I have been arguing for some time on this blog that contemporary capitalism faces a profound legitimation crisis. It has failed to deliver on its promises, and therefore is being calling into question.
As it turns out, Martin Wolf, the chief economics commentator at the Financial Times, has also sounded a warning about the ongoing legitimacy crisis. But for him it’s a bit different. The problem, as he sees it, is the tension between democracy and capitalism.
A natural connection exists between liberal democracy — the combination of universal suffrage with entrenched civil and personal rights — and capitalism, the right to buy and sell goods, services, capital and one’s own labour freely. They share the belief that people should make their own choices as individuals and as citizens. Democracy and capitalism share the assumption that people are entitled to exercise agency. Humans must be viewed as agents, not just as objects of other people’s power.
Yet it is also easy to identify tensions between democracy and capitalism. Democracy is egalitarian. Capitalism is inegalitarian, at least in terms of outcomes. If the economy flounders, the majority might choose authoritarianism, as in the 1930s. If economic outcomes become too unequal, the rich might turn democracy into plutocracy.
Historically, the rise of capitalism and the pressure for an ever-broader suffrage went together. This is why the richest countries are liberal democracies with, more or less, capitalist economies. Widely shared increases in real incomes played a vital part in legitimising capitalism and stabilising democracy. Today, however, capitalism is finding it far more difficult to generate such improvements in prosperity. On the contrary, the evidence is of growing inequality and slowing productivity growth. This poisonous brew makes democracy intolerant and capitalism illegitimate.
One can find plenty to pick apart in Wolf’s story, starting with the idea that there’s a “natural connection” between democracy and capitalism. There’s nothing natural about it, although clearly there is a historical relationship—complex, fragile, and contested—between democratic political structures and capitalist economies.
But Wolf does understand that today’s capitalism is global:
Left to themselves, capitalists will not limit their activities to any given jurisdiction. If opportunities are global so, too, will be their activities.
And while Wolf forgets or overlooks the fact that capitalism has been global from the very beginning, he demonstrates his awareness that the disappointing recent performance of global capitalism (“not least the shock of the financial crisis and its devastating effect on trust in the elites in charge of our political and economic arrangements”) has once again created tensions between capitalism and democracy. One source of tension is the rise of a global plutocracy (“and so in effect the end of national democracies”), the other is the rise or illiberal democracies or outright dictatorships (“in which the elected ruler exercises control over both the state and capitalists”).
Wolf is most worried about the danger to democracy, and therefore has come around to the view that the continued pursuit of international trade agreements (like the Trans-Pacific Partnership and the Trans-Atlantic Trade and Investment Partnership), which “tightly constrain national regulatory discretion in the interests of corporations,” needs to be curtailed and rethought.
The alternative, of course, is to safeguard and strengthen the future of democracy—in which, in Wolf’s words, economic policy can be “orientated towards promoting the interests of the many not the few”—by doing away with capitalism itself.
Jamie Galbraith’s ties to Greece go back some seven decades, most recently as an adviser in the Ministry of Finance (working with Yanis Varoufakis) for the Syriza government.
In a recent comment (itself a summary of his new book, Welcome to the Poisoned Chalice: The Destruction of Greece and the Future of Europe), Galbraith [ht: cb] has presented a clear, trenchant critique of Europe through its treatment of Greece.
Last year’s third bailout of Greece, imposed by Europe and the International Monetrary Fund, does to Greece what Versailles did to Germany: It strips assets to satisfy debts. Germany lost its merchant marine, its rolling stock, its colonies, and its coal; Greece has lost its seaports, its airports — the profitable ones — and is set to sell off its beaches, the public asset that is a uniquely Greek glory. Private businesses are being forced into bankruptcy to make way for European chains; private citizens are being forced into foreclosure on their homes. It’s a land grab.
And for what? To satisfy old public debts, incurred for tanks, submarines, the Olympics, big construction projects outsourced to German firms, and to hide deficits in health care, with creditor connivance — a quagmire of graft to support an illusion, that Greece could “compete” as part of the euro. Already in 2010 the IMF knew it was breaking its own rules by pretending that Greece could recover quickly, sustain a huge primary surplus, and repay its debts. Why? To help save French and German banks, which the IMF’s sainted managing director, Dominique Strauss-Kahn, wanted to do, because he wanted to be president of France.
Europe crushed the Greek resistance in 2015. Not because Wolfgang Schäuble, the German finance minister, thought his economic plan would work; he candidly told the Greek finance minister, Yanis Varoufakis, that “as a patriot” he would not sign it himself. But Germany wants to impose its order on Italy and on France, where civil society continues to fight back. And Chancellor Angela Merkel could not admit to her voters, or to fellow Europeans from Slovakia to Portugal, that back in 2010 she’d saved Germany’s banks by saddling them with Greek debts that could never be paid.
Greece was given collective punishment as a lesson. It was done to show that “there is no alternative.” It was done to stop any other attempt to develop, articulate, and defend a more rational policy. It was done to protect the power of the European Central Bank, the German government in Europe, and the policy-making authority, in face of a long record of failure, of the IMF.
If there is an alternative for Europe, where would it come from? According to Galbraith, the process begins with the Democracy in Europe Movement (or DiEM25), launched in 2015 by Varoufakis. But it doesn’t stop there.
Ultimately there would have to be big changes, as revolutionary as the 2015 Athens Spring. The old oligarchies, the Brussels cabals, the self-serving technocrats, and the economic ideologues who now dominate European economic policy would have to yield.