Jean-Paul Sartre once complained about Europe that “in the past we made history and now history is being made of us.” He was undoubtedly too pessimistic, writes Amartya Sen (right), citing such major achievements as the emergence of the European Union, the reunification of Germany, the extension of democracy to Eastern Europe, the welfare state, and the legalization of human rights. But the continent’s economic crisis has caused widespread anger and frustration, generated tension among countries with different fortunes, and empowered extremist politics of a kind that Europe expected to leave behind.
The founders of European unity whose ideas led the European movement wanted a “united democratic Europe.” The Europe that emerged from World War II had learned certain things from bitter experience that it was not going to forget. Perhaps the foremost idea was the importance of democracy, giving each person not only a vote but also a voice. If democracy in the form of regular elections is firmly instituted in the constitutions of most European countries, the commitment to have preparatory public discussion before making large policy decisions is no less ingrained in contemporary European values.
Some of the policies that were chosen by the financial leaders and economic powers of Europe were certainly mistimed, if not downright mistaken; but even if the policy decisions taken by the financial experts were exactly correct and rightly timed, an important question of democratic process would have remained. The decimation of something as fundamental as the public services that are essential pillars of the European welfare state could not be appropriately left to the unilateral judgments of central bankers and financial experts (not to mention the error-prone rating agencies), without public reasoning and the informed consent of the people of the countries involved. It is true, of course, that financial institutions are extremely important for the success and failure of economies, but if their views are to have democratic legitimacy, and not amount to technocratic rule, then they must be subject to a process of evolving public discussion and persuasion, involving arguments, counter-arguments, and counter-counter-arguments.
If democracy has been one of the strong commitments with which Europe emerged in the 1940s, an understanding of the necessity of social security and the avoidance of intense social deprivation was surely another. Even if savage cuts in the foundations of the European systems of social justice had been financially inescapable (I do not believe that they were), there was still a need to persuade people that this is indeed the case, rather than trying to carry out such cuts by fiat. The disdain for the public could hardly have been more transparent in many of the chosen ways of European policy-making.
Quite aside from the question of democratic legitimacy, there is also an important issue here of political practicality—the practice of the “art of the possible” that politics is meant to be. People could be denied their voices, but with democratic institutions they could not be denied their votes in periodic elections. The people excluded from taking part in the process of policy-making could not be politically silenced, and in election after election the incumbent governments carrying out the dictates of the financial superpowers have been deeply threatened and sometimes summarily removed. And voting rights without effective policy voices have also made it very difficult for practical solutions to emerge, with appropriate attention to well-reflected priorities and to acceptable compromises.
Public reasoning is not only crucial for democratic legitimacy, it is essential for a better public epistemology that would allow the consideration of divergent perspectives. It is also required for more effective practical reasoning. It can bring out what particular demands and protests can be restrained in interactive public reasoning, in line with scrutinized priorities between a cluster of quite distinct demands. This involves a process of “give and take” which many political analysts, from Adam Smith and the Marquis de Condorcet in the eighteenth century to Frank Knight and James Buchanan in our time, have made us appreciate better.
That austerity is a counterproductive economic policy in a situation of economic recession can be seen, rightly, as a “Keynesian critique.” Keynes did argue—and persuasively—that to cut public expenditure when an economy has unused productive capacity as well as unemployment owing to a deficiency of effective demand would tend to have the effect of slowing down the economy further and increasing—rather than decreasing—unemployment.
But I would also argue that the unsuitability of the policy of austerity is only partly due to Keynesian reasons. Where we have to go well beyond Keynes is in asking what public expenditure is for—other than for just strengthening effective demand, no matter what its content. As it happens, European resistance to savage cuts in public services and to indiscriminate austerity is not based only, or primarily, on Keynesian reasoning. The resistance is based also on a constructive point about the importance of public services—a perspective that is of great economic as well as political interest in Europe.
THERE IS A CENTRAL ISSUE of social justice involved here—that of reducing rather than enhancing injustice. The public services are valued for what they actually provide to people, especially to vulnerable people, and this is something for which Europe had fought.
Keynes showed little concern about economic inequality, and was extraordinarily reticent on the horrors of poverty and deprivation. He had little interest in externalities and the environment, and neglected altogether the subject that his rival and adversary A. C. Pigou concentrated on, which was The Economics of Welfare, the title of Pigou’s most famous—and certainly most profound—book. It was the allegedly right-wing Pigou who initiated the measurement of economic inequality, spent time on analyzing the nature and causes of poverty, wrote extensively on externalities and on environmental degradation, and stressed the need for public economics to aim at remedying the allocational errors of the market economy.
The guiding principle has to be what Adam Smith specified with clarity in The Wealth of Nations: how to work for a good functioning of the economy to be able to provide the public services that people agree are needed. Sound political economy, Smith argued, has to have “two distinct objects”: “first, to provide a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the publick services.”
Europe has been extraordinarily important for the world, which has learned so much from it. It can remain globally important by setting its own house in order—economically, politically, and socially. The first step is to understand properly, with some clarity, the policy challenges that Europe faces today. A failure to do so will reverberate far beyond Europe’s own borders.
Amartya Sen teaches economics and philosophy at Harvard University and received the Nobel Prize in Economics in 1998. He is the author, most recently, of The Idea of Justice (Harvard University Press). This is an extract from an article in the August 23, 2012 issue of the New Republic.