“There is a democratic failure in Europe”
An extract from Olaf Storbeck’s recent interview with Amartya Sen
The interview was conducted as economists and other thinkers gathered in Berlin for the third annual meeting of the Institute for New Economic Thinking (INET)
Question: Professor Sen, do you have the impression that economists and economic policy makers are learning the right lessons from the most severe economic and financial crisis since the Great Depression?
Answer: I don’t think that at all. I’m quite disappointed by the nature of economic thinking as well as social thinking that connects economics with politics.
What’s going wrong?
Several features of policy making are worrying, particularly in Europe. The first is a democratic failure. An economic policy has to be ultimately something that people understand, appreciate and support. That’s what democracy is all about. The old idea of “no taxation without representation” is not there in Europe at the moment.
In which respect?
If you are living in a southern country, in Greece, and Portugal and Spain, the electorates views are much less important than the views of the bankers, the rating agencies and the financial institutions. One result of European monetary integration, without a political integration, is that the population of many of these countries has no voice. Economics is de-linked from the political base. That I think is a mistake and it goes completely against the big European movement that began in the 40s and fostered the idea of a democratic, united Europe.
Cutting back public debt has become the priority of policymakers in Europe. A lot of economists in Germany appreciate this. They argue that public finances have been on an unsustainable track.
Public debt in Europe has to come down, there is no question about that. However, I think the timing is wrong. At the moment the official priority seems to be to cut debt first and think about growth later. To me, this seems to be a big mistake.
Economic history shows that public debts are much more easily paid back in periods of high growth rates. This is true for the years following the Second World War as well as for the United States during the Clinton administration, or Sweden in the 1990s.
What’s the alternative?
One has to bear in mind the role of the state, which includes not only providing support to vulnerable people and a social safety net, but also regulating the market economy. Right now, well directed stimulation is needed, rather than drastically cutting down the state.