Archive for November, 2011

The other day, I was asked in an interview whether finance was killing democracy. Judged over the post-war period, the answer must be a qualified ‘no’. But things at present are not looking good.

Finance has not killed politics—if anything, the ongoing financial crisis is lading to a reawakening of politics on a scale we have not seen in many years, particularly a re-awakening amongst young people. If the young are out on the streets demonstrating, it is for quite understandable reasons. Most obviously, the crisis has illuminated the weaknesses of neo-liberal capitalism in a way many though inconceivable a decade ago.

Not only is neo-liberal ideology deeply misleading—the idea that ‘free markets are infallible and don’t require regulation—but the economics it has produced is disastrous. Inequality is growing everywhere, particularly in the main Anglo-Saxon countries where it is higher today than in the 1930s.Youth unemployment in the most of Europe ranges between 20- 40%, and we are at risk of producing an entire generation which is locked out of decent work and income. European ‘austerity’ is destroying the cornerstone of the post-war social settlement; ie, our welfare state.

As for democracy, we have recently witnessed the toppling of two governments by the bond markets, and doubtless there will be more. This is largely the fault of a political elite dominated by bankers which designed a Eurozone where each member- state’s borrowing was vulnerable to attack. This ‘fragility’ of the Eurozone—the lack of a common fiscal policy and a genuine Central Bank able to act as lender of the last resort—is leading to growing national antagonisms, the most obvious being between Greeks and Germans (a proxy for north v south Europe).

What is truly dangerous is that the financial markets’ notion of ‘common governance’ is all about ‘greater fiscal discipline’, by which is meant stringent enforcement of the 3% budget deficit limit, the 60% indebtedness rule and, most recently, the notion that all Eurozone countries should follow Germany in adopting a constitutionally binding ‘balanced budget’ (debt brake) provision. Such views are based on the simple-minded premise that a national economy can be run like a corner shop, the ‘handbag economics’ preached by Maggie Thatcher and more recently by the Schwabian housewife, Angela Merkel.

Not only are such views wrong (they ignore basic national accounting definitions), but they can lead Europe into even deeper economic gloom. As credit dries up, Europe is on the verge of a new financial crisis which will almost certainly lead to renewed economic depression. Moreover, the costs of all this is being borne once more by ordinary workers, and increasingly by the middle class. Like markets in the general, the financial market can be a good servant… but it is proving to be a very poor master.

If we know anything from history, it is that long periods of economic crisis tend to lead not to more progressive politics but rather to its opposite; the right-wing politics of xenophobia. Witness the German depression of 1932 under Chancellor Brüning which saw the extreme right rise from virtually nothing in 1929 to assume power in 1933. I am hardly the first to say it, but we are living in dangerous times.