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Exit Oskar the pink

In March the man the right wing Sun newspaper in Britain once called the most dangerous man in Europe resigned as Germany's Finance Minister. The Sun-or rather it's owner Rupert Murdoch as a capitalist himself- disliked him because they thought he had plans to increase direct taxes on profits in Britain up to the same level as in Germany.

Oskar Lafontaine was chairman of the German Social Democratic Party (S.P.D.) which returned to power in October 1998 after years in opposition. Politicians who are out of office for long periods often loose their grip on capitalist reality-that governments must nurture profits and provide an environment in which they can flourish since they are what makes capitalism go round-and imagine that governments can work wonders simply by political will.

Sometimes, when returned to power after years in the wilderness, they try to put this mistaken idea into practice. The classic example was the French leftwing government, with Communist Party participation, that came into office when Mitterrand was first elected President in 1981. They really believed that they could "relaunch the economy" by "increasing popular consumption" and so they brought in measures to increase the minimum wage (which in France affects all wages since they are tied to it) and social benefits.

The result was not long in coming. Instead of economic growth being relaunched, inflation increased, leading to three devaluations of the franc in as many years. Within a year the new government adapted its policies to capitalist reality; they clawed back the reforms they had introduced and imposed austerity as a means of shifting the balance back from consumption to profits. They had learned the hard way that you cannot run capitalism in the interests of the excluded majority.

Since, with Kohl winning election after election, the S.P.D. had been out of power for fifteen years, the big question after their September 1998 election victory was: would they make the same mistake as the first Mitterrand government, especially as they were in coalition with the Greens who also had ideas which if seriously pursued would threaten profits?

Oskar Lafontaine had written a book in which he proposed, as a way of getting Germany out of the current crisis, that wages and salaries should go up in line with productivity. He repeated this in newspaper articles and interviews after the S.P.D. election victory. Since this would result in wages and salaries going up faster than they had been, it was equivalent to the policy pursued by the 1981 French government. And the thinking behind it was the same: if wage and salary earners had more to spend this would create more markets, so stimulating the economy to grow again.

In the event this turned out to be just another electoral promise but it earned Lafontaine the reputation of being "Red Oskar". Red used to signify revolutionary and has always been the fetish colour of Socialists. But there was nothing revolutionary about Lafontaine's ideas. He was merely putting forward the orthodox Keynesian nostrum that in a period of economic stagnation you should increase spending. Of course by the end of the 1970s Keynesianism had proved to be an utter failure on this point, as Marxists had foreseen years previously. But it is a measure of the very narrow margin of manoeuvre of reformists these days that even milk-and-water Keynesian reformism is denounced as "revolutionary" and "red".

Although, as Finance Minister, Lafontaine never tried to implement his idea of tying wages and salaries to productivity he did introduce some new direct taxes on profits and he kept on calling on the European Central Bank to reduce interest rates. He believed that this would help Germany out of the crisis (even though in Japan interest rates are less than 1 percent and they're still in the economic doldrums). For a Finance Minister to repeatedly call for a lowering of the interest rate was seen as out of order or even counterproductive. The ECB, which fixes the minimum short-term lending rate for the whole of Euroland, had to refuse such calls just to prove it did not give in to political pressure.

It was this that was the immediate cause of Lafontaine's downfall. The interest rate reduction which he and the rest of the German government wanted was being held up by his political interference making it difficult for the Bank to do this. So pressure was bought to bear and he left politics to spend more time with his family. Yet another reformist politician bit the dust. Good, or rather good as long as it helps workers in Germany and elsewhere realise that reformism is a dead-end.