From Summit to Summit: Lost Generation and Lost Decade

FROM SUMMIT TO SUMMIT: LOST GENERATION AND LOST DECADE


By Ronald Schettkat


[This commentary published in WSI Mitteilungen 6/2013 is translated from the German on the Internet. Ronald Schettkat is professor of economics in the Schumpeter School of Business and Economics at the University of Wuppertal.]


Youth unemployment in Spain and Greece is over 50%. Every third person see4king work under 25 years of age in Portugal and Italy is without a job. These are alarming numbers. The German chancellor invites to a summit in Berlin. Young southern Europeans without perspective in their own countries are invited to Germany for dual training: "youth on the move." Is there a teacher shortage and deficient training in Germany? Forget it! The prescription is frugal households, debt brakes, wage restraint and Schroeder's Hartz reforms. Southern Europeans are made scapegoats: carry out austerity programs, drive down wages and deregulate labor markets. Six billion euros from the European Union budget are rededicated to reduce youth unemployment.


Do you see the problem? Neoliberal economic thinking explains unemployment as a balance phenomenon with only supply-side causes: poorly trained, wrong place, excessive wage demands and an overly generous welfare state. Neoliberal thinking acts as though structural problems alone were the cause for the record unemployment, as though youth unemployment had nothing to do with the economic crisis but is merely a problem of the transition from training to vocation and of qualifications of youth, a consequence of unbridled public spending that we simply cannot afford any more. The bank bailout crisis is distorted into a "state debt crisis," austerity policy is declared to be an expansive economic policy and reforms - literally deregulation - of the labor markets are demanded.


Youth unemployment of 30 or even 60% is a catastrophe. Unemployment is bitterer for youth than for their mothers and fathers. The first years of working life are a time of acquiring qualifications and experiences, searching for a place in the economy and society. If this possibility is taken from the young generation by high unemployment, deep scars remain in t heir working life. From dynamic analyses of the labor market, we know unemployment in the young years increases the danger of later unemployment, unstable job conditions leading to precarious careers and low initial incomes make a deep impression. In highly industrialized complex economies, good education is a prerequisite for a flourishing economy, innovations, democratic participation and greater individual chances of finding employment. Everyone is affected when the economy breaks down, when every third person is without work and when the unemployment rate soars to the level of the world economic crisis of the 1930s. Youths are especially affected and more is involved than difficult transitions from school to vocation. More jobs are needed for everyone! Youth unemployment is part of the general unemployment. The lack of perspective of y8ouths is part of the general lack of perspectives.


Is Germany's economic policy exemplary? For decades, Germany has been a champion of price stability. However prosperity and employment suffer under this policy. Germany lives below its means; it saves to its ruin. The investments are not enough to even maintain the capital stock. Bridges are closed. Education is under-financed. Equal opportunities increase while research and development are cut back. By reducing the investment backlog, Germany's growth potential will be noticeably increased along with European domestic demand and the export chances of the rest of the Euro countries improved. That would be a win-win situation where prosperity would grow in the country instead of greater demands against foreign countries with enormous export surpluses that must then be written off. That would not be a policy that Germany pays for. The rescue of the European project goes hand in hand with increased prosperity in Germany and does not necessitate any sacrifice from Germany.


The German chancellor argues stoically that price stability policy - budget consolidation, saving and strict monetary policy - is the best growth policy. This untenable assertion used by the hegemon to enforce neoliberal political ideas forces all Europe into a neoliberal corset in which only more supply-side4 reforms are allowed. The minimal state should be realized with the help of the debt brake. Reducing (youth-) unemployment requires a rethinking in economic policy. Austerity policy is not without alternatives but is the most expensive option, especially - but not only - for Europe's youth. Austerity policy leads to a lost decade and a lost generation.