The high cost of neoliberalism

Financial liberalisation undermines democracy, handing power to a “virtual senate” that acts on beha

In the contemporary world of state-capitalist nations, loss of sovereignty can lead to a diminution of democracy, and a decline in the ability of states to conduct social and economic policy on their own terms. History shows that, more often than not, loss of sovereignty leads to liberalisation imposed in the interests of the powerful. In recent years, the regime thus imposed has been called "neoliberalism". It is not a very good term, as the social-economic regime in question is not new; nor is it liberal, at least as the concept was understood by classical liberals. The very design of neoliberal principles is a direct attack on democracy.

The central doctrine of neoliberalism is financial liberalisation, which took off in the early 1970s. Some of its effects are well known. With the increase in speculative capital flows, countries were forced to set aside much larger reserves to protect their currencies from attack. It is striking that countries which maintained capital controls - among them India and China - avoided the worst of the Asian financial crisis of 1997-98.

In the United States, meanwhile, the share of the financial sector in corporate profit rose from just a few per cent in the 1960s to over 30 per cent in 2004. Concentration also increased sharply, thanks largely to the deregulatory zeal of the Clinton administration. By 2009, the share of banking industry assets held by the 20 largest institutions stood at 70 per cent.

Among the consequences of financialisation is the creation of what an analysis by the investment bank Citigroup calls "plutonomy". The bank's analysts describe a world that is dividing into two blocs: the plutonomy and the rest. The US, UK and Canada are the key plutonomies: economies in which growth is powered by - and largely consumed by - the wealthy few. In plutonomies, these rich consumers take a disproportionately large slice of the national pie. Two-thirds of the world's economic growth is driven by consumption, primarily in the pluto­nomies, which monopolise profits as well.

The virtual senate

Citigroup's "plutonomy stock basket" has far outperformed the world index of developed markets since 1985, when the Reagan-Thatcher programmes for enriching the very wealthy were taking off. This is a substantial extension of the "80-20 rule" that is taught in business schools: 20 per cent of your customers provide 80 per cent of the profits, and you may be better off without the other 80 per cent. Corporations recognised years ago that modern information technology allows them to identify profitable customers to whom they can provide grand treatment, while deliberately offering skimpy services to the rest, creating a form of "consumer apartheid".

Financial liberalisation also creates what some international economists have called a "virtual senate" of investors and lenders, who "conduct moment-by-moment referendums" on government policies. If the virtual senate determines that those policies are irrational - meaning that they are designed to benefit people, not profit - then it can exercise its "veto power" by capital flight, attacks on currency and other means. Take one recent example: after Hugo Chávez was elected president of Venezuela, capital flight escalated to the point where assets held abroad by wealthy Venezuelans equalled a fifth of the country's GDP. With capital flow liberalised, governments face a "dual constituency": voters and the virtual senate. And even in the richest countries, the private constituency tends to prevail.

The Bretton Woods system put in place at the end of the Second World War was designed on the understanding that capital controls and regulated currencies would create a space for government action responding to public will - for some measure of democracy, that is. Keynes considered the most important achievement of Bretton Woods to be the establishment of the right of governments to restrict capital movement. In dramatic contrast, in the neoliberal phase that followed, the US treasury department came to regard free capital mobility as a "fundamental right", unlike such alleged rights as those guaranteed by the United Nations Universal Declaration of 1948: to health, education, decent employment and security - entitlements that the Reagan and Bush administrations dismissed as "preposterous", "letters to Santa Claus", mere "myths".

In earlier years, the public had not been much of a problem. In his definitive history of the international monetary system, the economist Barry Eichengreen observes that, in the 19th century, governments had not yet been "politicised by universal male suffrage and the rise of trade unionism and parliamentary labour parties". This meant that the severe costs imposed by the virtual senate of lenders and investors could be transferred to the general population.

But with the radicalisation of the general public during the Great Depression and the anti-fascist war that followed, this luxury was no longer available to private power and wealth. Hence, in the Bretton Woods system, Eichengreen writes, "limits on capital mobility sub­stituted for limits on democracy as a source of insulation from market pressures". It is only necessary to add the obvious corollary: with the dismantling of that system from the 1970s on, functioning democracy was restricted.

Real choices

In Latin America, specialists and polling organisations have, for some time, observed that the extension of formal democracy was accompanied by an increasing disillusionment about democracy and a lack of faith in democratic institutions. A persuasive explanation for these disturbing tendencies was given by the Argentinian political scientist Atilio Boron, who pointed out that the new wave of democratisation in Latin America coincided with neoliberal economic "reforms", which undermine effective democracy. The phenomenon extends worldwide, although it appears that the tendency may have reversed in recent years, with departures from neoliberal orthodoxy.

The annual polls on Latin American opinion by the Chilean polling agency Latinobaró­metro, and their reception in the west, are interesting in this respect. Few elements of the reigning western orthodoxy are upheld with more fervour than the view that Chávez is a tyrant dedicated to the destruction of democracy. The polls are therefore a serious annoyance that have to be overcome by the usual device: suppression.

The November 2007 poll had the same irritating results as in the preceding few years: Venezuela ranked second behind Uruguay in satisfaction with democracy and third in satisfaction with leaders. It ranked first in the assessment of the current and future economic situation, equality and justice, and education standards. True, it ranked only 11th in favouring a market economy but, even with this flaw, overall it ranked highest in Latin America on matters of democracy, justice and optimism, far above the US favourites Colombia, Peru, Mexico and Chile.

The Latin America analyst Mark Turner has written of an "almost total English-speaking blackout about the results of this important snapshot of [Latin American] views and opinions". He also found the usual exception: there were reports of the finding that Chávez is about as unpopular as Bush in Latin America, a fact that will come as little surprise to those who are familiar with the bitterly hostile coverage to which the Venezuelan president is subjected in the media, not least (and this is an odd feature of this putative dictatorship) in his country.

In the US, faith in institutions has been declining steadily. It is interesting to compare recent presidential elections in the richest country in the world and the poorest country in South America, Bolivia. In the 2004 US presidential election, voters had a choice between two men born to wealth and privilege, who attended the same elite university, joined the same secret society where privileged young men are trained to take their place in the ruling class, and were able to run in the election because they were supported by pretty much the same conglomerations of private power. Their announced programmes were similar, consistent with the needs of their primary constituency: wealth and privilege.

By contrast, in the December 2005 election in Bolivia, voters were familiar with the issues: control of resources, cultural rights for the indigenous majority, problems of justice in a complex multi-ethnic society and many others. They eventually chose Evo Morales, someone from their own ranks, and not a representative of narrow sectors of privilege. There was real participation, extending over years of intense struggle and organisation.

Election day was not just a brief interlude for pushing a lever and then retreating to passivity and private concerns, but one phase in ongoing participation in the workings of the society. The comparison, and it is not the only one, raises some questions about where democracy promotion is most needed.

Latin America has real choices, for the first time in its history. The usual modalities of imperial control - violence and economic strangulation - are much more limited than before. There are lively and vibrant popular organisations providing the essential basis for meaningful democracy. Latin American and other former colonies have enormous internal problems and there are sure to be many setbacks, but there are promising developments as well. It is in these parts of the world that today's democratic wave finds its basis and its home. That is why the World Social Forum has met in Porto Alegre, Mumbai, Caracas, Nairobi, not in northern cities, though by now the global forum has spawned many regional and local offshoots, doing valuable work geared to problems of significance in their own regions.

The former colonies, in Latin America in particular, have a better chance than ever before to overcome centuries of subjugation, violence and foreign intervention, which they have so far survived as dependencies with islands of luxury in a sea of misery. These are exciting prospects for Latin America, and if the hopes can be realised, even partially, the results cannot fail to have a large-scale global impact as well.

Extracted from "Hopes and Prospects" by Noam Chomsky (Hamish Hamilton, £18.99)
© Noam Chomsky 2010 penguin.co.uk

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The Somme and modern memory

My father was 16 when he enlisted in the army in September 1914. Within nine months he was fighting on the Western Front.

On 30 June 1916, the day before the Battle of the Somme began, my father’s regiment, the Cambridgeshires, were 40 miles north at Richebourg-Saint-Vaast. What happened the next morning was a great acceleration of attrition along the front. My father’s diary – a black hardbacked book, fraying at the edges 100 years on, but with his immaculate pencil handwriting still legible – records that the Royal Sussex Regiment, in the line in front of his, launched an attack but “had to retire with great loss leaving hundreds of dead and wounded behind”. The Cambridgeshires also suffered; 28 were killed or wounded.

The next morning was a “lovely day, very hot”. Relieved in the afternoon, his company “passed graves of men who fell on the 30th. It was a sad sight to see the rows of dead waiting to be buried, with a chaplain reading the burial service over them.” He was 18 years and six months old: 2578 Signaller James Heffer, 1/1st Cambridgeshires, had enlisted on 7 September 1914 at the Hills Road recruiting office in Cambridge, aged 16 years and eight months, two days after the Kitchener poster was published in the press. He had lied about his age, claiming to be 19, the minimum at which one could be sent abroad. He was a tall, healthy lad and the recruiting sergeant might just have been taken in. He was on the Western Front by May 1915 and served there for most of the rest of the war as a signaller (he was fluent in Morse code even in old age) and despatch rider before manning the first tanks. The war, and particularly the Somme, coloured the rest of his life and cast a perspective on everything. If you could survive that, you could survive anything.

I was a child of his second marriage. He was widowed in his late fifties and was 62 when I was born. I recall the Saturdays before Remembrance Sunday in the 1960s, when he would drive to Cambridge for his regimental reunion. He came back uplifted: he was in no doubt about how awful the war had been, how duped the people had been, and what a terrible price men such as those with whom he served had been called upon to pay for the mistakes of politicians. Yet he made friendships in the trenches that lasted for life; the Cambridgeshires had their share of losses but were not devastated in the way that some other regiments were.

James Heffer and his three brothers all served on the Western Front for over three years and came back in one piece. When I was a child, he would take out some maps he had of the front, used so often that their seams were patched with brown Sellotape. He had marked the trenches on them and would talk me through passages in the diary with reference to the maps and recall long-dead men whose names he had noted. Visiting war cemeteries in the 1990s, many years after his death, I found some of them. For him, remembrance was never abstract.

***

In July 1916, word went up the line about how well things were going further south. “British and French still making good progress in the Somme – 9 villages taken,” my father wrote on 3 July. There was no mention of the inconceivable number of dead and wounded on that first day. As a signaller, he received information to which most in the ranks had no access, and in keeping a diary he was in breach of King’s Regulations. It seems that the men at the front were told only good news: villages captured, huge numbers of prisoners taken. However, as they met those who had been in the thick of it, the truth could not be contained. After a month just outside Lens, the Cambridgeshires were relieved by the East Yorks. “By what they said,” my father noted on 10 August, with commendable understatement, “the Somme ­offensive is not at all a success.”

James Heffer spent the next week just outside Arras, learning a new form of visual signalling and being trained in attacking enemy trenches. Both skills were felt to have been deficient in the great battle and the next wave of soldiers had to be better. “I had seen better attacks made by Boy Scouts,” he wrote on 18 August. Within five days, he was on the front line of the Somme battlefield, country he knew well, as the regiment had been there in October 1915. As they neared Pozières, he noted a bombardment of unusual force and duration. By 26 August he was at Thiepval, where Lutyens’s great monument now crowns the battlefield. “Everywhere you looked there were guns and they were keeping up their fire. I had no idea we had so many guns. I bet they give the Germans a merry time.”

The bombardment continued all night, most of the following day and all the following night. James remained standing in mud and water, even though the hot weather had persisted. The rations had deteriorated. This was a harshness of warfare he had not experienced in his 15 months in France. A gas attack was launched on the night of 28 August; the following day, a British plane was shot down in no-man’s-land. “Both airmen killed: they lie just the other side of the trench riddled by the Germans’ bullets.” By 30 August, after four days of non-stop shelling and comrades being picked off around him, he was “tired and miserable”. A high point was the arrival of a German deserter, who admitted that things were no better on the other side.

On 3 September, he wrote: “At 5am every man was ordered to get into the trench as bombardment was about to commence.” However, three signallers – including James – were sent to a fort in the trench system to establish communications with another unit of the regiment. “The sky was coloured blood red by the rising sun and everything shook and trembled when all our guns opened out.” Looking through clouds of smoke, he wrote: “[The town of] Albert could be seen, with its shattered towers looming faintly above the smoke. It was a splendid but yet awful sight when you think of the lives to be lost and this bloody conflict through a country’s greed for territory.”

Eventually James went forward: “The rest of us made for trenches across country under heavy shelling. Reached communications trench, which was blocked up by dead and wounded. It was hell itself . . . The bottom of the trench was a mixture of blood and mud while it rained iron from above. Just missed getting buried alive several times by large shells.” There was no respite. He was sent back with a signal and “had to crawl over dead and wounded getting back. Some had awful wounds. What with the smell of blood, no food, no sleep it took me all my time to get along.”

He discovered that the rest of his battalion had been forced to retreat by the huge German bombardment. They managed to hold their original position until the Hertfordshires relieved them.

The next day they were back in the line, under a torrent of German gas shells. “Kept this up for six hours. Put on gas helmets. Had about 6,000 over with one on the top of the dugout. It was enough to send one mad when tired out as we were.”

The staccato nature of the writing reflects his exhaustion and, perhaps, an attempt to keep a distance from the constant horror. When the bombardment ceased he sustained a minor wound: “I got through with just one small knock from shrapnel,
bringing dead in.” He and his surviving comrades spent the whole of the next day bringing in the casualties: he estimated that 5,000 men in the division had been killed or wounded, and the Cambridgeshires had lost 140. For several days they braced themselves for a German attack. By the time they moved to Beaumont-Hamel on 13 September, it had not come.

Over the next fortnight, friends and comrades are killed by stray shells or snipers. There are near misses for the diarist, who is several times buried in mud, sandbags and chalk as shells burst on the trench parapet. A dugout he has just evacuated is obliterated by a direct hit. Attempts to take German positions fail, usually because of an inability to cut the wire. An officer is wounded and another who tries to retrieve him is taken prisoner; a third is wounded even more seriously in making another attempt; the next officer who goes out never comes back. It typifies the futility of the battle.

Regular transports attempt to bring in food but the Germans have taken a small hill nearby and wreck the vehicles before they reach the trenches, or attack them as they are unloading. On 25 September the shelling becomes so heavy that the transport goes “hell for leather” before delivering any food. However: “We had about 2 quarts of rum between 8 men so you can bet we had a jolly old time before the night was out.”

The next day, he watched British shells landing on the centre of Thiepval “like hundreds of volcanoes just exploding, and it looked as if the hill was slowly being blown to pieces”. The battle had been raging now for nearly three months and the ­attacks continued day and night. “At 11am [26 September] the artillery here opened out like one long crash of thunder and the earth rocked with the vibration: such an artillery action I had never heard before.” This was the attempt to recapture Thiepval.

He observed the enemy from a ridge: “The Germans I could see running towards us across the open, in places where the trenches had been knocked flat . . . There must have been a company of them without rifles and equipment running and falling down the trench in mad terror, exposed to anybody who would care to shoot them, our shells bursting right among them. I had never seen men run like it before.” The Germans were surrounded and he soon watched through his binoculars a wave of British troops jump into the same trench and start shooting – before the Geneva Conventions, prisoners were not always taken. He saw Germans using the remains of sandbags as white flags and surrendering.

On 29 September, after five weeks on the Somme, his battle ended with a “Blighty one”, a wound so bad that he had to be repatriated. He was standing by a trench mortar when a shell in it blew up. “With a smash, we were blown back, deafened and choking. I thought my heart was never going to start again.” His right hand was badly burned, “the fat burning on my fingers”. A corporal helped put out the flames on his hand: “I went mad: the pain was awful.” He recorded this a few weeks later at Leeds Infirmary, where surgeons managed to save his right hand, once he had regained the use of it.

***

James Heffer went back to France early in 1917 and was still six weeks from his 21st birthday when the Armistice was signed. He talked of the Somme, like the rest of his war, with the detachment of a historian (he became a tax inspector) rather than with the emotion of one who had been up to his ankles in blood there. Perhaps even for one so calm and as philosophical as he was, any detailed introspection was, even half a century afterwards, more than would be wise.

Simon Heffer is a columnist for the Daily and the Sunday Telegraph

Simon Heffer is a journalist, author and political commentator, who has worked for long stretches at the Daily Telegraph and the Daily Mail. He has written biographies of Thomas Carlyle, Ralph Vaughan Williams and Enoch Powell, and reviews and writes on politics for the New Statesman

This article first appeared in the 23 June 2016 issue of the New Statesman, Divided Britain