On March 11, Oskar Lafontaine resigned his position as German Finance
Minister and chair of the Social Democratic Party (SPD). His resignation elicited
"euphoria" in "jubilant" financial markets, editorial offices, and
Bidding him its editorial farewell, the London Financial Times
heralded the "angry revolt" that had "unquestionably changed…the
relationship between government and business" in Europe’s major economy. The
background is the electoral victory of the SPD-Green coalition in the last elections.
Lafontaine led the SPD and was the link to the Greens. Chancellor Gerhard Schroeder
replaces Lafontaine as chair of the SPD, though he "has never been as warmly embraced
by the party rank-and-file as Mr Lafontaine," not to speak of the Greens. The
"angry revolt" was not by the public, but by "the European Central Bank and
German businesses threatening to relocate abroad."
The Central Bank has been granted extraordinary independence and
authority in the European Union, a "sinister" threat to democracy, the lead
article in the journal of the Council of Foreign Relations warns, noting accurately that
the goal is to "reassure financial and business elites that…Europe’s economic
policy will be appropriately insulated from the demands of labor and other domestic
interest groups." And as is well understood, the threat to relocate is also a
powerful weapon against democracy and human rights — specifically, against the
socioeconomic rights guaranteed by the Universal Declaration of Human Rights, but derided
as a "letter to Santa Claus" and "preposterous" by the leaders of the
relativist challenge to the UD, in Washington.
The world’s leading business daily is right about the significance of
this dramatic change in "the relationship between government and business" —
that is, the relationship between the institutional framework that suffers from the fatal
flaw of susceptibility to public influence, at least in principle and sometimes in fact,
and unaccountable private power, much safer hands.
Lafontaine was an "unreconstructed Keynesian," the FT
observes, an "old-style taxer and spender" — not a "new-style"
borrower and spender of the preferred Reaganite variety. And his priorities for taxing and
spending were completely intolerable to "financial and business elites." His
crime, the editors explain, was the goal of "redistributing large sums from the
corporate to the personal sector." His tax legislation "closes many loopholes
enjoyed by industry without compensating cuts in the main rates" for corporations,
which "protested fiercely" against this outrage. The more "business
friendly" Chancellor Schroeder was planning a sharp cut in corporate taxes, but
"it was unclear whether Mr Lafontaine would agree [to] such a move — at least
without raising funds from elsewhere." Lafontaine’s policies were
"business-hostile" in other ways as well, benefiting small and medium-sized
family businesses. He also "incensed industry with his `socially just’ changes
pitched largely at workers and families," leading to the threat by "several of
Germany’s largest companies…to transfer activities overseas" where they are
protected from "`socially just’ changes." Lafontaine’s initiatives "had
caused Germany to lose its good reputation abroad," according to the president of the
German industry association, who wasted no time identifying the circles that define
"good reputation." But with his resignation under the transfer threat, "Mr
Lafontaine’s orthodox macroenomic ideas have died once and for all," the industry
association president declared.
"US economic policymakers are unlikely to mourn the loss of
Oskar Lafontaine from the international monetary landscape," the FT reports further,
even though they agreed with many of his initiatives, including his efforts to induce
"the European Central Bank to cut interest rates to get the European economy
moving." But "Lafontaine’s approach looked to Americans like a throwback to the
inflexible, statist, welfare-dominated European past," which deviates from the
modern, up-to-date US approach of enriching a tiny sector of the population while the
typical family puts in 15 more weeks of work a year than 20 years ago while their incomes
have stagnated or declined, average wage for non-supervisory workers is 14% below 1973,
and even the second decile lost net worth (assets minus debt) during the anemic current
recovery, which breaks new records in that the majority has just now barely recovered the
level of the last business cycle peak of 1989.
US policymakers had hoped that the SPD might be a "useful and
constructive partner in the moderate centre-left politics of which US President Bill
Clinton has been such an enthusiastic champion," but they were disappointed when he
showed his true colors as an "unreconstructed Keynesian" advocating
"orthodox macroeconomic ideas." Clinton’s "moderate center-left
policies" have not lacked praise. Clinton was "likened to Martin Luther King Jr.
and generally celebrated at a Wall Street conference" in mid-January 1999, where the
president of the New York Stock Exchange "told Mr. Clinton that Dr. King was surely
smiling down on the gathering" at the annual King memorial, recognizing how Clinton
had benefited "my little corner of southern Manhattan."
Other little corners may have fared somewhat differently, but
"business and financial elites" and their advocates have only contempt for such
The "euphoria" and "jubilation" elicited by the
victory of private power was not confined to markets, or editorials. As is often the case
on matters of real importance, the news pages of the elite press joined the
"thunderous approval" of the business and financial elites, abandoning even a
pretense of objectivity, and staking out a position well to the right of the Clinton
Administration. In the New York Times, correspondent Edmund Andrews depicted the orthodox
Keynesian as "one of Europe’s most combative and ideological leaders," who
sought to move Germany "toward a sharply left-wing direction that frequently clashed
with Mr. Schroeder’s more pragmatic and pro-business instincts." He is "an
outspoken and ideological passionate left-wing traditionalist who had enraged central
bankers with blustery demands for lower interest rates" (as advocated by Washington,
the news report failed to mention in its "pragmatic pro-business moderate"
The ideological fanatic Lafontaine was adding "extra taxes on
corporations while giving a slew of new breaks to lower- and middle-income families."
With his resignation, "the leftists were clearly on the run and the pragmatists were
on the rise," a wonderful victory for "pro-business modernizers" over
"left-wing traditionalists." "A major barrier to corporate profits has left
today," an economist at Warburg Dillon Read exulted, along with the news columns,
which were as "happy" as the "co-publisher of the liberal weekly Die
Zeit" who understood that Lafontaine was "far too ideological, far too
left-wing, and too removed from the economic realities of the country."
Andrews recognized that the "more pragmatic and
pro-business" Schroeder now faced a problem: "in Germany, politics is based on
political parties." "The nature of power in Germany requires control of the
major political parties, and it was the much more left-wing Mr. Lafontaine who could
muster discipline on that level" — Times-speak for the observation of the Financial
Times that Lafontaine is "warmly embraced by the [SPD] rank-and-file," unlike
Schroeder, and is of course far more popular among the coalition partner of the SPD, the
Greens. The Greens have "capitulated on all of their top priorities," Andrews
reports, but it is unclear today whether they "would be willing to concede even more
to industrial interests." The problem is the usual one: too much democracy — though
Andrews comforts the reader with the thought that Lafontaine "could never match Mr.
Schroeder’s popularity with voters."
Further good news for the "pro-business moderates" and
"pragmatists" is that the "blustery, bumptious political boss"
Lafontaine is being replaced by Hans Eichel, who is particularly attractive because of his
"experience in working with conservative bankers." Joining in the euphoria, the
Washington Post news columns hail Eichel as "the business-friendly governor of Hesse,
Germany’s richest state." Germany can now face the "tough choices" that
Margaret Thatcher made for Britain, with the "painful free-market restructuring"
that made possible "the market-oriented pragmatism" of Tony Blair. Germany too
will be able to "prune an elaborate social welfare state" and enact
"pro-business proposals," ridding itself of the "traditional socialist
base" of the SPD, which was concerned with workers, families, and small business, and
handing power over to "more pragmatic moderates." Then Germany may be become the
kind of paradise enjoyed by the majority of the population of England and the United
States under "free-market restructuring" — which does resemble
"free-markets" in Britain somewhat more than here, consistent with the usual
relation between markets and power.
Andrews recognizes another potential problem: Eichel has a dubious
past. "He campaigned against nuclear proliferation and for environmental
causes." But "his politics have moderated since then." He is now
"generally considered a business ally," so perhaps the immoderation of his youth
will not interfere too much with the stunning defeat of democracy and human rights.
The events are significant, the interpretation of them as well. The
lessons for the general population of the richer countries are clear enough, for those
less fortunate still more so.
Edmund Andrews, "German Finance Aide Quits: European Markets
Jubilant," _NYT_, March 12; Andrews, "German Stock Market Soars As Leftist
Fiscal Chief Quits," _NYT_ March 13, 1999.
Editorial, "A farewell to Oskar," _FT_, March 13.
Ralph Atkins, "Clash of Thunder Gods leads to opportunity to
start afresh," _FT_, March 13/14.
Sheri Berman and Kathleen McNamara, "On Central Banks and
Democracy," _Foreign Affairs_, March/April 1999.
UN Ambassador Jeanne Kirkpatrick; Ambassador Morris Abram,
explaining the US veto of the Right to Development, which closely paraphrased the UD. See
my article "The United States and the challenge of relativity" (in Tony Evans,
ed., _Human Rights Fifty Years On, U. of Manchester, 1998), reprinted as _The Umbrella of
U.S. Power," _Open Media Pamphlet Series_ (Seven Stories, 1999).
[Editorial, _FT_, _op.cit_; Ralph Atkins, _FT_, March 15; Atkins
and Frederick Stuedemann, _FT_ March 13/14; Uta Harnischfeger, _FT_, March 13/14.
Gerald Baker, "US policymakers relieved at departure,"
_FT_, March 15. Lawrence Mishel, Jared Bernstein, John Schmitt, _The State of Working
America 1998-99_ (Cornell, 1999); Robert Pollin and Stephanie Luce, _The Living Wage_ (New
Press, 1998); Edward Wolff’s research, cited by Aaron Bernstein, _Business Week_, Sept.
Baker, _op. cit._. James Bennet, "At a Conference on Wall
Street Diversity, the President Finds His Own Stock Soaring," _NYT_, Jan. 16, 1999.
Andrews, _NYT_, March 12, 13, 15.
. Andrews, "From Wealthy Hesse, an Ally of Business,"
_NYT_, March 13; William Drozdiak, _WP_, March 13.
, Andrews, "From Wealthy Hesse." _