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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Good riddance to Boris – but the Tory party still needs to find a unifying leader

With Boris gone, Theresa May and Michael Gove are serious contenders for the crown.

UPDATE:  From the moment Michael Gove decided to run for the Conservative leadership Boris Johnsons days were numbered. This is particularly true because of the typically unequivocal comment that Gove made about Johnsons leadership capabilities or lack of them in his announcement. For Johnson has led a remarkably charmed life in both politics and journalism in recent years. Reality has finally caught up with him. It was always going to be the case that if Gove stood many who had pledged their allegiance to Johnson would, because of this lack of leadership qualities, think again. The inevitable has now happened, and Johnson, for once, has accepted reality.

Michael Gove appears, at the eleventh hour, to have learned something about Boris Johnson that anyone who has worked with him either in journalism or politics could have told him years ago: that Johnson is entirely unreliable. The leaked email in which Gove’s wife, Sarah Vine, warned him of the assurances he needed to get from Johnson before pledging himself as the key supporter in his campaign turns out to have been the writing on the wall for a clear run for Johnson. Word was swirling round Westminster after the email was leaked that Johnson appeared to have offered the same senior cabinet post – believed to have been the Treasury – to more than one person in return for support. Perhaps this was down to incompetence rather than dishonesty. Gove has made his own judgement, and it is, for an intelligent and serious man, an inevitable one.

Many Brexiteers, who feel that someone who shared their view should end up leading the Tory party, will be delighted by Gove’s decision. There was deep unease among many of them about the idea of a showman rather than a statesman inevitably ending up in Downing Street. What Gove will need to do now is to persuade colleagues who had gone behind Johnson because they did not want Theresa May to shift behind him. Some of Johnson’s supporters caused enormous surprise by their decision – such as Sir Nicholas Soames, who spent the referendum campaign denouncing Johnson on his Twitter feed – and they are not natural bedfellows of his. One Tory MP told me before Gove’s decision to stand that a group of “sensible” Tories had accepted the inevitability of a Johnson victory and had decided to get around him to try to keep him on the straight and narrow. The view that Johnson is unstoppable has now been tested, and those who had made the leap to support him may now well leap back.

Following Theresa May’s very assured launch of her campaign, which radiated statesmanship and sincerity, the Brexiteers need to ask themselves what sort of candidate is going to provide the best challenge to her, for she is clearly formidable. Given the choice between a volatile buffoon taking her on or someone who is more level-headed and serious doing so, the latter must inevitably be the best option. Johnson never looked like a unifying figure, and certainly not one it was easy for rational people to imagine leading the country in an international context.

Gove’s decision not to support Johnson does not merely withdraw his personal support. It will withdraw the support of many who were prepared, reluctantly, to follow his lead and join the Johnson campaign. It has a parallel in history, which was William Hague’s decision to run on his own account instead of supporting Michael Howard in the 1997 contest after the party’s annihilation by Tony Blair. Hague won, and turned out to be a hapless leader. Gove is made of heavier metal and the party is in less perilous circumstances, so the outcome for him, should he win, ought to be better.

In the past few days a considerable portion of the Tory party has taken leave of its senses. In such a condition, envisaging Johnson as its leader was easy. Sanity and calm are now prevailing. The Brexiteers in the party – or at least that group of them resolute that they cannot have a Remainer as leader can now reflect on whether they want an act or a politician to become prime minister. At least, thanks to Mr Gove, they now have a choice.

The Johnson phenomenon

Once upon a time, often within hours of a prime minister resigning, a “magic circle” of Tory grandees would decide after “soundings” whom to send to Buckingham Palace to kiss hands as the new man. Now, the 1922 Committee of Tory backbenchers has sought to do what it can to emulate the process, fast-tracking the election of David Cameron’s successor so that he or she is in place by 9 September, and ignoring calls for a period of wider reflection on whom the party needs to take it forward through the uncharted waters of negotiating an exit with the European Union. Longer consideration may have been helpful, given that the party is choosing not merely its leader, but the next prime minister.

It soon appeared the main fight would be between Boris Johnson and Theresa May. Jeremy Hunt proposed himself as a “second referendum” candidate, even though the Tory party in particular wants another plebiscite about as much as it would like to put its collective head in a mincer. There was talk of two lesser cabinet ministers, Stephen Crabb and Sajid Javid, presenting a “joint bid”, even though such a concept is unknown to the Conservative constitution; and others were floating around the margins. The tumult reflects the hysterical state of mind in the party: no one in Cameron’s inner circle expected the British public to disobey orders, including, one starts to imagine, Johnson. It is only the preposterous events in the Labour Party that have stopped the Tories from seeming to be completely out of control.

It has become Tory party lore that the favourite never wins, on the precept that he who wields the knife never ends up wearing the crown. Many of the Tory MPs believed nothing could prevent their colleagues voting in sufficient numbers to put Johnson in the second and final round of the contest, the one in which all paid-up members may vote. And if he got there, they felt, the outcome was even less in doubt: he would win.

Predicting this will happen and wanting it to happen are, of course, not the same thing. A distressed Tory MP told me he expected Labour sympathisers to join his party to vote for Johnson, rather as mischievous Tories joined Labour to elect Jeremy Corbyn. The rules, however, forbid such last-minute purchases of a vote: yet the sentiment shows what an equally substantial group of Tory MPs thought of Johnson’s capabilities, and explains why the anyone-but-Boris movement sprang into action the instant Cameron ran up the white flag. They knew that, for all Johnson’s failings, and there are many, he has the entertainer’s knack of making people love him. Sadly – and this is the part his adoring public doesn’t see – things can be very different when he enters his dressing room and starts to take off the make-up. As Sir Alan Duncan said forthrightly last weekend, there is the small matter of Johnson lacking the gravitas and experience to be a credible prime minister, something MPs should have the wit to take into account even if the party in the country at large does not.

The Johnson phenomenon is not the least reason why even some of Cameron’s most consistent critics did not call for him to resign if he lost the referendum. The more time the Tory party had to consider Johnson as a potential leader, and what that entailed, the better. Some MPs are angry that Cameron did not take immediate responsibility for cleaning up the mess he had helped make and preside over the exit negotiations. His colleagues feel he simply couldn’t be bothered, which is consistent with the often idle way he ran both his opposition and the government – an idleness that prevented him putting any contingency plan in place. The grand gesture, the great claim and the sweep of rhetoric are very arresting, and take little time. Following through is harder: but Cameron has a long record of not considering the consequences of words and actions, and this debacle for him is the ultimate, and most spectacular, example.

The pessimism that Johnson’s detractors felt about stopping him rested in what they knew and saw of the self-interest of their more bovine colleagues. The first concern of one group is to back the winner, and they came to think that would be Johnson (something with the status, in those circumstances, of a self-fulfilling prophecy). They also thought that should Labour find a new leader and become a serious opposition, Johnson was the man most likely to win an election. Whether that would come next spring – if the new leader sought a new mandate as Gordon Brown did not in 2007 – or in 2020, as the Fixed-Term Parliaments Act decrees, is a separate but important question. Johnson’s acolytes let it be known he would not call an early poll. He (or any other leader) would be absolutely constitutionally justified in not doing so. More to the point, you do not plot from the womb to become the Queen’s first minister only to risk chucking away the key to the Downing Street drinks cabinet after a few weeks. However, a weakened Labour Party may prove an irresistible target, and Tories recall how history would have been different if Gordon Brown had gone to the country in the autumn of 2007, as many urged him to do.

The press – and not just on the left – could well have given Johnson a hard time. His baroque private life has exhausted its capacity to shock, but there is scope to scrutinise his record of underachievement as mayor of London; or Michael Howard’s sacking him for lying; or the Times sacking him for making up quotations (from his godfather) in a story; or his offering to assist his old schoolfriend Darius Guppy in having a journalist who had disobliged Guppy beaten up. 

The manoeuvring May

Theresa May’s ambitions have been barely concealed. She has been “on manoeuvres” since the 2015 general election. She worked out that the best way to manoeuvre during the referendum campaign was to say nothing, to avoid becoming a divisive figure. Aside from some rare moments of half-hearted support for Remain, that is exactly what she did. Had she gone the other way, the leadership contest might have seemed closer, because her seniority and experience would have matched Johnson’s charisma. As it was, until Johnson pulled out, the best her colleagues believed she could hope for, barring some dramatic development, was to come second. A Times poll on Tuesday said that Tory voters preferred her to Johnson, which had the smell of accuracy about it. Activists – those with a vote – are a different matter. They appear in no mood at the moment to elect a Remainer.

Yet they are in some measure in the mood to elect a unifier. For all his attempts at sober statesmanship since the vote, Johnson (given his past) would have had to stretch credulity even more than usual to convince as one of those. The anyone-but-Boris movement has been motivated by the list of his perceived offences and character defects. Few believe he would have plumped for Leave had he thought it would lose: Johnson’s years on the rubber chicken circuit, and his mailbag from Telegraph readers in the provinces, made him more aware than most of his metropolitan colleagues of the true nature of public feeling outside the bubble. He is seen as utterly flexible in terms of principle: and, from the nature of his campaign rhetoric, as disloyal, cynical and lazy. Critics recall the number of deputy mayors (seven at one point) he required to do his last job. He is widely considered untrustworthy.

Perhaps he could have unified activists who seem near universally to admire his carefully manufactured persona: he would have found it harder to unify the parliamentary party, and would probably require a resounding general election victory before doing so. Even then, doubts born of years of witnessing his buffoonery and prevarication would be hard to allay.

The unifiers

MPs felt that two other Brexiteers had far better credentials as unifiers. The most obvious was Michael Gove, whom some tried to persuade to stand; but until today Gove had signalled his willingness to throw in his lot with Johnson.

The other increasingly discussed name in the days after the referendum was Andrea Leadsom, the energy minister and, before that, economic secretary to the Treasury. Many even in her own party never thought of her as a potential leader until recent weeks: but these were weeks in which she showed her key virtues. She is intelligent and capable. She had a long career in business before entering government, and presents a happy contrast to ministers who spent their lives as special advisers before gracing the back benches. Leadsom is deeply principled but also reasonable: she abstained in the vote on same-sex marriage because she did not want to show a lack of respect to homosexuals and lesbians who wished to solemnise their relationships, but she could not support the notion because of her religious views. Remainers consider her to have performed uniformly well in debates and television interviews during the EU campaign, because she avoided personal attacks, spurious claims and wild threats.

She is popular with her colleagues. However, if she has let her name go forward she will start from the back of the field. It would require the sort of organisation that enabled Mrs Thatcher to beat Ted Heath in 1975 if she were to pull this off. However, should Johnson implode during this campaign, and she had become a candidate, she would be fabulously well placed to pick up his voters.

May would seem to be way ahead as the Remain candidate, but will have to earn that position in the hustings that will run over the summer. The dark horse is Stephen Crabb, who replaced Iain Duncan Smith at Work and Pensions, in league with Sajid Javid, a secret Leaver who called it wrongly and who is now trying to salvage his future. A self-deprecating man from a humble background and with few enemies, Crabb, who was previously Welsh secretary, reminds me of John Major, who was brought into the cabinet and rose rapidly. In a leadership campaign held in the middle of a parliament, Major won and became prime minister, trading heavily on a backstory of his unprivileged upbringing. He may be the man May must beat.

George Osborne has ruled himself out but remains relevant. He wants to carry on in government and, like the overgrown student politician he is, may be about to make an accommodation with those he has denounced for months in order to continue to hold a senior post. Also, not least because of Cameron’s laziness and casual attitude towards his party, he had exercised a substantial and growing influence over patronage and especially over senior government appointments. He had made a point of getting to know MPs on the way up, not least because he expected to be prime minister and wanted to be sure he had a clientele of loyalists to support him. He was starting to appoint his ministerial team, in effect, before becoming prime minister.

Osborne’s prospects have crashed, but his machine remains, for the moment, intact. If he has chosen wisely, he has a group of loyalists whom he can deploy in support of the candidate he chooses. However, now he can be of no use to his clients, it will be interesting to see whether they take the blindest bit of notice of him.

There was talk of Johnson making him foreign secretary, which would show an advanced sense of humour, given the role that person might have to play in the exit negotiations. Gove, if he had thrown in his lot with Johnson, might have ended up as chancellor.

The party is so fractious that the next nine weeks could provide a roller coaster: any talk of going back on the idea of strict border controls, for instance – something Johnson hinted at – could cause huge turbulence. I suspect we are about to find that conducting a leadership contest at any time is a project laced with tension; to conduct one in a climate of scarcely concealed hysteria is not least why anything could yet happen.

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 30 June 2016 issue of the New Statesman, The Brexit lies