[Peace-discuss] The Un-Democratic Face of Capitalism

[C. G. Estabrook]

"Differences can be detected in the current election ... Voters should consider
them, but without illusions about the political parties, and with the
recognition that consistently over the centuries, progressive legislation and
social welfare have been won by popular struggles, not gifts from above."

	October 10/12, 2008
	Exposing the Un-Democratic Face of Capitalism
	By NOAM CHOMSKY

The simultaneous unfolding of the US presidential campaign and unraveling of the
financial markets presents one of those occasions where the political and
economic systems starkly reveal their nature.

Passion about the campaign may not be universally shared but almost everybody
can feel the anxiety from the foreclosure of a million homes, and concerns about
jobs, savings and healthcare at risk.

The initial Bush proposals to deal with the crisis so reeked of totalitarianism
that they were quickly modified. Under intense lobbyist pressure, they were
reshaped as "a clear win for the largest institutions in the system ... a way of
dumping assets without having to fail or close", as described by James Rickards,
who negotiated the federal bailout for the hedge fund Long Term Capital
Management in 1998, reminding us that we are treading familiar turf. The
immediate origins of the current meltdown lie in the collapse of the housing
bubble supervised by Federal Reserve chairman Alan Greenspan, which sustained
the struggling economy through the Bush years by debt-based consumer spending
along with borrowing from abroad. But the roots are deeper. In part they lie in
the triumph of financial liberalisation in the past 30 years - that is, freeing
the markets as much as possible from government regulation.

These steps predictably increased the frequency and depth of severe reversals,
which now threaten to bring about the worst crisis since the Great Depression.

Also predictably, the narrow sectors that reaped enormous profits from
liberalisation are calling for massive state intervention to rescue collapsing
financial institutions.

Such interventionism is a regular feature of state capitalism, though the scale
today is unusual. A study by international economists Winfried Ruigrok and Rob
van Tulder 15 years ago found that at least 20 companies in the Fortune 100
would not have survived if they had not been saved by their respective
governments, and that many of the rest gained substantially by demanding that
governments "socialise their losses," as in today's taxpayer-financed bailout.
Such government intervention "has been the rule rather than the exception over
the past two centuries", they conclude.

In a functioning democratic society, a political campaign would address such
fundamental issues, looking into root causes and cures, and proposing the means
by which people suffering the consequences can take effective control.

The financial market "underprices risk" and is "systematically inefficient", as
economists John Eatwell and Lance Taylor wrote a decade ago, warning of the
extreme dangers of financial liberalisation and reviewing the substantial costs
already incurred - and proposing solutions, which have been ignored. One factor
is failure to calculate the costs to those who do not participate in
transactions. These "externalities" can be huge. Ignoring systemic risk leads to
more risk-taking than would take place in an efficient economy, even by the
narrowest measures.

The task of financial institutions is to take risks and, if well-managed, to
ensure that potential losses to themselves will be covered. The emphasis is on
"to themselves". Under state capitalist rules, it is not their business to
consider the cost to others - the "externalities" of decent survival - if their
practices lead to financial crisis, as they regularly do.

Financial liberalisation has effects well beyond the economy. It has long been
understood that it is a powerful weapon against democracy. Free capital movement
creates what some have called a "virtual parliament" of investors and lenders,
who closely monitor government programmes and "vote" against them if they are
considered irrational: for the benefit of people, rather than concentrated
private power.

Investors and lenders can "vote" by capital flight, attacks on currencies and
other devices offered by financial liberalisation. That is one reason why the
Bretton Woods system established by the United States and Britain after the
second World War instituted capital controls and regulated currencies.*

The Great Depression and the war had aroused powerful radical democratic
currents, ranging from the anti-fascist resistance to working class
organisation. These pressures made it necessary to permit social democratic
policies. The Bretton Woods system was designed in part to create a space for
government action responding to public will - for some measure of democracy.

John Maynard Keynes, the British negotiator, 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 after the breakdown of the Bretton
Woods system in the 1970s, the US treasury now regards free capital mobility as
a "fundamental right", unlike such alleged "rights" as those guaranteed by the
Universal Declaration of Human Rights: health, education, decent employment,
security and other rights that the Reagan and Bush administrations have
dismissed as "letters to Santa Claus", "preposterous", mere "myths".

In earlier years, the public had not been much of a problem. The reasons are
reviewed by Barry Eichengreen in his standard scholarly history of the
international monetary system. He explains 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". Therefore, the severe costs imposed
by the virtual parliament 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 luxury was no longer available to private power
and wealth. Hence in the Bretton Woods system, "limits on capital mobility
substituted for limits on democracy as a source of insulation from market
pressures".

The obvious corollary is that after the dismantling of the postwar system,
democracy is restricted. It has therefore become necessary to control and
marginalise the public in some fashion, processes particularly evident in the
more business-run societies like the United States. The management of electoral
extravaganzas by the public relations industry is one illustration.

"Politics is the shadow cast on society by big business," concluded America's
leading 20th century social philosopher John Dewey, and will remain so as long
as power resides in "business for private profit through private control of
banking, land, industry, reinforced by command of the press, press agents and
other means of publicity and propaganda".

The United States effectively has a one-party system, the business party, with
two factions, Republicans and Democrats. There are differences between them. In
his study Unequal Democracy: The Political Economy of the New Gilded Age, Larry
Bartels shows that during the past six decades "real incomes of middle-class
families have grown twice as fast under Democrats as they have under
Republicans, while the real incomes of working-poor families have grown six
times as fast under Democrats as they have under Republicans".

Differences can be detected in the current election as well. Voters should
consider them, but without illusions about the political parties, and with the
recognition that consistently over the centuries, progressive legislation and
social welfare have been won by popular struggles, not gifts from above.

Those struggles follow a cycle of success and setback. They must be waged every
day, not just once every four years, always with the goal of creating a
genuinely responsive democratic society, from the voting booth to the workplace.
____
Note

* The Bretton Woods system of global financial management was created by 730
delegates from all 44 Allied second World War nations who attended a UN-hosted
Monetary and Financial Conference at the Mount Washington Hotel in Bretton Woods
in New Hampshire in 1944.

Bretton Woods, which collapsed in 1971, was the system of rules, institutions,
and procedures that regulated the international monetary system, under which
were set up the International Bank for Reconstruction and Development (IBRD)
(now one of five institutions in the World Bank Group) and the International
Monetary Fund (IMF), which came into effect in 1945.

The chief feature of Bretton Woods was an obligation for each country to adopt a
monetary policy that maintained the exchange rate of its currency within a fixed
value.

The system collapsed when the US suspended convertibility from dollars to gold.
This created the unique situation whereby the US dollar became the "reserve
currency" for the other countries within Bretton Woods.

This column originally appeared in the Irish Times.

<http://www.counterpunch.org/chomsky10122008.html>