Yesterday, Germany and France announced a public spending plan to be implemented from Brussels covering half of the volume requested by Spain and Italy, a quarter of the volume requested by the European Parliament. But even after such substantial cuts, it is still little more than a symbolic measure: the Netherlands, Austria, Denmark and Sweden strongly oppose the announcement, which needs the unanimity of the 26 countries to be approved. The Spanish ruling class knows that it cannot expect a shortcut in the crisis from the European mechanisms and is beginning to outline a strategy for what they call ” economic and social reconstruction“.
Business closures and unemployment
The Spanish government’s gamble in declaring the state of alarm and generalizing temporary layoffs was to avoid the termination of employment contracts, putting the labor market “on hold”. The idea was that it was cheaper for the state to pay unemployment benefits temporarily to hundreds of thousands of workers and to give guarantees to companies for financing their treasury while they were inactive, than to help businesses recover activity if they laid off their staff. The temporary layoffs would “hide” the real unemployment and buy time. How much? It would depend on the cost of financing Social Security.
What happened? The state guarantees have attracted only half the private credit the government expected. The banks are afraid of the recession that is beginning and what they have asked the Central Bank for is more than the record of the last three years. Let’s add to that that the most affected activities are mostly in sectors with a low concentration of capital (SMEs) which are the ones that use the largest volume of labor power.
The result: 40% of real unemployment, counting official unemployed, workers under temporary layoffs and self-employed who have become inactive. What’s worse, official forecasts are around 20% unemployment by the end of the year and a 9.4% drop in GDP. Production would not recover to December levels before 2023.
As a direct consequence: the figures of the temporary layoff strategy do not work out because businesses have no market and no possibility of getting into further debt. Neither does the state, so the government is open to turning temporary into permanent layoffs after July. The fear of unemployment has already surpassed that of the worst moment of the financial crisis of 2009, and this fear is not caused by a whim of the workers.
Wages and pensions
Nothing is easier than lowering wages in the midst of widespread fear of unemployment. For the time being, pensions and collective agreements of large companies would be frozen at least during the whole of 2021. The reality is that total wages are going to fall, and by a lot in a context full of peculiarities. Businesses in difficulty will manage to lower bargaining agreements, the tendency to replace permanent workers with precarious ones paid at the minimum wage will accelerate, the number of days paid as part-time work will multiply…
But even those workers who will keep the salary and hours contributed will see their purchasing power reduced. At the moment, oil is already rising, but more importantly, everyone is assuming a tax hike. It’s not just that most of the new tax burden will, as always, fall on workers via prices and indirect taxes. It is that the medium-term outlook of economists and think tanks points to a “reform package” that would reduce the maximum pension to the level of the minimum wage, deepen cuts in public services, generally increase taxes at the base of the income pyramid and reduce public employment:
Spain needs a Bravo Murillo or a Raimundo Fernández Villaverde [19th century politicians] to make a tax reform that would increase revenues by 2% of GDP in the coming years. And to cut structural public spending by at least another 2% of GDP. The main problem lies in pensions, which this year will suffer a hole of more than 30 billion euros. Pensions were created to protect against poverty and 70% of pensioners earn less than 1,000 euros and are on that threshold, the rest are unsustainable. The Administration needs a comprehensive digital transformation plan and to increase the productivity of civil servants. Confinement has shown that teleworking with far fewer public employees is possible.
What happened to “Social Justice”?
We are facing a reconfiguration of the “road map” of the Spanish bourgeoisie and not just an acceleration of its goals. Pensions are under attack, but the core of the strategy is no longer a gradual introduction of the “Austrian backpack“, but a direct attack on the median pension amount and a structural tax reform that will include a redefinition of public services, that is, that will aim at reducing the overall operating costs of national capital by transforming the income and expenditure structure of the state.
With these aims, the role of the left wing, not only in Spain but throughout Southern Europe, is going to be to sell us as social advances new ways of reducing spending on social cohesion. They have already begun to do so: the discourse on the “European minimum income” or the “minimum living income” (both being forms of universal basic income) in Spain is a first example.
The strategy is really cynical, and very similar to that of the minimum wage: to strengthen and slightly raise wages, pensions and minimum social benefits without touching the framework of precarization and “flexibility” of the labor market or the goal of “budgetary balance”. In this way, the wages, pensions and social benefits received by the majority of workers fall automatically “by themselves”, accelerating the fall in the percentage of national income that goes to the workers and increasing that which goes to capital.
In the end, “social justice” is nothing more than invoking “solidarity with the most vulnerable” in order to impose new sacrifices on the bulk of the workers that will allow an accelerated revalorization of capital. If anything new comes to us, it is that now, together with the most vulnerable, the climate and the environment will be added to the argument of false reasons for our impoverishment. The fact that the “Climate Law” has been included among the “de-escalation” measures warns us that another pillar of the government’s strategy – in line with the entire EU – is going to be to speed up the “Green Transition” as a way of transferring even more income from labor to capital.
Along with the recession, a period of direct attacks on our working, retirement and general living conditions is opening up. Wages, pensions and working conditions will be in the front line. It is more important than ever not to fall into the traps that attempt to make us support the production of dividends at the expense of our vital needs, be it in the name of “reconstruction”, “social justice” or “climate change”.