Friday, 25 September 2015

Neoliberalism is broken but no-one, not even leftists, want to pull the plug

One should always be suspicious of unanimity. While debate rages about the right fiscal policy (tax and spending) governments should adopt in the post-crisis world (the austerians versus the Keynesians, George Osborne versus Jeremy Corbyn and most economists), when it comes to monetary policy (interest rates, the price of borrowing money, whether the money supply should be increased through quantitative easing), eerie silence reigns. No-one, the odd Conservative ex-Prime Minister aside, is calling for interest rates to be raised significantly. The US Federal Reserve, which recently pondered raising interest rates ever so slightly, couldn’t bring itself to actually do it.

The trouble is ‘markets’, those capricious, unelected arbiters of our future who cling to ultra-low interest rates for dear life, have finally determined that they don’t actually work. Investors have decided that the “world’s problems can’t be solved by low interest rates alone” said an article in the New Statesman after August’s Chinese stock market turmoil. The Bank of International Settlements, which is owned by the world’s central banks, warned earlier this month that it was dangerous to expect that monetary policy could cure all the global economy’s ills.

Broken beyond repair

There is a growing realisation that neoliberalism is fatally wounded. After the flashing warning lights of the 2008 crisis, the heart attack victim has gone back to smoking 40 a day and consuming fry-ups. Global debt has risen by 40% since the crisis to $199 trillion (three times what it was in 1990) and privatisation, trade liberalisation (see TTIP) and wage repression have intensified, buoyed by $12 trillion worldwide in invented money (quantitative easing). All hail free markets.

“At some point you have to take your bitter medicine”, says the Bank of International Settlements, a recognition that markets are overdue a “correction”, or in layman’s terms, another financial crisis. The problem is that no-one, leftists included, want to administer the dose.

The official reluctance is in plain sight. See the Federal Reserve’s prevarication over interest rates. In the UK, Bank of England monetary policy committee member, Andy Haldane, claims that, far from rising, interest rates may have to fall further and may, following the example of Japan in the 1990s, turn negative.

But this instinct to preserve, even if what you are preserving is broken and hurts millions of people, is not limited to official policymakers. Earlier this year, the leftist Keynesians of Syriza in Greece, faced with the chance of rejecting austerity and exiting the Eurozone, caved in and opted for heightened austerity and a massive programme of privatisation carried out by a foreign country. They looked down the barrel of precipitating another financial crisis in Europe and bringing down the wrath of the world’s entire financial establishment on their own country, and capitulated.

A Titanic minus the lifeboats

Even if you don’t agree with them, you can understand the reluctance. Another financial crisis would very likely be devastating. The chief economist of HSBC warned in May that world economy was like an ocean liner without lifeboats. If another recession hits, it could be a “truly titanic struggle for policymakers”, he wrote in a note to clients. This is because, in response to all downturns since the 1970s, governments and central banks, have cut interest rates. Their capacity to do that again is extremely limited because they are so low already. More bailouts would doubtless be attempted, and austerity can be understood as creating a ‘fiscal space’ to enable this, but the ability of states to save insolvent institutions is likely to be dwarfed by the size of the task.

Stephen King, the HSBC economist, apparently didn’t speculate what a renewed financial crisis would look like “in the absence of adequate policy tools”. But let’s speculate (every else is). Pension funds are identified by King as “high risk”. There are $50 trillion in pension and insurance funds invested in stock markets in OECD countries, much more than their combined GDP. Then there are mortgages, a debt owned primarily by banks, but as 2008 showed, by many other investors as well. Mortgage payments in the UK, says the Economist magazine, are the lowest they have ever been in peacetime. But were ultra- low rates to rise quickly, as they would in a financial crisis, “things could start looking very troubling”, says the magazine.

Then, there is the fact that consumers are, as Paul Mason says in his book, Postcapitalism, “direct participants in the financial markets” through credit cards, student loans, car loans, mobile phone contracts, gym memberships and household energy. An unchecked financial crisis could turn all these investments and the services they deliver, into dust. And this is besides the geo-political effects in an already hugely unstable world. The refugee crisis Europe is experiencing now would be merely a foretaste.

It’s my, maybe irrational, hunch that the world’s governments and monetary authorities would somehow find a way to arrest a future financial crisis, through a combination of negative interest rates, nationalisation, bailouts and expanded quantitative easing. But the mere fact that a crisis occurred would lead to the realisation that it will inevitably recur. The process cannot be arrested forever.

It is for these reasons that leftists are as conservative as anyone else when it comes to the financial system. They, understandably, combine an awareness of the system’s vast anti-social consequences with an aversion to systemic meltdown. “Europe’s crisis,” wrote former Syriza finance minister, Yanis Varoufakis, in February, “is far less likely to give birth to a better alternative to capitalism than it is to unleash dangerously regressive forces that have the capacity to cause a humanitarian bloodbath”. The implosion of a “repugnant capitalism”, “despite its many ills”, he said, “should be avoided at all costs.” To repeat, at all costs.

No appetite for destruction

Leftists now have no appetite for destruction. In fact, Mikhail Bakunin notwithstanding, the willingness to destroy was always more of a right-wing characteristic. The desire during the Great Depression “to purge the rottenness out of the system” by liquidating stocks, labour and farmers, emanated from a finance minister in a Republican US administration. Despite American Marxist Andrew Kliman’s assertion that since the Great Depression, policymakers have always responded to downturns with fiscal and monetary measures to avoid mass bankruptcy, conservatives since the 1930s have sometimes been happy to destroy business for political and economic reasons. The huge spikes in interest rates in Britain and America at the beginning of the 1980s, unthinkable now, were instituted by the conservative regimes of Thatcher and Reagan with the aim of humbling organised labour. In Britain, a quarter of manufacturing industry was destroyed as a result.

But if leftist governments now see their overriding aim as saving capitalism from collapse, that vastly limits their room for manoeuvre and puts them in a contradictory situation. Paul Mason in Postcapitalism, argues that neoliberalism is broken but imagines an “escape route” for capitalism. Governments agree to suppress financial mania by raising interest rates in response to all future bubbles (like this one) and removing the guarantee of bank bailouts. The opposite, in other words, to what they are doing now. But, simultaneously, he advocates ‘financial repression’ to pay off huge public and private debts, by holding interest rates below the rate of inflation for 10 to 15 years. I would suggest that doing both is impossible.

Any leftist government will naturally face sabotage from corporations and banks eager to turn it into an economic calamity, as a warning to others if nothing else. But a leftist government in current circumstances is especially constricted because it must always keep one eye on stopping the stock market from imploding. Will a Jeremy Corbyn government be able take rail franchises into public ownership when they expire? Probably. Will it be able to nationalise energy companies without sending the stock market in a tailspin? That’s more debatable. And such a government must play along with the pretence that companies’ share values represent their future profitability. Banning companies from buying back their shares thus inflating their value, as many currently do, will precipitate a mass stock market ‘correction’. So it won’t be done.

A day of reckoning

Of course, the fact that leftists won’t pull the plug on neoliberalism, doesn’t mean that the system won’t pull the plug on itself. Many believe a ‘great reckoning’ is approaching whatever governments and central banks do. In that eventuality, a Corbyn-led Labour party would be much better placed in opposition than in government. If it was elected to power following a huge, impossible to bailout crash, it would have far more freedom. Stock market pension schemes, for instance, would have to be replaced with taxpayer-funded, pay as you go schemes, currently portrayed as unaffordable. The house price bubble would be fatally pricked, and there would be no alternative to huge expansion of public or non-profit housing. Public ownership of natural monopolies would be impossible to resist. A basic income would come to the fore.

But as things currently stand, politics and economics resemble a giant game of Buckaroo in which no-one wants to be responsible for triggering the mayhem. And leftists, however unwillingly, have been drawn into the game.

Thursday, 17 September 2015

On not being governed by 'the best'

A single person will not serve as the sole representative of the Partido da Terra, the libertarian municipalist political party elected to Lousame municipality in North-West Spain in May. Instead, under a system of rotation, every four months a different person will occupy the position; 11 in total over the four year term.

In Iceland, the grassroots group Alda (‘The Association for Sustainability and Democracy’) advocates that a third of Icelandic Parliament be reserved for randomly selected citizens. Part of Alda’s board is also randomly selected. “Random selection is simply a very incorruptible process, unlike elections which are usually won with money,” argues board member Hjalti Hrafn Hafthorsson.

Faced with the twin realities of economic and ecological failure, many opposition movements press for the widening use of elections to bring undemocratic institutions into line with the popular will. Under the banner of ‘economic democracy’ there is an insistence that company boards and pension fund managers, for example, should be elected, not appointed. More conventionally, there is a fervent desire – witness Jeremy Corbyn, Bernie Sanders, Syriza etc - for elected austerity-imposing governments to be replaced by elected anti-austerity governments.

But alongside this fixation on more elections – choosing people to occupy empowering positions for which the only available recourse is that they lose subsequent elections - there exists a growing recognition that they cannot overcome the burgeoning set of problems we face. Both in terms of what kind of person puts themselves forward as a candidate for election and the forces exerted on that person once in a position of power, many are concluding that elections are not the answer. Random selection (or sortition to give it another name) – the selection of people who don’t visibly desire power to govern for short and non-renewable periods – can be however.

Not only are elections not the answer to the unmistakable issues of mammoth inequality and elite power, but they are also not democratic. For a long time elections have been regarded as synonymous with democracy, but random selection has a far better claim to be the democratic way.

Ancient Athens and sortition

Aristotle famously said that choosing officials by lot was democratic but selecting them by election was a sign of oligarchy. A cursory look around the world reveals its oligarchical character – the widespread use of elections, coupled with the barely hidden assumption that elections cannot actually threaten the interests of the 1 per cent and 0.1 per cent. Ancient Athens was the originator of the practice of government by sortition – apart from expert posts such as architects or admirals, all public officials, magistrates and so on, were chosen randomly, using an allotment machine for that purpose, the kleroterion.

But sortition didn’t die out with the end of democracy in Athens. According to the anthropologist David Graeber, for much of European history elections were assumed to be an aristocratic way of selecting public officials. “’Aristocracy’”, he writes, “after all literally means, ‘rule by the best,’ and elections were seen as meaning that the only role of ordinary citizens was to decide which, among the ‘best’ citizens, was to be considered best of all.” The democratic way to select officials, he asserts, was taken to be by random lottery (and this was actually the case in early modern times in the Italian cities of Lucca and Vincenza).

Ambition and other disorders

And now, in a world convinced that elections are the only democratic way to choose who governs us, we are growing increasingly tired of being ‘ruled by the best’. Epidemiologist Richard Wilkinson, co-author of The Spirit Level has astutely identified one of the faults of our political system as selecting “people with ambition as their primary quality”. The English psychologist, Oliver James, claims that, while 13 per cent of the general population have a personality disorder, so do a majority of high achievers in spheres such as politics, business and the arts.” And invariably the high achievers will be the ones pushing themselves forward as candidates and being elected to positions of power.

The evidence that psychopathy amongst corporate chief executives and senior managers is four times higher than amongst the rest of the population has by now become something of a trope in popular culture. But psychopathy is just an extreme example of personality disorder. Personality disorder more commonly takes the form of narcissism (marked by the desire for dominance, insensitivity to others and a preoccupation with personal success) or the borderline (capriciousness and impulsivity). I believe any close-up observation of the exercise of power by successful people will reveal these behaviours to be very common.

As James emphasises, the traits that accompany personality disorder are an advantage in the quest of reach positions of power. “Being a chameleon, with the self-monitoring, game playing distance that often accompanies dissociation, has been shown to enhance career success in organisations,” he says. “Ruthlessness is easier if you lack empathy for the emotions of others, as borderline people often do, and being ruthless is usually necessary if you are to reach the very top.”

According to James, personality disordered behaviour thrives in organisations “where an individual is very concerned to gain power, resources or status.” Institutions that hold out the lure of gaining “power, resources or status” are clearly not limited to profit maximising capitalist corporations. Public sector organisations, elected governments or pan-governmental bodies like the EU are just as susceptible to this kind of misrule. There is now a well-trodden career path in politics – intern, researcher, special adviser, MP, minister – while a common alternative is to demonstrate your talent in the corporate sector before switching to politics. It is more accurate to say that personality disordered behaviour thrives in oligarchic institutions.

Mimicking the elite

Our collective sense of impotence is compounded by the fact that, while ruling elites are generally more disordered than the populations they rule over, the mass of people are catching up. The American researcher Jean Twenge, has identified a 30 per cent increase in narcissism, among college students, since the late 1970s. She says that in the 1950s only 12 per cent of teenagers agreed with the statement, ‘I am an important person’ but, by the late 1980s, this had risen to 80 per cent. The English academic Peter Fleming, says students now approach their education like “fecund bank managers who only see rational and singular futures.”

Culturally, ‘being the best’, the aristocratic mode of rule, has become firmly entrenched, as evident in public life, marked by perennial elections, as it is in its traditional bastion of the autocratic private, corporate sector. For the rest of the population, the only feasible choice is to try and mimic the successful, prodded by the neoliberal insistence that everyone think of themselves as an individual enterprise. Witness the rise in self-employment and the accompanying conviction that success or failure is a personal responsibility. But, as much we seem besotted with the lives of the rich and famous and want to emulate them, there is a germinating awareness that there is something wrong with ‘the best’ and the kind of rule they embody. Paradoxically, we need rule by people who don’t want to rule over us. Immediately we allow the desire for power to be let off the leash, multiple problems ensue. “If righteous people don’t want to govern,” says French economics lecturer, Étienne Chouard, “and if we give power, as in representative government, to those who want it, the worst will govern.”

Conventional political thought, even if it recognises the problem, cannot provide an answer. Oliver James, who politically is a left-wing social democrat, candidly admits he can’t ultimately see a way out. “To run a large business or government department requires extremely hard work, and it may even be that the disordered are the best equipped to make what to others would be a sacrifice of their personal lives.” The social psychologist Stanley Milgram, whose 1960s experiments showed the power of obedience, could only suggest “constant vigilance” as a remedy.

However, sortition does offer a solution, if not an instantaneous one. The choosing of people to hold positions of power, not as part of a well-thought out career ladder, but randomly and for short and non-renewable periods, can neutralise the pernicious effects of electing individuals to niches of power. And as has been demonstrated, it can more accurately reflect the make-up of society, increasing the presence of women and marginalised groups. Random selection can therefore loosen the stranglehold of the upper middle classes on political power.  A reliance on elections, by contrast, will merely reproduce the same political inequalities.

A realist vision

But less noticed is the fact that random selection can turn traditional notions of Left and Right on their head. The linguist Steven Pinker differentiates between a left-wing utopian vision of human nature and a right-wing tragic vision, associated with, among others, Friedrich Hayek and Milton Friedman. The tragic vision assumes that people are inherently selfish and flawed and that any changes will likely have unintended consequences worse than the problems they are intended to fix. The utopian vision assumes people are altruistic, and, in principle, perfectible. In short, conservatives are realists, leftists are idealists.

But random selection rests on a realist view of human nature and the conviction that institutions have a decisive effect on how people behave. You don’t count on virtuous behaviour; you assume people are not inherently good, you assume dishonesty. That’s why mandates, under random selection, are short and non-renewable. Representative government, however, when it is not simply disingenuous, is founded on a naïve idealism: that democracy will somehow emerge unscathed, while the elected inhabitants of power pursue their own self-interest and, in between elections, accede to the demands of the economy’s dominant financial and corporate institutions. It is time to see through the election myth and recognise how the world works