Guest post by SHRINIVAS DHARMA
News of Volkswagen’s systematic cheating in emission tests by making its cars appear far less polluting than they are, has proved to be a bolt from the blue for the Global Automobile industry, financial markets, European politicians and German society at large. VW is more than just another car company. For German society, it is a heritage brand with iconic status. In a reputed poll last month, two-thirds of Germans named Volkswagen as the country’s number one national symbol, putting it before Merkel, the national football team and Goethe. No wonder, this news destroyed 10% of market value of the VW brand in a single trading day.
VW’s so-called “defeat device” a piece of software in the car’s computer is already there on 11 million cars on the road which are emitting up to an extra 1m ton of a toxic gas responsible for killing tens of thousands people in various countries. With this insidious deception, VW has not only let down Germans but the entire Global Society by showing sheer contempt typical of a Big Business towards the continuing environmental degradation. No wonder, the news wiped out billions of dollars off the market value of entire car industry providing credence to the suspicion that emissions test rigging may be more widely practiced art, than what has come to light so far.
However, Volkswagen is not the first German brand that has highlighted the serious fault lines in the carefully cultivated German persona of the fanatically law-abiding disciplinarian Prussian patriarch with highest standards for technical excellence and business ethics.
In the 2012 investigations of the now famous Libor Interest rate fixing scandal, Deutsche Bank was one of the several other banks convicted for the rate fixing which as revealed, was going on for nine years starting as far back as 2003. Deutsche Bank settled the LIBOR Manipulation Suit by paying USD 2.5 Billion to British and American authorities.
Now let us step back for a while and reflect on these events to generate slightly higher level narrative than a mere failure of corporate ethics regime in the large multinational organisations or apathy of big business towards ethical and environmental concerns. My submission is the following:
It has something to do with the TROIKA of the European Commission, International Monetary Fund and European Central Bank, who together constituted the group of international lenders that laid down stringent austerity measures when they provided bailouts, or promises of bailouts for indebted peripheral European states – such as Ireland, Portugal and Greece – in the financial crisis.The basis of Troika’s policy prescriptions to the ailing EZ (i.e. Euro Zone, the fiscal area where the Euro is used) economies of south, the PIGS (Portugal, Italy, Greece and Spain) countries, has been need for convergence of all EZ economies around the best practice policy template, use of which has made Germany the most successful economy during last decade. This was also a consequence of the German intellectual tradition of liberal economy called ordoliberalism to which many Troika technocrats also subscribed. In the past, based on the bitter experience of rising inflation and mass unemployment in Weimar German during the interwar period, the Freiburg school developed this distinctively German version of neoliberal economics, Ordoliberalism.
Unlike its American cousin born at Chicago School, ordoliberalism distinguishes itself in its focus upon rules and order, and defining the government’s role in terms of establishing a strict order around which the market can exist and flourish. In other words, ordoliberalism strives to reconcile market economy with public interest, in particular to limit the power of big corporations. In other words it recognizes the legitimacy of social policy (Vitalpolitik) by recognizing positive role of the state: “ordo”, and not only invisible hand of the market.
However, the Volkswagen and Deutsche Bank instances seem to indicate the failure of Ordoliberalism to maintain one of the three fundamental tenets namely public morality, the other two being “ordered competition” and “fiscal discipline”.
If that be the case, these events provide reasons to question the wisdom behind Troika’s policy of convergence around the German Model for widely varying economies of PIGS nations, when in the course of its implementation these countries are facing enormous social costs by way of shrinking economies, deteriorating living standards, historic unemployment and enormous human sufferings.
Perhaps the principles of Ordoliberalism were implementable in more stable economic environment and growing economies. But today’s turbulent periods need a pragmatic and not a dogmatic approach. The refugee crisis has made situation even worse and the denunciation by the Eastern European block to implement common policy towards refugees has further questioned the viability of European project.
One of the most persistent critics of ordoliberalism, the Nobel Prize winner economist Paul Krugman had said in an article in Fortune magazine in 1999, “Germans are sticklers for principles, while Americans are philosophical and personally “sloppy”. While the Germans had not done too badly in the past, the world was now different, (today, the world is a) more dynamic place that would reward American “flexibility” and make German “discipline” a threat to the “project of a more unified Europe”.
In ultimate analysis, this is something like kettle calling the pot black. Neither neoliberalism has succeeded in the flexible US market in controlling the rising economic inequality nor is ordoliberalism likely to achieve the most cherished European dream. What these two cousins have done is to damage democratic institutions and squeeze democratic space thereby enhancing respectability for sinister neo fascist forces.