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 great escape

Almost a thousand people drowned in the waters between Libya and Italy in May. Yet still more migrants come. Can anything be done, or are we experiencing a crisis without end?

On 14 June 1985, representatives of five out of the ten members of the then European Economic Community (EEC) – Belgium, France, West Germany, the Netherlands and Luxembourg – gathered on the Princess Marie-Astrid, a boat moored on the banks of the Moselle River in Luxembourg. Their pens were poised over a pact that aimed to dissolve the internal borders of Europe. The agreement was named after the nearby ­riverside town: Schengen.

There were only five signatories because the other EEC members – including Britain – were dragging their feet. But the bureaucrats had only to glance at the vineyards outside to remember why they were here. To the east of the river lay Germany; a short distance upstream was France. Belgium was only a bike ride away and the Netherlands a cursory drive. The people who lived in this corner of Europe criss-crossed national borders all the time. Wouldn’t it be marvellous if they didn’t have to be scrutinised as if they were spies when they were only nipping over the river to buy a sausage or deliver a letter?

It was also an evocative place in another way. This terrain of hills and forests was haunted by centuries of bloodshed. It was where France, Germany and Britain had fought many of their wars: Waterloo was an hour or so to the west by car; Verdun was even closer; the Battle of the Bulge had raged just north of here in 1944 and early 1945. The Schengen Agreement was an attempt to lay such awful ghosts to rest. From now on, people would not have to show passports but could simply “drive slowly” across the frontiers.

David Cameron has received much flak for reminding voters of this detail but it would be shallow to ignore it. The agreement had a significant effect not just on daily life but on tourism, trade and commerce. In the 1990s, many of the old and new members of the European Union signed up and the expansion continued in the 2000s with the joining of non-members such as Norway, Iceland and Switzerland. Today, the Schengen Area is made up of 26 European countries. All the while, Britain and Ireland, anxious behind their sea walls, shook their heads.

Schengen was an optimistic idea and anyone who has worked or holidayed in ­Europe since 1985 has felt the ease that it has brought to the crossing of borders. But as it celebrates its coming of age, 21 years since its inception, Schengen is in the dock. Those who designed it to liberate movement in Europe did not imagine international migration on today’s scale. Partly as a result of the speed of modern travel and communications, more than 240 million people now live outside the country of their birth. This is one of the most important facts of modern life and, because Europe is among the nicest places in the world to live, it is forcing politicians and electorates to ask awkward questions about the way they conduct themselves.

Migration makes people twitchy, for understandable reasons. It would be a mistake to think of the present commotion as a topical issue that can easily be fixed. Last year, a million people fled Africa and the Middle East for Europe. This month, as footballers gather in France and the Mediterranean warms up, it is happening all over again.

Almost every week there is news of a fresh disaster. The EU deal with Turkey – in which the country will be paid €3bn in aid and granted other concessions in return for policing and processing its three million refugees more rigorously – has calmed traffic in the Aegean. Yet the people smugglers have shifted their attention back to the perilous sea crossing between Libya and Italy. Almost a thousand people drowned there in the last week of May, bringing the total to 2,500 so far this year, and there are aquatic graveyards for 4,000 Syrians who have died in Greek waters in recent years.

We cannot be sanguine about the prospect of the English Channel becoming the stage for similar scenes as the summer advances. It could hardly be on the same scale as what is happening in the Mediterranean, but there are already sporadic attempts to make the crossing and there will almost certainly be more. This is no passing cloud. It may even be a permanent shift in the wind.

***

uman beings have always migrated, moving from place to place in search of kinder skies, better food or nicer neighbours. Mobile phones and the internet have made it much easier for migrants to communicate and gather information. Nonetheless, today’s Mediterranean exodus involves people walking from Syria to Sweden – far from a hi-tech manoeuvre. Some politicians want to depict the migrants as trespassing, heavily armed intruders but most people can see that they are both ordinary and desperate: brothers-in-alms.

This may be one of those historic population shifts that mark the story of Europe. One thinks of the swirl of German and Scandinavian peoples in the first millennium – the Franks, Angles, Saxons, Goths and Norsemen who created early Christendom; the flight from Europe between 1850 and 1910, when people emigrated to the New World at a rate of almost a million a year; or those who were displaced after the Second World War. Is it possible that today’s turbulence is the first sign of something along those lines? The EU border force, Frontex, estimates that there were 1.8 million illegal border crossings in 2015, six times as many as in 2014, and the true figure is probably higher. It is no wonder that no one knows what to do.

Until now, this migration has been viewed as a response to urgent pressures such as war, poverty, religious violence and famine. Yet what it most resembles is an ­alteration in the prevailing weather: people are swirling between areas of wealth and poverty, just as air is squeezed between high- and low-pressure zones. The disparities between Europe, Africa and the Middle East are profound. This is not about foreign chancers wanting to try their luck in Swindon. It is demographic climate change.

It may be beyond the ability of governments to resist this. They don’t like to admit it but they find controlling the movement of peoples as hard as nailing down their currencies. David Cameron vowed to reduce the number of immigrants to the “tens of thousands” in 2010 but he hasn’t come close. While his enemies enjoy depicting this as a broken promise, it is a sign that politicians have only so much power.

There are other reasons to be fearful. Quarrels over water will shape the next century just as oil shaped the last one. In 1950 there were 500 large dams in the world; now, there are more than 45,000. On any map of future water shortages, the warning signs flash over North Africa and the Middle East – and when the wells dry up, people will move.

The nations involved in today’s ­exodus are relatively small. The populations of Afghanistan, Eritrea and Syria together amount to 60 million. If war or disaster were ever to engulf larger countries such as Egypt or Pakistan, Europe would have an even bigger headache. These two nations have a combined population of 264 million.

Fortunately, there is some good news. Hard though it is to believe in the current atmosphere, migration is a force for good. The noisy claim that it presents a threat to our crumbling infrastructure and cultural blood pressure may sound like common sense but it is a myth. Migrants do not drive down wages, steal jobs, overwhelm social services and displace “true-born” Brits. The opposite is true: in the long run, at least, they expand the economy and promote innovation.

Study after study confirms this simple point. Periods of high migration correlate with economic growth – which is no surprise, given that migration allocates people to places where they can be most productive. This is why the UN estimates that 1 per cent of migration translates into a boost in GDP of 1.5 per cent. And this is why J K Galbraith wrote:

Migration is the oldest action against poverty. It selects those who most want help. It is good for the country to which they go; it helps break the equilibrium of poverty in the country from which they come. What is the perversity in the human soul that causes people to resist so obvious a good?

This is not to say that there are not bottlenecks. There are. But although it seems to be an ingrained human assumption to believe that more for you means less for me, the fear that migrants overwhelm services and create social deprivation has a flimsy basis. The Merseyside borough of Knowsley is the second most deprived area in Britain, yet one of the least affected by immigration. Governments should do more to relieve deprivation but this could involve building hospitals or schools, rather than electrifying borders or watching people drown.

The second item of good news is that even the most alarming statistics in this area are soft-centred. Anti-immigrant campaigners enjoy gasping at the idea that some 300,000 people, roughly the population of Plymouth or Newcastle, are arriving in the UK each year; they imply that these people are swelling the queues for health care, housing and schools. But more than half this number (167,000 in 2015) is composed of students, who pay high fees to attend British institutions; tertiary education is an important export. And migration today is no longer a once-in-a-lifetime decision but a fluid and intricate process. Migrants drift this way in search of jobs; some stay, while others drift out again. Many even go home for the weekend, or the summer.

It is almost impossible in the present maelstrom to think of migration as a boon. Loud voices insist that migrants are a nuisance, a burden and a threat. It almost defies logic to see them as an energetic itinerant workforce of ordinary people. But the larger truth is that it hardly matters what we think. The question now is not whether or not we wish migration was happening, but how to make the best of the reality that it is.

***

he migrant crisis has commercial implications. This summer’s holidaymakers are likely to shun Greece and Turkey in favour of Spain, which is looking forward to a record-breaking year.

The most striking consequence, however, is the surge of nationalist politics across Europe, from Golden Dawn in Greece and the Freedom Party of Austria to the UK Independence Party. The nationalist wrecking ball is swinging.

In Britain’s case, this has taken the form of an assault on the European project, which, though not racist, encourages the expression of some ancient prejudices. As the day of the referendum approaches, the leaders of the Brexit campaign are playing what we might call the Donald Trump card by attacking immigration. The weightier cultural issues are drowned out in the urge to warn Daddy that there are strangers coming up the drive.

This urge is strong and, in the EU debate, creates odd bedfellows – George Galloway and David Owen on one side; Jeremy Corbyn and George Osborne on the other. It also persuades men such as Michael Gove, Boris Johnson and Iain Duncan Smith to abandon their lifelong sympathy for the pro-business argument and pose as soulmates of the working man. But the biggest irony is of a different order. It would be perverse if the reflex hostility to migration leads us to take to our little coracle just when the real storm is beginning.

This brings us back to the fragility of Europe’s supposedly porous borders. In truth, they have never been set in stone. Various time-lapse videos on the internet (such as the one on viralforest.com) race through a millennium in mere minutes. The Holy Roman Empire spreads from Sicily to Germany and Muslims press into Spain. The ­Mongols advance and recede; central Europe explodes into a galaxy of tiny princedoms and France’s eastern border wriggles like an angry snake. The Ottoman, ­Austro-Hungarian, German and Soviet empires bulge and fall back. Nations come and go in a flash.

It is a salutary reminder that the nation states of Europe have long been elastic and that if the nation state is not yet dead – declarations of its demise are premature – it can at least be said that nations and states are not the same thing. When people yell that we have “lost control” of our borders, they are imagining a past that never was: in the great rough and tumble of Victorian England not a soul was turned away. Britain has been secure on its island but Europe has never been a fortress. If we instal the apparatus of a police state at our ports and harbours – watchtowers, searchlights, paramilitary officials – we may be able to deter some paperless hotel workers and scare off a few students. But this would come at a heavy price.

If stable borders are a modern idea, so, too, are passports. The first identity papers for “safe conduct” were issued in the England of Henry V but the modern passport is a child of the French Revolution. An uprising that dreamed of liberating the citoyens wasted no time in introducing state surveillance: it feared the enemies of the revolution. Britain followed suit in 1794. It wasn’t until the First World War that photographic identification became mandatory. Before then, as A J P Taylor once wrote, “a sensible, law-abiding Englishman could pass through life and hardly notice the existence of the state”.

It is hard to imagine such a time now. There are few more emotive reminders of it than the refugee encampment at Calais known as “the Jungle”. A new exhibition on the quiet resilience of the people stuck in that Anglo-French limbo – “Call Me By My Name”, which recently opened at the Londonewcastle Project Space in Shoreditch, east London – highlights again the way in which inflammatory abstractions (“Immigration chaos!”; “Take back control!”) can trounce ordinary human responses. After all, when the von Trapp family, the illegal migrants in The Sound of Music, finally make it over the border, there isn’t a dry eye in the house.

In medieval times Calais was a major English town, a bustling centre of its wool trade. Dick Whittington was its mayor; there was a royal mint. The inhabitants of the Jungle may not know it, but their footsteps have led them to a resonant spot. l

Robert Winder is the author of Bloody Foreigners: the Story of Immigration to Britain (Abacus)

This article first appeared in the 16 June 2016 issue of the New Statesman, Britain on the brink