1. finance
2. bank

State of Peace Conference & Peace Report 2012
“Democracy in Crisis: The Dynamics of Civic Protest and Civic Resistance”
Key theme: „ Global Financial Crisis and Socio-Economic Alternatives “
How to Beat the Hydra?
Imposing Socio-Economic Alternatives in the Light of Reform Failure
Silke Ötsch
Preliminary version – please do not quote without the author’s authorization
In different historical phases, the mythology of the Hydra was taken up – a serpent-like beast with
various head, among an immortal one and poisonous breath. When a head was cut in a combat, two
heads grew back. The hydra caused damages, wasted the harvests and killed herds. Especially in
French revolution, aristocracy was compared to the beast. Today there seem to be an analogy to
financial market control: Once a regulation is implanted several loopholes grew back. In the
following I will first describe changes in the economic situation after the crisis 2007/2008 focussing
on the Euro zone and asses EU financial market reforms and tax policy. Secondly I will describe
civil society’s activities in these fields using the example of the German branch of the SMO Attac
and explore its achievements and failures in the context of academic debates on failure of reform
policy. Thirdly, I propose that civil society should use a multi-fold strategy, which I roughly sketch.
1. Reforms and reform rhetoric
After the crash of Lehman Brothers in 2008, politicians promised to change policy. They took up
positions by formerly criticized civil society actors such as the Financial Transaction Tax. In their
Declaration of the Summit on Financial Markets and the World Economy from November 2008, the
G 20 leaders announced a bundle of technical reforms. As core common principles of reforms they
listed measures such as strengthening transparency and accountability and incentives “to avoid
excessive risk-taking”. All financial markets, products and participants should be regulated. Consumers
and investors should be protected from fraud and risks “arising from non-cooperative jurisdictions”
(colloquial called 'tax havens' or 'offshore centres') by information sharing and actions against bank
secrecy and non-transparency. International regulatory cooperation should be reinforced and
international institutions, especially the IMF and the Financial Stability Forum (FSF) should be
reformed in a way, they actively could prevent crisis (G20 2008: 3). Even if by in August 2012 the
reform process is not completed it is evident that in the European Union such as in the US, only a
minor part of the reform proposals have been put into practice.1
1
Because of the complexity of the subject I will concentrate on the EU financial market reforms and leave out the
1
Reducing Systemic Instability? The European Union’s piece meal repair
In Europe, reform politics is an on-going process; reforms are put into practice through a vast
number of directives, laws, regulations and treaties difficult to oversee. The most important reforms
in the EU assess banks' equity ratio under the Capital Requirements Directive, little regulated and
non-transparent trading with financial products such as derivatives under the European Market
Infrastructure Regulation (EMIR) (2010), shadow banking under the Alternative Investment Fund
Manager Directive (AIFMD)(2010) and consumer and financial companies clients protection and
harmonisation of financial products within the EU under the amended Markets in Financial
Instruments Directive (MifID). Reforms concern also the creation and improvement of financial
markets supervisory institutions. This implies changed regulation for rating agencies (2009 and
2011) and the creation of three European authorities, namely the European Banking Authority
(EBA, London), the European Securities and Markets Authority (ESMA, Paris) supervising
securities trading and stock exchange and the European Insurance and Occupational Pensions
Authority (EIOPA, Frankfurt). National legislation concerns regulation about how to deal with
virtually bankrupt banks and about financial participation of the banking sector in bail-out costs.
Raising revenues is also the motivation to introduce a financial transaction tax of most promoters.2
Once mainstream policy and economists realized that European banks and states were more
concerned by effects of the crisis than they expected and required more funds, policy first reacted
by adding the ‘six pack’ (2011) to the ‘Stability and Growth Pact’ – a bundle of six regulations
focussing mainly on government debt and fiscal policy understood as expenditure restraint,
restricted debt limits and budgetary surveillance. It was by now reinforced by the fiscal pact and the
European Stability Mechanism (ESM), which are both treaties under international law. Whereas the
ESM is an institution to guarantee the solvency of indebted states in the Euro zone or EU
(respectively their banks) by credits commonly provided by member states, countries which
participate in the fiscal union commit themselves to fulfil more stricter budgetary rules than
foreseen in the Stability and Growth Pact. Signing the fiscal pact is a condition to access funds from
the European rescue mechanism. The EU’s financial market regulation consists of a variety of
partly inconsistent measures. There seem to be neither an overall concept for regulation and a
common understanding about reforms, nor the democratic political structure to put far reaching
reforms into practice, nor the will to forgo short-term advantages of national core companies for
common long term goals.
2
reform process in the United States and other countries.
Originally it was conceived to reduce financial speculation in favour of real economy by James Tobin.
2
A closer look at the listed measures shows that the EU has failed to strengthen regulation to prevent
the next crisis and to put into practice the G20's announcements from 2008. I will now give reasons
for this assumption in more detail. On behalf of the G20 the Basel Committee on Banking
Supervision worked out recommendations concerning the equity capital ratios of banks and
suggested an equity capital ratio of 13%. The recommendations were taken up by the EU in its
Capital Requirements Directive IV and diluted. An equity capital ratio of 13% is only necessary for
banks in certain conditions, certain buffers should be fixed in accordance between banks and
national authorities and government bonds with good rating do not require net assets (Peukert 2011:
522ff). Worse still, the capital requirements only relate to banks, but not to shadow banks such as
hedge funds and private equity funds (Peukert 2011: 522).
Banks often use shadow banks3 to undertake business forbidden at the place of their site by
founding vehicles or subsidiaries in offshore centres, respectively secrecy jurisdictions. As an
example, many hedge funds are registered in the Cayman Islands or banks used vehicles in Ireland.
According to the Financial Stability Board4 (FSB) 25-30 % of the total financial system consists of
shadow banks and around half the size of bank assets is hold by them (FSB 2011: 8). In the run-up
to the crisis the volume of shadow banking grew from an estimated $27 trillion in 2002 to $60
trillion in 2007, and remained at around the same level in 2010” (FSB 2011: 8). The Alternative
Investment Fund Manager Directive was conceived to better control the shadow banking sector by
introducing some regulations for providers of funds (hedge funds, private equity, real estate-,
commodity and infrastructure funds). As most of these funds are registered in offshore places, it
was argued that the directive relates only to managers of funds. The supervising authorities are
allowed to request information and the managers are obliged to bring in a restricted amount of
capital. The directive only applies to funds with a capital surmounting €100 million respectively
€500 million. The directive misses its aims because funds do not have to change their business
model and they especially do not need to lower their leverage (Peukert 2011, 529ff). Among there
are strong linkages between regular banking and shadow banking (FSB 2011). The task force’s
recommendations are far from being put into practice.
Besides, financial products traded in regular markets also imply a variety of risks. This is the case
for transactions with derivatives because of their decoupling from transactions in real economy and
their leverage. According to estimations of the BIS the volume of outstanding of over-the-counter
3
The FSB defines the shadow banking system as “the system of credit intermediation that involves entities and
activities outside the regular banking system” (FSB 2011: 3). A shadow bank is a bank-like institution without a
banking license and no access to central banks’ funds.
4
The FSB is an international institution created in 2009 composed by representatives of financial authorities,
central banks, ministries of finance and international financial institutions.
3
(OTC) derivatives was around $ 647 trillion in 2011 (BIS 2012), whereas the World GDP was
estimated at around $ 80 trillion (CIA 2012). The European Market Infrastructure Regulation
(EMIR) deals with OTC-derivatives5 and should make trading with these products more
transparent. It is also diluted. The regulation distinguishes different kinds of derivatives and uses
flexible thresholds which are fixed from case to case either from the ESMA or the commission.
Hence, the ESMA's requirements may be circumvented (Peukert 2011: 536ff).
The EU’s Markets in Financial Instruments Directive (MiFID) entered in force in 2007 concerns all
financial products. Instead of regulating financial products, the aim of the directive was “to allow
investment firms to provide services throughout the Community” by introducing multinational
trading facilities (MTFs) in order “to preserve the efficient and orderly functioning of financial
markets” (EC 2004: I). As a consequence of this, ‘dark pool markets’ emerged and OTC trade grew
besides (more or less) regulated stock exchanges (Henn 2012). The EC proposed an amended
version of the MiFID which foresees among others to create a third multilateral ‘organized trading
facility’ and more transparency requirements. In special occasions the ESMA and national
authorities have the right to intervene in the markets (Henn 2012). The new rules have many
loopholes: they do not abolish little regulated markets (dark pools and OTC). Position limits are
weak and can be circumvented by using OTC-markets and financial products with harmful effects
such as commodity and high frequency trading are still allowed (Henn 2012).
According to Peukert, the newly created European financial market authorities are weak and little
capable of taking action. The European System of Financial Supervisors (European Financial
Stability Facility, in short: ESFS) has no means of pressure except political pressure (Peukert 2011:
532). The European Banking Authority (EBA), European Securities and Markets Authority (ESMA)
and European Insurance and Occupational Pensions Authority (EIOPA) are only allowed to take
measures without considering national veto under condition that the financial ministries decide
unanimously about a an ‘emergency situation’ (Peukert 2011: 533). Besides these institutions have a
very restricted budget of € 40 million and 300 employees (2011) – a much smaller budget and
number of personnel than national authorities (Peukert 2011: 533). To summarize, EU-politics
consists mainly of symbolic measures and has failed to impose reforms and institutions which lower
systematic risks of the financial system. Reforms are too modest and regulation can easily be
circumvented.
Politicians often justify their actions by saying that the total costs of bailouts were lower than
discussed (because the sums were paid as guarantees). Among they refer to bank levies which
5
OTC-derivatives are derivatives which are not traded at stock exchanges but directly between financial market
actors without official records.
4
would be used in coming crisis. In fact, in most European countries, banks will most likely not
repay the received amounts. According to Franz Hahn (WIFO), it seems that Austria definitively
lost € 3-4 billion spent for the banks ÖVAG, Hypo and Kommunalkredit in early 2012 (Standard
2012). Germany lost mostly € 39 billion in 2011 (Süddeutsche 2011). Since 2010/2011 Austrian and
German banks are obliged to pay a bank levy in funds which should be used in the next crises.
Whereas the Austrian levy brought € 510 million in 2011 (Statistik Austria 2012), German banks
paid only € 590 million instead of more than € 2 billion in 2011 because of a rule restricting the
payments to 20 % of the banks’ profit (Handelsblatt 2012). Peukert notices that it would take more
than a hundred years until the German fund will provide about the targeted € 70 billion which
should be used to pay for the banks costs of the next crisis (Peukert 2011: 551). Among, politicians
often refer to the financial transaction tax (FTT) to highlight their activities. Up to now, four years
after the crash of Lehman Brothers the tax is not introduced on the European level and will not be
implanted shortly due to the resistance of states like the UK, Malta and Ireland. However, a group
of nine countries (including Austria, Germany, France, Spain and Italy) are ready to implant the tax.
One positive thing about the tax is that it has a wider basis of assessment than former models such
as the Tobin Tax or the ‘Spahn’-Tax because it is applied to shares, bonds, and foreign exchange and
derivatives. The revenue is budgeted for 2014 or 2015 (Attac 2012a).
United in tax dumping
Concerning tax policy, only minor measures have been taken. Paradoxically, in most OECD states,
capital tax rates are lower than taxes on income, there are no or little taxes on wealth and
inheritance taxes (OECD 2011). Theoretically a union could be used to harmonize tax rates and
basis of assessment within the common economic area. Instead, by introducing the Common
Consolidated Corporate Tax Base (CCCTB) – a directive which introduces common rules to
determine the tax base of multinational companies within the EU (EC 2012a) – the commission
promotes tax dumping and subvention arbitrage. Companies have the right to choose whether they
prefer using the new rules or national legislation. The commission underlines that it does not intend
to harmonize tax rates (EC 2007: 9).
Whereas tax avoidance was widely accepted some years ago, in times in which public budgets it
becomes more suspect. Anyhow, the G20's aim to abolish the banking secrecy is far from being
realized and other forms of tax avoidance (for instance by trusts and anonymous ownership
structures) are seldom exposed. The international OECD initiative against ‘harmful tax competition’
which was re-launched after the crisis 2008/2009, but it is mostly as toothless as before the crisis. In
2009 the OECD published a list of ‘uncooperative jurisdictions’ which listed 35 countries on a
5
black list and 47 countries on a grey one and threatened with sanctions. A few days after the
publication of the list, the OECD took all countries off. They did not change their business model.
Instead the OECD downsized its requirements (Ötsch 2012: 36). The EU's savings directive from
2005 aimed at taxing capital in Europe such as other sources of income by requiring automatic
information exchange about EU's citizens’ bank data to the authorities in question (equal to the
taxation of employees' income). But also the savings directive has loopholes. It only applies to
private persons and it foresees an exemption for Austria and Luxembourg keeping their banking
secrecy (besides states which are not members of the EU). The revised version of the directive
which would close most loopholes is ready, but not passed because fiscal decisions must been taken
unanimously and there is always one state against (Ötsch 2012: 37). Unilateral measures against tax
evasion have a different scope. Whereas the USA took significant measures against banks
promoting tax evasion, Austria and Germany went a step back by negotiating a tax agreement with
Switzerland which has several loopholes and undermines indirectly the EU's saving directive and
makes it more difficult to impose inheritance taxes in the future (Henn et al. 2012).
In fact, different studies show that the distribution of wealth increased in the last decades on also
after the crisis 2008/2009 (BMASK 2011: 220; Grabka & Frick 2009). According to the World
Wealth report of Capgemini the amount of rich persons (HNWIs) increased at the global level at the
amount of 0,8 % in 2011, even if their wealth diminished slightly at 1,7%. In 2010 it rose at about
more than 8 % (Capgemini 2012). In the long run HNWI-wealth increased significantly despite of
losses in 2008. This is even more problematic because of the increase of private and public debt a)
as private and b) as public debt. Concerning private debt, especially the lower and increasingly the
middle class is affected. Whereas in Austria, private wealth (in terms of net financial assets) grew to
more than € 450 billion in 2007, the debt of low income groups increased (ÖGPP 2008: 77ff).
Especially in financialized economies with a strong reliance on the import of goods and a dominant
financial sector (such as the UK and the US), private debt was and is (an unsustainable) driver of
the economy (Langley 2009; Kumhof & Rancière 2010). Whereas private wealth is growing, public
debt increases significantly in most western countries. In Europe this is also a consequence of failed
coordination. In comparison with other economic zones, the EU is less indebted (Lacoste 2012: X).
Nonetheless, states in Europe with tight budget are easy targets for speculators (Schumann 2011),
because the introduction of the Euro in different economic zones was not paralleled by an economic
politics aiming at equalizing the economies (Hickel 2011) and as there is no common mechanism to
finance debts (such as financing states directly by the ECB or Euro bonds).
After using stimulus packages in the first phase of the crisis, the focus shifted on austerity programs
and on the introduction of institutions to coordinate crisis management, especially the ESM and the
6
fiscal pact. The purpose of the ESM – an institution based in Luxembourg succeeding the ‘rescue
mechanism’– is to guarantee the solvency of states of the Euro zone. The ESM has at the moment
(August 2012) a volume of € 700 billion and is planned to enter in force in September 2012.
Participating states or their financial institutions should have access to credits under the condition of
macroeconomic surveillance (EG 2012a) which will be negotiated between the European
Commission and the state in question in a ‘Memorandum of Understanding’ (MoU); the country
requiring funds is obliged to commit to the fiscal pact (BMF 2012: 4). The purpose of the fiscal pact
is to impose tightened budgetary rules. States which sign the contract oblige themselves to
introduce debt brakes into their constitutions until 2014. States whose level of debt exceeds 60 % of
the GDP commit themselves to the reduction of the annual debt6 and agree to a 'generalized
correction mechanism' (EG 2012b) which is yet not defined in the contract. Both, the ESM and the
fiscal pact are international treaties, what means that there is no option for an exit once states have
signed (Oberndorfer 2012: 180f).
The ESM is criticized for various reasons. As the institution has no banking license, it has no direct
access to ECB-credits such as banks which borrow money for a low rate at the ECB and borrow it
to a much higher rate to states. There is only a vague request in the ESM to make creditors
participate in their losses, too little prescriptions in which cases financial institution may have
access to the funds and under which conditions. So, there is a moral hazard for financial investors
because of the probability losses are paid by taxes. Because of the connection of banks and shadow
banks and the falling prices for bonds of certain European states the capital of the ESM might
quickly be extinguished (Jurczenko 2012: 6ff). The fiscal pact is criticized for a similar reason: it is
biased on austerity and does not mention of fiscal tools such as minimum or harmonized tax rates or
combating tax evasion. Automatic debt brakes may even worsen the problem because states lose
abilities to stimulate the economy in times of crisis. At the time politicians decided on the fiscal pact
core notions such as 'structural deficit' or 'generalised correction mechanism' were not defined; they
will later be fixed by the commission (Oberndorfer 2012: 176f). It is especially problematic that
elected parliaments hand their right to decide about the national budget over to the European
Commission, which is a part of the executive. Such as in different national bank-rescue funds, the
governors of the ESM are not allowed to disclose information covered by professional secrecy (§34
ESM). Besides the austerity programs most will stifle the economy.
6
In 2011, Austria's debt was at around 72 % and Germany's at 82 % which means that the fiscal pact does not only
touch the ‘PIIGS’.
7
Ignoring causes and making the beast’s head grow
I conclude that in no area of financial markets, fiscal and economic policy significant reforms have
been put into practice. The reforms will not prevent the next crisis. The economic power of
financial institutions and investors even increased because of fusions in the banking sector and
political extortion of states in crisis. Mainstream policy did not take up proposals for deeper
reforms, such as splitting up banks, changing the business models of banks and controlling them,
abolishing financial products with no use for society, changing the distribution of income and
wealth, confronting economic imbalances and putting into practice the ecological restructuring of
the economy. Reforms were conceived as superficial, minor technical corrections along well-known
path. Reformers did not grasp structural connections between different fields of the economies and
society and were probably afraid of confronting organised financial and economic elites.
Causes of the crisis were ignored – at least from influential politicians and theirs advisers. In the
German speaking mainstream discourses, trade imbalances between economies in the Euro zone do
not play a role. Flassbeck and others point out that an increasingly low labour costs and falling
domestic demand in export oriented countries like Germany aggravate imbalances which are an
important cause of the crisis (Flassbeck & Spieker 2012: 21ff). This goes along with problems of
monetary policy in a zone with one currency, but different economic policies (Hickel 2011: 59ff).
Relations between the distribution of wealth and income and the emergence of bubbles are usually
not displayed. It is eye-catching that the rate of income inequality and an increase in household
debt–to-income ratios are similar in the 1929s crisis compared to the recent one. According to
Kumhof and Rancière these factors are connected: “When … the rich lend a large part of their
added income to the poor and middle class, and when income inequality grows for several decades,
debt-to-income ratios increase sufficiently to raise the risk of a major crisis” (Kumhof and Rancière,
2010: 28ff). Above, Otte points to striking similarities of both crises which both were initiated by a
real estate boom (Otte 2008: 13). Once the demand of lower and middle classes falls due to an
increasing unequal distribution, capital is invested in financial assets or real estate because of
missing investment opportunities in real economy. From a superficial point of view measures such as
stimulating the economy, bailing out banks and guaranteeing savings and deposits were seen as a return
of Keynesian politics. In fact, in a first phase after the Crash 2008 one could speak of a Keynesian
politics in regard to spending, but this was combined with neo-liberal tax and monetary policy and later
with the policy of austerity. Some authors underline the role of neo-liberal tax policy in the
accumulation process preceding the crisis: Due to tax cuts for the rich and companies in times of
falling wages the accumulation of wealth accelerated (Liebert 2011a). Above, tax havens and shadow
banks aggravate inequality, and the use of complicated company structures to avoid taxes and regulation
increases the financial system’s obscurity and accumulate risks (Liebert 2011b, 51ff). Politics missed
8
one more opportunity. Instead of using the crisis and stimulus measures to induce the ecological
transformation, different states supported their national car industry.
Imposing Draconic Measures in Europe
It becomes evident that politics mitigated some of the crisis' symptoms on a short time base and
postponed far reaching measures and solving the crisis' origins. Beckert and Streeck suggest that in the
first phase of the crisis, politics saved banks by socializing their losses, in the second phase countries of
the European periphery got in difficulties because it seemed unrealistic that they would repay their debt.
In the third phase the crisis affects core states of the world economic system such as Italy and France.
This would cause problems because these countries are too big to bailout and conventional instruments
of crisis management do not offer solutions (Beckert & Streeck 2011).
If one looks at the form of imposing politics, one discovers that politics chooses increasingly a modus
operandi which Beckert and Streeck do not explicitly address: measures are doubtful from a democratic
point of view. Whereas rescue funds financed by tax money are administrated by bodies which in most
cases are not allowed to disclose information about the use of funds to elected parliaments, policy tools
such as debt brakes replace democratic decisions. Decisions are often delegated to single-edged expert
commissions. This might be one consequence of missing political structures within the EU, especially
non-institutionalized ecological and social rights, whereas principles of the free market such as the
principle of equality of treatment is institutionalized – despite of different economic frames and the
possibility of using these frames for arbitrage. Due to the EU's unanimity rule in fiscal policy it is easy
for lobbies to play one government off against others. In many cases governments privilege the interests
of a national core business instead of common interests of citizen in the EU (see savings directive).
Because of the unequal economic balance of power, crisis states are open to blackmail. At the moment
the European integration is used as the new 'TINA-principle'. A delimited set of measures (esp. austerity,
bailing-out the creditors) is presented as the only possibly way to prevent higher costs and worse
consequences.
2. Herakles or Sisyphus? The case of Attac Germany fighting the tax and banking system
In academic discussions concerning reform policy, discussants often suggest that civil society shall
make it. But, comparing civil societies far reaching demands and concepts with the modest
achievements in the light of EU reform policy, civil society's activities seem to have the character of
a Sisyphus work. How successful was civil society in imposing socio-economic alternatives and
what might be expected in the actual situation? I will consider civil society‘s activities and
influence using the example of the German branch of the Social Movement Organisation (SMO)
9
Attac7 and its main activities in the domains of taxes and tax evasion and the handling of banks and
debts. I later explore Attac’s achievements and failures in the context of academic debates on the
failure of reform policy.
Attac is a SMO founded in1998 in France as a response to the Asian Crisis. Shortly later sections in
other countries were founded. Attac is an acronym for ‘association pour une taxation des
transactions financières pour l'aide aux citoyens’8. The main purpose is to democratize globalized
financial markets and the economy. Attac deals with a broad range of related topics such as world
trade, financial market regulation, taxation, global social rights, privatization, Europe and much
more. The SMO combines both working methods of NGOs and Social Movements: it organizes
mass protests, is active in education understood as 'economic alphabetization', networks, campaigns,
lobbies politicians and – to a certain extent – provides expertise. As a matter of principle, political
work is done on a honorary base. Attac Germany had around 25.000 members in 2011. There are a
few employees for organizational work and a press officer financed by membership fees. Political
work is mainly done by local activists (organised in local committees), specialized trans-regional
working groups (financial markets, world trade etc.), trans-regional campaign groups, a
coordinating board, membership organizations (esp. NGOs) and a scientific/academic council
(Attac 2012b).
When Attac started activists were seen as radical and ideologist by the mainstream. There was little
support from a broad public, but a lot of support from a small community eager to articulate social
critique. The slogan “another world is possible” was perceived as one of the first opponents of the
TINA-principle. Despite of little public support, the press often reported about. This is probably
because of Attac's media strategy (providing images and narratives for the press) and because at that
time Attac was the only mass movement concerned with globalized and financial markets. Most
activities had an educational character and the activists worked on building up expertise. Even if
activists used occasions of public outrage to promote Attac's points of view (such as Vodefone's tax
tricks in the hostile takeover of Mannesmann), campaigns merely focussed on creating awareness in
the broad public instead of putting changes into practice. Journalists sometimes misinterpreted Attac
as a single-issue movement for the Tobin Tax. Indeed, activists saw it as a focussed demand useful
for campaigning to convey about a broader range of problems related to financial markets and
further systemic issues. In the first phase, Attac was opposed to all parties in the German
parliament. Topics related to financial markets or taxes had even little support within Attac and
worked out positions – for example the concept of a simplified and solidary tax system
7
8
I chose the example of Attac Germany's work on taxation and financial market because these are core topics
relevant for discussions about regulation in times of crisis. Attac Germany is at the moment the biggest Attac chapter
and I participated myself for several years in the working group on financial markets and taxes.
Association for the taxing financial transactions for the benefit of citizens
10
(‘Solidarische Einfachsteuer’, in short ‘SES’) or about issues of debt – were rarely taken up by the
press and from most Attac activists. The acceptance of Attac grew after the successful G8-protests
in Heiligendamm and because of convincing statements of activists (for example about tax havens).
Nonetheless activities were often ignored because of missing public awareness. Plans to occupy the
Frankfurt stock exchange in 2007 were abandoned and a press conference at the occasion of a
presentation of demands of an international group of academics to close down financial market
speculation in May 2008 was ignored by the press, which after the crash of Lehman brothers
complained about the movement’s missing demands.
The situation changed after the crash of Lehman Brothers. A broad public realized that Attac was
right in warning of financial market instability. Step-by-step politicians changed rhetoric and took
up modest demands (FTT). The public opinion shifted and journalists suggested that Attac’s
positions became mainstream and complained about missing present of the SMO in the crisis (taz
2008). Attac was asked to provide expertise in a variety of issues and to provide speakers for media
– exigencies difficult to cope with if political work is done on honorary basis. Attac missed this
window of opportunity for several reasons.
Firstly, there was a brain drain to parties, NGOs and universities probably because that work was
paid and because activists saw opportunities to promote their aims in more established context.
Knowledge in Attac's core field was now needed and accepted to a higher extend.
Secondly, Attac is not any more perceived as radical, but neither as an organization providing
expertise. Before the crisis, Attac was mainly concerned with education and convicting others. As
demands were rarely taken in serious before the crisis, there were no detailed plans for the reorganization of the financial system. Once the public became more critical about global financial
markets, actors within Attac concluded that Attac should present more radical solutions, such as
abolishing capitalism or a de-growth agenda. Some activist criticized others for their pragmatic
demands, took over with the intention to abolish capitalism, and after half a year came back to
pragmatic demands. As Attac is conceived as a network bringing together different actors critical
about neo-liberal globalization, there was no consensus about more radical positions. At the
moment there does not seem to be a shift to Marxism or grand narratives within Attac. A variety of
different approaches co-exist, similar to the boom of local initiatives which can be found in the
transition town or urban gardening movement. Some Attac activists focused on de-growth, a field
taken up by activists and academics. Until now, these activities seem to be little bundled and are not
perceived to a similar extend as the critique of financial markets. Another option discussed after
2008 was to provide more expert knowledge in core fields. It was argued that it takes too long to
find positions, that honorary members have no time for in deep research and that there were no
11
experts available for media. Above, Attac had no clear and prompt answers to current issues, for
example the question whether banks should be saved or not. Additionally it is difficult for civil
society to oversee reforms in area perceived as core areas, to articulate and bundle protest and to
mobilize. After the crisis, NGOs increasingly took over the lead in co-operations because of more
personnel and because of an extended demand of detailed and probably less fundamental expertise.
But also associated NGOs have problems getting heard because reforms are increasingly delegated
to expert commissions composed by representatives of financial industry and ‘econocrats’ (Froud et
al. 2010; Engelen et al. 2011: 188ff) and lobbies have far more personnel (Alter-EU 2009). So, even
if activists were able to convince the public in general questions, they have little means to influence
the technical implementation of reforms. So far, propositions to provide more expertise by
professionals have been rejected due to the conviction that Attac could move its character as mass
movement and due to missing funds.
Thirdly, pseudo Attac-positions were taken for Attac positions. Mainstream politicians changed
rhetoric such that only well informed persons are able to distinguish the differences between far
reaching demands of Attac and political measures in question. Many people – including journalists
– believe that mainstream policy took up Attac's positions, whereas in fact mainstream policy only
took up single demands. Attac has been successful in influencing the public discourse in topics
conceived as core fields, namely financial market control and missing international political
steering (G8, tax havens). But often, the public and journalists know positions only superficially
and thereby do not understand reciprocal effects related to systemic issues as Attac activist do.
Demands are taken up but by politics and companies as far as they do not change their business
model.
Main activities in the field of financial market control and taxes of Attac Germany (2004 onwards)
Topic
Activities
Year and
Occasion
Main effects of activities Involve
ment of
professio
nal or
quasiprofessio
nal
experts
Simplified and
Solidary Tax
System
(Solidarische
Einfachsteuer)
Networking with tax
2004
Little attention in the
Yes
specialists from unions
Agenda setting broad public and among
(ver.di, IG Metall),
mainstream experts.
academics and tax
consultants. Publication of a
concept for a more solidary
and simplified tax system in
Germany.
12
Mobiliz
ation a)
within
Attac
b) in
the
public
Short
term
success /
failing in
real
politics
a) b) -
-
Vodafone Tax
Campaign
Campaign against Vodafone.
Boycott appeal and actions.
Appeal to politics to change
tax legislation. Attempt to
feature a concept for a
‘simplified and solidary tax
system’ (SES).
2004
Outrage about
Vodafone's tax
tricks in a
hostile takeover
Broad participation in
No
actions in Vodafone
stores. Amendment of
one single tax law. Little
public interest in the
SES.
a) ~
b) +
~
Debts
Campaign for the relief of
Argentina’s debt from the
time of military dictatorship
(together with the SMO
Erlassjahr).
2004
Several
lawsuits in
Germany
against
Argentina
Little mobilization, little Marginal a) tangible effects.
ly
b) -
-
Global Taxes
(among others
Financial
Transaction
Tax)
Campaign for the
introduction of global taxes
(air ticket levy,
environmental taxes,
financial taxation tax,
closing down of tax havens
etc.). Educational activities
and lobbying together with
international NGOs.
2005-2007
Tenacious mobilization
within Attac. Successful
petition initiative signed
by deputies. Successful
international
networking. Only the
most modest demand
(air ticket levy) was
introduced.
Partly
a) (coopera b) tion
partners
from
NGOs)
~
Tax havens
Presence of Attac speaker in 2008
the media. Demonstration in
Liechtenstein.
Purchase of
data from
Liechtenstein
by a federal
state.
Finance ministry (social
democrats) changed the
position and started to
combat tax evasion.
No, but
Attac
speaker
quasiprofessi
onal
a) ~
b) +
+
‘Closing the
Casino’ /
Crisis project
group
Publication of a declaration
'closing the casino' of
European Attac signed by
academics in May 2007.
Project group for
mobilization after the crash.
2007/
2008
Declaration: no media
No
interest (too early before
the crash). Project group
little successful due to
internal debates about
how to deal with banks.
Action in the Frankfurt
stock exchange widely
broadcasted.
a) ~
b) - -
-
Bank tribunal
3-days acting tribunal
composed by journalists,
academics and politicians in
the 'Volksbühne' Berlin.
2010
Tobin Hood
Tax / FTT
Campaign of Attac, NGOs
and church groups for the
FTT. Accompaniment of the
introduction of the FTT.
2009 - ...
Crash
Photo
exhibition on
tax havens
Double
taxation
agreement
Agenda
surfing: Lula
group / MDGs
Crash of the
bubble
Sold out, and highly
appreciated from
participants. Little
media attention and little
reach beyond Attac.
Partly
a) +
(journali b) sts and
academi
cs)
-
Step-by-step trial to
introduce the tax and
support of formerly
opponents. Little
support within Attac.
Yes
a) (coopera b) +
tion
partners
from
NGOs,
church)
(+)
Production of a touring
2009-2012
exhibition showing photos of
letterbox companies and
Agenda setting
impressions from tax havens / Educational
in Europe and information
about the topic.
Exhibition shown in
around 70 places in
Germany, Austria,
Switzerland and
Norway. Broad reach.
No
a) ~
(margina b) +
lly TJN)
~
Lobbying and internet
protest against the
undermining of the EU's
Not yet decided. Up to
now, biggest opposition
partly blocked
Yes
a) ~
(Cooper b) +
ation
(+)
Policy failures
in handling
banks
2011-...
DTA
13
(CH-D)
saving directive by the
Swiss-German DTA.
agreement in a way it
will probably not enter
into force.
partners
from
NGOs.
Change-yourbank
campaign
Campaign to a) make bank
2010- …
clients change their bank
account and b) address
Outrage about
politics to split up banks,
banks
impose rules against shadow
banking, control hedge funds
and private equity funds,
stop commodity speculation
and more.
Several banks
announced they would
stop commodity
speculation (a.o.
Commerzbank).
Little success with
demands to politics.
Partly
quasiprofessi
onals
Attacs
Wide press coverage
(page 1 in several
leading newspapers).
Partly
a) +
(coopera b) +
tion
partners)
Redistribution Network of Attac, unions,
!
NGOs, migrant groups
launched an appeal for a
wealth taxes and closing
down tax havens. Press
conference and Dagobert
Duck stunt.
2012 - …
Outrage about
unequal
distribution of
the costs of the
crisis.
a) ~
b) +
(+)
+ = successful, - = unsuccessful, ~ = more or less successful, (+) = probably successful but not yet
decided
Campaigns were especially successful if they were focusing companies, for example protests
against banks’ commodity speculation. In core issues and deeper fundamental questions
(distribution, trade imbalances, the use of financial products, monetary policy, regulated markets,
economic democracy) it mostly seems as difficult to reach the public, as to convince it of the harm
of the financial system before the crisis. In contrast post-2008, politicians seem to be more willing
to reflect Attac's critique and to put into practice core ideas of financial market control. Because of
different assumptions of reciprocal effects in economies, on-going regulations are perceived as
inconsistent and insufficient from the perspective of Attac. As the comparison of different activities
shows, demands have little chances of being taken up if only experts articulate them. But if expert
knowledge is combined with campaigning and mobilization there seem to be better chances to
impose changes. Because of its structure based on honorary work Attac is not good in consistently
monitoring reform process in detail and has problems to put concepts into practice. Despite of new
players trying to change the financial system among NGO (for instance Finance Watch etc.) and the
Occupy movement, there is no mass movement in the field of finance compared to other areas such
as environment and peace. Finance might be seen as a topic for experts and many people have the
impression they are not competent to speak about it.
Civil society’s possibilities in the light of debates about failure of reforms
To summarize, the perception of Attac's critique changed after the crash, but the change in public
opinion was not paralleled by a change in policy but transformed in symbolic policy. The question
14
of reform failure has been addressed by a variety of authors. In the following I will pick out
interpretation from the field of financialization research and shortly come to an explanation from
post democracy because these interpretations seem to be interesting for discussing civil society's
strategies. Of course, one could draw back on neo-marxist approaches which would – roughly
sketched – see the recent crisis as one element of a series of crisis in capitalism due to accumulation
and the interest conflict between capital and labour, or unresolved class struggles which now enters
a new phase by colonizing crisis states and nature (Altvater 2010, S.55ff). I will not further deepen
these standpoints because this is already done by others, and because I am convinced that Marxists'
interpretations should be complemented by conceptions taking into account the influence of social
and political structures and of conventions.
In their book ‘After the Great Complacence’ Engelen et al. explain the crisis 2007/2008 as an elite
debacle and one important reason for missing far reaching reforms ‘in the failure to construct any
widely acceptable narrative which made sense of the crisis’ (Engelen et al. 2011: 35). Their notion
of ‘story driven capitalism’ suggests that with the raise of mass democracy, elites increasingly used
narratives to bring forward their own interests (Engelen et al. 2011: 22). Old and financial elites
cooperated; they took political and technical elites on their side by using narratives about ‘the
benefits of financial innovation’ or ‘the social value of finance’ (Engelen et al. 2011: 143ff); elites
present ‘sectional interests of finance’ as ‘the national interest’ (Engelen et al. 2011: 35). According
to Engelen et al. the crisis was predicted by different actors, but because of the mutual endorsement
of financial, political and technocratic elites pre-2007 it was not prevented. Elite structures persist
because of long chains of mutual dependencies. In this view the crisis “resulted from an
accumulation of small, in themselves relatively harmless, decisions made by individual traders or
bankers or banks” and by regulators and political elites implanting financial policy in accordance to
market stories. As a result, ‘risk was concentrated not dispersed by a dysfunctional banking system’
(Engelen et al. 2011: 9). In her analysis of the US-economy, Greta Krippner also comes to the
conclusion that the crisis is not exclusively “– or even primarily – economic in nature, but rather
reflects a series of social and political dilemmas carried underneath apparently technical problems”
(Krippner 2010: 144). For the author, the recent crisis is a result of a ‘series of unresolved
distributional questions’ since the 1970s: It was easier for politicians and other actors to choose
short term solutions (such as growth, inflation and finally the turn to finance) than implementing a
political or economic system which induces a more equal distribution (Krippner 2010: 165). So,
underdogs could maintain or even improve their life standard receiving credits, whose risks were
first distributed in the world by financial markets and later caused the recent crisis (Krippner
15
2010).9 So, Krippner as Engelen et al. see the crisis as a result of long term processes, either the
capture of economy and society by elites using stories or by the unsolved political problem of
distribution.
Colin Crouch points to a principal problem of the regulation, namely 'state' or 'regulatory capture'.
Firstly, regulators must face the critique that regulations would cause costs equal to a loss in wealth
and they would impede innovation. Secondly, regulations would be too formalistic, react to market
innovations and would often take hold too late once new externalities arise. Thirdly, authorities
would be susceptible to ‘regulatory captures’, which means that by cooperating with firms to
regulate, authorities would often rely on their knowledge in specific cases. As a consequence,
authorities insidiously take over the firms’ point of view and neglect their proper mission (Crouch
2011: 111). Crouch concludes that the regulation of the economy by the state is principally difficult
because each measure conceived to prevent market failures would further push the entanglement
between politics and the economy (Crouch 2011: 114). To which extend do these analysis comply
with Attac’s experiences in influencing the reform process?
Most Attac activists also see issues of distribution as one important crisis factor and would agree to
solve deeper problems instead of putting forward technical questions. Up to now, it seems that
Attac’s critique of financial markets was superficially taken up and increasingly the critique of
inequality and privatization. But apparently the broad public does not structural connections
between these phenomena. Technical propositions are promoted anyhow because a) of a ‘spearhead’
strategy aiming at first introducing one regulation which might be complemented later and might
serve as an example, b) because of media attention and c) in regard to the motivation of activist
concerning the imposition of measures in real politics. To evaluate Attac’s influence on discourses it
would be necessary to deeper analyse them. Anyhow, taking into account newspaper articles and
statements from people not involved into Attac, it seems that Attac could implant several narratives,
especially the one of the harm of financial market speculation for society, the use of tax avoidance
and tax havens and to influence local discourses in special cases of privatisation. But as the case of
financial market regulation shows, it is not sufficiently to implant narratives, if they are translated to
symbolic policy and if the underlying conceptions are not embodied in legislation. From this
perspective it may be useful to distinguish between the effects of elite narratives and those
focussing on general interests. Research on political strategy has shown that democratic institutions
follow a different logic than economic entities because economic interests are less complex and
actors can easily articulate their particular interest (Raschke & Tils 2011: 51). Whereas elite
9
Even if one cannot transfer the analysis one to one to all Europe states, related developments are in place (which
cannot be analysed in detail here). The turn to finance was paralleled by a turn to an export oriented economy in
states like Germany promoted by a low currency and wage moderation. So, one could say that German companies or
banks invested surpluses in ‘financial innovation’ – with a similar result when financial markets crashed.
16
narratives will probably be backed by lobbying of organized particular interests, there is no such
support of general interest in cases of general interest. Peukert observes an asymmetrically not only
in the choice of regulators being part of the old system and commercial interests, but also a gap of
expertise in political procedures such as hearings. According to Peukert, it is easy for insiders from
financial industry to relate to a case (“or to invent one”), in which financial market regulation has
unwanted consequences. Those who would ask for regulations to avoid systemic risks would have
to use arguments of plausibility. Once relating to a theory it will be argued that it is rejected by the
majority of academics. Peukert concludes that it is especially problematic that the legislator is not
informed to the same degree as the companies which he or she should regulate (Peukert 2011: 529).
Despite of politics’ difficulties to regulate economic actors, Crouch concludes that governance of
firms is possible if one considers the increasing influence of civil society. Citizens, journalists and
academics would increasingly question the powerful. Electronic communication platforms would be
a useful tool to establish a critical counter-public (Crouch 2011: 244). Instead of a return to a
strengthened state-control, a functioning economy would be characterized by a moderate and
constructive tension field between the four forces, namely the state, the market, companies and civil
society, even if the balance of power would probably shift for the benefit of companies (Crouch
2011: 246). From the point of view of reform process after the crisis 2008, Crouch seems to be right
in his description of entanglement between politics and companies. But his description of the
possibilities of civil society seems somehow schematic. Civil society seems to be able to influence
discourses and replace narratives, but in the process of putting demands into practice, civil society
either needs political bodies or expertise which might underlie similar constraints as politics.
I conclude that, at instance, implanting narratives is one first useful step, but it must be followed by
building up embracing alternatives bodies of thought (for example building up upon heterodox
economy or economic or political sociology) to give an orientation to those who formulate and
translate political demands into technical regulations.
3. Socio-Economic alternatives and strategies
Policy has failed in reform policy despite of obvious malfunction of the economic system, but civil
society could neither bring forward the fundamental change to prevent the next crisis and to
encompass a reversal of ecological damages. This cannot be reproached to civil society, because
policy is responsible, has institutions and is paid to impose the voters' will. Anyhow civil society
should reflect its strategies because political scope is increasingly restricted due to the concentration
of capital, in financial companies, tight public and opulent private budgets and the substitution of
political decision making by policy tools (debt brakes, fiscal pact, ESM, monetary policy of the
17
ECB) and to expert commissions. Elsewhere we argue that de-democratization is a result of a long
term process reflecting that capitalism does not need democratic legitimation any more in the sense
of a 'new spirit of capitalism'. Once core actors are powerful enough to impose their will and were
entitled by policy, the result might be compared to the situation described by Max Weber's notion of
'stahlhartes Gebäude' – an iron cage to which people must adapt (Ötsch, Pasqualoni & Scott 2013).
This does not mean that there is no scope of action left. Literature on movement research suggests,
that the influence of civil society and NGOs rises because these actors are perceived more credible
than politics and offer different possibilities to engage. Whereas in the 90s NGOs accompanying
international conferences raised, there seem to be a new cycle of movements formed by protests in
Arabic countries, camps in southern states of Europe and Occupy. Relating to movements in 2011,
Roland Roth points out“Wenn Gerechtigkeitsvorstellungen erneut Proteste stimulieren, dann ist dies
in einem zunehmend moralfrei auftretenden Kapitalismus bereits eine enorme Leistung” (Roth
2012: 24). Protests seem to have a different character than preceding ones: a core group of
protesters are young well educated persons which see little professional prospects (Roth 2012: 25).
Beyond pragmatic demands protests target established forms of political representation of western
systems understood as elitist and ask for ‘real democracy’. There are little attempts to replace
capitalism by another system seem as gran narrative, but merely an orientation towards cooperative, communalist or anarchist concepts (Roth 2012: 25f). Up to now it is unclear whether the
new movements will have lasting effects.
Movement research gives different recommendations for civil society. Whereas Brunnengräber sees
a chance in consolidation the movement’s concerns by a phase of professionalization and
institutionalization (Brunnengräber 2012: 49), Narberhaus calls for a ‘great transformation’:
Pragmatic CSOs strategies could harm because they wrongly connote that little steps and small
technical changes could solve problems. Linear approaches focusing on single demands could even
cause ‘rebound effects’ because of complex backlashes in the system (Narberhaus 2012: 65f). As a
consequence of this Narberhaus suggests a strategy which bundle a broad range of actors (citizen,
politicians, companies and donors) relying on common ‘key values and principles’, promoting
cross-linked thinking in organizations, implanting cultural transformation, linking and supporting
‘change agents’10, the rise of a global movement and to contain funders (Narberhaus 2012: 67ff). As
in this case, movement research often plays off NGOs using strategies of representation and
lobbying and movements formed by engaged citizen promoting wider concerns. On the base of the
case study and the view on reforms I conclude that such a distinction is useful from an analytical
point of view, but these strategies should not be understood as opposites between which civil
10
According to Legewie & Welzer ‘change agents’ are those who question established world views and actively help
to create new institutions (Narberhaus 2012: 69).
18
society has to choose, but as complementary. Instead both enforce each other: Once mobilization
loses force, NGOs or actors with stable structures continue watching and pressing politics or
corporations. Once NGOs get too modest or have too little pressure, movements may generate
political pressure and push the NGOs' demands further.
That is why I propose a multifold strategy which consists of:
a) Pushing forward changes in real politics in core areas on finance and creating more stable
structures for creating expertise, policy advice and lobbying in this field. In many cases
NGOs are criticized rightly for concentrating on modest demands. If one looks closer at
NGOs and think tanks in the field of financial market regulation and taxation one realizes
that there are little players and lobby capacities in relation to other areas such as
environmental policy. Looking at the other side of the coin, civil society should not be
content with symbolic victories, but push forward changes in real politics. These lobby
strategies should target merely an upper level of policy (international, European or national)
because decisions taken on these levels have probably a wider impact than decisions in local
politics.
b) In regard to the all-embracing problems of a multiple crisis and the failure of reforms it
seems reasonable to pursue on the same time strategy b) which consist of promoting
alternatives aiming at building up alternative systems in niches, that means on the microlevel in contexts in which citizens have bigger scopes of action. One way to react to the
increasing complexity, respectively intricacy of financial systems (which advantages rich
players) is to build up counter expertise. Another way would be to reduce intricacy by
conceiving systems which are as simple that political decision makers understand what they
regulate. Instead of changing the existing financial system, citizens could also try to get
independent of the system in a way the overall system gets more resilient. Both processes
should be accompanied by promoting and building up an alternative body of thought on
economic phenomena and making sure that economic theory is not misused to justify the
actions of powerful actors.
3.1. Strategy a) in more detail. Enforcing counter-expertise in finance and imposing changes in real
politics
In the last decades, economics taught at universities was based on a restricted and often ideological,
respectively interest-guided field of economics. As an effect of this, many professionals in
economic professions, regulators and politicians are guided by questionable ideas which support
elite interests. The pool of personal which supports alternative approaches and has the knowledge to
19
influence reform process in expert commissions and the executive is small. Policy should make sure
that expertise in heterodox economy and other alternative forms of thinking about economics
(economic sociology, the know-how of NGOs) should be promoted. Commissions and posts should
be composed in a more balanced way.
Often, Attac, Occupy and others are reproached for offering too little proposals of reform. This
critique merely shows the commentators' ignorance. Civil society made a variety of proposals
which are much too extensive, to comment them all. In the following I will pick out some
approaches which seem particularly reasonable to me.
a) Issues of distribution
Authors from the field of heterodox and political economy often see unresolved distributional issues
as a cause of the crisis (Krippner 2010; Otte 2008: 13). Tax policy is an approved tool which could
be used in the short term and which has successfully been used in other occasions, for instance to
finance investment in Roosevelt's New Deal (Zinn 2009: 193ff). Instead of using excessive wealth
to pay for crisis intervention, mainstream policy maintain a tax policy which favours rich private
persons, working rich and (primarily multinational) companies. The unequal distribution leads to a
turn away from meritocracy towards a society in which merits are little important in comparison to
ancestry. Neckel and others speak of neo-feudalism (Neckel 2010; Kissling 2008). Most fortunes
are inherited and not acquired by professional work. Elite research has shown that persons with elite
background have easier access to lucrative professions than other equally qualified persons
(Hartmann 2007).
Concerning tax policy, taxes on wealth should be reinstalled and taxes on the profits of corporations
should rise. Propositions about tax rates and base vary from country to country. In most countries,
capital is taxed less than income. Whereas the top rate of income tax is at 50 % in Austria, most
capital returns on capital are only taxed at a flat rate of 25 %. The widely commented introduction
of financial transaction taxes is long overdue. The proposition to introduce a one-time capital levy
on personal net wealth seems particularly plausible. Such a levy at the rate of 50 % to be paid
within 30 years has successfully been used by the German government in 1954 to rebuild the
country; a levy has also been used in post-war Japan (Bach, Beznoska & Steiner 2011: 7).
According to a recent study of the DIW, the introduction of a levy at the base of 10 % at an
allowance of € 250.000 by adult would bring around € 230 billion (or 9 % of the annual GDP) in
Germany (Bach 2012: 3). The author concludes that European States in crisis could raise significant
amounts of money by the levy (Bach 2012: 3).
20
Because of wide spread prejudices concerning the introduction of taxes, some economists and
activists argue, that a more realistic solution would be a hair-cut, in which creditors lose a part of
their capital because they deliberately took the risk. Otherwise bailing out would not end and more
and more tax money would be used to feed a system which does not work (Pfeiffer 2009: 9ff). In
my opinion, this solution is better than continuing the unsustainable policy of bailing out creditors
with public money, imposing austerity measures and lower labour standards. But it implies some
risks because it is difficult to preview the consequences of possible shocks and bank runs and could
finally cause higher costs. It is uncertain what politically would happen after a crash.
Redistributing would be a first step. Beyond it is necessary to undertake measures to prevent that an
extreme unequal distribution of income and wealth. The authors of a study of the New Economic
Foundation point out that it is absurd, that professional groups which most harm society (tax
consultant, investment banker, advertising executive) are the most well paid ones, whereas those
who have the highest use (hospital cleaner, recycling plant worker, childcare worker) are little paid
(NEF 2009). The narrative saying that receivers of top income would work less is not convincing
because different studies showed that there is no direct correlation relation between pay and
achievement (Fabbri & Marin 2012). Measures to prevent unjust distribution of incomes would be
the introduction of minimal or maximal incomes or a different organisation of work processes as
proposed in concepts of economic democracy (Demirovic 2007).
b) Regulating financial markets and institutions
The growth of financial market was perceived as positive because it was argued that markets were
efficient and thereby capital would allocate where needed in the economy. The crisis made clear
that capital creates bubbles and allocates where investors expect to made private profits on behalf of
stability, the social and the environment by wasting resources (for example by providing real estate
to be sold, but not to be habited). As Krippner and others showed, deregulation and the growth of
financial markets helped camouflaging deeper problems.
As a consequence of this financial markets should shrink, respectively investments of the character
of casino-like bets should be radically decoupled from other parts of the society in a way that those
who are not involved in speculation are not concerned of it. The division of investment and
commercial banking is often mentioned as a solution (with reference to the former US GlassSteagall act) together with the proposal to divide financial institutions into smaller units to prevent
extortion because banks are too-big-to-fail. In principle this seems reasonable. But as financial
institutions are highly interconnected, it might be difficult to really decouple them. If a significant
number of small financial companies uses the conventional business models (see Raiffeisen AT),
21
reforms would be of little use. As long as investment companies administrate huge resources, they
probably exert political pressure to deregulate and if they should fail states would probably bail-out
anyhow. Another core problem consists of the circumvention of regulation by shadow banks. Based
on the volume of assets shadow banks such as hedge funds have an overall bigger volume than
banks and should be prohibited, among others by prohibiting OTC-transactions and closing secrecy
jurisdictions. Financial markets should considerably shrink and banks should change their business
model. One solution would be the promotion of banks with business models focused on social and
ecological use such as the planned 'Demokratische Bank' or the 'GLS-Bank'. Even if the market
share of ethic banks grew after the crisis, it is very small. As soon as alternative banking models are
not the rule further measures are needed. It is especially important to change the business model of
banks. Attac Germany proposes to reverse the control of financial products. Concerning these
products, law makers principally prohibit harmful products and are obliged to argue why. Instead it
would make more sense to turn this principle around by an admission office (Finanzmarkt-TÜV).
Such as in the case of medicine, those who sell products would have to prove that their products
have a use for society (Attac 2009).
Among this the problem of money creation should be targeted. Banks invest more money as they
have (because they only need a small amount of net assets). There might be a price bubble in a
certain sector of the economy which is not in the sight of regulators because the inflation in special
sectors is not reflected in common models of GDP (Christen 2011: 5ff). This might be the case in
the increase of asset or real estate prices. It should be examined whether the proposal for a 100 %
reserve backing for deposits suggested by Irving Fisher in the 30s and others makes sense (Benes &
Kumhof 2012). For now, the role of the ECB should be redefined, because its rules on the stability
of money and inflation prevention rely on presuppositions deducted from monetary systems based
on the gold standard (Christen 2011: 27). Such as central banks from other western countries the
ECB should directly buy assets of certain banks (under conditions) and government bonds. These
measures would lower interest rates. It would prevent that banks borrow money at low rate at the
ECB, lend it for a high rate of interest to countries in crisis and take the profit although the tax
payer and not the bank holds the risk because of the ESM. This would have no impact on the
amount of money because instead of commercial banks, the ECB would create the money.
c) Abolishing offshore-economy
The principle of offshore economy is to undermine legislation of jurisdictions by creating secrecy
jurisdictions (commonly called 'tax' or 'regulatory haven'). Users of the offshore economy are able
to circumvent taxes or/and financial market regulations and thereby undermine democratic
22
procedures. Only those who have access to minimum capital and juridical know how are able to use
these structures. Palan speaks of a “bifurcation of the juridical system” combined with “regimes
designed to attract international investors by offering lower regulation and taxation” (Palan 2003:
20). Offshore economy caused huge economic damages because banks and especially shadow
banks (hedge funds, private equity and money-market funds) often use secrecy jurisdictions for
risky speculation. Among multinational companies and rich private persons hide huge amounts of
money offshore. The wealth of rich private persons (HNWIs) hold offshore is estimated at $ 21-32
trillion (Henry 2012), and companies even use secrecy jurisdictions to a higher extend (Palan 2003).
In the press, it was widely reported that Greeks were estimated to hold € 200 billion in Switzerland
(2011). Offshore economy should be regulated among others by higher requirements concerning
information exchange as previewed in the revised (still blocked) European Savings directive,
transparency of ownership structures (especially in Anglo-Saxon models of secrecy jurisdictions)
and the abolishment of banking secrecy, measures as country-by-country reporting, by higher
requirements concerning net assets (in the case of hedge funds) and more regulation dependent on
the kind of vehicle. In the past it was often said that fighting tax evasion would technically not be
possible because it would concern the legislation of other countries. Measures of the USgovernment against banks aiding tax cheaters show that national governments have bigger scopes of
action (Ötsch 2012: 38).
d) Priority of life quality and ecological and social criteria in the European Union
Due to the institutionalization of core principles of the European Union at the heyday of neo-liberal
ideology and the goal-oriented organization of business interests, European treaties prioritise free
markets compared to other concerns such as ecological or social values which are less
institutionalized. Instead of fixing minimum standards in these domains at the European level,
companies are able to undergo national regulation by relating to the right of establishment or the
principle of equal treatment. Whereas decisions in finance must be taken unilaterally, there is no
such a rule in questions of ecology or social rights. It is especially problematic to use a common
currency for economies in different conditions and with different economic policies. Recently, more
and more academics ask for giving up the Euro, arguing that countries in the southern periphery
have no chance to keep up if they are forced to impose harmful austerity policies and to devalue
their currency; efforts to reinforce democratic political structures in Europe faltered about the last
years (Klimenta 2011). Of course, this would also have negative consequences because investors
could bet against national currencies and states would have to repay their debts in foreign currency.
On the other hand, if states are pressured to impose 'reforms' which harm their citizens on behalf of
23
sectoral interests of elites, they have the choice between pest and cholera. Even citizens in states
which are in better conditions at the moment lost because of lowering life standards and quality due
to increased concurrence – non withstanding that export oriented economic models are exclusive
and unsustainable. On the other hand, the decision on how much Europe is wanted is tricky because
representatives of the right wing put the EU under question and promote a policy of national egoism
and racism. A re-nationalization of Europe could lead to protectionist policy and trade and tariff
wars. For these reasons civil society should not shortly abandon Europe, but make clear that the
Euro and the European Integration should not be misused as the new TINA-principle. Governments
should only agree to hand over competences to the EU under condition that democratic structures
are institutionalized within the EU and that ecological and social objectives are integrated into the
union's structures. Income from taxes on wealth, minimum taxes on companies or those who profit
from the European integration should be used to finance the ecological transformation of the
European Union. It should be examined whether the introduction of a clearing union (Troost &
Hersel 2011: 25ff) would be a possible solution to prevent imbalances in trade. The vision should
aim at achieving the highest life quality, happiness and ecological sustainability as possible. Instead,
many policy leaders promote conditions characteristic for developing countries (low taxes, flexible
working markets, little regulation, privatization).
3.2. Strategy b) in more detail. Transforming by building up alternatives in niches
Having failed to impose major reforms post 2008 on the national and international level, civil
society should consider how to develop alternatives which aim at both decoupling the local
economy from international chains of mutual dependency and building up economies which follow
different logics. Citizens have more scopes of action on the micro level and may try out alternative
systems in projects of small scale. As sociological technology studies show, innovations often
develop in niches defined as “locations where it is possible to deviate from the rules of the existing
regime”, which provide “locations for learning processes” (Geels 2004: 912). “Radical novelties
may have a 'mis-match' with the existing regime … and do not easily break through”, but once the
higher-ranking system (‘landscape’ in Geel’s terminology) is in crisis, alternative systems tested in
niches may change it (Geels 2004: 913f). Schematically, these changes occur in four pathways,
namely as moderate ‘system transformation’, ‘system reconfiguration’ or as disruptive change by
substitution or ‘de-alignement and re-alignement’ “when the regime is eroded […] and society loses
faith in its systems, but niches are not yet well-developed” (Haxeltine & Seyfang 2009: 8; Geels &
Schot 2007). The strategy to transform society by building up alternative systems in niches is put
into practice by the transition movement which at the moment is mainly focused on environmental
issues (www.transitiontowns.org). The movement could give some incitation for a transition in the
24
field of finance. A core notion of the movement is 'resilience'. A system is resilient if it can absorb
disturbance and “still remain in the same state or domain of attraction”, if it is “capable of selforganization” and if it can build and increase the capacity for learning and adaptation (Haxeltine &
Seyfang 2009: 4). In the understanding of the transition movement, ecosystems need to have the
characteristics ‘diversity’, ‘modularity’ and ‘tightness of feedbacks’ to get resilient (Haxeltine &
Seyfang 2009: 12f). To systematically apply the concept of transition and resilience to the field of
finance, more studies would be needed. In the following I give some first indications which
approaches could lead into this direction.
Instead of confronting financial systems' intricacy by competing with financial industries' experts
and workforce, policy could also search solutions for making systems simpler, in a way a system
can be fully understood by regulators (if possible by those who work within and its users). A
measure to simplify financial systems could be the already mentioned admission authority for
financial products (Finanzmarkt-TÜV) because complex financial products with no proven use for
society would disappear. Banking should become more 'boring' (more proposals see Felber 2012:
65ff). To get more independent from banks, more direct form of financing could be envisaged such
as the direct issue of bonds for projects without bank funding by citizen (Jensen 2011: 154ff).
Another measure would be the simplification of tax systems, especially for companies. At instance,
tax advisers spent a significant amount of their lifetime in helping companies and private persons to
pay less tax and authorities (especially in developing countries) have little capacities and too little
information to check declarations. By simplification I explicitly do NOT mean the flat tax 11, but
especially the deletion of exceptions, of different categories as explained in the already mentioned
model of the solidary simplicied tax concept (Attac & ver.di 2004), the harmonization of tax rates,
country-by-country reporting, transparent company structures and the abolishment of anonymously
levied withholding taxes and the banking secrecy.
Transition path would still be still broader than the mentioned examples. In 2010 Attac Austria
published a declaration in which it presented seven 'transition path', namely a financial system
committed to public welfare, Glocalization (strengthening local economic circles for environmental
reasons), food sovereignty, an embracing democratization, energy sovereignty, the promotion of the
commons and human working conditions (Attac AT 2010). However, the development of cooperatives has shown that these alternative forms of economizing underlie processes of
conventionalizing (Kratochvil & Leitner 2005). If the overall system does not change there might
be the danger that alternative approaches are under soft or direct pressure to adapt to the prevailing
11
The flat tax is no solution because of it distributed from the poor to the rich and would strengthen inequality and
lead to the next crisis. The arguments that the rich and enterprises would pay more taxes because they would not
cheat if the tax base is lower is not convincing, as soon as more effective measures to close tax havens are not taken.
25
system. That is why the local initiatives should be paralleled by changes in the overall frame, if
initiatives may not fall back to the point of departure. Besides practical questions and lifestyle,
transition should also be applied to knowledge production. Economic research should get more
diverse, address core problems of the society, integrate learning processes (match theories with
empiricism, see Real World Economics http://www.paecon.net/) and allow new approaches. Citizen
should not rely on experts, but dare to interfere in finance because it is obvious that the established
elites and a big number of experts were completely wrong in core questions.
Coming back to the analogy of the hydra, mythology told that the beast can be beaten by using the
right tools. Herakles, the Hydra’s opponent, uses a lion’s skin, burning arrows and networked with
his nephew who had the idea to beaten the hydra by of using a firebrand to scorch the neck stumps
after each decapitation. The immortal head was cut and deposited under a rock. Even if the task
seems mostly impossible to cope, there might be a chance to win. Of course such a bloody story
does not fit well with a peace conference. In my view, socio-economic conflicts often precede
armed conflict. Consequently, the best war prevention is to introduce socio-economic changes as
long as there is still time.
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