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

© MARK PETERSON/REDUX/EYEVINE
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Goodbye to the Confederate flag

After the shootings in Charleston, the Republican right showed it was finally ready to reject the old symbols of the Confederacy.

On 27 June, an African-American activist named Bree Newsome woke up before dawn, put on her climbing equipment and scaled a 30-foot flagpole on the lawn of State House in Columbia, South Carolina. She then removed the Confederate battle flag that flew from it. “We can’t wait any longer,” she explained later in an online statement. “It’s time for a new chapter where we are sincere about dismantling white supremacy.”

After she was led away in handcuffs, the flag was raised again.

Newsome’s protest reflected a growing impatience within America’s black community and anger about liberal inaction. Political rallies by the Democratic presidential contenders Hillary Clinton and Bernie Sanders have been disrupted by the Black Lives Matter campaign against violence committed on young African Americans and the cultural and legal biases that justify it. While promoting his book on race in the US, the writer Ta-Nehisi Coates argued that, to African Americans, the battle flag represents a lingering attempt “to bury the fact that half this country thought it was a good idea to raise an empire rooted in slavery”.

Yet, on this matter, to everyone’s surprise, the black civil rights movement and many southern Republicans have proved to be of one mind. On 9 July the House of Representatives in South Carolina voted to lower the battle flag for good. It stood, representatives said, for racism. It had to go.

The context of this agreement was a painful one. Ten days before Newsome’s act, a 21-year-old white man named Dylann Roof shot and killed nine black worshippers at the Emanuel African Methodist Episcopal Church in Charleston, South Carolina. According to his room-mate, he wanted to start a race war. The TV screens showed a photo of him holding a gun in one hand and a Confederate battle flag in the other.

If the demands for redress made by civil rights groups didn’t come as a surprise, conservative acquiescence did. The Republican Party had built a solid base in the South by courting white voters who cherished the memory of the Confederacy. Yet the party’s presidential hopefuls from both the North and the South – including Jeb Bush, Lindsey Graham, Scott Walker and George Pataki – said that the battle flag ought to be lowered. The most striking intervention was made by the governor of South Carolina, Nikki Haley, who denounced the use of the Confederate flag and signed the bill removing it. Haley is now tipped to figure on the list of potential vice-presidential nominees.

The volte-face of the US right is in part a result of the horror of the Charleston shootings. Yet it also occurs in the context of major shifts within American society. There are still many conservatives who will defend Confederate heritage as a matter of southern pride but the culture wars are changing as the US becomes increasingly European in outlook. This is taking place across the country. It just happens to be more pronounced in the South because no other region has fought so violently and so long to resist the liberal tide.

The story of the battle flag is the story of the South. The first official Confederate flag used in the civil war of 1861-65 caused confusion during fighting – through the haze of gun smoke, its design of 13 stars and red and white bars was hard to distinguish from the Stars and Stripes. An alternative blue cross was rejected for being too sectarian; the racist Confederacy was anxious not to offend its Jewish citizens. So the cross became a diagonal X. This flag was never officially adopted by the Confederate army. In the years after the war its use was infrequent.

There was little need to visualise southern difference in a flag. It was self-evident in the physical signs of racial segregation: separate schools, pools and drinking fountains; black people confined to the back of the bus. Political displays of the battle flag of Dixie (the historical nickname for the states that seceded from the Union) only really resurfaced when that racial order was challenged by northern liberals. In 1948, the Democrats – then the party overwhelmingly in control of the South – split over modest calls for civil rights. The conservatives who refused to support that year’s presidential ticket, the “Dixiecrats”, triggered a rev­ival of flag-waving across the region.

The old battle flag suddenly appeared on private lawns, on cars and at political rallies. Supposedly ancient cultural traditions were invented overnight. For instance, the 1948 student handbook of the University of Mississippi confessed: “Many Ole Miss customs are fairly new; they lack only the savouring which time brings . . . Ole Miss has adopted the Confederate flag as a symbol of the Mississippi spirit. Each football game finds the scarlet flag frantically waving to the rhythm of the Rebel band.”

I can confirm that this “tradition” was still going as recently as in 2005. That year, I attended an American football game at Ole Miss and was surprised when the band played “Dixie” at the end. White boys and white girls stood up and belted out the folk song of the Confederacy, while black students filed out.

In 1958, South Carolina made it a crime to desecrate the battle flag. Three years later, on the 100th anniversary of the outbreak of the civil war, it was hoisted above its Capitol building in Columbia. That day, there was a struggle in the US Congress to keep federal funding going for segregated schools.

So clear is the link between the postwar white resistance to civil rights and the battle flag that many see it as the symbolic equivalent of the N-word. Jack Hunter, the editor of the conservative website Rare Politics, says: “Some people insist that it’s not about racism, not about slavery, not about segregation. But it’s about all those things.” Hunter grew up in Charleston and used to skateboard in the car park of the church that Dylann Roof attacked. When he was a young journalist, he appeared on local radio as a rabidly right-wing masked character called “the Southern Avenger”. His past was exposed in 2013 while he was working for Rand Paul, a Republican presidential candidate, and Hunter stepped down from his position. He publicly renounced his youthful association with racial conservatism. He now eschews any romanticism about the Confederate cause and its demand for states’ rights. “States’ rights to do what?” he asks: the right to discriminate against African Americans? He is glad that the State House flag is gone. He ascribes its longevity to ignorance, which was corrected by Roof’s rampage: “It was the first time that [southern Republicans] were able to see a different perspective on this symbol.”

Not everyone agrees. Richard Hines – a former South Carolina legislator, Reagan campaign state co-chair and senior activist with the Sons of Confederate Veterans – insists that the flag is “an enduring symbol of the southern fighting man”. Indeed, a poll in July found that 57 per cent of Americans think it stands for southern heritage, rather than racism. Yet that heritage has a political dimension. “Southern people are proud of who they are and there is a leftist assault to destroy the best part of America,” Hines says. “The Trotskyite elite in control of the establishment wants to root out the southern tradition” – a tradition of religious devotion, chivalry and military honour. It is possible to cast the battle flag as a pawn in a much larger cultural conflict.

In 2000, civil rights activists lobbied hard to get the battle flag removed from the top of the South Carolina Capitol and succeeded in having it shrunk in size and relocated to the grounds of State House. The issue came up in that year’s Republican presidential primaries – an unusually poisonous contest between George W Bush and John McCain. Supporters of Bush put out a false story that McCain had fathered an interracial child out of wedlock. McCain added to his woes by opining that the battle flag was “a symbol of racism and slavery”. An organisation called Keep It Flying flooded the state with 250,000 letters attacking him and he lost the crucial competition here to Bush.

The battle flag has retained a strong emotional power for a long time. This makes the Republican establishment’s abandonment of the flag all the more surprising. Then again, those who run the South are probably the people most likely to grasp how much the region has changed in just a decade.

***

In 2010 I took a trip through North Carolina. The landscape told a story. Dotted along the roadside were abandoned black buildings, the old tobacco sheds. The decline of the rural economy had rendered them obsolete. Over the fields that would once have been full of farmers were freshly tarmacked roads, stretching out to nowhere. My guide explained that these were supposed to be cul-de-sacs for new houses. North Carolina was going through a property boom. But who was going to buy all those homes, I asked? The answer: damn Yankees.

Demography is destiny. This once agri­cultural region developed fast from the 1960s onwards by keeping union membership, taxes and regulation as low as possible. Yet capitalism proved disastrous for southern conservatism. Northerners flooded in, seeking work or retirement and bringing their own values. The forecast is that North Carolina’s Research Triangle – the South’s Silicon Valley – will grow by 700,000 jobs and 1.2 million people in two decades.

White migration was accompanied by an influx of Spanish speakers as the service sector flourished. Between 2000 and 2010, the white share of the population of North Carolina fell from 70 to 65 per cent. The black proportion remained at roughly 21 per cent. The Latino proportion, however, jumped from 4.7 per cent to 8.4 per cent. Today, the proportion of people who are non-white and over 60 is about a third. But it’s approaching nearly half for those under 18. As a result, politics in the South is no longer biracial: a contest between white and black. It is increasingly multiracial and uncoupled from the region’s complex past.

The impact of these changes is reflected in voting patterns. In 2000, the South was still overwhelmingly Republican in presidential contests. Even the Democratic nominee, Al Gore, a southerner, lost his home state of Tennessee. But in 2008 and 2012, Barack Obama took those states with the fastest-changing demographics: Florida and Virginia. He won North Carolina in 2008 and lost it in 2012 – but by less than 100,000 votes. It is true that the Republicans won back control in the 2014 midterm elections, with the result that the Deep South now sends few Democrats to Congress; but the region’s political masters are not quite as traditional-minded as they once were.

The Republican relationship with the Confederate past is complex. As the party of Abraham Lincoln and the Union, the GOPs’ southern support was historically small. But in the 1960s the national Democratic Party embraced civil rights and alienated its once loyal southern following; the Republicans took the opportunity to steal some conservative white voters.

The growing southern Republican vote had a class component. Its success in local and congressional races was built more on winning over middle-class moderates than on appealing to the working-class racists who filled the ranks of the Ku Klux Klan. The southern Republican Party did enthusiastically embrace the Confederate battle flag in many quarters. But some office-holders did so only with ambiguity, while large sections of the party never identified with it at all. The period of Republican ascendancy in the South was, in reality, linked with a softening of the area’s racial politics.

Two of the Republicans’ current southern stars are Indian Americans: Bobby Jindal, the governor of Louisiana, and Nikki Haley, the anti-flag governor of South Carolina. There are just two black people in the US Senate and one of them is a Republican, the Tea Party-backed senator for South Carolina, Tim Scott. Marco Rubio, the Floridian senator and presidential candidate, is Cuban American, and the former Florida governor Jeb Bush is married to a Mexican-born woman and speaks fluent Spanish. Bush has tried to push a more moderate line on immigration, in deference to how the GOP will struggle to win the White House if it appeals only to angry white voters. The Kentucky libertarian senator Rand Paul, Jack Hunter’s former boss, has called for legal reforms to correct the trend of keeping far more black than white people in prison. And he is not the only Republican to have been moved by recent race riots sparked by police violence.

***

Violence on the streets of Ferguson, Missouri, and Baltimore, Maryland, confirmed that there still is a culture war in the US. Yet its character has changed. In the past, civil disturbances were typically leapt upon by conservative politicians as evidence of social decline. The 1992 LA riots were blamed on single parenthood and rap lyrics. In contrast, conservative leaders today are far more likely to acknowledge the problems of white racism. There is no place in their ranks for the likes of Dylann Roof. White supremacists are tiny in number.

Jack Hunter claims: “The KKK is like 12 guys in a telephone booth. Liberal groups will use their threat for fundraising but it doesn’t exist. It hasn’t properly since the 1960s.” Roof’s actions say more about gun control, mental illness and the angst of the young than they do about popular, largely liberal views on race, as polling shows.

We can see a similar liberal shift in other areas of the historic culture war. In May 2015 Gallup released the results of a “moral acceptability” survey charting changes in national attitude across all age groups, from 2001 to 2015. Approval of gay relationships jumped from 40 to 63 per cent; having a baby out of wedlock from 45 to 61 per cent; sex between unmarried men and women from 53 to 68 per cent; doctor-assisted suicide from 49 to 56 per cent; even polygamy went from 7 to 16 per cent. Abortion remained narrowly disapproved of: support for access has only crept up from 42 to 45 per cent. This is probably a result of an unusual concentration of political and religious opposition and because it involves a potential life-or-death decision. But the general trend is that young people just don’t care as much about what consenting adults get up to.

Why? It might be because old forms of identity are dying. One way of measuring that is religious affiliation. From 2007 to 2014, according to Pew Research, the proportion of Americans describing themselves as Christian fell from 78 to 71 per cent. Today, only a quarter of the population is evangelical and 21 per cent Catholic, down despite high immigration. Then there is the decline in civic or communal activity. Since 2012, the organisers of Nascar, the stock-car races, have not published attendance figures at their tracks, probably because they have fallen so sharply. The decline of this most macho and working class of sports parallels the fall in conservative forms of collective identity such as southern traditionalism.

The old culture war was, like the racial politics of the old South, binary. In the 1950s, around the same time as the South invented its tradition of flying the battle flag in colleges, the US constructed an ideal of the “normal” nuclear family unit: straight, white, patriarchal, religious. On the other side was the “abnormal”: gay, black, feminist, atheist, and the rest. The surest way to get elected in the US between 1952 and 2004 was to associate yourself with the economic needs and cultural prejudices of the majority. The approach was once summed up by a Richard Nixon strategist thus: split the country in two and the Republicans will take the larger half. But that is changing. The old normal is no longer the cultural standard but just one of many identities to choose from. The races are mixing. Women want to work more and have children later in life, possibly without marriage. Many religious people are having to rethink their theology when a child comes out as gay. And the enforcers of the old ways – the unions, churches or political parties – are far less attractive than the atomising internet.

***

Politicians are scrabbling to keep up with the diffusion of American identity. Democrats got lucky when they nominated Barack Obama and chose a presidential candidate who reflected the fractured era well: interracial, non-denominational Christian, and so on. In the 2012 presidential race the Republicans got burned when they tried to play the old culture war card on abortion. They won’t repeat that mistake. After the Supreme Court legalised gay marriage across the country in June, the right’s response was not as uniformly loud and outraged as it would have been in the past. Some protested, but serious presidential contenders such as Jeb Bush grasped the implications of the defeat. There is a cultural and political realignment going on and no one is sure where it will lead. It’s encouraging caution among the Republican top brass. It is time, they think, to abandon lost causes.

The death of southern traditionalism is part of the ebb and flow of cultural history. Identities flourish and die. As political fashions change, you find the typically American mix of triumph on one side and jeremiad on the other. Richard Hines stood vigil as the battle flag was lowered in Columbia and noted with disgust the presence of what he described as “bussed-in” activists. “They pulled out all these gay pride flags and started shouting, ‘USA, USA, USA!’ It reminded me of the Bolshevik Revolution.”

Hines reckons that more southerners will now fly the flag than ever before and says he has attended overflow rallies of ordinary folks who love their region. He may well be correct. The faithful will keep the old Confederate standard fluttering on their lawns – an act of secession from the 21st century. But in the public domain, the battle flag is on its way down and in its place will be raised the standard of the new America. The rainbow flag flutters high. For now.

Tim Stanley is a historian and a columnist for the Telegraph

This article first appeared in the 20 August 2015 issue of the New Statesman, Corbyn wars