The Great Reckoning: Why the European ideal is under threat

The certainties that sustained notions of European unity and social solidarity are collapsing. The financial structures that formed the foundations of old Europe have warped and are destroying it. So, where next?

What is happening to Europe? When and how was the dream of a continent united by not only peace but human fulfilment reduced to a question of saving a currency? These questions, and the roots of our present predicament, go back a century and more. In 1909, shortly before the New Statesman was founded, the pacifist Norman Angell argued, as John Gray writes on page 30, that economic interdependence had made war between nations irrational and futile; war itself was “the great illusion”. Not the best timing, perhaps – a few years later his argument looked a lot less compelling – but Angell was convinced even after the Great War that events had proved him right; and history is a funny thing, for, after a second round of bloodletting, Europe’s leaders finally came round to his idea that land-grabs and the old obsessions – territory, colonies and borders – were indeed not necessary to the pursuit of prosperity and were best set aside for the sake of peace.

Better late than never. But Angell’s work can perhaps be read in another, less comforting way. His argument rested on the assertion that because finance and the spread of credit demanded peace and stability, military conquest no longer guaranteed access to the forms of wealth produced by a modern economy. Flip this around, and he might also have been pointing to an important feature of the ongoing euro-crisis: transformed by global financialisation, European integration and monetary unification have facilitated a process of wealth transfer against which states and their citizens no longer have any obvious safeguard. Angell’s Europe at peace, made safe for and by money, has become a world in which fin­ance holds sway, social solidarity collapses and fairness suffers.

How did we end up here and did it have to be this way? How did we come to find ourselves living through a crisis in which banks and finance dominate the headlines, as both sinners and saviours? A world in which the International Monetary Fund and the European Central Bank put other global institutions in the shade, a world in which salaries in the City of London stand at record multiples of average earnings? Most fundamentally, a world in which, more than previously, money is used to make money and not things. Money moves around the world faster than before and does so with ever more destabilising results, and Angell’s belief that credit and stability were connected now has a quaint ring to it. In an era when middle-class wealth has become hostage to fluctuations of the stock market, the extreme complexity and opacity of computer-generated transactions based on conjectural projections of events has taken us far away from his vision of a world of capitalist rationality.

No less distant from our own times is his happy confidence in the political role of the citizen and the strength of the democratic system. The financialisation of the global economy has brought with it the most acute crisis of democracy since the Second World War. As huge sums of money slosh across the continent, voters in the creditor north feel ignored when their politicians bail out the debtor south, while voters there feel powerless in the face of IMF and ECB diktats. Both bodies thus weaken the legitimacy of politicians and of politics itself.

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It was about 200 years ago that a conception of Europe emerged for the first time which linked stability, civilisation and peace to the triumph of capital. Angell’s argument really originated in this moment, when thinkers such as Benjamin Constant, Jeremy Bentham and Henri de Saint-Simon wrote off the war-making of the ancien régime and revolution as symptoms of an older, more bloodthirsty age, and predicted the coming of a brave new world run by merchants, lawyers and engineers. In the same era, the City of London became the unquestioned world centre of international banking. Karl Marx analysed the new power of capital, dissolving traditions and uniting the world through the cash nexus. But he shared the prevailing optimism that history was travelling in the right direction – after all, he projected the eventual triumph of a working class incarnating the hope of human emancipation.

All of these thinkers were Europeans, and, for all of them – whether liberals, scientific technocrats or communists – Europe was the laboratory for that form of social harmony they thought best suited to the modern age.

By the time of the run-up to the First World War, the growing importance of banks and speculators was attracting wide attention, especially from radicals and peace activists. J A Hobson was the first to make use of the term “imperialism” to account for the way profiteers such as Cecil Rhodes had grabbed control of British foreign policy and led the country into the Boer war. In his classic study Finance Capital, published in the year after the 1909 pamphlet that Angell turned into his book The Great Illusion and still worth reading today, the Austrian-born Marxist economist Rudolf Hilferding described the growing power of the banks. He saw a new cause of war in this, and thus a further catalyst for world revolution.

From today’s perspective, what is striking about such analyses is their confidence: fin­ance and financiers might be setting private profit ahead of the public welfare but there were collective responses to this, both domestic and international, and they could not get away with it for ever. Hobson saw the internationalisation of colonial control as the best guarantee that colonial peoples and their resources would be managed for their own and the general good, rather than for the sake of profiteers. Hilferding, like Marx, saw capital’s international character as likely ultimately to prove self-defeating. He welcomed the monopolistic position of finance because it was going to simplify the workers’ ultimate task and help them bring the entire economy under their control.

The First World War expanded criticism of the banks because in many quarters it was customary to blame them for the tensions that had presaged this war and seemed likely to fuel a new one. If Angell believed that wars broke out when the influence of capitalists was not heeded, others believed the exact opposite: speculators revelled in creating conflicts and profiting from them, reaping the rewards while ordinary people paid the price.

In the interwar thrillers of Eric Ambler, for instance, the ultimate puppet-masters are shadowy entities such as the Eurasian Credit Trust. “It was the power of Business, not the deliberations of statesmen, that shaped the destinies of nations,” one of his characters comments. From this perspective it is worth pondering whether our inability any longer to imagine a reason for a general war in Europe does not serve in its own right to soften public anger at financiers, because it removes one of the main historic causes of suspicion of them. Bankers may have an image problem today, but arguably what needs explaining is why this is not worse than it is, and why it has had so few repercussions for the way they run their businesses compared to the 1930s. One of the reasons, surely, is that the old anxiety about profiteers, which ran through European history for much of the 19th and the first half of the 20th centuries, has vanished. Who even speaks of profiteers today?

It was the 1929 Wall Street crash that discredited finance for a generation and more. The ensuing collapse of the gold standard around the world made globalisation go into reverse. Capital controls became an unremarkable fact of life. In one country after another, the state took over from the private sector in making major investment decisions and in regulating relations between workers and employers. At the same time, the rise of the Soviet Union posed a grave new challenge. European politicians seeking to stabilise capitalism responded on several fronts, parcelling out landed estates in eastern Europe to the peasantry, founding new central banks and formalising international co-operation through bodies such as the Bank for International Settlements. It was the threat of Bolshevism that brought managed capitalism to Europe and, with it, new conceptions of the state as the guarantor of collective welfare.

Thus the “European model” combining liberty and social solidarity, which commentators such as Tony Judt and Jeremy Rifkin hailed a decade or so ago as the civilised alternative to American capitalism, originated in the fear of communism and the looming presence of the USSR on Europe’s margins. Where avoiding communist revolution was the priority, the politicians were willing to give a growing share of national income to labour, curb potentially destabilising capital flows, use the state as a guarantor of social peace, and equalise wealth and opportunities by expanding the tax base and bankrolling welfare. But what would happen when no one feared communism any longer and took the stability of parliamentary democracy for granted?

Today, when globalisation remains a powerful if waning ideology, it is easy to forget that the “European model” was extraordinarily successful. In the 30 years after 1945, high growth rates, unmatched before or since, paid for an expansion of the state as provider of social services and banished memories of mass unemployment. The Americans helped, providing a security guarantee to western Europeans and modest incentives towards regional co-operation.

What emerged domestically was a form of economy that combined a high degree of state direction of investment behind tariff barriers and exchange controls with gradual liberalisation of trade. The very unglamorous early years of the Common Market in fact stand out in retrospect as a spectacular political success, because it was in those years that “Europe” – as the western Europeans liked to term what they were doing – demonstrated its indispensability in helping restore legitimacy to that form of political community most Europeans clearly preferred to live in, the nation state. What the historian Alan Milward called the postwar “rescue of the European nation state” was in its way a European triumph, too: national resurgence and international integration proceeded hand in hand, much as 19th-century nationalists such as Mazzini had said they should.

This highly managed version of capitalism emphasised economic regulation and assigned a secondary role for finance. Yet long before the collapse of communism, the possibility for Europe to go in another direction entirely was being explored. The Second World War raised the question of what Europe was for, and in Britain several émigré intellectuals explored the economic issues in depth. From Oxford, the Polish economist Michał Kalecki underscored the political implications of full employment, anticipating that employers would sooner or later successfully put pressure on politicians to roll back Keynesian-style policies because of their impact on profits. From his own, very different, libertarian starting point, Friedrich Hayek praised the idea of a European free market while attacking the idea that a continental federation with supranational regulatory powers could ever win sufficiently wide political consent across member states.

The great Hungarian polymath Karl Pol­anyi differed profoundly in his views from Hayek but he, too, reminded readers that a return to the dream of the self-regulating market was always a possible alternative to the economic planning he personally preferred; neither was natural and both had their champions. In his prophetic 1945 article “Universal capitalism or regional planning”, Polanyi argued that as Europe emerged from the war it faced a choice between an American model of a liberalised, open, world economy and a Soviet model that was based on planning, protected borders and heavy state involvement. Perhaps even more than the two other men, he was acutely aware that Europe’s choice of capitalism would henceforth be conditioned by larger international considerations.

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It took time, but in the 1970s they were all in varying ways proved right. The business counteroffensive that Kalecki had foreseen came to pass, helped by a revival in interest in Hayek’s ideas. Internationally, the critical switch was a change in US thinking from global Keynesianism to a much more finance-based foreign economic policy. The dollar’s abandonment of gold in 1971 could have led to the end of America’s central role in international finance, a rift in the transatlantic alliance and a return to greater domestic policy fragmentation and autonomy. By the end of the decade, however, the US had opted for the anti-inflationary crusade that would restore the dollar’s global prominence and bring western Europeans into line. The 1976 sterling crisis and IMF intervention were a turning point; Maggie Thatcher followed, and eventually so did even François Mitterrand and the French Socialists.

What emerged was simultaneously an assault on the power of organised labour in the developed north – an assault from which it has never recovered – and something else whose consequences were foreseen by virtually no one: an extreme deregulation of banks and financial institutions which unleashed their ability to make profits across the world. As manufacturing languished, brute capital became more profitable and salaries in the financial sector took off.

This process of financialisation originated in the US but it was driven through by international agencies. In fact, it cannot be understood except as a campaign that helped powerful coalitions to emerge between the leading banks, the US Treasury and the IMF and the Organisation for Economic Co-operation and Development. Representing a compact between the free-marketeering ideology of Wall Street and the western Europeans’ desire for rules and codes, they spread the new norms – of capital liberalisation, deregulation of banks and the credit sector, and internal privatisation of state-owned businesses – from one continent to another. A series of debt crises, also symptoms of this new, financialised world, offered the serendipitous means for the IMF to spread the neoliberal gospel.

Under the European Commission president Jacques Delors, a French Socialist, Europe signed up. Opting to promote integration through the monetary system was a natural response to the exchange-rate volatility of the 1970s and 1980s. But there were two problems. One was that the needlessly rigid rules that were introduced along with the euro removed much of what discretionary power was left to EU member governments once the currency was adopted. The other was that the tiny size of the European Union budget made it impossible to achieve the other plank of Delors’s modernising vision – a real mechanism for funding social solidarity across the EU. All that was left was money.

Today the consequences of financialisation, within and outside Europe, are clear enough. Look at average growth rates during the Trente Glorieuses and during the past 30 years: the comparison makes sobering reading. Banks and hedge funds may have increased their profitability, but national and continental economic performance have lagged sharply behind. One reason for this is that globalisation has made the world more crisis-prone, not less so: nostalgia for the dictator António Salazar in Portugal or communism in Russia reflects how the greater self-sufficiency of the years before 1980 brought greater predictability and stability. And it has also made the world much less equal or fair. The trend towards equalisation of wealth and incomes that occurred within European societies between 1945 and 1975 has been stopped, and the curve, without exception in Europe, now points the other way, towards an ever-widening income gap, which is forcing large sections of the population to recalibrate their social expectations for themselves and their children.

In so far as the EU stands for the defence of the single currency, it thus finds itself aligned against those very priorities – ­stability, solidarity, equality – that helped restore the legitimacy of democracy to the western half of the continent after 1945. The recent divide between creditor north and debtor south makes these problems far more acute, but in fact they existed before the crisis hit. Even then, they lay at the heart of the fundamental political challenge that financialisation has produced, the challenge posed by the decoupling of political from economic power. The euro-crisis has made this challenge evident, and more morally troubling.

In these circumstances, what demands explanation is not the emergence of organised protest, but the lack of it. Why, we need to ask, do people find it so hard to imagine alternatives? Taxpayers are bailing out the financial sector. So why haven’t they demanded more regulation, more control of pay, and ultimately a rebalancing of relationships between finance and manufacturing, between global liquidity and nationally rooted communities?

The main reason is the absence of widely believed alternatives. The revolutionary left, whether communist or anarchist, has failed at the ballot box, which may not matter to its adherents but signals its lack of political weight. In the few cases where it has succeeded, as in austerity-riven Greece (with Syriza), its recipes for the crisis are scarcely revolutionary. People may have soured on the globalisation dream but politicians continue to regard the financial markets as indispensable in more or less their present form. Domestically, what is striking is the degree to which recovery programmes today rely simply on expanding liquidity through the banking system rather than by means of the kind of ambitious public works projects that characterised recovery across Europe after 1945. Thus, while the left hand of Whitehall chastens the banks, its right hand begs them to kick-start a new boom.

Internationally, too, the idea that the removal of capital controls which took place in the past 30 years might need to be rolled back – that a sharper distinction might legitimately be drawn (the old distinction, in fact) between productive, long-term investment and short-term, speculative flows – has scarcely begun to be voiced, though there have been faint murmurs of it in recent IMF discussions.

Even if there were persuasive alternatives, would they be heard? Back in the 1820s, public opinion was a “Divinity”, a novel democratising and rationalising impetus that would force the old elite to modernise. In the age of the internet and the blogosphere, who still believes this? Here, as in other senses, Europe is living through the collapse of older certainties. Democracy has been won – but what has that meant? On its own, it guarantees the hegemony of a set of institutions and practices, not any particular policies. After all, the forces that made for social justice emerged not out of democratic institutions per se, but out of deep ideological anxieties and rivalries, rivalries that served to fetter the power of the markets and won wide political support for so doing.

Absent those ideological rivalries, or any new forms of effective collective mobilisation, and nothing checks the European social model from continuing to disintegrate. Europe=euro: in the shadow of this equation, all the other older, nobler and more ambitious versions of what Europe might stand for have faded away. An interesting possibility thus follows – might the dissolution of the euro be necessary in order to save something of the European idea? Or would we merely find ourselves with neither? We may yet find out.

Mark Mazower is the director of the Centre for International History at Columbia University. His most recent book is “Governing the World: the History of an Idea” (Allen Lane, £25)

A protestor throws a petrol bomb towards riot police outside the Greek parliament in October 2011. Photograph: Petros Giannakouris/AP

This article first appeared in the 12 April 2013 issue of the New Statesman, Centenary Special Issue

Photo: Getty Images/Ian Forsyth
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The big battle in Corbyn's Labour party will be over organisation, not ideas

Forgotten and near-moribund institutions of the parliamentary Labour party will become vital once again, explain Declan McHugh and Will Sherlock. 

“Decidedly downbeat” was Chris Mullin’s assessment of the first Parliamentary Labour Party meeting following the 2001 landslide General Election victory. Blair was “received well, but without elation … the managing director was treated to some blunt warnings that this time around the boys and girls on the shop floor expect to be treated with more consideration.”

Assuming he wins the leadership, Jeremy Corbyn’s first PLP meeting will be anything but downbeat. The ‘shop floor’ will be more akin to a Lions’ Den. Labour’s new figurehead will face a PLP overwhelmingly opposed to him. Many will question the legitimacy of his election and some will reject his authority. From day one, he will face a significant number of Labour MPs not merely against him but actively out to get him. There has probably never been a situation where a leader of the Labour Party has been so far removed from the parliamentary party which he supposedly commands.

The closest historical parallel with Corbyn is arguably George Lansbury, another ardent socialist who took charge of the party after serious electoral defeat. But the comparison doesn’t really stand up to scrutiny. Lansbury may have been on the left but he had been a leading figure at the top of the party for many years. Corbyn has never been anything but part of the Labour fringe – rarely even attending PLP meetings.

Nevertheless an immediate move to oust him is unlikely. Whatever their concerns about the circumstances of his election, the scale of the contest will make MPs nervous about executing a coup. And crucially there is no obvious alternative leader waiting in the wings.

The internal battle against Corbyn will instead be more drawn out and fought through the internal structures of the party. The number of Labour MPs showing a sudden and hitherto undiscovered interest and expertise in the PLP Standing Orders is an indication of what is to come. When Labour is in government, journalists pay little notice to obscure internal committees. Now they are going to be the centre of attention. The PLP may be energised on an organisational front in a way that it never was during the Blair, Brown and even Miliband years. Conflict is likely to be focused in the following arenas:

  • Shadow Cabinet

Corbyn is now understood to populate his shadow cabinet by appointment, but opponents in the PLP are seeking a return to the system of elections. That will not be straightforward. Although the 2011 decision to end elections was primarily achieved by means of a PLP vote to change Standing Orders, it was subsequently agreed by the NEC and passed into party rules by Conference. It will be harder to undo that constitutional knot than it was to tie it. The PLP can vote to change Standing Orders again but the NEC and Conference will need to reflect that in further amendments to party rules if the decision is to have constitutional authority. That sets the scene for a messy clash between the PLP and the NEC if Corbyn chooses to defy the parliamentary party.

 

Even if elections are restored, it is not clear how Corbyn’s opponents in the PLP will respond. MPs seeking the return of shadow cabinet elections hope to run a slate of candidates who will work to emasculate the new leader. But others have already resolved to boycott the front bench, regardless of how it is selected. Corbyn’s opponents face a dilemma. On the one hand abandoning the shadow cabinet may be viewed as walking off the pitch at a time when others are prepared to get stuck in and organised. On the other, it will be impossible to take a shadow cabinet post without signing up to some level of collective responsibility. That means undergoing the daily grind of defending the party line in front of the 24 hour media spotlight, with all statements scrutinised and recorded by Conservative researchers for future use.  How many Labour MPs would be willing to support a Corbynite line on foreign affairs, defence and economic policy? The new Labour leader will soon find out.

 

  • PLP meetings

The Monday evening meetings of the PLP are a weekly arena in which the frontbench and the party leadership are held to account by the wider parliamentary party. In the Kinnock, Smith and Blair days, although occasionally raucous, there was a degree of deference to the Leader. That has waned of late but will likely be non-existent under Corbyn. No one can remember the last time the PLP voted on a matter of policy, but Standing Orders permit it to so – expect opponents of the leadership to use this device.

 

  • PLP Chair

John Cryer, the current PLP Chair, will have his work cut out trying to manage what are likely to be stormy meetings. Moreover, the annual election of the Chair is an important barometer of the parliamentary party’s mood and the easiest means of organising a proxy vote on confidence in the leader. Importantly, the Chair of the PLP approves what motions can be tabled at the weekly PLP meeting. 

 

  • Parliamentary Committee

The parliamentary committee are effectively shop stewards for the backbenchers and the election of representatives is similarly a reflection of political sentiment in the PLP. New elections won’t happen until next May but the PLP could decide to initiate earlier elections. Labour MPs will ask whether the current committee, which includes one Corbyn nominator, is representative of the majority view. If not, a slate opposed to the leader could be organised. The Parliamentary Committee has executive powers that it rarely uses but this may change and will be significant. 

 

  • Departmental Groups

The PLP’s internal policy committees have been in decline since the early years of Tony Blair and have rarely made waves but have potentially important powers, including the right of Committee Chairs to speak from the Despatch Box. MPs may use these bodies to challenge frontbench policy positions in a way that no leader has experienced, promoting alternative agendas at odds with the leadership line on foreign affairs, defence and the economy. The Chairs have not yet been elected and this could be a key focus in the autumn.

 

  • Whips Office

The idea of Jeremy Corbyn directing the PLP to follow three-line whips is, to many, a source of amusement. A man who regularly topped the charts of rebel MPs will struggle to maintain the traditional system of party discipline – and indeed he has already indicated that he has no intention of “corralling” MPs in the traditional way. Most likely the whips will play a distinctly different role in the future, acting more as shop stewards for backbench MPs who want their concerns made clear to the Leader’s Office. And the likely deputy keader Tom Watson, who hails from the right wing union tradition but is close to some of the left, will play a major part in trying to balance the needs of the new leadership with the real anger of backbench Labour MPs.

Corbyn’s lack of authority and support within the wider parliamentary party puts a major question mark over his long term prospects as Labour leader. He would certainly lose any direct trial of strength against the PLP.

But the Corbynite group will seek to avoid confrontation inside Westminster. They believe their strength lies in the party outside Parliament and in the new influx of members and supporters. Their agenda will be to capitalise – though they might not use the term – on the leadership triumph by instituting rule changes that will revive the left within the party machine. Not just inside the NEC, the Conference and the party HQ but in the regional and constituency party organisation.

Most particularly, they are likely to seek to convert supporters into members, with a role in the selection of parliamentary candidates. By such means they will seek to apply external pressure on MPs from their own constituency parties. Labour members may be understandably wary about moving to decapitate a new leader so soon after his election. But they face a race against time to prevent him and his supporters from reshaping the party machine in ways that will undermine them from below.

 Will Sherlock and Declan McHugh are former Labour special advisers who now work at Lexington Communication.