REVIEW #4: Europeans and the Market Economy – Weakening Ties

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In the academic and public debate, the economic crisis has visibly shifted the main paradigms behind the economic theory of growth. In the recent years, we have been experiencing a revival of Keynesian theories which stress the importance of state intervention for fostering growth and smoothing the economic cycle. Prominent experts point out to insufficient regulation in the financial sector as one of key drivers of the crisis. Growing inequalities and their negative impact on economies and societies also receive more attention and have got into the mainstream of economic discussion (just to mention Thomas Piketty’s Capital in the Twenty-First Century). Protagonists of the free market have been therefore put into a somewhat defensive position and in the public debate we have been increasingly facing populist arguments for less competition and more state intervention. However, the battle will certainly not be won by simply denying the shift of paradigms. Quite the opposite: we need a thorough and informed discussion to prove that underlying reasons of the crisis were not the inherent features of the free-market economy, but rather deviations from it.

The aim of this article is to contribute to the ongoing debate by analysing social perceptions of the free market economy in the times of the economic crisis. In particular, the main objective is to verify whether the crisis radicalised the attitudes of European societies towards key aspects of the capitalist system. A better understanding of the crisis’ economic sociology might be helpful in defining the line of argumentation in broader policy discussions. Radicalisation in this context could mean decreasing social acceptance for competition and individual responsibility combined with a greater desire of state intervention. Unlike in the political sphere, where radicalism and populism have been recently associated with right-wing movements, in the economic field it is rather the left wing that has strengthened and radicalized to a greater extent.

The centrepiece of the article discusses attitudes towards free market economy based on data gathered through the World Value Survey (WVS). The survey is one of very few existing tools which provide access to longitudinal and internationally comparable data on public opinion research. The sample analysed in this article includes four countries from Eastern Europe’s “new democracies” (Poland, Romania, Slovenia, Ukraine) and four “old democracies” from Western Europe (Germany, Netherlands, Spain, Sweden). The sample was primarily dictated by data availability; however, the intention was also to include countries representing a range of economic governance models. The analysis focusses primarily on two aspects: whether the attitudes towards free market economy changed during the times of the crisis as compared to earlier trends and whether the countries included in the sample share in this respect any common patterns. The analysis of WVS data is preceded by an attempt to quantify the economic crisis in Europe and present the different shapes it took in individual countries. The mapping of the crisis will be then used in the conclusions to interpret the data in a specific economic context.

Turbulent Times – Quantifying the Economic Crisis

The economic crisis hit Europe after a period of stable growth (in most countries) following the EU’s largest enlargement and introduction of the common currency. The global financial meltdown – initiated by the collapse of Lehman Brothers – revealed a number of imbalances in European economies which by then remained subdued owing to the very low financing costs. The nature of these imbalances differed from country to country (e.g. overheating of the construction sector in Spain, instability of the financial sector in Ireland and Cyprus, loss of competitiveness in Greece and Portugal, and perhaps most importantly – lacking discipline of public finance in a number of EU member states, most notably in Greece). On the other hand, some European economies (e.g. Germany, Netherlands, Poland) entered the crisis with strong fundaments and competitive economies. Therefore, the impact of the crisis, although noticeable in all European economies (both EU and non-EU), had different magnitudes across the continent and caused different reactions.

For the purpose of this article, let us assume the crisis period to be 2009-2013. 2009 was the first full year after the collapse of Lehman Brothers, while in 2014 the recovery was already clearly visible. The latter does not mean, however, that all persisting imbalances in European economies have been effectively addressed. In particular Greece remains a source of concerns, while a number of counties are still far from achieving fiscal balances. In 2009-2013, the average growth for the entire European Union (EU-28) was marginally negative (-0.2), while in the preceding 5-year period European economies grew on average by 2.3%. This trend was much stronger in Ukraine (the only non-EU country included in the sample) – in 2009-2013 its economy shrunk on average by 9.2% (attributable mostly to 2009), while in the preceding period it grew by 6.6%.

As European economies are highly interlinked, the growth patterns take a rather similar shape ; however, in absolute values there are significant differences between countries. Poland was the only EU country which did not experience a drop in economic performance for any of the crisis years (although also here average economic growth dropped from 5.2% in 2004-2008 to 2.8% in 2009-2013). Germany experienced a sudden fall in 2009, but then quickly recovered to pre-crisis growth levels in 2010-2011, to slow down again in 2012-2013. A similar pattern was observed in Sweden, while in the Netherlands the economy recovered at a slower pace. In Spain, on the other hand, growth remained in negative territory for the entire 2009-2013 period (on average, the economy shrunk by 1.8% per annum). In Slovenia positive growth was achieved only in 2010-2011, in Romania in 2011-2013, but in both countries the pace was significantly slower compared to the pre-crisis era.

The depth of the crisis and the pace of recovery in specific countries were influenced by both internal (policy reaction, type of imbalances accumulated prior to the crisis) and external factors (structure of the economy, trading partners and their reaction to the crisis). Certainly, neither Europe in general, nor the EU, or even the Eurozone were homogenous in this respect. It could be therefore expected that also the social views on key economic issues would change in these countries according to a different pattern (with a potentially more radical change in countries hit most by the crisis).

Kamila Lepkowska
4liberty.eu