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Austerity & Agony Worsen in Greece

Costas Panayotakis Aug 17

Oops, we did it again.

That’s essentially what the International Monetary Fund has to say in a June report acknowledging the grave mistakes it, the European Commission and the European Central Bank made in 2010 when they insisted on a savage austerity program as a condition for loans that allowed Greece to continue servicing its debt to European banks. While the stated expectation of the IMF, EU and ECB troika was that their program would only lead to a short recession that would quickly allow Greece to return to global financial markets, three years later austerity has led to a deep economic depression, with socially catastrophic consequences and the Greek debt as unmanageable as ever.

Greece is not a unique case. The IMF has a history of belatedly recognizing its errors when the structural adjustment programs it imposes on needy countries prove to be as economically counterproductive as they are socially devastating. The failures of the IMF’s models speak to a broader breakdown of mainstream economics, with its faith in capitalist markets and their supposedly benign effects. The neoclassical tradition that dominates mainstream economics has long devoted itself to proving, through abstract mathematical reasoning, Adam Smith’s claims that the invisible hand of the market turns self-interested actions of individuals into socially beneficial outcomes.

Make-Believe Economics

According to neoclassical economists, the problem facing individuals and entire economies is that of scarcity. Since people’s material desires exceed the resources available, such scarce resources have to be used efficiently. In other words, they should used to maximize production of goods and services as well as the satisfaction that consumers derive from such production. The beauty of capitalism supposedly lies in the disciplining effect of market competition, which makes minimal waste and an orientation to the desires of consumers the condition of profitability and market success.

This fictional account underlies the deregulatory policies imposed around the world in the last four decades. To the extent that they contributed to the global financial and economic crisis that has bedeviled the world for the last five years, these policies (and their disastrous effects) dramatize the extent to which mainstream economics functions as an ideological cheerleader for pro-free market policies that have dramatically increased inequality and thrust millions of people into unemployment and destitution.

Apart from illustrating the IMF’s failures, Greece is also a prime example of capitalism’s inability to use scarce resources efficiently and in ways that promote human well-being and ecological sustainability. Indeed, with an unemployment rate of almost 30 percent for the general population and over 60 percent for young workers, Greece underlines the magnitude of the economic dysfunction produced by capitalism’s boom-and-bust cycles. Apart from causing waste and inefficiency, skyrocketing levels of unemployment (which are not unique to Greece) are also a great source of human suffering, as they increase poverty, hunger, suicide, drug addiction and a multitude of other social problems that are destroying the lives of millions of people in Southern Europe and, indeed, the world.

Greece also illustrates the ecological damage wrought by capitalism. As the government has tried to raise revenue by taxing heating fuel, for example, Greeks have turned to burning wood, triggering deforestation and air pollution in all the major cities. Meanwhile, unemployment is used as a justification for ecocidal investments, such as the Canadian Eldorado corporation’s extraction of gold in one of the most pristine areas of northern part Greece.


These disastrous consequences for humans and the environment ultimately stem from capitalism’s fundamentally undemocratic nature. Being as much a system of power as it is a system of markets, capitalism allows small economic elites to determine, through their profit-maximizing decisions, the future of entire societies, our planet and the human species. Indeed, capitalists have historically used the profits derived from the work of the rest of us to build a toxic consumerist culture that does more to wreck the planet than to advance human well-being and happiness; they have corrupted democratic political systems and destroyed entire communities whenever profit considerations dictated leaving areas with higher wages and strong union and environmental protections for areas without such “obstacles” to maximize profitability.

In view of all this, it is not surprising, then, that the economic crisis unleashed upon Greece has also become a crisis of democracy. Indeed, the Greek government has surrendered its control over economic policy and the use of public revenues to the EU, ECB and the IMF and has increasingly relied on authoritarian measures to control popular resistance to its destructive policies. Meanwhile, the neo-Nazi Golden Dawn party, for years an insignificant fringe group, has in the past year become the third most popular party. This development is all the more remarkable and disturbing, given the immense suffering inflicted on Greece by the Nazi occupation of the early 1940s. Enjoying support from over 10 percent of the population in recent polls, Golden Dawn has risen by scapegoating immigrants for the Greek crisis and by using its Nazi-inspired paramilitary units to attack and terrorize not only immigrants but anyone who does not accept its reactionary message.

Another Way

If capitalism’s failings are closely connected to the undemocratic way it organizes economic life, it follows that overcoming these failings requires an economic system that reflects the priorities of the many as opposed to the few. What is required, in other words, is economic democracy in all its different forms, from democratic worker-run enterprises to democratized government operations based on innovative practices, such as participatory budgeting.

Experiments in economic democracy can be found around the world, with Latin America, which faced the ravages and crisis of neoliberalism earlier than most, being an especially rich laboratory. It is not a surprise, then, that, faced with a similar crisis, millions of Greeks are mounting similar struggles, creating anti-austerity political formations, building solidarity networks and experimenting with non-capitalist ways of organizing the workplace. It is important to learn from these struggles as capitalist austerity, and its intellectual justifications provided by many mainstream economists, is rapidly spreading from Greece to the rest of Europe, the United States and beyond.

Costas Panayotakis is an associate professor of sociology at the City University of New York and the author of Remaking Scarcity: From Capitalist Inefficiency to Economic Democracy (Pluto Press, 2011).