The recovery will come, but it will not redress the social imbalance

By Fondazione Condividere

For a few weeks now I have seen many senior figures in Italy’s Letta government, but also European institutions, waving their arms to indicate the arrival of an imminent recovery in the horizon, with the same anxiety of Tom Hanks in “Cast Away” when waiting for the ship that will save him from his shipwrecked destiny.

This sort of collective orgasm for a percentage point of growth seems frankly excessive.

Mind you, that the Eurozone is headed toward a slow recovery phase since the last quarter of 2013 to continue with greater force in 2014 is a view shared by everyone involved in the economy – the real problem is figuring out what kind of recovery we’re talking about .

An example of what I am referring to has already what happened in the US, and elsewhere, as it will help us  understand what, in my opinion, is awaiting us.

Between 2009 and 2012 the majority of large companies, American and European, in the face of stagnant demand because of the crisis, pursued massive reductions in labour costs to lower their level of variable costs. These reductions were possible only in this historical phase when union representatives were faced with an ultimatum: either they allow massive staff reductions or firms will close. At no other time in history would employers get away with such an attack on labour. It ‘s easy then to conclude that companies have at least partially taken advantage of a crisis that is unique in size and seriousness. Their labour cost cutting has allowed them, from 2010, to achieve decidedly positive financial results.

For example, during this period, more than 80% of listed American companies have produced results that exceeded analysts’ estimates. This has led, together with the expansionary monetary policies of central banks, a sharp rise in the stock indices, as well as of most other asset classes, which are still continuing on their upward trend.

In the face of stagnant demand companies have therefore taken action soley on the cost side, but this is something that you can only do once, while real growth can only come from a real and sustained increase in the demand for goods and services. And therein lies the real problem: even faced with the start of an economic recovery I doubt that companies will be willing to take back many of their laid-off employees; it is much more likely that they will invest in technology to increase productivity. In my view, therefore, not only will it take years to recover employment even remotely comparable to the pre-crisis levels but many of the
workers (particularly those above 40 years) will not be rehired and demand, at least domestic demand, will stay depressed.

The end result? As old Marx would have put it, a further social imbalance with a further transfer of wealth from labour to capital, that is to shareholders of companies and to investors who have benefited from the expansionary measures of central banks.

Fondazione Condividere is an Italian NGO

Il Fatto Quotidiano 16 August

Translation/edit by Revolting Europe