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 Brexit odd squad

The Brexiters are resilient and have the support of some unlikely foreign allies. Can they really topple the political establishment and lead Britain out of the European Union?

Look at the troops arrayed on the Leave and the Remain sides in the June referendum and you might think that our continued membership of the European Union is assured. On the side of staying in the EU are Britain’s four living prime ministers, the International Monetary Fund, the Treasury, most members of the Labour and Liberal Democrat parties, the Trades Union Congress, the Confederation of British Industry, the governor of the Bank of England, the head of the NHS, Britain’s three largest trade unions and the US president. Leave has Boris Johnson, Nigel Farage and the contested ghost of Margaret Thatcher.

Yet few expect the final result of Britain’s In/Out referendum to be as asymmetric as that roll-call would suggest. At the top of the pro-EU campaign Britain Stronger in Europe, there is no doubt: it could lose.

So what – and who – is responsible for the unlikely appeal of Brexit’s “odd squad”? And how do they work together when their side is so fractious and its big personalities seem so uninterested in teamwork?

The story begins on the morning of 20 February, when David Cameron summoned his cabinet to announce the results of his EU renegotiation and ask his ministers to support Britain’s continued membership of the Union. Those who did left by the front door; the six dissidents were asked to leave by the tradesman’s entrance.

Nipping out the back were the full cabinet members Iain Duncan Smith, Michael Gove, Chris Grayling, Theresa Villiers and John Whittingdale, plus the employment minister, Priti Patel, who has the right to attend cabinet meetings. They soon reconvened at Vote Leave’s headquarters, a nondescript tower block in Westminster, where they posed with a giant sign bearing the campaign’s slogan “Vote Leave, take control” – a sight more reminiscent of a group of local councillors vowing to protect a bus lane than the upper reaches of the British political class.

Then again, the cabinet Leavers are not, on the whole, an impressive bunch. Villiers and Grayling were among the casualties of the formation of the coalition government in 2010, moving from their briefs to make way for Lib Dems, and both had to be content with junior posts until the 2012 reshuffle. Since then, Villiers has been a competent if uninspiring operator in Northern Ireland. Grayling was widely held to be a failure at the Ministry of Justice and now serves as Leader of the House of Commons, historically the antechamber between full cabinet rank and the wilderness.

As for Whittingdale, he is that rare creature in Whitehall: a secretary of state for culture, media and sport who does not regard the post as a stepping stone to bigger things. As the recent white paper on the future of the BBC showed, the golden thread of his thinking is scepticism: towards the EU, the BBC and regulation of the press. He was Margaret Thatcher’s last political secretary in Downing Street and, after becoming an MP in the 1992 election, he set up meetings between the former prime minister and his fellow new boys from the 1992 intake – meetings that John Major blamed for fanning the flames of Eurosceptic rebellion in the dog days of his premiership.

Priti Patel also has impeccable Eurosceptic credentials. She cut her teeth as a press officer to the Referendum Party, set up in a doomed attempt to secure an In/Out referendum in 1997. Following William Hague’s election as Tory leader and the adoption of complete hostility towards the single currency, she joined the Conservative Party, becoming an MP in 2010.

She is best known for contributing to Britannia Unchained, a series of essays by Patel and four of her fellow 2010-ers (including Dominic Raab, widely expected to run for the Tory leadership next time). The book was intended to provide the intellectual ballast for a revivified Thatcherism, though the only part that attracted headlines was the claim that British workers were “among the worst idlers in the world”.

This dubious crew of ministerial heavyweights has grown marginally more likeable since Duncan Smith’s resignation as work and pensions secretary. Yet it is not his six-year tenure as a minister but his two-year stint as Tory leader that has left the biggest mark on the Brexit debate, with his former hires among the loudest advocates for a Leave vote – including the founding editor of ConservativeHome, Tim Montgomerie, now at Gove’s old newspaper the Times. (In the unhappiest periods of Cameron’s first term, when the Prime Minister was frequently criticised by Montgomerie in that newspaper, Cameroons would mutter about the irony that one of their sharpest critics had served as chief of staff to the least successful leader of the Conservative Party in its history.)

As for Michael Gove, though he is loved by lobby journalists, he remains a hate figure in the country at large and particularly among teachers, as a result of his belligerent tactics during his time as secretary of state for education.

***

The last of the senior Brexit-supporting Tories didn’t leave through the back door that morning because he hadn’t yet declared his position. That came the next day, in a media scrum outside his home in Islington, north London.

The former mayor of London Boris Johnson is still Britain’s most popular politician, surviving crises and scandals that would have left others dead in the water. He is also the only politician whom the Remain campaign truly fears. But Johnson is not a wholly congenial presence among Britain’s Brexiters. Although he is a far more adept planner than his dishevelled appearance – or his paper-thin record at City Hall – would suggest, he can be difficult to manage. His  weekly Telegraph column has largely been turned to cheerleading for Brexit but Vote Leave’s biggest gun doesn’t always point in the direction its chief strategists would like.

During Barack Obama’s visit to the UK in April, Johnson became embroiled in a war of words in which he suggested that the president had an ancestral dislike of Britain because of his “part-Kenyan” heritage. Having made this racially charged argument in the Sun, he extended the story needlessly by giving a similarly robust interview to the Daily Mail, much to the frustration of staffers at Vote Leave.

So there you have it. An unpopular firebrand, an unsuccessful former Tory leader, four relative nonentities and a blond bombshell who is considered clever but uncontrollable. It is less a huddle of Big Beasts than a grotesque menagerie – and these are among the sensible, mainstream voices on the Leave side. The other politicians who can get on to the Sunday shows to talk Brexit include Nigel Farage, who is adored by the four million people in Britain who voted Ukip in last year’s general election – and hated by the remaining 42 million. Yet he is a national treasure compared to George Galloway, formerly of Labour, who secured just 37,000 votes in the mayoral election. An unkind observer might say that none of the Brexit-backing politicians can stop traffic: half of them because they are unknown and the other half because most people would quite like to run them over.

There are also few compelling figures from business, sport, entertainment and science backing Brexit. Ian Botham is a rare celebrity Outer. “Cricket is a game where you achieve the greatest success when you are confident in your own ability to go out and stand proud,” he wrote in the Sunday Times. “Britain has that spirit.” In April, a slew of acts withdrew from a gig in Birmingham after finding out that it was organised by Leave.EU. Only Phats & Small, whose last hit was in 1999, refused to pull out.

Then there’s the infighting. To give just one example of the ongoing civil war, Vote Leave – the officially recognised campaign group for Brexit – believes Farage is so toxic to its cause that it regards his invitation to appear in a TV discussion alongside Cameron as an establishment stitch-up. “ITV has effectively joined the official In campaign,” said a Vote Leave statement to journalists on 11 May, written by Dominic Cummings, the campaign’s director. “There will be consequences for its future – the people in No 10 won’t be there for long.”

***

In the light of all this, why are the pro-Europeans so worried? Many feel that the current campaign is beginning to remind them of a nightmare year: 2011, when Britain voted decisively to reject electoral reform by moving from first-past-the-post to the Alternative Vote (AV). Around the time of the 2010 general election, polls had shown that Britain was in favour of the change by a 27-point margin. But on 5 May 2011, more than two-thirds of voters said No to AV, which ended up more than 35 points ahead.

What undid the Alternative Vote was a ruthlessly effective campaign against it – one that was almost completely fact-free. No2AV focused relentlessly on the cost of a new voting system; poster after poster made reference to its illusory price tag of £250m. “He needs bulletproof vests,” intoned one illustrated with a picture of a soldier, “NOT an alternative voting system.” Another came with a picture of a baby: “She needs a new cardiac facility, NOT an alternative voting system.”

As one veteran of the pro-AV campaign recalled recently: “It was impossible to fight. How do you repudiate it without repeating it? We never found a way.”

That appeal to economic interests was so powerful that Vote Leave has come up with a similarly memorable figure: the £350m weekly cost of Britain’s EU membership. This has been debunked by fact-checkers such as Full Fact, which estimates that the UK pays roughly £9.8bn a year once money back is taken into account. Regardless, Vote Leave keeps quoting the figure – and no wonder, because the chief executive of Vote Leave is also the architect of No2AV’s crushing victory: a 38-year-old LSE graduate called Matthew Elliott.

Despite Vote Leave’s anti-politics flavour, Elliott is a Westminster insider and well connected in the wonk world. He is the founder of the Taxpayers’ Alliance, the most high-profile of a close network of think tanks that are a proving ground for a rising generation of right-wingers. The Taxpayers’ Alliance, the Institute of Economic Affairs and the Adam Smith Institute together form what one alumnus jokingly calls a “Sorbonne for neoliberals”.

Much of Vote Leave’s staff is drawn from another Elliott creation: Business for Britain. The group was set up ostensibly to lobby for David Cameron to renegotiate Britain’s membership of the EU but was in reality designed as a Leave campaign in utero. Accordingly, many of its early recruits have ended up moving across.

Elliott is regarded as having a keen eye for talent and for being generous with his time. At each organisation where he has worked, he has taken care to bring on promising protégés. Alumni of the Elliott school include Susie Squire, who spent two years at the heart of Cameron’s administration as press secretary; Nick Pickles, head of UK public policy at Twitter; and Dylan Sharpe, the combative head of public relations at the Sun. Most of his favourite employees have three things in common: libertarian politics, a cut-throat instinct and loyalty to him personally. Those who have worked for Elliott largely speak highly of him.

The same cannot be said for the second leading player in Vote Leave who has the Remain side worried: Gove’s former henchman Dominic Cummings. David Laws – who, as a junior minister, worked closely with Cummings when he was at Gove’s Department for Education – describes him as a “grade-A political Rottweiler”. “As well as being bright,” Laws writes in his memoirs, “Dom Cummings was also blunt, rude, impatient and tactless.” According to friends of both, without Cummings’s encouragement, Gove would have been a mostly silent presence in the Leave campaign because of his close friendship with Cameron.

The former special adviser’s commitment to anti-Europeanism is a long-held one – his first job in politics was at Britain for Sterling, which lobbied against Britain joining the European single currency in the 1990s. Thereafter, he worked for Iain Duncan Smith during his brief and unhappy leadership. A former staffer from that time remembers him as an “abrasive presence”.

After Duncan Smith’s removal as Tory leader, Cummings retreated to his native Durham, where he helped to engineer victory for the No side in the referendum on whether to give the north-east its own devolved assembly. It was the tactics used in that referendum – an endless focus on costs, coupled with personal attacks on the credentials of the Yes side – which were taken on and extended by Elliott during the AV contest. Those tactics are once again on display in this referendum.

That partly explains why, on the Remain side, Cummings is respected and feared in equal measure. Yet his confrontational approach often proves his undoing: for instance, he understood the importance of giving a cross-party sheen to Vote Leave (not least to secure the official campaign designation), yet his conduct led to the departure of the Eurosceptic Labour MP Kate Hoey. “We live in a world where people get things by being nice to each other,” reflects a former colleague of Cummings, “and Dom doesn’t really work like that.”

Hoey’s walkout set the ball rolling on another, less dramatic exit: John Mills, Labour’s largest private individual donor and a Brexiter of many years’ standing. He feared the Vote Leave brand had become irrevocably Conservative. (Unlike Hoey, Mills remains on speaking terms with Vote Leave.)

Friends say that, for Elliott, who has been “planning this [campaign] for some time”, Cummings’s disposition is a price worth paying for his tactical nous. It was Cummings who was the architect of Vote Leave’s two-pronged strategy: claiming that the money we now pay to the EU could go towards the NHS, and suggesting that Brexit will allow us to cut immigration by “regaining control of our borders”.

The perceived cut-through of the latter message with older Labour voters was behind Vote Leave’s big tactical gamble. On 8 May, an official statement by the campaign declared that leaving the EU would also entail leaving the single market.

That decision is unlikely to find favour with big businesses that rely on international trade but it does allow Vote Leave to make strong and unambiguous claims about cutting immigration. If we are outside the European Union but inside the single market (as Norway is), we would have to accept free movement of labour. If we leave the single market, however, we could introduce a points-based entry system, or even finally achieve Cameron’s otherwise impossible cap on net migration.

Upset business but win over small-C conservative voters: it’s a big risk for the Brexiters to take. It represents a throw of the dice by Cummings, who sidelined Nigel Farage precisely in order to minimise the campaign’s focus on immigration. But with the vote scheduled to take place on 23 June and a repeat of last year’s refugee crisis in the Mediterranean looming, security and borders are likely to be at the forefront of voters’ minds. For all that those on the Brexit side have denounced Cameron for running a repeat of “Project Fear”, they know that they have to make change less terrifying than maintaining the status quo.

***

In their quest to take Britain out of the EU, the Brexiters have a simple, if high-stakes, strategy. They want to appear to be the underdogs (hence their repeated complaints about the government’s £9m pro-EU leaflet) and as a scrappier, grass-roots campaign taking on the might of the establishment. Naturally, this image doesn’t reflect an unvarnished truth: the press has been largely onside and senior editors and columnists are very willing to take Vote Leave’s calls.

There is also no concern about keeping the lights on. Arron Banks, the insurance magnate who bankrolled Ukip at the 2015 general election, might have refused to fund Vote Leave after it triumphed over his favoured vehicle, Leave.EU – he has called Matthew Elliott “Lord Elliott of Loserville” and threatened to sue the Electoral Commission for naming Vote Leave the official voice of Brexit – but insiders say that the campaign’s financial position is nothing to worry about.

If Vote Leave wins, it will have scored an extraordinary victory – and, it should be noted, defied the hopes of most of our allies in the rest of the world. The politicians backing Britain’s continued membership of the EU include not just Barack Obama but his likely successor, Hillary Clinton, as well as the prime ministers of Canada, New Zealand and Australia.

There is a vanishingly small number of international politicians who back Brexit. Like the inner core of Vote Leave, they are overwhelmingly drawn from the right-wing fringe – US Republicans such as Ted Cruz and Donald Trump and the French National Front leader, Marine Le Pen, who, unhappily for the Brexiters, is expected to visit Britain to support their case.

The only foreign leader who seriously supports a British Leave vote in June is a man praised by Nigel Farage and whose country Dominic Cummings spent several years working in: Vladimir Putin, who, as far as British voters are concerned, is even more toxic than Farage, Galloway or Gove.

When Britain’s odd squad looks abroad for allies, its options are few – but this ragtag collective is far from beaten. 

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics. 

This article first appeared in the 26 May 2016 issue of the New Statesman, The Brexit odd squad