Stirling Newberry: What's Left?

Over the weekend, two of the core industrialized nations voted in national elections, and they were joined by New Zealand, which, if it is not a major economic player, is still among the world's most advanced economies. The lens of left and right does not give a clear or accurate picture of what was, in fact, decided. Which was very little.

In Japan, Prime Minister Koizumi went to the electorate asking for a mandate to break up the large public corporation that, while it is called "the post office," resembles the postal systems of a century ago, in that it is really a state financial services and mail company. At that time, the postal system was used to provide access to what we would now think of as banking services, as well as delivery of mail. In most nations, things like "postal money orders" are the remainders of the time when many people did their banking through the postal system. Japanese politics lacks a left and a right as most of the world understands it; instead, all of the major parties are pro-business parties, with the dominant LDP party being a combination of rural subsidies along with mercantilist economic policies. As many observers have noted, the "Liberal Democratic Party" isn't really any of the three, but instead a giant tent under which various important factions vie for control.

Koizumi's plan to break up the postal system - which includes insurance and banking - had been stymied, not by the opposition, but by members of his own party who worried that the loss of the state-run financial company would hurt both their patronage and their constituents. Koizumi rolled to power because many in Japan's cities, their savings locked up in low-paying postal accounts, are hoping that a free market future would allow them to keep better pace with inflation, and at lower costs. In Japan, the postal banking system is used by the government to enforce industrial and monetary policy - in effect, a giant tax on the public.

In Japan, there was a decisive result, and the public worries: they voted for liberalization of the postal service, but they now realize that the LDP has an overwhelming majority and the Prime Minister is the most personally powerful individual to hold the post in decades. After 20 years of weak government, the Japanese are not quite sure they are comfortable with the change.

In New Zealand the results were different - for years, the politics of that island nation have been divided between several parties, allowing the Labour Party, which is a neo-liberal left party, to govern even with a minority of the vote. However, in this election the various parties of the right and right of center finally merged into the "National Party" and were able to give Labour a run for power. In the end, their appeal for "closer relations with the United States" - a phrase we will hear again shortly - failed to carry the day. Unlike the United States, New Zealand has seen robust economic growth over the last few years, growth which has been broadly reflected in the society at large.

The last and most difficult election to interpret was held in Germany. The ruling left of center coalition - the "Red-Green" alliance - was voted out of power, but very little else can be said with certainty.

Some background will help, however. Chancellor Schröder came to power at the wrong moment: in 1998. He had only two years of general prosperity before the downturn associated with the global stock market crash and financial crisis of 2000-2002 was upon him. Thus, he did not have a mandate to blame the past and redo everything, but instead undertook a policy of gradual change. These policies have failed to deal with mounting unemployment, pressures on the German social system, and the inflationary pressures that are, largely, the result of American Federal Reserve pressures. With the restrictions of the European Monetary Union, he could not spend his way out of the problem as the previous Christian Democratic government under Kohl had done, nor could he use monetary policy, since that is under the control of the European Central Bank. This meant that he had only one lever, and that was to reduce the regulatory burden on German industry and hope to export more and produce at lower costs. However, he was attempting to do this without wholesale changes to Germany's egalitarian social system.

His challenger, Angela Merkel of the Christian Democratic Party, was billed as a German Margaret Thatcher, ready to go in and take the ax to state-run industries, slash tax revenues, and obliterate worker protection laws. Needless to say, the Wall Street Journal editorial page had turned her into this year's political pinup girl. For most of the race she held a huge lead, only to see it collapse as the public realized that she was not merely a more business-friendly version of the present, but wanted to bring in "Der Flat Tax" and other changes which most Germans see as dangerous to both social equality and to the way of life, centered around an industrial Germany, that has been the heart of the national economic identity for 150 years.

The election results seem to be designed to produce deadlock: 225 seats for the CDU and 61 for the "Free Democratic Party," an even more free-market party than the CDU - which, totaled together, are 21 seats short of a majority. But the election becomes much easier to understand by looking at the other part of the equation. The other three parties in the lower house of the Bundestag will be the SDU, with 222, the Greens with 51, and a new party, the "Left Party," composed of former communists and the left flank of the SDU.

What this result and Schröders's insistence on being chancellor show is the nature of his political gamble. The new feature in the political landscape is the "Left Party," whose votes have largely come from the SDU and the Greens. Schröder gambled that by dumping the left flank of his own party and forming a grand alliance with the CDU, he could push through soft liberalization, accepting neither Merkel's radicalism nor the full weight of the blame for a condition that he inherited. A grand coalition would leave both of the major parties responsible for the results, and give neither an advantage in the period of prosperity to come.

That gamble is half way to paying off. Merkel did indeed collapse in the polls, and the one person who can prevent this gamble from working is Joschka Fischer, the foreign minister and member of the Green Party. The stumbling block to the Greens' crossing the aisle is precisely that: any Merkel government would have to make exporting to the US a top priority, even to the extent of undercutting other members of the European Union. The price for this is what Merkel called "closer ties to the US." This is code for "supporting George Bush's policy in Iraq," since that is the price for any major nation to have closer ties with the Bush executive.

Fischer, however, is the architect of the continental European policy of avoiding precisely this entanglement, while still being deeply involved in the NATO war on terror in Afghanistan and other locations. To join what has been called "the Jamaica government" - after the colors of the three parties that would make it up - he would have to lay high explosives to his major accomplishments as foreign minister, and become, in effect, Condoleezza Rice's tour guide around Berlin. It is a prospect that the very proud politician will find difficult to stomach.

This means that the future of German politics rests on who - Merkel or Schröder - can command personal loyalty. While Merkel has the first road to the Chancellorship - by persuading the Greens to join the government - it is Schröder who has the last, because a minority government of the left could stand, since the Left Party could be persuaded to support the government from the outside, if the alternative is a hard turn to the right. Merkel, on the other hand, would be facing three parties eager to bring her government down on the first misstep, as soon as her leadership faltered.

Looked at from the broad picture, the question that was put to three different electorates was really very much the same, how to liquidate many of the specific promises of 20th century left-of-center politics, without disrupting the larger promise of universal participation in the benefits of a national economy. In the end, all three electorates voted to continue this process, but slowly, rather than with shock therapy. Observers in Europe have already pronounced Merkel's economic plan dead, and point to the size of the left vote as a clear indication that, while the demands for a free market Germany have a growing vocal base of support, it is still a minority position of the electorate as a whole.

The pressures on other nations to play to the Federal Reserve's tune are growing, because of the triangle of the United States, OPEC and China. OPEC supplies oil, which allows the US to build houses, which increase the money supply, which allows the US to buy cheaper manufactured goods from China, and more oil. The profits from this are dumped back into the United States, where they become more money for lower mortgage rates, which allows the cycle to repeat. Increasingly, the rest of the world is being pushed out of the cycle, with the exception of those nations that produce oil. Norway is flush with cash, and the UK economy is being buoyed by high demand for oil.

Other nations are facing a clear and sharp division of the future. Either they must accept much higher energy prices in their own currencies, or they must export to the US to get enough dollars to buy energy. Since there are no new supplies of energy that can be brought on line quickly, this pressure has been most acute in those nations with no energy supply and no easy ability to pull in higher paying jobs from other nations: South Korea, Brazil, France and Germany are all wounded economically, not so much because of government policies, but because of the global financial pressures on their economies.

So far none of these nations has found an economic formula that will allow it to cope. The failure of the European Constitution has pushed the pressure down on to individual nations in Europe. The first casualty of this is Turkey's entrance into the European Union. Turkey, as a source of cheap labor, would be welcomed in an expanding Europe, but in a Europe that is struggling to create jobs, it is suddenly a threat to the constituencies of major governments.

Koizumi and Schröder, in different ways, have gambled very big. Koizumi on releasing the pent up funds in the postal system, hoping to produce a domestic boom, and Schröder by backing the CDU into a corner and liberalizing Germany enough to manage the current squeeze. Because, of course, the oil triangle has its own problems: OPEC cannot pump more light oil, the US consumer is close to giving out, even as the US government is hemorrhaging money fighting two wars and rebuilding the Gulf Coast. And while China has received a great deal of hype, it has an insolvent financial system, and more people living in poverty than there are people in Europe; China's own restive population will not tolerate a large slowdown in an economy that is already experiencing double digit inflation.

And in three nations, Germany, New Zealand and Japan, the decision, while it took different forms, was to play for time, rather than joining in what Daniel Altman has called the "neoconomy." The pressure to cave in will grow, however, here in the United States; the willingness to pursue the root policies of the neoconomy - including perpetual occupation of Iraq, falling real wages, little job growth, rising commodity prices, and an increasingly corrupt political system - are fading. There may not be a "next time" for the attempt to neoconomize Europe.

Stirling Newberry is an internet business and strategy consultant, with experience in international telecom, consumer marketing, e-commerce and forensic database analysis. He has acted as an advisor to Democratic political campaigns and organizations and is the the co-founder, along with Christopher Lydon, Jay Rosen and Matt Stoller, of BopNews, as well as being the military affairs editor of The Agonist.

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