Wednesday, May 27, 2015

Key Words for Understanding the Germany Economy

We often speak of "capitalism" or "the market" as if they are singular things. We are comfortable talking about how the economy is doing, if "it" is up or down today. And in this globalized world it would seem that it makes little difference if the "it" we refer to is in Berlin or London or New York or Shanghai.

Yet there are huge differences in the varieties of capitalism practiced in these places. Looking beyond the big boards, we find systems wrapped up in their own histories and politics and moral values.

For example,  The Economist recently had an analysis of the huge influence German's distinct system of "ordoliberalism" has had in defining the political economy of post-crisis Europe.

To understand the German form of capitalism, it is helpful to learn a few key words:

Sparpolitik: what we term "austerity," the Germans refer to in a much more positive light as "savings policy," invoking wise stewardship more than miserly witholding. So when the Germans are negotiating with the Greeks these days about getting out of debt, they see Sparpolitik as a value that should be desired as much as an austerity to be endured.

Ordoliberalism: it stumbles over the tongue the way a good German word should. It takes inspiration from the liberalism of the Austrian School in its heyday, with a value on personal liberty and a skepticism of central planning.  That the liberal part.  But the “ordo” part is, as you would suspect, an “ordered” (i.e. regulated) liberalism, largely based on the principles of Mitbestimmung.

Mitbestimmung: ("co-determination") is a system of labor relations that treats labor as stakeholders alongside capital and management; built around "works councils," tiered organizations of employee representatives (blue and white collar) elected by their peers; through works councils labor holds (by law) 50% of corporate supervisory board seats.

Mittelstand businesses, small to medium sized enterprises that are often family or otherwise privately owned, and comprise the export engine of the German economy. Many specialize in high value, high quality engineered products. The Mittlestand have a reputation for honoring a commitment to their employees, embracing the German system of stakeholding and co-determination.

Kurzarbeit ("short work") program provides government subsidies to companies to keep their employees on the payroll but reducing their working hours; in the financial crisis this allowed companies to keep workers, reducing their productivity but allowing them to keep the talent they have built up, to save it for better times.

Solidarität ("Solidarity") is is a value extolled by the political left and right in Germany; the civic virtue that we are all in this together, and that living in a society together requires certain sacrifices for the common good.

Schuld: debt -- and guilt. 

Haftung: liability -- and responsibility

Wednesday, May 13, 2015

A Guatemalan Spring?

Photo: @PrensaComunitar
Recent protests in Guatemala--organized through social media and that successfully forced the Vice- president to resign--recall the Arab Spring of 2011. Known as the "Land of Eternal Spring,"  politically Guatemala is best characterized by tyranny, violence, and, most recently, narco-fueled corruption. Indeed, Guatemala's political scene eternally teeters on the edge of farce--it would be comedic if it were not so damn tragic in terms of real human suffering.

Francisco Goldman, in his masterful book The Art of Political Murder, shows how political power in Guatemala acts with such impunity as to border the magical realism of Latin American fiction. (Goldman examines the 1998 murder of Bishop Juan Gerardi, just days after the commission he led released a scathing report on military culpability in Guatemala's civil war atrocities.)

Even more bizarre was the 2009 murder of lawyer Rodrigo Rosenberg (see David Grann's brilliant dissection of the case in the New Yorker). Days before his assassination, Rosenberg had recorded a video predicting his death and accusing the then-President and First Lady of orchestrating it. Protestors were on the streets then, too, although in fewer numbers. And, in the end, it turned out that Rosenberg had commissioned his own assassination (in order to shine a light on the corruption coming from the President's office and family).   

Everyone agrees that corruption is a major problem. Indeed, the country considered itself so corrupt that it agreed to charter the International Commission Against Impunity in Guatemala (CICIG) in 2007. CICIG, with UN backing, is a body of international jurists authorized to conduct investigations and build cases for charges filed in Guatemalan courts.

CICIG's explicit goal is to dismantle the parallel power structures of organized crime, narco-traffickers, and former military fraternities. CICIG has been instrumental in the arrests of a former president (money laundering), two national police chiefs (corruption), the head of the anti-narcotics agency (drug trafficking), and number of other well-placed officials.

Its latest investigation resulted in the current (2015) protests.

The scandal, known as "La Linea" (see Guatemalan Chimney's excellent overview here) emerged when CICIG announced 47 arrest orders for a massive tax evasion scheme, including superintendent of SAT (equivalent of our IRS commissioner) and the Vice-president’s personal secretary (named as the ring leader of the organization). The group has a special phone number (la linea) to avoid duties and a shell corporation to accept the estimated $130 million in payments for services.

The Vice-president (Roxana Baldetti) and her secretary (Juan Carlos Monzón) were in South Korea at the time of the arrests, and Monzón refused to return to Guatemala.  Wire tap transcripts make numerous references to an unnamed co-conspirator, referred to as “La Número 2,” “La Senora” or “La ‘R’,” widely believed to be Baldetti.

On April 25th massive protests filled the Central Plaza and downtown of Guatemala City, and have continued weekly. Organized through social media, these seem to be largely acephalous and non-violent.  See my thoughts in Jared Goyette's great PRI piece (

On May 8th, to the surprise of many jaded observers, including your correspondent, the normal wall of impunity crumbled, and Baldetti was forced to resign. Presidential elections are later this year; if a clean candidate could capture the energy of these protests, this could be a watershed moment for Guatemala. A new Spring.