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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No peace after progress

How the death of the industrial way of life gave us choice – and stoked resentment and fear.

Now that the making of useful and necessary things in Britain is only a shadow of what it once was, we can see more clearly the effects of the Manufacturing Age. The cost was high to the producers of prodigious wealth; a ten-year difference in life expectancy remains between people living in the richest areas and those in Glasgow. The (fleeting, it now seems) visitation of industrialism has made life more comfortable and its dismantling has liberated millions from choiceless occupations. The legacy is one of spectacular improvement, unequally shared.

Perhaps the most dramatic experience of the 20th century was the suddenness with which profligate plenty replaced a skinflint subsistence. Was it the speed of this that distracted us from wondering why, instead of the secure sustenance that generations of needy people had asked of an unyielding economic system, we were offered a promiscuous spillage of goods, promoted with quasi-religious zeal by the converts of a capitalism that had previously delivered to most of its captive workers a life of penury? Such a rapid reversal might have alerted us to changes beneath the surface that elided losses incurred.

The greatest of these was certainly not the extinction of the industrial way of life itself, release from which has been an unqualified blessing. But the transition from relentlessly work-driven lives (in the 1950s, two-thirds of Britain’s workers were still manual labourers) was marked by perfunctory obituaries for the disintegration of industrial communities, with no acknowledgement that, for a century and a half, they had represented the inescapable destiny of the people they sheltered.

Even less recognition was given to the fortitude with which they had borne a long, coercive labour. A way of life, buried without ceremony in the unmarked grave of progress, could not be mourned; and this has generated some social pathologies of our time: resentment over an arbitrary obliteration of industry, disengagement from a party of labour by those it called, like feudal lords, its “own people”, loss of memory of the economic migrants we also were, passing from the goad of industry into the pastures of consumption, and thence into the liberating servitude of technology.

Grief makes no judgement on the intrinsic value of what is lost. Absence of the known and familiar is the object of melancholy in its own right, even if replaced by something immeasurably better. Objectively, there was little to mourn in the vanished industrial way of life: insufficiency and humiliation, malice of overseer and manager, officiousness of poor-law administrator and means-test man. Male industrial workers exhausted in body and spirit, instead of protecting those for whom the power of their hands was the only shelter against destitution, visited similar punishment on their wives and children. There is nothing to be lamented in an end to the penitential life of women, scrubbing not only the red tiles of the kitchen floor, but even an arc of pavement outside the front door; their interception of men on payday before wages were wasted on beer and oblivion; the clenching against joyless invasion of their bodies in the boozy aftermath. But it was the only life they knew, and they adhered to it with grim stoicism and even pride.

There is much to be said for their resistance. The fragile lattice formed by women’s arms was often the only safety net against destitution. Trade unions and friendly and burial societies that shielded folk from economic violence foreshadowed the welfare state and the National Health Service.

The life of labouring people in Britain was strikingly homogeneous, despite diversity of occupation, dialect and local sensibility. There was the same collective experience: terraced house with parlour reserved for celebration or mourning; the three-piece suite, plaster figure on a stand behind the window, chenille curtain against the draught, engraving of The Stag at Bay on the wall; the deal table and Windsor chairs in the living room, the mantelpiece a domestic shrine with clock, candlesticks and pictures of soldiers smiling before they died; the music of cinders falling through the bars in the grate; cheerless bedrooms where husband and wife slept in high connubial state, more bier than bed, where sexual enjoyment was ritually sacrificed as flowers of frost formed on the inside of the window.

And everywhere photographs: wraithlike children with ringlets or in sailor suits, fated never to grow up; weddings in the back garden, a bouquet of lilies and a grandmother in boots and astrakhan hat; the smudged features of a kinsman no one can now identify. Identical memories, too: the shotgun wedding in the dingy finery of a Co-op hall; the funeral tableau around the grave, amid ominous inscriptions of “Sleeping where no shadows fall”; queues outside the ocean-going Savoy or Tivoli to watch Gone With the Wind; the pub where “Vilia” or “The Last Rose of Summer” was hammered out on a discordant piano.

The opening up of such sombre lives might have been expected to call forth cries of gratitude. Instead, a synthetic joy has emanated largely from the same sources that, until recently, offered people grudging survival only, the change of tune outsourced to producers of manufactured delight, purveyors of contrived euphoria to the people – a different order of industrial artefact from the shoes, utensils and textiles of another era.

***

A more authentic popular res­ponse exists beneath the official psalmody, a persistent murmur of discontent and powerlessness. Anger and aggression swirl around like dust and waste paper in the streets of our affluent, unequal society. As long-term recipients of the contempt of our betters, we know how to despise the vulnerable – people incapable of work, the poor, the timid and the fearful, those addicted to drugs and alcohol. Sullen resentment tarnishes the wealth of the world, a conviction that somebody else is getting the advantages that ought to be “ours” by right and by merit.

Rancour appears among those “left behind” in neighbourhoods besieged by unknown tongues and foreign accents: people who never voted for unchosen change, as all political options are locked up in a consensus of elites. “Give us back our country!”
they cry; even though that country is not in the custody of those from whom they would reclaim it. There was no space for the working class to grieve over its own dissolution. If, as E P Thompson said, that class was present at its own making, it was certainly not complicit in its own undoing.

Grief denied in individuals leads to damaging psychological disorders. There is no reason to believe that this differs for those bereaved of a known way of living. The working class has been colonised, as was the peasantry in the early industrial era. When the values, beliefs and myths of indigenous peoples are laid waste, these lose meaning, and people go to grieve in city slums and die from alcohol, drugs and other forms of self-inflicted violence. Though the dominant culture’s erasure of the manufacturing way of life in Britain was less intense than the colonial ruin of ancient societies, this subculture was equally unceremoniously broken. It is a question of degree. The ravages of drugs and alcohol and self-harm in silent former pit villages and derelict factory towns show convergence with other ruined cultures elsewhere in the world.

Depression is a symptom of repressed grief: here is the connection between unfinished mourning and popular resentment at having been cheated out of our fair share, our due, our place in the world. If we are unable to discern our own possible fate in suffering people now, this is perhaps a result of estrangement from unresolved wrongs in our own past. Nothing was ever explained. Globalisation occurred under a kind of social laissez-faire: no political education made the world more comprehensible to the disaffected and disregarded, people of small account to those who take decisions on their behalf and in their name.

Anyone who protested against our passage into this changed world was criminalised, called “wrecker” and “extremist”. The miners’ strike of 1984 was the symbol of this: their doomed fight to preserve a dignity achieved in pain and violence was presented by the merchants of deliverance not only as retrograde, but also as an act of outlawry. Resistance to compulsory change was derided as a response of nostalgics protecting the indefensible, when the whole world was on the brink of a new life. Early in her tenure of Downing Street, Margaret Thatcher, that sybil and prophet who knew about these things, warned that Britain would become “a less cosy, more abrasive” place: a vision confirmed by the Battle of Orgreave – redolent of civil war – and the anguish of Hillsborough.

It is too late to grieve now. Scar tissue has healed over the untreated wound. Though no one expects the ruling classes to understand the distress of perpetual “modernisation”, the leaders of labour might have been able to recognise capitalism’s realm of freedom and a gaudy consumerism that concealed hardening competitiveness and the growth of a crueller, more bitter society.

The ills of this best of all worlds, its excessive wealth and extreme inequality, are on show in hushed thoroughfares of London, shuttered sites of “inward investment”, where the only sound is the faint melody of assets appreciating; while elsewhere, people wait for charitable tins of denutrified substances to feed their family, or sit under a grubby duvet, a Styrofoam cup beseeching the pence of passers-by.

Unresolved feelings about industrialism, enforced with great harshness and abolished with equal contempt for those who served it, are certainly related to the stylish savagery of contemporary life. The alibi that present-day evils are an expression of “human nature” is a poor apology for what is clearly the nature – restless and opportunistic – of a social and economic system that has, so far at least, outwitted its opponents at every turn.

Jeremy Seabrook’s book “The Song of the Shirt” (C Hurst & Co) won the Bread and Roses Award for Radical Publishing 2016

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