle

On September 4, 2017 Elon Musk, founder of Tesla and Space X, has said again that artificial intelligence could be humanity’s greatest existential threat, this time by starting a third world war.[1] About a month before that the ATM (automated teller machine), which was initially viewed as a “killer” of bank tellers and a harbinger of mass technological unemployment, celebrated its 50th anniversary.[2] And a bit earlier, on June 27, it was fourteen years since Air France’s final Concorde flight took place (Concorde was the fastest passenger plane alongside the Soviet-built Tupolev 144, which was grounded in 1983).

What is common between the three? They are all technologies …. but each offering a unique glimpse of us and our world. The first is the manifestation of our ever-present fear before the unknown future, and technologies of the future in particular. The second is just one of many examples when the fear never materialized. And the third is the illustration of the economic model, which we are living in, where even the most advanced inventions can perish because of their economic unviability.

Speaking about the economic model and the future, it is worth mentioning what Bank for International Settlements (BIS), central bank of central banks, identified in its 2016 Annual Report as global economic risks: “One could speak of a “risky trinity”: productivity growth that is unusually low, casting a shadow over future improvements in living standards; global debt levels that are historically high, raising financial stability risks; and a room for policy manoeuvre that is remarkably narrow, leaving the global economy highly exposed“.[3]

This autumn we are also “celebrating” the tenth anniversary of the financial crisis, which is now often referred to as the Great Recession, and the consequences of which we still cannot overcome, i.e. no solid productivity gains and healthy sustainable economic growth.

As a consolation prize, over the same ten years, we lived through several generations of ever-bigger iPhones, massive proliferation of all sorts of digital gadgetry and introduction to mesmerizing world of the “internet of things”, which left many around the world with the strong sense that the fascinating future we’ve been told about for so long has arrived at last.

And finally, …. for those who did not notice, ….. over the same period of time we have been introduced to the whole two Industrial Revolutions. The first came from Jeremy Rifkin, famous American economist and theorist, who in 2011 published his best-selling The Third Industrial Revolution. Mr. Rifkin served as an advisor to three EU Commission Presidents – from Prodi to Juncker – as well as many heads of states around the world including governments of Germany, France and China. The principal ideas of his Third Industrial Revolution have been endorsed by the European Parliament, and represent the basis for a long-term sustainability plan, which addresses the trinity of the global economic crisis, energy sustainability and security, and the climate change. Mr. Rifkin was pronounced by many as visionary who leads us into the low-carbon future.

But before the dust settled over the Third Revolution, the Fourth was already storming in. This time Charles Schwab, founder of the World Economic Forum, released a book The Fourth Industrial Revolution, where he describes how this fourth revolution is fundamentally different from the previous three, which were characterized mainly by advances in technology. Some call it industry 4.0, but whatever you call it, it represents the combination of cyber-physical systems, the Internet of Things, and the Internet of Systems. In short, it is the idea of smart factories in which machines are augmented with web connectivity and connected to a system that can visualize the entire production chain and make decisions on its own. In this fourth revolution, we are facing a range of new technologies that combine the physical, digital and biological worlds. These new technologies will impact all disciplines, economies and industries, and even challenge our ideas about what it means to be human.[4] Mr. Schwab reckons we should fasten the seat belts and get ready for a ride because this future is just around the corner.

This created a heated debate and anxieties of several sorts. The talk about “inevitable revolution” immediately got accompanied by the talk about “inevitable Armageddon”. The latter camp is made of two main groups: those who fear mass unemployment caused by robotization, and those who fear that robots powered by advanced AI will take over the planet, and the human race is facing the risk of extinction either by the means of transhumanism or Third World War with robots.

A breath of fresh air of realism came from historians and economists, who reminded us about multiple failed predictions of both inevitable technological revolutions and fears of what revolutions could bring. Renowned Canadian scientist Vaclav Smil says: “The fast breeder reactor is one of the most remarkable examples of a prolonged and costly innovation failure. In 1974 General Electric predicted that by 2000 about 90 percent of the United States’ electricity would come from fast breeders. Other promised fundamental innovations that still are not commercial concerns include supersonic passenger flight, magnetic levitation trains, and thermonuclear energy.”[5]

James Bessen of Boston University points out that the ATM did not, in fact, replace bank tellers — there are more bank teller jobs in the US now than when the ATM was introduced. The ATM is no outlier here. Economists say that our chief economic problem right now isn’t that the robots are taking our jobs, it’s that the robots are slacking off. We suffer from slow productivity growth; the symptoms are not lay-offs but slow-growing economies and stagnant wages. In advanced economies, total factor productivity growth — a measure of how efficiently labour and capital are being used to produce goods and services — was around 2 per cent a year in the 1960s, when the ATM was introduced. Since then, it has averaged closer to 1 per cent a year; since the financial crisis it has been closer to zero. Labour productivity, too, has been low. Tempting as it may be to blame the banks, productivity growth stalled before the financial crisis, not afterwards: the promised benefits of the IT revolution petered out by around 2006.[6]

Robert Solow, the Nobel laureate economist, who since 1980s was researching impact of computerization on the economy, insists that the internet has not had much impact on productivity. Studies have struggled to find the positive impact of the internet on overall productivity – the evidence is everywhere but in numbers.[7]

However, inability of the global economy to overcome the effects of the financial crisis of 2007-08, hit the economist camp with the fears of “Armageddon” of their own. It bears the name of secular stagnation, which means that the world reached the peak of its growth and stagnation is the “new norm” (another popular term nowadays!). The funny thing is that many trained economists believe that it is a new phenomenon.

So, the society today got trapped under the barrage of all sorts of extreme emotions ranging from imminent technological revolution and bright future just around the corner to fears of the end of economic growth and human race. At times like this, it is always wise to look at ourselves from historical perspective.

Here is the abstract from the paper called “The History of Technological Anxiety and the Future of Economic Growth: Is This Time Different?”: “Technology is widely considered the main source of economic progress but it has also generated cultural anxiety throughout history. From generation to generation, literature has often portrayed technology as alien, incomprehensible, increasingly powerful and threatening, and possibly uncontrollable.

In fact, these worries about technological change have often appeared at times of flagging economic growth. For example, the Great Depression brought the first models of secular stagnation in A.Hansen’s 1938 book Full Recovery or Stagnation?. Hansen worried that economic growth was over, with population growth and technological innovation exhausted.

Anxieties over technology can take several forms, three of which are the most prominent. The first two worries are based on “optimistic” view that technology will continue to grow and perhaps accelerate. First, is that technological progress will cause widespread substitution of machines for labour, which in turn could lead to technological unemployment. Second, there has been anxiety over the moral implications of technological process for human welfare (greetings to Elon Musk! M.Y.). And third concern, cuts in the opposite direction, suggesting that the epoch of major technological progress is behind us. In recent years, pessimists argued that our biggest worry should be economic and productivity growth that will be too slow because of insufficient technological progress in the face of “headwinds” facing western economies. Some of these so-called “headwinds” including slow productivity and population growth, formed the basis of Hansen’s (1939) secular stagnation hypothesis.”[8]

In other words, we’ve been there and we’ve seen that before.

It is important to remember that large-scale technological changes take time. They do not occur overnight, not least because they require a suitable combination of social, organizational as well as technical conditions.

Central to such an evolutionary perspective is the idea that economic growth occurs in series of cycles or “waves”. The best-known version of this idea is the Kondratiev wave, a long wave of roughly 50 years duration. We are now well into a fifth, though precisely how far in, what its precise trajectory will be is not yet clear.

Each wave can be divided into four phases: prosperity, recession, depression and recovery. Each wave tends to be associated with particularly significant technological changes around which other innovations – in production, distribution and organization – swarm or cluster and ultimately spread though the economy. Although such diffusion of technology stimulates economic growth and employment, demographic, social, industrial, financial and demand conditions also have to be appropriate. In other words, it is “the total package” that counts.[9]

It is ten years this fall since the beginning of the financial crisis of 2007-08, and the global economy still cannot overcome its effects: central banks in Europe and Japan keep printing money, many other countries continue stimulus programs in the hope to push their economies to the trajectory of healthy growth, which is not happening. As BIS points out, we are still facing sluggish productivity growth, big debts and narrow room for monetary policy manoeuvring.

Generation of baby boomers began retiring this decade. Fertility rates in the Western world, Russia and China keep falling, and population is aging fast in many parts of the world, which directly affects the scale and patterns of consumption and demand, which in turn, has direct effect on profitability of service and manufacturing companies, and overall economic growth.

Core technology of the fifth wave is microchip (with core sectoral branches spreading to computers, digital IT, internet, software etc), which is widely believed has reached saturation stage, and therefore we have no productivity gains in the economy. In other words, new iPhones, gadgets and internet apps no longer represent a technological progress but rather an attribute of stagnation, since all the telecommunication and internet revolution was driven by microchip-based technological platform, which has already exhausted itself and reaching the peak of its 50-year cycle.

Another part of technological problem is that the next technological wave based on AI and robotics is only in the process of birth, and it will take another ten to fifteen years before new technologies start producing economy-wide positive productivity effects generating new jobs and growth.

All these demographic, economic and technological problems find their direct reflection in political arenas across the globe: from Great Recession, Brexit, migration crisis and Trump to Catalonia and geopolitical tensions between regional and global powers.

The main challenge and danger we all should worry about is not that technological progress is over or robots will take over the planet. At the end, we will shift to the new technological wave and we will successfully adapt to AI, and robots will eventually become an integral part of our life. We will adapt as we always did.

The main danger is how to survive the transition period and not to plunge into the chaos of global destabilization before we make it to the other side of the river.


References

[1] Hern, A., Elon Musk says AI could lead to third world war, The Guardian, September 4, 2017.
https://www.theguardian.com/technology/2017/sep/04/elonmusk-ai-third-world-war-vladimir-putin/
[2] Harford, T., We Still Waiting for the Robot Revolution, August 4, 2017.
https://www.timharford.com
[3] Bank for International Settlements, 86th Annual Report BIS 2016.
https://www.bis.org/publ/arpdf/ar2016e1.htm
[4] Marr B., Why Everyone Must Get Ready For The 4th Industrial Revolution, Forbes, April 5, 2016.
https://www.forbes.com/sites/bernardmarr/2016/04/05/why-everyone-must-get-ready-for-4th-industrial-revolution/
[5] Smil, V., When innovations fail, August 2015, IEEE Spectrum.
[6] Harford, T., We Still Waiting for the Robot Revolution, August 4, 2017.
https://www.timharford.com
[7] Chang, H-J., 23 Things They Don’t Tell You About Capitalism, Penguin Books, 2011, p. 37.
[8] Mokyr J., Vickers C., Ziebarth N. L., The History of Technological Anxiety and the Future of Economic Growth: Is This Time Different?, Journal of Economic Perspectives, Volume 29, Number 3, Summer 2015, pp. 31-50.
[9] Dicken, P., Global Shift: mapping the changing contours of the world economy, Sage 2015, Seventh edition, pp. 77-79.


Marat Yuldashev

Consultant with Experience in Cyprus
Russia/CIS
Eastern Europe and the Middle East, Research Associate

Cyprus Center for European and International Affairs

First Published at “In Depth Volume 14, Issue 5, November 2017″