Workers against Wall Street

President Obama’s “shock and awe” statism is failing. On the eve of the midterm elections, the US ec

Gary, Indiana

We're hurtling through downtown Gary at about 75 miles an hour but Officer Lilley, at the wheel of our car, remains relaxed. He's telling me languid stories about the AK-47s that the local teenagers carry, about the gangs, the drugs, the overtime. Then the city's "shot spotter" pings an alert on to his laptop, which is wedged right next to the handbrake.

He mutters a call for assistance into his radio and swings the police car on to the forecourt of a gas station where about 30 people are running, pointing, strung out, screaming recriminations. There's been a fight, but the fighters are gone, as is the kid who decided to let off his pistol. Nobody is dead. Everybody is shouting into the face of Officer Lilley, a black cop in a black crowd, who simply drawls soothing phrases back at them.

Eventually seven police cars arrive and the cops fan out to disperse the crowd of onlookers, many of whom they seem to know by name. Two years ago there were times when the city could field only five cars in total on a night shift, but federal dollars have paid for 96 new vehicles and allowed Gary Police to re-employ 11 laid-off officers. This short, sharp exercise in armed social work is possible only because of the fiscal stimulus.

Gary is a city where 84 per cent of the population is black and one-third of the people live in poverty. It is one of the most obvious places on earth where an influx of taxpayer dollars might do some good. It has 3,000 abandoned homes and a decaying infrastructure, and its public finances stand two years away from bankruptcy. Yet what is obvious, amid these wrecked streets and impoverished lives, is how little the stimulus has achieved.

Gary's urban texture - grass and ivy over broken concrete - is testimony to what happens when an economic model fails. In its deserted downtown district, the churches, the concert hall, the theatre, the ballet studio, the Gothic apartments from whose windows steel magnates once surveyed the city's pulsating wealth, stand ruined, unsecured against intruders.

Though atypical of America, Gary's broken landscape is spectacularly typical of what has gone wrong in the country at large. Its meagre progress, two years into the Obama administration, signals the president's failure to solve America's most basic problems and to deliver to the very people whose votes put him in the White House.

The problem for America today is that another economic model has failed: one based on globalisation, cheap credit, home ownership and mass consumption. Six million Americans have fallen below the poverty line since December 2007. The median income has fallen by 4.7 per cent. In the same period, more than 2.5 million homes have been repossessed. And that only compounds the long-term problems America hid beneath the financial euphoria of the boom years - but average real wages have stagnated since the 1990s; the number without health insurance has grown by ten million in a decade and stands at 50 million.

The most basic problem is this: in a system based on credit, the credit system is not functioning. It's easy to spot the malfunction in a city like Gary: I saw one home for sale at $7,900 cash, the scrawled street-corner placard adding, by way of explanation, the word "Foreclosure". The only part of the credit system that does function is the destructive part; the "payday loans" store on Gary's main street is the only thing left with working neon signs. Most of the other shops are closed for good.

With a swollen mass of people unable to borrow, save or spend, the great dynamo of the world economy - American consumption - is sputtering. And the stimulus has not yet managed to restart it.

Eighteen months ago, the mayor of Gary, Rudy Clay, told me that all the city needed was $400m. With that, said the dapper veteran of the civil rights movement, Gary would "fly like an eagle and once again make America proud". In the event, the city was given just $266m - most of that earmarked for education - and for spending not on current costs, but on reorganisation.

Of the $24m Clay applied for to knock down derelict homes, $2m was delivered - and most of the buildings are still standing. It took 18 months for the money to pay for new streetlights to filter through the system. And, with $266m, Gary has managed to create the grand total of 327 jobs. That is more than $800,000 per job.

“We were last in line," Clay complains. "We keep pressing the State of Indiana for more money - to fix our roads, for example - but the problem is they spent all the money. They probably thought, 'Well, Gary voted in large numbers for the president, so the president can take care of them.'" A glance at the city's finances reveals a more complex picture. Its financial controls are archaic, its debts to other agencies high; and its tax base is heavily dependent on one source - a property tax that brings in 80 per cent of Gary's revenue.

In 2008 the Republican-controlled state government of Indiana brought in tax-capping measures that will, by 2012, halve the amount of property tax Gary can collect. While richer, whiter counties surrounding Gary have their own local income taxes, Gary does not - for the simple reason that there is very little income to tax. Within this system, redistribution is impossible unless the state and federal governments make it happen.

But that is where Gary's problems run into the culture war that has gripped America.The governor of Indiana is Mitch Daniels, a fiscal conservative who has made his reputation by balancing the state's books, privatising Indiana's major roads system in the process. Daniels - unlike some other Republican governors - agreed to accept the fiscal stimulus money, but on condition that the state retained control. He then decreed that the stimulus could not be used to fix the balance sheets of near-bankrupt city governments like Gary. Only major, one-off projects would receive federal dollars.

So, in the midst of the largest fiscal stimulus since the Second World War, one of America's poorest cities is being forced to cut taxes and cut spending. By 2012 its entire tax take will not be enough to cover the police, fire and ambulance services. Officer Lilley and his colleagues know that all the problems that fuel the crime - drugs, truancy, poor housing, unemployment - will remain unaddressed.

President Obama's stimulus was formulated with high hopes: two-thirds of the $787bn spent would be delivered not through the Bush-era mechanism of tax cuts, but through the overtly Keynesian channel of public spending. Jared Bernstein and Christina Romer, economists on Obama's transition team, predicted in January 2009 that the stimulus money would "create three to four million jobs" by the end of 2010, 90 per cent of them in the private sector. They projected that unemployment would peak at just 8 per cent in 2009.

The Romer/Bernstein forecast, like much of the Obama stimulus plan, was a triumph of optimism. Unemployment reached 10 per cent a year ago and has not been below 9.5 per cent since, even with the stimulus. Private-sector employment has shrunk. The money has been spent, but the jobs and growth did not follow.

The paucity of achievement is all the more remarkable given that, two months after the Romer/Bernstein report was published, the Federal Reserve was forced to launch its own, much bigger monetary stimulus package, known as quantitative easing (QE). By printing money and using it to buy a mixture of bank and government debt, the Fed pumped $1.75trn into the US economy.

Yet the combined results are poor. Growth is slowing. The threat of deflation is so clear that the Federal Reserve will, on the morrow of the midterm elections, be forced to throw several hundred billions more into QE.

In the housing market, there is already a double dip. Even with mortgage interest rates cut to their lowest ever, the sheer volume of un-sold properties - 1.5 million empty and a further five million trapped in a "shadow" market - has begun to push house prices down again. The banking sector has begun to shudder in turn at the prospect of another round of mortgage losses.

It is this tangible failure of economic strategy that is sapping the energy and credibility of the Obama administration. It has provided the American right with a convincing narrative to unite the plebeian conservative and "coastal elite" strands of Republicanism.

Governor Daniels, a mainstream Republican who is being tipped as the man to run against Obama in 2012, calls Obama's policy "shock and awe statism". But the real shock is how little has been achieved. Statewide, the whole of Indiana has managed to spend $4bn of stimulus money to create 10,000 jobs.

“It's not enough," the governor says, "and I would caution you that while I know the $4bn is real, I cannot say the same about the 10,000 jobs. We just don't know. They [the federal government] don't know."

Nationally, he says, "We've had this perverse outcome in which the private sector has continued to shrink and the public sector has gotten bigger. Frankly, it looks more like a way to take care of favoured constituencies than an economic policy."

So, for the mainstream American right, what explains the failure of the Obama stimulus is "crowding out": it is the size of the state that has prevented the private sector from responding to the crisis with fresh hiring and company start-ups. In addition, consistently large majorities polled by the Pew Research Centre believe that state intervention has benefited the banks and large corporations only - leaving the middle class, the poor and small businesses to rot. Finally, there is a growing fear that the size of the budget deficit will drag the United States into penury. Daniels tells me that the country faces a "survival-level threat".

It is in this context that the narrative of the Tea Party movement has emerged. And you have only to travel a hundred kilometres east of Gary, along the patched-up private motorways of Indiana, to hear it in full voice.

The hall is swaying to the tune of "God Bless the USA" - a song for which everyone except the journalists stands up, many clenching fists against chests. The crowd is 99 per cent white and 100 per cent Christian. Of those to whom I speak during the interval, several believe that the president is neither American nor Christian. One is selling a set of playing cards depicting Obama as a "Kenyan-born, lying, arrogant Muslim communist that hates America".

What the Tea Party objects to is the president's policies of state intervention. What it adds to conventional fiscal conservatism is the idea that all state intervention into economic life is immoral, un-Christian and unconstitutional. The plebeian right is convinced that a city like Gary neither deserves stimulus money nor can use it to any good effect.

Jackie Walorski, a Republican who sits in the Indiana legislature and is standing for the US House of Representatives on 2 November, tells me: "We are watching a freight train of spending in this country. Americans don't live that way. We're the land of capitalism; we're not the land of taking people's public tax money and throwing it into a concept that isn't proven, that has not produced jobs."

Does she begrudge the money spent in Gary? Would she have blocked the cash for schools, more police and police vehicles?

“It's not a question of begrudging," says Wal­orski, a 47-year-old former TV journalist. "Just because it's gone to education, police and fire doesn't mean the money has done anything in those areas. That's not what the key is in this country. You can continue to write cheques but recovery comes from private-sector jobs and holding a line on spending."

What is sapping the energy of Democratic Party supporters, even in a place like Gary, is that if you strip Walorski's words of all the rhetoric, economically they ring true. America's governance system, lacking the basic capacity, and in some places the will, to spend the money, looks ill suited to delivering maximum bang for 787 billion bucks.

But the rhetoric itself has material impact, and way beyond the worried Christian faces assembled to hear it. It is a rhetoric that - intentionally or otherwise - identifies the recipients of state spending as the enemies of the American constitution. From Indiana to the Gulf of Mexico, that means the public sector, migrants and the African-American poor.

When Walorski takes the stage at a Tea Party rally in the small rural town of Angola, Indiana as warm-up act for the Fox News commentator Glenn Beck, she points to a giant US flag behind her and whips the audience to its feet with the warning that they have just days "to fight for who we are in America".

She continues: "If we don't fight for freedom, liberty, individual destiny, they are redefining this country out from underneath us. The battle we're facing is to defend this flag on our turf, our soil. When our soldiers came out of the boats in Normandy they literally walked over the bodies of other soldiers to fight for our freedom. The battle we face today, the ideological war that we're fighting, is for standing up for a constitution. The land of the free and the home of the brave is under assault today."

It is worth unpacking this statement. In the literal text, Obama and the Democrat-voting Congress are the "they" Walorski refers to. But America's airwaves are alive with the angry voices of enraged white Christians, channelled towards coherence by the right-wing commentators. No one on the stage in Indiana needs to assert that Obama is "a racist" with “a deep-seated hatred for white people or the white culture" - because Beck already said so on TV, on 28 July 2009.

Back in Gary, for the black community activists trying to hold things together, it feels as if the word "they" has another meaning.

“When you turn on the TV and hear all this anger, all this vitriol," says Ben Clement, who helps run a community theatre group for teenagers, "well, it's culture-based, race-based, and it's frightening. And it shows that there's a disconnect - it's almost like we're living on two separate planets."

Clement, like many Obama-supporting black professionals, rues the complacency of a generation that has drifted out of activism. "Our parents went through the civil rights movement, but for our generation it's been a time of rest, where we didn't think those were going to be issues. Now, when I see Obama vilified, my stomach tightens up, because he is the best of us, the best of what we have to offer. If they feel like that about him - how would they treat me?"

This is the real culture war - an artillery battle of words in which the two sides never meet.

It has blindsided America's political commentators. The polling organisations record no perceptible increase in the numbers of extreme right- and left-wing views. But distrust and fear are tangible once you get where the American media dare not venture - into the honest and considered thoughts of ordinary people.

So, where does the battle go after 2 November? Economists on the Keynesian left of the Democratic Party are now clamouring for a further fiscal stimulus as they frantically try to recover ground in the ideological war they have essentially lost. Judging by the polling on all possible outcomes, the Congressional arithmetic makes another fiscal stimulus impossible. And even if it were possible, it is difficult to see how a second stimulus could overcome the institutional problems that Gary typifies.

Over at the Federal Reserve, the chairman, Ben Bernanke, is inching towards a further round of quantitative easing. In September, he conceded that even if the Fed did opt for a second round of quantitative easing, the impact of this might be softened: though central bankers have no way of knowing how much increased demand they get from QE, they suspect it works best as an anti-panic measure, not as an additional boost. Once "QE2" is begun, the Fed has in effect fired the last bullet in the clip. It may signal the start of a unique period of policy stasis in which all conventional options have been used up.

One route out would be through a trade war and dollar devaluation - a route as popular among the Democratic grass roots as it is among the Tea Party activists.

Back in Indiana, Walorski swaps insults with the Democratic incumbent, Representative Joe Donnelly, whose support for the stimulus, she claims, has "exported jobs to China". Meanwhile, in the union hall of Local 1066, which represents employees of US Steel Corp in Gary, workers are calling for the government to impose tough trade sanctions against Chinese steel imports.

But, for now, the Obama administration is sticking to the economic doctrines that formed the shared belief set of both parties since the 1990s: globalisation and a strong dollar. Even as Bernanke's promise of further QE caused the dollar to slide against other currencies, the treasury secretary, Timothy Geithner, took to the airwaves to promote keeping the dollar strong. "It is very important," he said, "for people to understand that the United States of America and no country around the world can devalue its way to prosperity . . . It is not a viable, feasible strategy and we will not engage in it."

Another route out is the one offered by Governor Daniels: a new, national, one-year fiscal stimulus of between $400bn and $800bn, including suspension of payroll taxes, in return for equivalent cuts in state spending and a bonfire of business regulations. Though fiscally neutral, a tax cut on this scale could put money where neither state spending nor money printing has yet managed to put it - into the pockets of American consumers.

Yet the problem remains: without restarting the credit market, nothing can sustain growth. There needs to be some kind of defibrillating shock. The American patient, with all its problems of obesity and fast food, has to have its heart restarted before the rehab and the statins can get to work.

For two years, America's political cycle and its economic crisis have been parallel stories, the one played out on brash television shouting shows, the other handled by the super-brained east coast policy elite in the privacy of summits and retreats. After the midterm elections, the two cycles will collide. Either the Obama administration will find a new kind of circuit breaker for the economy, or America will face stagnant growth, deflation and the possibility of a further banking crisis.

In Gary, the people know what they want the president to do: to break with Wall Street, ditch the doctrine of free trade, end foreclosures and deliver jobs. There is, despite the political chasm between the union guys and the Tea Party activists, a parallel desire for politicians to break with the lobbying industry and speak for the people. "He [Obama] has to drive the agenda," says Steve Dunn, a steelworker. "If you ever listen to a speech by Franklin Delano Roosevelt, it's basically you against me; it's the working class against Wall Street. And that's the way things are today - but I don't hear that from President Obama."

The irony of American politics, on the eve of the midterms, is that if anybody owns the narrative of "workers against Wall Street", it is the ultra-conservative, free-market right.

Paul Mason is the economics editor of BBC Newsnight. His reports from the US can be seen at bbc.co.uk/paulmason. A revised edition of his book "Meltdown: the End of the Age of Greed" (Verso, £8.99) is out now.

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Why the elites always rule

Since an Italian sociologist coined the word “elite” in 1902, it has become a term of abuse. But history is the story of one elite replacing another – as the votes for Trump and Brexit have shown.

Donald Trump’s successful presidential campaign was based on the rejection of the “establishment”. Theresa May condemned the rootless “international elites” in her leader’s speech at last October’s Conservative party conference. On the European continent, increasingly popular right-wing parties such as Marine Le Pen’s Front National and the German Alternative für Deutschland, as well as Poland’s ruling Law and Justice party, delight in denouncing the “Eurocratic” elites. But where does the term “elite” come from, and what does it mean?

It was Vilfredo Pareto who, in 1902, gave the term the meaning that it has today. We mostly think of Pareto as the economist who came up with ideas such as “Pareto efficiency” and the “Pareto principle”. The latter – sometimes known as the “power law”, or the “80/20 rule” – stipulates that 80 per cent of the land always ends up belonging to 20 per cent of the population. Pareto deduced this by studying land distribution in Italy at the turn of the 20th century. He also found that 20 per cent of the pea pods in his garden produced 80 per cent of the peas. Pareto, however, was not only an economist. In later life, he turned his hand to sociology, and it was in this field that he developed his theory of the “circulation of elites”.

The term élite, used in its current socio­logical sense, first appeared in his 1902 book Les systèmes socialistes (“socialist systems”). Its aim was to analyse Marxism as a new form of “secular” religion. And it was the French word élite that he used: naturally, one might say, for a book written in French. Pareto, who was bilingual, wrote in French and Italian. He was born in Paris in 1848 to a French mother and an Italian father; his father was a Genoese marquis who had accompanied the political activist Giuseppe Mazzini into exile. In honour of the revolution that was taking place in Germany at the time, Pareto was at first named Fritz Wilfried. This was latinised into Vilfredo Federico on the family’s return to Italy in 1858.

When Pareto wrote his masterpiece – the 3,000-page Trattato di sociologia ­generale (“treatise on general sociology”) – in 1916, he retained the French word élite even though the work was in Italian. Previously, he had used “aristocracy”, but that didn’t seem to fit the democratic regime that had come into existence after Italian unification. Nor did he want to use his rival Gaetano Mosca’s term “ruling class”; the two had bitter arguments about who first came up with the idea of a ruling minority.

Pareto wanted to capture the idea that a minority will always rule without recourse to outdated notions of heredity or Marxist concepts of class. So he settled on élite, an old French word that has its origins in the Latin eligere, meaning “to select” (the best).

In the Trattato, he offered his definition of an elite. His idea was to rank everyone on a scale of one to ten and that those with the highest marks in their field would be considered the elite. Pareto was willing to judge lawyers, politicians, swindlers, courtesans or chess players. This ranking was to be morally neutral: beyond “good and evil”, to use the language of the time. So one could identify the best thief, whether that was considered a worthy profession or not.

Napoleon was his prime example: whether he was a good or a bad man was irrelevant, as were the policies he might have pursued. Napoleon had undeniable political qualities that, according to Pareto, marked him out as one of the elite. Napoleon is important
because Pareto made a distinction within the elite – everyone with the highest indices within their branch of activity was a member of an elite – separating out the governing from the non-governing elite. The former was what interested him most.

This is not to suggest that the non-governing elite and the non-elite were of no interest to him, but they had a specific and limited role to play, which was the replenishment of the governing elite. For Pareto, this group was the key to understanding society as a whole – for whatever values this elite incarnated would be reflected in society. But he believed that there was an inevitable “physiological” law that stipulated the continuous decline of the elite, thereby making way for a new elite. As he put it in one of his most memorable phrases, “History is the graveyard of elites.”

***

Pareto’s thesis was that elites always rule. There is always the domination of the minority over the majority. And history is just the story of one elite replacing another. This is what he called the “circulation of elites”. When the current elite starts to decline, it is challenged and makes way for another. Pareto thought that this came about in two ways: either through assimilation, the new elite merging with elements of the old, or through revolution, the new elite wiping out the old. He used the metaphor of a river to make his point. Most of the time, the river flows continuously, smoothly incorporating its tributaries, but sometimes, after a storm, it floods and breaks its banks.

Drawing on his Italian predecessor Machiavelli, Pareto identified two types of elite rulers. The first, whom he called the “foxes”, are those who dominate mainly through combinazioni (“combination”): deceit, cunning, manipulation and co-optation. Their rule is characterised by decentralisation, plurality and scepticism, and they are uneasy with the use of force. “Lions”, on the other hand, are more conservative. They emphasise unity, homogeneity, established ways, the established faith, and rule through small, centralised and hierarchical bureaucracies, and they are far more at ease with the use of force than the devious foxes. History is the slow swing of the pendulum from one type of elite to the other, from foxes to lions and back again.

The relevance of Pareto’s theories to the world today is clear. After a period of foxes in power, the lions are back with renewed vigour. Donald Trump, as his behaviour during the US presidential campaign confirmed, is perfectly at ease with the use of intimidation and violence. He claimed that he wants to have a wall built between the United States and Mexico. His mooted economic policies are largely based on protectionism and tariffs. Regardless of his dubious personal ethics – a classic separation between the elite and the people – he stands for the traditional (white) American way of life and religion.

This is in stark contrast to the Obama administration and the Cameron government, both of which, compared to what has come since the votes for Trump and Brexit, were relatively open and liberal. Pareto’s schema goes beyond the left/right divide; the whole point of his Systèmes socialistes was to demonstrate that Marxism, as a secular religion, signalled a return to faith, and thus the return of the lions in politics.

In today’s context, the foxes are the forces of globalisation and liberalism – in the positive sense of developing an open, inter­connected and tolerant world; and in the negative sense of neoliberalism and the dehumanising extension of an economic calculus to all aspects of human life. The lions represent the reaction, centring themselves in the community, to which they may be more attentive, but bringing increased xenophobia, intolerance and conservatism. For Pareto, the lions and foxes are two different types of rule, both with strengths and weaknesses. Yet the elite is always composed of the two elements. The question is: which one dominates at any given time?

What we know of Theresa May’s government suggests that she runs a tight ship. She has a close – and closed – group of confidants, and she keeps a firm grip on the people under her. She is willing to dispense with parliament in her negotiation of Brexit, deeming it within the royal prerogative. Nobody yet knows her plan.

The European Union is a quintessentially foxlike project, based on negotiation, compromise and combination. Its rejection is a victory of the lions over the foxes. The lions are gaining prominence across the Western world, not just in Trumpland and Brexit Britain. Far-right movements have risen by rejecting the EU. It should come as no surprise that many of these movements (including Trump in the US) admire Vladimir Putin, at least for his strongman style.

Asia hasn’t been spared this movement, either. After years of tentative openness in China, at least with the economy, Xi Jinping has declared himself the “core” leader, in the mould of the previous strongmen Mao Zedong and Deng Xiaoping. Japan’s prime minister, Shinzo Abe, has also hardened his stance, and he was the first world leader to meet with President-Elect Donald Trump. Narendra Modi in India and Rodrigo Duterte in the Philippines are in the same mould, the latter coming to power on the back of promising to kill criminals and drug dealers. After the failed coup against him in July, Recep Tayyip Erdogan has also been cracking down on Turkey.

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In Les systèmes socialistes, Pareto elaborated on how a new elite replaces the old. A, the old elite, would be challenged by B, the new, in alliance with C, the people. B would win the support of C by making promises that, once in power, it wouldn’t keep. If that sounds like the behaviour of most politicians, that is because it probably is. But what Pareto was pointing out was how, in its struggle for power, the new elite politicised groups that were not political before.

What we know of Trump supporters and Brexiteers is that many feel disenfranchised: the turnout in the EU referendum could not have been greater than in the 2015 general election otherwise, and significant numbers of those who voted for Trump had never voted before. There is no reason to think that they, too, won’t be betrayed by the new leaders they helped to bring to power.

In the last years of his life, Pareto offered a commentary on Italy in the 1920s. He denounced the state’s inability to enforce its decisions and the way that Italians spent their time flaunting their ability to break the law and get away with it. He coined the phrase “demagogic plutocracy” to characterise the period, in which the rich ruled behind a façade of democratic politics. He thought this particularly insidious for two reasons: those in power were more interested in siphoning off wealth for their personal ends than encouraging the production of new wealth, and consequently undermined national prosperity (remember Pareto’s training as an economist); and, as the demagogic elites govern through deceit and cunning, they are able to mask their rule for longer periods.

Much has been made of Trump’s “populism”, but the term “demagogic plutocrat” seems particularly apt for him, too: he is a wealthy man who will advance the interests of his small clique to the detriment of the well-being of the nation, all behind the smokescreen of democratic politics.

There are other ways in which Pareto can help us understand our predicament. After all, he coined the 80/20 rule, of which we hear an intensified echo in the idea of “the One Per Cent”. Trump is a fully paid-up member of the One Per Cent, a group that he claims to be defending the 99 Per Cent from (or, perhaps, he is an unpaid-up member, given that what unites the One Per Cent is its reluctance to pay taxes). When we perceive the natural inequality of the distribution of resources as expressed through Pareto’s “power law”, we are intellectually empowered to try to do something about it.

Those writings on 1920s Italy landed Pareto in trouble, as his theory of the circulation of elites predicted that a “demagogic plutocracy”, dominated by foxes, would necessarily make way for a “military plutocracy”, this time led by lions willing to restore the power of the state. In this, he was often considered a defender of Mussolini, and Il Duce certainly tried to make the best of that possibility by making Pareto a senator. Yet there is a difference between prediction and endorsement, and Pareto, who died in 1923, had already been living as a recluse in Céligny in Switzerland for some time – earning him the nickname “the hermit of Céligny” – with only his cats for company, far removed from day-to-day Italian politics. He remained a liberal to his death, content to stay above the fray.

Like all good liberals, Pareto admired Britain above all. As an economist, he had vehemently defended its system of free trade in the face of outraged opposition in Italy. He also advocated British pluralism and tolerance. Liberalism is important here: in proposing to set up new trade barriers and restrict freedom of movement, exacerbated by their more or less blatant xenophobia, Trump and Brexit challenge the values at the heart of the liberal world.

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What was crucial for Pareto was that new elites would rise and challenge the old. It was through the “circulation of elites” that history moved. Yet the fear today is that history has come to a standstill, that elites have ­become fossilised. Electors are fed up with choosing between the same old candidates, who seem to be proposing the same old thing. No wonder people are willing to try something new.

This fear of the immobility of elites has been expressed before. In 1956, the American sociologist C Wright Mills published The Power Elite. The book has not been out of print since. It is thanks to him that the term was anglicised and took on the pejorative sense it has today. For Mills, Cold War America had come to be dominated by a unified political, commercial and military elite. With the 20th century came the growth of nationwide US corporations, replacing the older, more self-sufficient farmers of the 19th century.

This made it increasingly difficult to ­distinguish between the interests of large US companies and those of the nation as a whole. “What’s good for General Motors,” as the phrase went, “is good for America.” As a result, political and commercial interests were becoming ever more intertwined. One had only to add the Cold War to the mix to see how the military would join such a nexus.

Mills theorised what President Dwight D Eisenhower denounced in his January 1961 farewell speech as the “military-industrial complex” (Eisenhower had wanted to add the word “congressional”, but that was thought to be too risky and was struck out of the speech). For Mills, the circulation of elites – a new elite rising to challenge the old – had come to an end. If there was any circulation at all, it was the ease with which this new power elite moved from one part of the elite to the other: the “revolving door”.

The Cold War is over but there is a similar sense of immobility at present concerning the political elite. Must one be the child or wife of a past US president to run for that office? After Hillary Clinton, will Chelsea run, too? Must one have gone to Eton, or at least Oxford or Cambridge, to reach the cabinet? In France is it Sciences Po and Éna?

The vote for Brexit, Trump and the rise of the far right are, beyond doubt, reactions to this sentiment. And they bear out Pareto’s theses: the new elites have aligned themselves with the people to challenge the old elites. The lions are challenging the foxes. Needless to say, the lions, too, are prototypically elites. Trump is a plutocrat. Boris Johnson, the co-leader of the Leave campaign, is as “establishment” as they come (he is an Old Etonian and an Oxford graduate). Nigel Farage is a public-school-educated, multimillionaire ex-stockbroker. Marine Le Pen is the daughter of Jean-Marie Le Pen. Putin is ex-KGB.

Pareto placed his hopes for the continuing circulation of elites in technological, economic and social developments. He believed that these transformations would give rise to new elites that would challenge the old political ruling class.

We are now living through one of the biggest ever technological revolutions, brought about by the internet. Some have argued that social media tipped the vote in favour of Brexit. Arron Banks’s Leave.EU website relentlessly targeted disgruntled blue-collar workers through social media, using simple, sometimes grotesque anti-immigration messages (as a recent profile of Banks in the New Statesman made clear) that mimicked the strategies of the US hard right.

Trump’s most vocal supporters include the conspiracy theorist Alex Jones, who has found the internet a valuable tool for propagating his ideas. In Poland, Jarosław Kaczynski, the leader of the Law and Justice party, claims that the Russian plane crash in 2010 that killed his twin brother (then the country’s president) was a political assassination, and has accused the Polish prime minister of the time, Donald Tusk, now the president of the European Council, of being “at least morally” responsible. (The official explanation is that the poorly trained pilots crashed the plane in heavy fog.)

It need not be like this. Silicon Valley is a world unto itself, but when some of its members – a new technological elite – start to play a more active role in politics, that might become a catalyst for change. In the UK, it has been the legal, financial and technological sectors that so far have led the pushback against a “hard” Brexit. And we should not forget how the social movements that grew out of Occupy have already been changing the nature of politics in many southern European countries.

The pendulum is swinging back to the lions. In some respects, this might be welcome, because globalisation has left too many behind and they need to be helped. However, Pareto’s lesson was one of moderation. Both lions and foxes have their strengths and weaknesses, and political elites are a combination of the two, with one element dominating temporarily. Pareto, as he did in Italy in the 1920s, would have predicted a return of the lions. But as a liberal, he would have cautioned against xenophobia, protectionism and violence.

If the lions can serve as correctives to the excesses of globalisation, their return is salutary. Yet the circulation of elites is a process more often of amalgamation than replacement. The challenge to liberal politics is to articulate a balance between the values of an open, welcoming society and of one that takes care of its most vulnerable members. Now, as ever, the task is to find the balance between the lions and the foxes. l

Hugo Drochon is the author of “Nietzsche’s Great Politics” (Princeton University Press)

This article first appeared in the 12 January 2017 issue of the New Statesman, Putin's revenge