Asset Distribution and the Financial Crisis

by Engelbert Stockhammer and Carsten Rehbein Tuesday, Apr. 23, 2013 at 9:39 AM
marc1seed@yahoo.com

A perverse system arose out of the interaction of deregulation of the financial system and polarization of asset distribution. A reform of the financial system can only be part of the repair of the system. When wages grow again with productivity, an economic balance will be possible

ASSET DISTRIBUTION AND THE FINANCIAL CRISIS



by Engelbert Stockhammer



[This article is translated from the German on the Internet, http://www.vide.org/index.php?id=1325.]



[Professor Engelbert Stockhammer gained his PhD at the University of Massachusetts in Amherst and a Master's degree at the University of Vienna where he now works at the Institute for Monetary and Fiscal Policy. He is occupied with questions of macro-economics, unemployment, the finance system, heterodox economics and the post-Keynesian economy. He taught at universities in Vienna, Maastricht, Istanbul, Ankara, Paris and London. Stockhammer has published “The rise of unemployment in Europe” (2004) and “Heterodox Economics” (2009, as co-editor) and many articles in technical international journals. Since 2010 he has worked at the Kingston University in London.]



The financial crisis, according to current explanations, was caused by malformations on the financial markets. New financial instruments were developed because of deregulation. Banks awarded mortgage credits and then sold these, garnished with friendly evaluations by compliant rating agencies. Hedge funds became indebted beyond all measure and thus were prone to crisis. Enormous capital flowing in the US contributed to an over-rating of new financial titles. The US needs these instruments to cover its balance of payments deficit.. These are current explanations of the crisis. What does asset distribution have to do with this?



The cited causes of the crises are correct and a re-regulation of the financial sector is undoubtedly the command of the hour. However the focus on malformations in the financial sector threatens to repress underlying structural causes which have much to do with changing asset distribution.



POLARIZATION OF ASSET DISTRIBUTION



Since the early 1980s, dramatic changes in income distribution have occurred – the rich have become richer and the poor (relatively) poorer. While the super-rich in the US (the top 0.1? of the income pyramid) earned twenty times the average income in 1979, it was seventy-six times (!) as much in 2006 [1]. In practically all countries, the wage rate, the share of wages and salaries in the national income, has fallen. In Austria, it has even declined more than 15%



Wage incomes are the main income source for most households. .Consumption stagnates when wages fall behind productivity growth [2]. A negative demand-effect results even when one considers the effect of profits on investments. In addition the deregulation of the financial sector by shareholder value orientation and more frequent financial crises curb investments. Profits today are poured out as dividends to stockholders rather than reinvested.



DEBT-FINANCED CONSUMPTION OR EXPORT-ORIENTATION



Local demand stagnated in many countries. Some countries including Germany and in its shadows Austria and Japan compensate this weak growth of local demand through export surpluses. Whoever doesn't consume exports. All countries cannot simultaneously realize export surpluses. Every balance of payments surplus faces a balance of payments deficit in another country.



Anglo-Saxon countries with the US leading the way established themselves as growth-motors of the world economy. They generated the demand that first made possible the export surpluses of Germany, Japan and China. How did they do this? On the basis of their housing markets and their financial systems, these countries developed a seemingly brilliant system of demand-stimulation amid stagnating wages through the deregulation of the financial sector: consumption was credit-financed.



In Anglo-Saxon countries (and in some European countries), housing prices rose quickly and many middle class families paid off the appreciation as credit. The debts of households grew dramatically: in the US and Great Britain 40% of income since the beginning of the 1990s (far less in Germany and France)! This credit-financed growth regime did well as long as house prices continued climbing. When these began to fall, the banks began to crash.



How did the banks finance this credit-growth? In large part not through deposits but by reselling the credits, partly in the form of complex securities. Who really bought these securities? Pension funds, international banks and other international investors bought these securities – often through credit-streams from China, Germany and Japan. This is inevitable: a country that has export surpluses (in goods) must also export capital [3].



FINANCIAL MARKET REGULATION AND HIGHER WAGES



Those countries where local demand is weakened on account of wage-reserve export and finance the credit-generation with their capital exports to those countries where households buy what they cannot afford on account of trifling wage growth and therefore must finance through credits. Altogether a perverse system arose out of the interaction of deregulation of the financial system and polarization of income distribution. As a result, a reform of the financial system can only be part of the repair of the system. Wage policy is another area that needs repairs. When wages grow again with productivity, an economic balance will be first possible that manages without speculative bubbles and withou9t increasing budget indebtedness. (April 29, 2010)

LITERATURE



·         Girouard, N, Kennedy M, André, C, (2006) Has the rise in debt made households more vulnerable? OECD Economics Working Paper 535 (ECO/WKP(2006)63)

 

·         Kennickell, Arthur, 2009. Ponds and stream: wealth and income in the U.S., 1989 to 2007. Finance and Economics Discussion Series 2009-13

 

·         Mishel, L, Bernstein, J, Shierholz, H, 2009. The State of Working America 2008/09. Cornell University Press

 

·         OECD (2008). Growing unequal? Income distribution and poverty in OECD countries. Paris: OECD

 

·         Stockhammer, E., 2007. Funktionale Einkommensverteilung und aggregierte Nachfrage im Euro-Raum. Wirtschaft und Gesellschaft 33, 2: 175-98

Artikel als pdf incl. Grafik zu bereinigter Lohnquote in ausgewählten Ländern, 1960 - 2000



NOTES



[1] Mishel et al (2009)

 

[2] Siehe Stockhammer (2007) für Schätzungen für den Euro-Raum.

 

[3] Etwas vereinfacht gesagt, wenn Land A mehr an Land B verkaufen will als es selbst von Land B kauft, dann muss es dem Land B einen Kredit zur Verfügung stellen, damit Land B die Mittel hat, die Waren zu kaufen.

 

RELATED LINK: INTERVIEW WITH ENGELBERT STOCKHAMMER (2011)



10 | 2e semestre / Autumn 2011 : Post-keynésianisme et théorie de la régulation : des perspectives communes

Dossier : Post-keynésianisme et théorie de la régulation : des perspectives communes

Interview with Engelbert Stockhammer

Robert Boyer, Mickaël Clévenot et Engelbert Stockhammer

http://regulation.revues.org/9365



Notes de l’auteur

Entretien réalisé avec la participation d’Agnès Labrousse et Sandrine Michel.

Texte intégral

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1Engelbert Stockhammer obtained his PhD at the University of Massachusetts at Amherst in 2000. He joined Kingston in 2010. He is presently research associate at the Political Economy Research Institute at the University of Massachusetts at Amherst) and member of the coordination committee of the Research Network Macroeconomics and Macroeconomic Policy. His research areas include macroeconomics, applied econometrics, financial systems and heterodox economics. He has worked extensively on the determinants of European unemployment, the demand effects of changes in income distribution and the macroeconomics effects of financialization. He has published numerous articles in international peer-refereed journals including the Cambridge Journal of Economics, Structural Change and Economic Dyamics, the Journal of Post Keynesian Economics, the International Review of Applied Ecnomics and the the Oxford Review of Economic Policy. In 2004 he published the book The rise of unemployment in Europe (Edward Elgar). Recently he has co-edited A Modern Guide To Keynesian Macroeconomics And Economic Policies (Edward Elgar 2011) and Stabilising an unequal economy? Public debt, financial regulation and income distribution (Metropolis 2011).

2The financilization seems to be an interesting junction point for the regulationnist and the postkeynesian approaches. The following questions explore this general issue

3RR: What are the main characteristics of your approach?

4Engelbert Stockhammer: As a Postkeynesian I highlight issues of effective demand, involuntary unemployment, class conflict over income distribution and the importance of social norms and institutions. On financialization, I have, firstly, tried to clarify and empirically test what financialization means for non-financial businesses. This has used a rather narrow concept of financialization and was an attempt to think of financialization of firms in class terms. Secondly, I’ve tried to describe the macroeconomic structure of the finance-dominated accumulation regime. This has employed a broader, empirically driven concept of financialization as financialization involves different processes in different sectors of the economy.

5RR: When have you first heard of the French Regulation school? Is Regulation theory actively discussed in the various countries where you have been teaching and researching?

6Engelbert Stockhammer: In the late 1980s. Regulation theory was actually important in my early intellectual development. As undergrad students we used to have a working group on Regulation Theory, reading the classical works of Aglietta, Lipietz and Boyer as well as some of German works that adopted the approach (mostly in political science), then some of us moved on towards American Social Structures of Accumulation analysis. That was an interdisciplinary working group with political scientists and economists. We were excited about its rejection of general equilibrium theory, by its ambition to develop a historically specific analysis of capitalist development. But also by it trans-disciplinary appeal and by its aim of developing Marxist theory further while incorporating many arguments from modern social sciences. At that time I’d probably would have rejected the work that I did later as narrow economistic and politically too reformist.

I went to UMass Amherst for my PhD and planned to work on Social Structures of Accumulation (SSA) and growth theory. But it turns out that SSA was not en vogue any more (Sam Bowles had moved on to do evolutionary game theory; David Gordon died too early). I became a Post Keynesian, somewhat pragmatically, because (contrary to Marxian economics) it offered a framework within which I could pursue a macroeconomic research program that allowed for an academically productive and politically constructive critique of the mainstream explanation of European unemployment.

7RR: Despite their close macroeconomics origins, Postkeynesians and regulationnists seem to experience some difficulty in speaking together. What’s the matter?

8Engelbert Stockhammer: I don’t notice major difficulties in communication. My impression is that the Postkeynesian approach has experienced a consolidation (at least in Europe) in the last twenty years or so, whereas the Regulationist approach has disintegrated. Before we go into any detail, let me admit that my French is not sufficient to read more than abstracts in French. So, my comments are based on my reading of contributions in English (and German). They are an outsider’s comment and not a serious discussion of French Regulation Theory. Still, for what its worth, my impression that Regulation theory which had a reasonably clear theoretical and methodological approach in the 1970s and early 1980s has disintegrated as a paradigm in economics. In France, regulation theory undoubtedly still exists as functioning social network. Disintegration is not necessarily all bad. Regulationist thought has not simply disappeared. Part of it is that is dissipated and concepts like ‘Fordism’ are now a widely used, by Marxists, Keynesians, but also well beyond economics, by political scientists, geographers, urban planners etc. Notably, outside France, Regulation theory was mostly received by non-economists, but has had little impact on economics.

It’s hard to say what the core propositions of the Regulationist core are (e.g.: what are the distinguishing hypotheses regarding causal economic relations? What are its unique contributions in explaining economic performance?) That is quite different from post-Keynesian economics (PKE), which has, despite the fact that there are three or four streams within PKE, a fairly clear set of core propositions (effective demand, fundamental uncertainty, monetary production economy, involuntary unemployment), which is also reflected in the existence of several textbooks.

9RR: Often financialization of the economy is presented only as a purely financial phenomenon. By contrast, the Regulationist Theory and the postkeynesian approach try to keep an integrated view on the real and the financial sides. What is the advantage of this monetary economics of production approach?

10Engelbert Stockhammer: Most traditions in heterodox economics reject the classical dichotomy that regards monetary and real variables as separately determined (at least in the long run). Marxists would, at the most basic level, highlight how social relations change through commodification (e.g. the role of money in undermining the feudal mode of production) and, in capitalism, that money capital is a necessary form in the circuit of capital; Post Keynesians emphasize that the role of money in closely related to fundamental uncertainty and that the financial system is a source of endogenous instability – for both reason, money (or the financial system is far from neutral); Regulationists have highlighted that the monetary relation can take quite different forms (gold standard vs. credit money). Financialization adds several new twists to this in that the role and aims of non-financial corporations has changed (shareholder value orientation); households have experienced financialization in that their debt levels have increased massively (in the neoliberal era) and that various insurance function that had been provided by the welfare state are increasingly organized via markets (most notably pensions). Add to that changes in the financial sector (securitization; the rise of shadow banking etc) and you get a sense of how profound the transformations that financialization has brought about are. Foucauldians might add that a new governance mode (the neoliberal state, but also new subjects that, successfully or not, internalize a financial discipline) has emerged.

11RR: What’s the difference between finance led growth and financialization?

12Engelbert Stockhammer: I used the term “finance-dominated accumulation regime” in contrast to Boyer (2000) finance-led growth regime. Boyer defined the finance-led regime (in his language ‘the fully financialized system’) as one where an increase in the ‘financial norm’ leads to an increase in growth (demand). Simply put, more financialization means higher growth. I used the finance-dominated accumulation regime to highlight that there might be situation where the economy is fundamentally shaped by financialization without high growth. Financialization could come with stagnation or with greater volatility in growth. The degree of financialization ought to be defined independent of the growth performance, but with respect to the structure of the economy.

13RR: You have described two growth regimes under the same name of financialization, the anglo-saxon consumption-driven growth model and the export-oriented growth regime in other countries as Germany or China. Where would you locate the French economy?

14Engelbert Stockhammer: That’s an interesting question. I often use the distinction between debt-led growth models and export-led growth. On a simple one-dimensional mapping France would probably be pretty much in the middle, i.e. neutral (average increase in household debt and unspectacular current account position). Both models could be understood as empirically important cases of a 2x2 matrix. In fact France has experienced a quite strong process of financialization of non-financial businesses, a pronounced shift in the financial system, but comparably moderate financialization of the household sector and debt-driven consumption. France’s push for the introduction of the Euro (in the early 1990s) has been interpreted as an attempt to establish an export oriented model (at a time when German competitiveness was comparatively weak in the wake of unification), but that this attempt ultimately failed.

15RR: The postkeynesian methodological approach can be divided in two streams: The analytical growth model “à la Marglin” or the Stock-flow approach “à la Godley”. Do you think that there may exist a better approach in order to move closer the regulationnist and the postkeynesian research agendas?

16Engelbert Stockhammer: The Bhaduri-Marglin model is an important model that synthesizes Keynesian and Marxian arguments that has become an important work horse model for PK economists (and also for some economists who come from the Marxist side). SFC models encompass in principle a much broader class of models. Indeed, there is no reason for neoclassical or New Keynesian arguments to be set in an SFC framework. Changes in assets and flows have to be consistent, that’s it. People like Godley and Lavoie have used SFC to highlight the role of financial assets and liabilities in post-Keynesian framework, but I do not regard them as distinct stream within PKE, although it presently clearly is a field of intense debate with PKE.

17RR: Do you consider that introducing institutions is a prerequisite for a relevant economic theory or that there is a core of macroeconomics that is independent from any institutional configuration?

18Engelbert Stockhammer: I have come to appreciate the importance of plain macroeconomics. That may be out of pragmatism. Economics, certainly if you are trying to survive in an academic world dominated by American and British journals, is essentially a positivist exercise. The typical paper will present a hypothesis that has to be grounded in theory and/or tested empirically. An approach like Regulation Theory that lays heavy emphasis in historically specific configuration and synthesis of different approach in the present academic context runs the danger of providing a framework for understanding, but few working hypotheses that could be tested. Keynesian, Kaleckian, Marxian etc. macroeconomics is much better in that. So as an economist I couldn’t do without them. Moreover, much of modern macroeconomic modeling offers many different regimes that can be interpreted as corresponding to different institutional configurations. So I come down more on the core macro side of things. That said, there are serious problems with this approach. It runs the danger of underestimating the changes and the evolutionary dynamic of capitalism. And it often offers little by way of understanding how society and economy interact (because it employs essentially ahistorical deductive reasoning).

19RR: We now face a great crisis in regulationnist sense. It is not a mere cyclical crisis but a structural one, which will probably imply drastic institutional and political change. What kind of policies can you imagine to solve the sovereign debt crisis and more generally the global financial disequilibrium?

20Engelbert Stockhammer: One is tempted to paraphrase Bert Brecht and say “imagine there is structural crisis and no one changes anything”. It is quite appalling to see how neoliberal policies get reinforced in the course of crisis that has been caused by neoliberal financial deregulation and income polarization.

Yes, there will certainly be major institutional and political changes, but as of now that seems to go in the wrong way. In Britain and in Southern Europe we are witnessing a major attack on the welfare state. It feels like time warp back to the 19th century with a tiny, rich elite controlling the political process (Crouch’s post-democracy) and a disenfranchised mass of working classes that resort to ethnic networks for survival and frustration periodically erupts in waves of riots and revolts.

21RR: Do you think that reintroducing something like the Glass Steagall Act and/or a Tobin tax could succeed in controlling the contemporary power of finance?

22Engelbert Stockhammer: I fail to understand the excitement about the Glass Steagall Act (or the Volcker Rule). The separation of investment and commercial banking is unlikely to solve much. Lehman was a pure investment bank. Northern Rock, by most standards, an excessively fast growing commercial bank. The two most prominent bankruptcies of the crises thus are an investstment bank and a commercial bank. Glass Steagall would not have helped; it seems off the point. We need financial regulation across the entire financial sector, i.e. banking as well as shadow banking. The issue is regulating the shadow sector, breaking the power of the big financial institutions, which would probably mean breaking them up. On the more utopian side, I’d argue for the creation of a substantial publicly controlled segment. Much of banking should be not-for-profit.

I get much more excited about the Tobin Tax, though its effectiveness is probably overrated by many on the left. But it is an important entry point; and it would have huge symbolic importance and it would generate income, i.e. it would have a fiscal impact. That is an important part of what is at stake: the financial sector and the super-rich must be made to pay a big part of the costs of the crisis (and thereafter for the welfare state).

23RR: You obtained your PhD at the University of Massachusetts at Amherst in 2000, you were professor at the Wirschaftsuniversität Wien and you are now professor at the Kingston University in London. What does it mean (and how tough is it) to be an heterodox macroeconomist in these diverse academic systems?

24Engelbert Stockhammer: Being an academic nomad is indeed tough at times, but it seems pretty normal now. In the USA I learned a lot, doing my doctorate, but I was never happy there on personal level. Unfortunately, PhD programs in heterodox economics in Europe are at this point not of the same quality (that’s something we got to work on and why we, i.e. the research network macroeconomics (FMM) is organizing a summer school in post-Keynesian econ). I went back to Vienna, because I had the good luck of finding a job there and because that’s the place where I most feel home. Moving to London ten years later, had personal reasons, but coincided with a purging of heterodox program in Vienna. Kingston University, turned out to be a good move professionally. We are building a Political Economy Research Group (PERG) and developing BA and MA programs. Needless to say, London offers a unique academic environment (and has good train connections to Paris). The price of mobility across countries is not only in terms of personal relations, but also in that abroad you are more remote from politics.

25RR: You mentioned the fact that the academic world is dominated by American and British journals and the kind of exercise it implies. It is quite dissimilar from the academic worlds Keynes or even Foucault lived in, where books were crucial, where the academic standards of “narration” were different from the contemporary standards and maybe less rigid and more open. Do you think that the new rules of the game could somehow impede innovative thinking and reinforce the “locked-in syndrome” of economic academic institutions?

26Engelbert Stockhammer: Economics is characterized by an intellectual monoculture that is protected and reinforced by journal rankings that discriminate against dissenting schools of thought. It is really stunning to what extent the profession has managed to shrug off, to effectively ignore the crisis of the last year, how it has managed to avoid any critical discussion about what the crisis – and the inability of the overwhelming majority of economists to say anything interesting about its causes – means for who economics is done. An intellectual culture that sees economics as outside of social sciences and that publishes short journal articles rather than books are part of the problem, but I’d say that the use of journal ranking is causing much more direct damage. In Britain we have the Research Assessment Exercise, now called Research Excellence Framework, that claims to assess the quality of academic research on a scale of 1-star to 4-star. Heterodox econ journals are essentially 1-star or 2-star. With the budget cuts Funding for 2-star and below has been terminated. Thus effectively, since the crisis it has become harder for heterodox economists to survive academically. We’d need an evaluation of the quality (predictive power, relevance) of the papers published in leading journals regarding the central mechanisms of the crisis.

27RR: Thank you very much for this highly interesting interview!

REFLECTIONS ON DAMAGED DEMOCRACY



Imagine democracy and no one goes there. This is bitter reality in the age of acceleration and crises in rapid succession. This is called post-democracy.



By Carsten Rehbein



[This book review of Colin Crouch's “Postdemokratie” published May 1, 2012 is translated from the German on the Internet, http://www.e-politik.de/lesen/artikel/2012/reflexionen-aus-der-beschadigten=demokratie/.]



In his address upon receiving the Erich Frommprize, the political satirist Georg Schramm rightly emphasized: the democratic institutions and processes still exist but have lost effective power. Silvio Berlusconi was overthrown by the rating agencies, not by democratic elections. The investment banker Mario Monti replaced him as Italian Prime Minister.



The dominant institution of post-democracy is the well-linked global corporation that markets its label and serves that politics that gives the greatest benefits to the global enterprise. Political communication occurs between parliament and global corporations and no longer between representatives and the represented, between parliament and the people. In his two works “Post-Democracy,” Colin Crouch provides the interested reader with additional literature references in every chapter.



AFTER THE CRISIS IS BEFORE THE CRISIS



The second work of “Post-Democracy” sketches the genesis of neoliberalism. A deep insight is offered on the world after the crisis and the submission of politics under the dictates of those who caused the crisis. So Elmar Altvater intimated in November 2010. A classical view of defenders of the market is refuted. The dominant neoliberalism doesn't rely on the market but plays off the market against the state. “The neoliberal right-wing means in truth `big business' when it says `market,'” Crouch concludes in “Post-Democracy II.” The big concern seeks its location where it experiences the least resistance and can rake in the highest subsidies.



The best example is the cell phone manufacturer Nokia that closed its plant in Bochum in the middle of 2008 after the subsidies ended and moved to Rumania – with moderate success for the firm. Politics or better the state now has the choice: come to an arrangement with a big concern, fulfill its conditions and ensure jobs or the state keeps out of the economy, lets big corporations move and concentrates on the political. Politics is often confronted with this dilemma. A typical post-democratic arrangement between state and business is considered an ideal form of problem management. Ingolfur Bluhdorn describes this process as simulative democracy since democracy and opinion-formation processes are only simulated. “Simulative democracy is the manifestation of democracy that fully corresponds to the specifically late-modern problems and needs, not a sign of decay, a degenerate, less authentic democracy.” Post-democracy doesn't lead out of present crises. Whether one affirms this form of democracy or not doesn't matter. Citizens no longer think they can influence social processes.



WAYS TO STRENGTHEN DEMOCRACY



Crouch sees a vehicle for breaking through the phalanx of the state, market and big business in non-parliamentary movements. Parties, churches, citizen initiatives, voluntary groups and organized professional associations as parts of civil society must occupy neglected areas and act as a counterweight to the ruling class. They can exert pressure on a big business and bring abuses to public attention so these develop a Corporate Social Responsibility emphasized repeatedly by Crouch. A social responsibility of the corporation for good working conditions, sustainable development and social projects moves the business into a good light. The media has a strikingly bad image for Crouch. “The mass media indispensable for democracy increasingly become marionettes of big business and the super-rich who in this way dominate democratic expression of opinion with their very special interests.”



In Germany, the media functions very well. Intrigues like those around ex-President of Germany Christian Wulff would be uncovered. Journalists often kindle important discussions on controversial themes as in the case of Gunter Grass and plead for a liberalism with strong civil rights and for rage against financial capitalism. At least people agree that more, not less, democracy is needed.



DECIDING AMID UNCERTAINTY



The Pirates are a party with the credo “Dare More Democracy” on its banner. However the Pirates will only be able to change something in the problems and deficits of democracy when they take new democratic paths that are both legally anchored and accepted by the citizens. Several aspects addressed by Colin Crouch should be considered. Firstly, liquid democracy and direct democratic procedures cannot substitute for parliamentary processes and conferences of experts. So democracy could decay to acclamation. Procedures like Liquid Democracy, however they are spelled out, must be compared with the ideals of democracy. When almost only young men participate in a procedure, this must be questioned according to the principles of general and equal elections.



Secondly, democratic procedures must be institutionalized. Spontaneity and movement fervor lend new wings that can be paralyzed some time or other to the prevailing system and democracy. In times of political calm, democratic procedures must be ready, whether parliamentary or direct democratic procedures that are exercised and acknowledged as legitimate. Otherwise there is democracy and no one joins in. Thirdly, democratic procedures must transcend the nation-state – not only through movements like Occupy but also through strengthening the EU and the EU parliament.



However a new party like the Pirates will change little in the system by entering the parliament and only focusing on themes that others have slept through a little. Problems like global climate warming, right-wing radicalism and high state indebtedness can be first defeated through engagement on many political and social planes, not with an app.

REFLECTIONS ON DAMAGED DEMOCRACY



Imagine democracy and no one goes there. This is bitter reality in the age of acceleration and crises in rapid succession. This is called post-democracy.



By Carsten Rehbein



[This book review of Colin Crouch's “Postdemokratie” published May 1, 2012 is translated from the German on the Internet, http://www.e-politik.de/lesen/artikel/2012/reflexionen-aus-der-beschadigten=demokratie/.]



In his address upon receiving the Erich Frommprize, the political satirist Georg Schramm rightly emphasized: the democratic institutions and processes still exist but have lost effective power. Silvio Berlusconi was overthrown by the rating agencies, not by democratic elections. The investment banker Mario Monti replaced him as Italian Prime Minister.



The dominant institution of post-democracy is the well-linked global corporation that markets its label and serves that politics that gives the greatest benefits to the global enterprise. Political communication occurs between parliament and global corporations and no longer between representatives and the represented, between parliament and the people. In his two works “Post-Democracy,” Colin Crouch provides the interested reader with additional literature references in every chapter.



AFTER THE CRISIS IS BEFORE THE CRISIS



The second work of “Post-Democracy” sketches the genesis of neoliberalism. A deep insight is offered on the world after the crisis and the submission of politics under the dictates of those who caused the crisis. So Elmar Altvater intimated in November 2010. A classical view of defenders of the market is refuted. The dominant neoliberalism doesn't rely on the market but plays off the market against the state. “The neoliberal right-wing means in truth `big business' when it says `market,'” Crouch concludes in “Post-Democracy II.” The big concern seeks its location where it experiences the least resistance and can rake in the highest subsidies.



The best example is the cell phone manufacturer Nokia that closed its plant in Bochum in the middle of 2008 after the subsidies ended and moved to Rumania – with moderate success for the firm. Politics or better the state now has the choice: come to an arrangement with a big concern, fulfill its conditions and ensure jobs or the state keeps out of the economy, lets big corporations move and concentrates on the political. Politics is often confronted with this dilemma. A typical post-democratic arrangement between state and business is considered an ideal form of problem management. Ingolfur Bluhdorn describes this process as simulative democracy since democracy and opinion-formation processes are only simulated. “Simulative democracy is the manifestation of democracy that fully corresponds to the specifically late-modern problems and needs, not a sign of decay, a degenerate, less authentic democracy.” Post-democracy doesn't lead out of present crises. Whether one affirms this form of democracy or not doesn't matter. Citizens no longer think they can influence social processes.



WAYS TO STRENGTHEN DEMOCRACY



Crouch sees a vehicle for breaking through the phalanx of the state, market and big business in non-parliamentary movements. Parties, churches, citizen initiatives, voluntary groups and organized professional associations as parts of civil society must occupy neglected areas and act as a counterweight to the ruling class. They can exert pressure on a big business and bring abuses to public attention so these develop a Corporate Social Responsibility emphasized repeatedly by Crouch. A social responsibility of the corporation for good working conditions, sustainable development and social projects moves the business into a good light. The media has a strikingly bad image for Crouch. “The mass media indispensable for democracy increasingly become marionettes of big business and the super-rich who in this way dominate democratic expression of opinion with their very special interests.”



In Germany, the media functions very well. Intrigues like those around ex-President of Germany Christian Wulff would be uncovered. Journalists often kindle important discussions on controversial themes as in the case of Gunter Grass and plead for a liberalism with strong civil rights and for rage against financial capitalism. At least people agree that more, not less, democracy is needed.



DECIDING AMID UNCERTAINTY



The Pirates are a party with the credo “Dare More Democracy” on its banner. However the Pirates will only be able to change something in the problems and deficits of democracy when they take new democratic paths that are both legally anchored and accepted by the citizens. Several aspects addressed by Colin Crouch should be considered. Firstly, liquid democracy and direct democratic procedures cannot substitute for parliamentary processes and conferences of experts. So democracy could decay to acclamation. Procedures like Liquid Democracy, however they are spelled out, must be compared with the ideals of democracy. When almost only young men participate in a procedure, this must be questioned according to the principles of general and equal elections.



Secondly, democratic procedures must be institutionalized. Spontaneity and movement fervor lend new wings that can be paralyzed some time or other to the prevailing system and democracy. In times of political calm, democratic procedures must be ready, whether parliamentary or direct democratic procedures that are exercised and acknowledged as legitimate. Otherwise there is democracy and no one joins in. Thirdly, democratic procedures must transcend the nation-state – not only through movements like Occupy but also through strengthening the EU and the EU parliament.



However a new party like the Pirates will change little in the system by entering the parliament and only focusing on themes that others have slept through a little. Problems like global climate warming, right-wing radicalism and high state indebtedness can be first defeated through engagement on many political and social planes, not with an app.

Original: Asset Distribution and the Financial Crisis