European Transition into a Socio-ecological Market Economy

5. Real Capital Globalization instead of Financial Capital Globalization
The prevailing European economic crisis, which may continue for at least a decade, is a setback in its role as a global player, comparable to the setback of Japan since the 1990s.18 To play an important role in the coming multi-polar global economy, Europe’s chance is a transition into an SEME. Such a transition would reduce imports of natural resources and energy from the Third World and augment employment by higher qualification and innovation without the need for high economic growth. During the transition into a new regime of accumulation and distribution, saving surpluses, including up-stream savings, have to be transferred to economically less developed European countries for education, innovation and real investments and not as financial aids. Remaining saving surpluses should be transferred to the Third World for education, innovation and real investments and not as financial investments. Europe has to develop its own financial markets to join the coming multi-polar currency system and to globalize its productive activities.19 At the global level the European transition into an SEME is now hampered by a belief in welfare that augments free trade and free financial globalization. In contrast, a more harmonized global development can be expected from more equally distributed “human capital” and real production globalization. Already in times of mono-polar globalization real foreign investments represented the solid background. The dominant global role of Great Britain until the First World War was mainly based on its real investments in the Commonwealth from which it derived its financial strength.20 The change of global leadership to the USA also went by large foreign real investments and later by non-material investments, including the US microeconomic model in real production. Certainly, the global dominance of the Dollar stabilizes the global role of the US economy, which is underpinned by increasing outsourcings and vast international financial investments. In a multi-polar world, real production globalization becomes more important and trade can diminish accordingly.

“Europe’s mid-term chance to become an important global player does not lie in a competition with economies with high capital intensity and high economic growth, but in a vigorous transition into an SEME (Socio-ecological Market Economy).”

But Europe is proud to be the biggest trading block in the world and adheres still to the old idea that more trade is always advantageous for all and reduces global inequalities.21 In face of the global similarities of production technologies, it is the globalization of production which augments Europe’s role as a global player. During the European transition into an SEME, more sustainable technologies can be exported and less natural resources imported. By this, increasing disequilibria in international trade, which are an important source of conflicts, can be reduced.22 The chances for developing countries to implement their own socio-ecological development strategy would increase without being disturbed by prevailing financial globalization. Europe’s mid-term chance to become an important global player does not lie in a competition with economies with high capital intensity and high economic growth, but in a vigorous transition into an SEME.

6. Summary and Outlook
Summing up the basic arguments for a transition into an SEME we find that, historically, high total capital intensity has not assured economic, social and ecological sustainability. Further augmenting material capital intensity will have a squeezing effect on the real sector’s profit rate; it will not create high employment. It will finally augment environmental deterioration. In contrast, lower material capital intensity by way of less man-made and natural capital inputs will stabilize the profit rate, create more employment and reduce consumption of natural resources. A transition cannot rely on price substitution, but needs real capital saving innovations, which are bound to have higher “human capital” inputs furnished by an enlarged human-centered educational system. Higher qualification enables capital saving innovations and changes real production to a higher labour intensity. The main obstacle for a transition is the undue large financial sector, resulting from the uneven income distribution and the speculative behavior of financial markets. High and mainly unproductive financial capital is a burden on real production and canalizing it to the educational system would be in favour of capital saving innovations .The new regimes of accumulation and income distribution result step by step in a low growth path with higher employment and less man-made and natural capital without reducing the profit rate in the real sector. The core of a transition strategy is more qualification and innovation by creating higher “human capital” instead of financial and productive capital.

Looking at the feasibility of such a strategy for socio-ecological transition, one has to take into account prevailing vested interests. The over-boarding influence of the financial sector creates more and more fictional money value and has little interest to reduce this burden on the real sector. As the latter has the possibility to compensate for this burden by lowering wages, there is an implicit agreement between both sectors. In face of high unemployment and worsened social conditions, labour has low influence to change capital accumulation and income distribution. But historical experiences show clearly that ever-augmenting capital accumulation produces a heavy crisis during which capital is devaluated and partly destroyed.23 A recent comprehensive analysis of longer term accumulation dynamics forecasts that there would be an increasing and more unequal accumulation of financial and productive capital and that only heavy taxes can prevent large economic and social crisis.24 Both treatments suspect, like many other investigations, that a far-reaching crisis might be the consequence of high total capital accumulation. Reducing economic growth by augmenting “human capital” will contribute to a socio-ecological transition and thereby to a human-centered economic development.

18. Lester Thurow, The Future of Capitalism (New York: W. Morrow, 1996), 332.
19. Barry Eichengreen, Exorbitant Privilege (Oxford: Oxford University Press, 2011), 175.
20. R. Blomert, John Maynard Keynes (Reinbek bei Hamburg: Rowohlt, 2007), 43.
21. Europe 2020, 21.
22. Paul Davidson, The Keynes Solution (NY: Palgrave Macmillan, 2009), 161.
23. Carmen M Reinhart and Kenneth S Rogoff, This Time is Different: Eight Centuries of Financial Folly (Princeton: Princeton University Press, 2009)
24. Thomas Piketty, Capital in the Twenty-First Century (Cambridge: The Belknap Press of Harvard University, 2014), 471.

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