Trieste,”Generali Insurance Company”
In his book „Post-Democracy“ Colin Crouch analysed the state of democracy in Europe. Democracy thrives when there are major opportunities for the mass of ordinary people to actively participate through discussion and autonomous organisations in shaping public life and when they are actively taking up these opportunities. Societies probably come closest to this democratic ideal in the early years of achieving democracy or after a great regime crisis, when enthusiasm for democracy is wide-spread. Most of Western Europe had its democratic moment after World War II. For the first time in the history of capitalism, the general health of the economy was seen as depending on the prosperity of the mass of wage-earners. A certain social compromise was reached between capitalist business interests and the working population. Business interests learned to accept certain limitations on their capacity to use their power. The democratic political capacity concentrated at the level of the nation state, which could guarantee those limitations because firms were largely subordinate to the authority of nation states then.
By the late 1980s the global deregulation of the financial markets had shifted the emphasis of economic dynamism away from mass consumption and on to financial markets. First in the US and the UK the maximisation of shareholder value became the indicator of economic success. Everywhere the share in income taken by the working population as opposed to capital, which had risen steadily for decades, began to decline again. In the early 1990s the USA became a model again, just as after World War II, for everyone seeking to be associated with economic dynamism and modernity. Under US influence democracy in Europe is increasingly defined as “liberal” democracy. This form stresses electoral participation as the main type of mass participation, extensive freedom for lobbying activities, which are primarily business lobbies, and a form of policy making that avoids an interference with the free market economy. Today this unambitious form of democracy is being accepted in Europe as well. The public electoral debate is a more or less controlled spectacle, managed by professional teams of marketing experts, covering a small range of issues, selected by these professionals. The mass of the citizens play a rather passive role and respond to those signals by casting their ballot. Behind this spectacle of election campaigns, many aspects of the political agenda are shaped by the interaction between elected government representatives and elites that overwhelmingly represent corporate interests.
Nowadays politicians receive less deference and uncritical respect from the public and the mass media than ever before. Governments and their secrets are increasingly laid bare to the public and there are more calls for open government and constitutional reforms to make governments more responsible. In the past politicians were trusted and respected by deferential and rather naïve citizens in a way they probably did not deserve. That’s why today politicians are more afraid to shape the political agenda and prefer to rely on market research techniques and opinion polls. The moves towards open government and transparency are currently being countered by measures for tightened state security and secrecy due to the terror threat since September 11th 2001. Yet there might be evidence of a lively democratic culture in the growing importance of pressure groups, cause groups and grass root campaigns, away from party politics and election campaigns. There has been a growth of highly diverse self-help groups, communitarian networks, neighbourhood schemes and charitable activities. They mostly try to fill the gaps left behind by the retreating welfare state and this type of cause groups seems to turn away from politics deliberately. Yet you also find such groups in undemocratic societies where the state is indifferent to social problems.
The second type of cause organisations is much more important in today’s Western democracies and those are politically oriented campaigns and lobbies who do not seek to influence elections, but try to shape government policy directly. They are a strong evidence of liberal democracy in the American sense. These business lobbies are so successful, first because business interests are able to threaten the government that if their interests are not taken into account their sector will not be successful and the government’s record on economic growth will suffer. Second, they can raise enormous funds for their lobbying because the outcome of this lobbying will mean increased profits. Those, who for example set up an a-political cause group of the first type for healthy food, will be faced with the lobbies of the food and chemicals industries, who will bring battleships against their rowing boats. That’s why in true democracies there has to be a level playing field for all citizens in participating in the democratic process and the state has to make these rules, such as regulated party funding and media access. In fact, the more the state withdraws from providing for the lives of its citizens, the more apathetic about politics they will become and the more easily can corporate interests use the state for their interests. Globalised business interests and the social fragmentation of the population are shifting the political advantage away from those seeking to reduce inequalities of wealth and power. An important element of the European democratic movement after World War II was the popular demand that the power of government should be used to challenge concentrations of private power and the present distrust and low level of expectations in politicians and the state suit those interests who try to rein back the active state and liberate and deregulate private economic power. This current lack of interest in politics is further intensified by a low quality level of popular journalism that is modelled on the advertising copy. Political debate is characterised by a degradation of mass political communication and an excessive personalisation of electoral politics.
Since the end of Keynesian economic policies and the rise of neo-liberalism, lobbies and pressure groups working for the interests of the globalised corporate sector have been more likely to be listened to. Global corporations have access to governments and influence their policies far more effectively than normal citizens, even if they do not have formal citizen rights in these countries or pay taxes there. Yet in Europe pro-labour and pro-welfare interests are still strong and have retained more power in the nation states than in the US or the UK, but this could erode gradually. Globalisation clearly contributes to the constraints imposed on Western democracy because this system has difficulty in rising above national levels.
Keynesianism means that the government sustains expenses in times of depression to battle it, which includes the task of taking on debt in order to maintain the economy. Whereas “Privatised Keynesianism” signifies the economic policy by which the task of taking on debt in order to maintain the economy is taken on by the ordinary people, the taxpayer. This is the central point, which solves a crucial riddle of the last few years: Why is it that US and UK workers who have fewer labour rights and lower income than other European workers have maintained consumer confidence and have continued to spend on a high level.
Capitalism and democracy together constitute a problem: A market economy needs a very flexible and thereby uncertain basis to function, whereas democracy needs security and certainty. Undemocratic capitalism, as in China, does not face this problem. In fact, in the financial crisis of 2008 undemocratic capitalism has saved democratic capitalism in some instances, e.g. JP Morgan was largely bought up by a Chinese state fund. Capitalism needs mass consumption to function well and the problem is that people, even despite an uncertain environment and insecure labour conditions should continue spending to keep the wheels of capitalism turning. In the 19th century the ordinary people were no mass consumers. 100 years ago the first mass-produced consumer car in the US initiated the economic period of a mass production of consumer goods that relatively poor people could afford. The US model spread much later to Europe. Since then capitalism has depended on mass spending. In the crash of 1929 this model failed because consumer confidence could not be maintained.
Here the model of Keynesian demand management came in, especially in the programme of the New Deal, in Scandinavian countries and also in Austria. This Keynesian model ran into an inflationary crisis in the 1970s and was seen to have failed. In Austria, the Netherlands and Scandinavia the model never really collapsed because of the industrial relations model -keeping inflation at bay due to collective bargaining agreements between employer and employee organisations and moderate pay and price rises. The Keynesian model is based on spending needs and the security needs of the ordinary people; it tried to integrate the mass of people in the political model. The welfare state developed together with the Keynesian model: mass consumption + mass production + welfare state. So Keynesianism created a specific class of a particular period, namely the post-war period. In the 1970s together with the crisis of the welfare state and the Keynesian model the manual working class declined.
At that time a different ideology, carried by a different class came to power: neo-liberalism. Markets had become choked and there was a need to liberalise markets and relieve the economy from government influence. A new executive class with a new ideology and a new aim took over: maximisation of shareholder value, maximisation of equity value, which led to a dominance of the financial sector as the main measure of the economy. Starting in the US and the UK in the late 1970s, the neo-liberalist model gradually spread across the world. The problem with the Keynesian model had been that the markets had not been working well and there was a rising class of business executives and a declining class of workers. The dominance of the US induced a spread of these ideas either by imitation or by force: If foreign companies wanted to do business in the US they had to adopt this model. This caused a major economic transformation. The Keynesian model had lasted 30 years and the neo-liberalist model was in a deep crisis in 2008, also after 30 years. The basic dilemma of modern capitalism is that it needs flexible labour markets and consumer confidence and that’s why models to solve this dilemma only work for some time, which seems to be around 30 years. The problem of the neo-liberalist model at the start was the same, namely how do you reconcile the insecurity that the market needs with the security that consumer confidence needs? This problem was not solved in the beginning, but later on US and UK workers became more confident and started to believe in the neo-liberalist growth propaganda despite the insecurity of their labour markets – contrary to the workers of other countries. The problem was solved by “privatised Keynesianism”: ordinary people started to borrow. Limitations and rules on how much you could borrow on the basis of your home were relaxed -up to 120% of the value of your house- and speculation on the rise of house prices set in. An enormous rise of unsecured loans, e.g. credit card debt, set in, which was only possible together with a deregulated market and the invention of various financial products, such as mortgage-backed securities, where risks were shared by more and more investors. The question was no longer what kind of product have we bought, but who was willing to buy this package from us again. The ability of people to take on more and more debt contributed to an excessive spread of secondary markets, so people in insecure jobs could keep on borrowing and spending. This was a private economic policy, but gradually it became a public policy and was supported by governments.
The central banks’ main concern is the control of inflation because price and pay rises cause inflation which is bad for the economy, but if prices of financial assets and property rocket, this is not inflation, this is good for the economy because people can borrow more on their houses’ values. This development is seen as a sign of a strong economy and not as a sign of inflation. This phenomenon characterised the “financialisation of everything”. Governments noticed the role rising house prices had for the economy and the US & UK governments did everything to keep house prices on the rise, i.e. relaxed regulations for building permissions, mortgages and loans. People in the US and the UK lived better lives than they could otherwise have lived. Other countries also profited from this development because they could sell products to the US & UK. It seemed that the problem was solved, but there was something rotten at the centre of the system and that was the concept of “price”: The neo-liberalist model gave actors in the financial markets incentives to ignore information; prices did no longer reflect the economic reality. The more secondary markets dominated, the less real values of the economy were important. Fewer and fewer people were interested in real values in the markets. The rating agencies became a tool in that game. They normally judge the quality of assets, of companies and countries, but they realised that people only wanted information about secondary markets and not what the real values were. Everything was rated according to the price on secondary markets, which became a self-referential world of its own. The primary market was no longer of any importance and prices did not relate to it. In the 1970s the cake that was distributed in the economy was no longer getting bigger by economic growth, so it was made bigger by inflation. By that it was not really bigger because the price rises ate up the pay rises. But the cake that was being distributed before 2008 did not even exist, it was a virtual one.
There is a large diversity among nation states and how they adopted the different economic models. Some, such as Austria, the Netherlands and Scandinavia have kept a kind of triangle system combining a strong Keynesian welfare model with the neo-corporationist and the neo-liberalist model. In countries where the neo-liberalist model is very strong, such as the US and the UK, there are no strong associations, such as trade associations and labour unions, the firms are self-centred and rely on individual lobbying. In fact the neo-corporationist structures are often more market-friendly than the neo-liberalist structures because they work on the basis of business associations and labour organisations. As the neo-liberalist model is in contestation at the moment, a new model could be the corporation-centred model, which is not a market-centred model of free markets, but aims towards concentration and monopoly of individual corporations.
In several areas the privatisation of the neo-liberalist model went too far, e.g. water and public transport, because in certain sectors you just can’t get a lot of competition and there the free market does not work. Often there is no need for privatisation because the state can always get private money by issuing bonds and the state can always get private expertise by hiring people. The problem with media ownership is to prevent state ownership of the media on the one hand and also to prevent few rich people owning public opinion on the other hand, e.g. Berlusconi in Italy or Trump in the US, where we see the phenomenon of “privatisation of the state”. In post-democracy the state is going back to its original task of providing services for the rich; as Adam Smith noted: It is only fair that the rich pay the taxes because the state provides services for the rich only. So we are having right now a situation of “Socialism for the rich and Capitalism for the poor”. The West’s prosperity was based for a large part on the rest of the world being much poorer. Now with globalisation and an increasing share of the cake for formerly poor countries a huge shift in the labour – capital ratio has occurred. There are huge supplies of cheap labour now and nasty shocks to the system have to be expected at any time. Nevertheless it will take a long time until the poorer countries have reached a level where they can really profit from globalisation and it can only be hoped that in the long run we will all profit from globalisation.
Literature: Crouch, Colin, Post-Democracy, 2004