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by Stephan Schulmeister
Monday, Jun. 10, 2019 at 10:48 AM
Brilliant minds elevated "the market" into a "higher being" of the post-modern age to which we must submit. The primacy of the market replaced the primacy of politics. Dr. Schulmeister is an economic researcher in Vienna whose latest book is "The Road to Prosperity" (2019).
FROM THE ENLIGHTENMENT TO THE COUNTER-ENLIGHTENMENT
Brilliant minds elevated "the market" into a "higher being" of the postmodern age to which we must submit. The primacy of the market replaced the primacy of politics. A little contribution to the "new Enlightenment"
By Stephan Schulmeister
[This article published on August 31, 2016, is translated from the German on the Internet, http://diepresse.com. Stephan Schulmeister is an Austrian economic researcher and author of many articles and books critical of mainstream economics. His latest book is “The Road to Prosperity” (2019) that alludes to Hayek’s “The Road to Bondage.”]
"Enlightenment is the exodus of people from their underage existence of their own making," Kant said. While the theories of Hume, Smith, Kant, Rousseau, Ricardo, Mill, Marx and Keynes are very different, they had a common goal: emancipating people from "higher beings" and their earthly representatives.
Struggling for basic rights through the middle-class revolutions and for the social state through the workers' movement are the most important examples of the emancipation process. A comparison of the workers' situation in the 1970s and the 1870s shows what people can do when they understand themselves as enlightened and solidarity subjects of history.
Today, four decades later, we all must adjust to the new "higher being," "the markets" (mostly the financial markets). "They" demand "structural reforms"; "they" act as judges, punish Greece and reward Germany. "They" live out their feelings on stock exchanges – today friendly, tomorrow euphoric and depressed the day after tomorrow.
Subjects to which we have to submit came out of markets as our (useful) instruments. The "primacy of the market" arose out of the "primacy of politics." How does this unique counter-enlightenment manifest?
This counter-enlightenment began in the 1940s. The success of "General theory" by Keynes (1936) inflicted a grave setback on his adversary Hayek. Hayek knew the heyday of Keynesianism and the welfare state was approaching. Hayek did not give up but devised a great plan: anchoring the principles of liberalism even if it took two to three generations (his estimate) because Keynesianism and the welfare state would lead to "serfdom." The first step of Hayek's plan was his book "The Road to Serfdom" (1944). His basic thesis was that "the development of culture was possible in that people submitted in the past to the impersonal powers of the market." He urged "humility before the market."
The last sentences of "General Theory" stimulated him: "The ideas of economists are more powerful than people usually think. In fact, the world is ruled by nothing else. Persons with practical intelligence are mostly slaves of some faded economists." Hayek and Friedman are faded today but the European elites are still their ideological slaves.
Hayek's model was the anchoring of socialist ideas in the heads of intellectuals by the Fabian Society. His second step was founding the Mont-Pelerin-Society (1947), a network of "original thinkers" (including later Nobel Prize winners like Hayek, Friedman etc), wealthy businessmen and important journalists. The neoliberal "counter-reformation" was prepared – very informally – in its framework.
The third step consisted in the production of anti-Keynesian theories. The thesis that harmful financial speculation was impossible (Friedman, 1953), that politicians only act selfishly ("Public Choice" by Buchanan, Becker, Stigler, 1960), that the market was more efficient than the state regarding "social costs" and environmental pollution (Coase 1960), that the 1930s Depression was caused by (monetary-) policy and not by the stock exchange crash and the austerity policy (Friedman, Schwartz 1963) and that full employment policy is senseless and only inflation increases (Friedman 1968).
SMILED AT CONDESCENDINGLY OR IGNORED
The diligence of neoliberals (as they call themselves) is so admirable because they were smiled at condescendingly or ignored by the mainstreams of self-assured Keynesians in these 20 years. The heirs of the workers' movement believed they reached their goals. So Kreisky made fun of Hayek and Co. in the 1970s. Austria did well because we "exported" these economists. They all did not get the message what a brilliantly executed attack occurred (to represent wrong as right, more astuteness was needed to represent what was really true). The fourth step consisted of founding think tanks linked globally by the Atlas Network since 1981. Now there are 451 "free market organizations" in 45 countries.
In the times of the Cold War, neoliberals defined the term freedom and always understood freedom negatively as freedom from (state) coercion. The young today are much less free than 40 years ago if one considers the positive side, freedom as development chances.
The political realization of the counter-enlightenment began with the ending of fixed exchange rates demanded by neoliberals. OPEC reacted to two dollar devaluations with two oil-price shocks. Two recessions, higher unemployment, and higher state indebtedness followed. Neoliberals applied their pre-fabricated theories. The social state had to be dismantled. Wages had to be cut and the financial markets "un-fettered." All this happened "step by step" and led Europe into depression after the 2008 financial crisis.
Business (representatives) adopted neoliberalism as "their" ideology. Neoliberalism actually serves the interests of finance capital, not real capital. The sorcerer's apprentice syndrome strengthens the learned resistance of the elites today.
The situation of Keynesians in the 1980as resembled the situation of neoliberals 40 years before. To Thatcher and Reagan, it was clear the social state was finished. Neoliberals preached individualism but acted collectively. On the other hand, "critical" economists played solitaire.
ELITES IN GREAT DISTRESS
A doctor whose therapy causes sicknesses cannot understand this. Therefore our elites are in great distress and urge more market and more counter-enlightenment. They no longer believe Europe can lead out of the crisis. What will happen? The intellectual achievers may make the effort to decontaminate the rubbish of the counter-enlightenment from their heads instead of ruminating about a new Enlightenment. This rubbish is the breeding ground of rightwing seducers. To the neoliberal person as only an individual, selfish, rational and competing being, they present their person in the social warmth of national communities, in demarcation from those who are different.
TEN THESES ON THE CRISIS AND ITS SOLUTION
By Stephan Schulmeister
[These theses published in the Vienna Institute for International Dialogue and Cooperation news 14.2010 are translated from the German on the Internet, http://www.virc.org. Stephan Schulmeister is an economic researcher in Vienna. The transition from finance- to a real capitalist economic system began with the “great crisis.” This will last years. Finance capitalism increasingly dominant in the last 30 years is full of speculative bubbles and extensive crises based on “money out of thin air” and “letting money work.”]
Problems don't disappear when when they are ignored. Deregulation is a collective and political crisis. Language and democracy are endangered when arsonists are called firefighters, when private losses are made into public losses and when crime in the suites is normalized as a business model. Risk-takers and job-creators turn out to be manipulators and fraudsters and public spirit falls by the wayside.
Thesis 1: The great crisis ushered in the slow collapse of finance capitalism. This form of the market economy has spread since the 1970s. The capitalist “nuclear energy,” the pursuit of profit, concentrated most strongly on finance-assessment and –speculation (in the real capitalism of the 1950s and 1960s it could only develop in the real economy).
Thesis 2: The breeding ground of finance capitalism is the neoliberal worldview. The task of stable exchange rates together with dollar devaluation, oil price shock, recession and high inflation in the 107-s and their control through a high interest policy along with deregulation of the financial markets and the boom of financial innovations (derivatives) in the 1980s – all this was based on neoliberal recommendations. Economic growth was cut in two; unemployment and state indebtedness soared.
Thesis 3: Neoliberalism uses the problems it creates for the further implementation of its demands. With the state indebtedness, austerity policy and (as a result) the weakening of the social state were justified and with unemployment the deregulation of labor relations, atypical jobs and lower unemployment benefits. Both developments dampen economic growth and increase inequality.
Thesis 4: The neoliberal (reform) policy strengthens the mentality of “let our money work,” particularly through promotion of capital “covered,” market-based old age provisions as a main goal of politics. This gained the day through the “art of trading” and through fixation on the stock exchange as the lever of the economy. All this promoted a financial boom since the 1990s.
Thesis 5: With the boom on the stock-, raw materials-, currency- and real estate markets, financial assets were created without any real economic cover. The potential for the great crisis was built. That crisis detonated from 2007 through the simultaneous devaluation of stock-, raw materials- and real estate assets. Demand and production collapsed.
Thesis 6: Politics only fought the symptoms of the great crisis with bank- and economic packages while its systemic causes remain untouched. Even worse, the “financial chemistry” booms more than ever, whether through speculation on state bankruptcy, higher raw material prices or euro devaluation. All this was legitimated by the neoliberalism. Thus it cannot be seen by the elites as a cause of the crisis (“sorcerer’s apprentice syndrome”).
Thesis 7: For over three decades the conversion of neoliberal recommendations has increased unemployment, state indebtedness and poverty, weakened the social state and built up the potential for the great crisis. Now the elites urge those therapies that are part of the sickness: reducing social spending, further privatizations, sparing financial assets and no consolidation help of the wealthy.
Thesis 8: The hardest phase of the great crisis is ahead of us, not behind us. All the sectors try to safeguard their positions through spending cuts – amid recently falling stock prices, higher unemployment, empty state treasuries, EU-wide austerity policy and unstable exchange rates and raw material prices: businesspersons, households, foreign countries and the state. This is material for a crisis lasting several years.
Thesis 9: In such a situation, the state must give long-term impulses to the real economy while simultaneously stabilizing its financial position. There is only one way to do that: “demanding significant consolidation help from the highest incomes, particularly the owners of mammoth financial assets for economic reasons. The “rich” react to (slight) income losses with a restriction of their savings (unlike recipients of welfare benefits), not with a restriction of their consumption. With these funds, an expansive overall strategy could be financed that fights state indebtedness, unemployment, social inequality and climate change “as a whole.”
Thesis 10: Such a strategy would join the (“real capitalist”) tradition of the social market economy. It would strengthen the cooperation between businesses and unions, put the “financial chemists” in their place and make possible the transition to a real capitalist system where the interests of labor and real capital have priority over the interests of finance capital (8/18/2010).
I described the most important components of this strategy in a compact book “New Deal for Europe – in the Great Crisis” (Picus Verlag publisher, 9.90 E).
GOOD INTENTIONS – BUT SHIPWRECK
Depression as a Consequence – Implosion of Finance Capitalism
[This interview published in: Erziehung und Wissenschaft 1/2012 is translated from the German on the Internet. Stephan Schulmeister is an economics researcher in Vienna. His latest book is “New Deal in Europe in the Great Crisis.”]
What are the systemic causes of the Euro crisis? What ideas, developments and political decisions produced the crisis?
The Euro crisis represents the latest stage in the process of the implosion of finance capitalism. This form of the market economy dominant for 30 years shifts the pursuit of profit from the real economy to financial investment and speculation (the pursuit of gain could only be realized in the real economy in the real-capitalist prosperity phase of the 1950s and 1960s). The systemic under-performance of business activity compared to “financial chemistry” generated increasing financial assets without a real-economic background – from over-rated stocks, currencies and raw materials to government bonds. The devaluation of “fictional capital” (Karl Marx) in the course of grave financial crisis (1873ff, 1929ff, 2007ff) ushers in the transition to the depressive phase of the "long cycle" (from 1873 to 1890, from 1929 to 1948 and from 2007 to ???).
Let us sum up the last cycle (1929 to 1948). Finance capitalist euphoria in the 1920s led to a stock boom. The 1929 stock market crash triggered a recession that deepened to a depression for three reasons. Firstly, real estate- and raw material assets were massively devalued, not only stock assets. Secondly, the economic theory of “Laissez-faire” – dominant in finance capitalist phases – encouraged politicians to react to the downhill state finances with austerity policy. Thirdly, countries waged an economic war against each other according to the motto “Save yourself if you can” (especially through currency devaluations).
The consequences of the world economic crisis were so devastating that politics has learned profoundly from the crisis. A new economic theory developed (Keynesianism). A social market economy arose. The pursuit of profit could only be realized in the real economy. Stable exchange rates, stable raw material prices and interest rates below the growth rate were crucial for the success of this model. The result was the so-called economic miracle.
BREAKING DOWN IN SUCCESS
However the real-capitalist “game plan” ultimately broke down in its success. Permanent full employment required an offensive of the unions, particularly in Italy, France and Great Britain. This necessitated redistribution and joint determination and was partly carried out through a massive expansion of strikes. The year 1968 made the rich distraught… The status quo could not continue from their perspective.
The hour of the Renaissance of “Laissez-faire” had come. The theories of the neoliberal “master minds” Milton Friedman and Friedrich A. von Hayek demanded the dethronement of the unions and dismantling the welfare state. These demands became “historically powerful” through the liberalization of the financial markets demanded by neoliberal economists, above all by abandoning stable exchange rates and low interest rates.
FINANCE CAPITALISM BOOMS
Finance capitalism established itself. At the same time economic performance deteriorated:
• Two dollar-devaluations led to two “oil price shocks” (1973 and 1979) that triggered the first two “synchronous” recessions in industrial countries.
• The inflation that rose considerably through the “oil price shock” was fought primarily through a high interest policy at the beginning of the 1980s. Since then the interest rate has been nearly always above the growth rate.
• The development of countless financial derivatives facilitated the speculation that destabilized exchange rates, raw material prices and interest rates.
• Businesses shifted their activities from real to financial investments. Economic growth fell while unemployment and state indebtedness increased.
• Austerity policy since the beginning of the 1990s (Maastricht) put a damper on the growth dynamic while the stock exchanges boomed.
The (self-) destructive forces of finance capitalism detonated in a “quake,” the stock market crash of 2000/2003. Its systemic cause, destabilizing speculation on the “freest” markets, could not be seen with “neoliberal glasses.”
The final heyday of finance capitalism began afterwards. Stocks, real estate and raw materials boomed and a threefold crash potential developed that first activated real estate and then stock and raw material prices in 2007. From the summer of 2008, these three most important kinds of assets have been simultaneously devalued (for the first time since 1929)… Businesses and households limit their demand and the state deficit increases. Public funds are made available for bank bailouts and economic stabilization.
INTEREST-EPIDEMIC THROUGH CDS
The state debts grew most intensely in countries where a real estate bubble burst (Ireland, Great Britain and Spain) or the budget deficits were already high before the crisis (Greece and Portugal). The professional “investors” exploited this situation. Speculation with “credit default swaps” increased the loan interests dramatically to 17 percent in Greece and twelve percent in Ireland and Portugal. The interest-epidemic forced the Euro-bailout umbrella. Its help is tied to strict austerity. The afflicted countries shrivel or stagnate the more savings is ordered. As a consequence, bond interests climb higher and the epidemic now seizes Spain and Italy. At the same time leading EU actors reinterpret the finance capitalism crisis as a state-debt crisis.
Germany along with France, Holland and Austria profit from speculation against weak Euro states. An “interest-seesaw” develops. The greater the interest burden of the “miserable” states, the less the burden on the “brave” states. The division within the EU expands: Germany refuses communal solutions like Euro-bonds because the disciplinary effect of the “market” would be cancelled.
GERMANY AS DISCIPLINARIAN
Market religiosity is anchored more firmly in Germany than in any other EU country. Germany profits most from speculation against the southern countries.
In the last weeks, the interest-epidemic has dramatically strengthened, also for France, Holland and Austria. Loan interests clearly increased. Germany sits on one side of the seesaw with the rest of the EU on the other side. The economy of the EU countries is simultaneously on the way into recession. This recession will intensify into a “mild” depression lasting several years (businesses, households and the state will reduce their demand). This time Germany acts only as an economic disciplinarian and will be rewarded with interest-rebates “by the mark.” On the other hand the situation in other countries worsens through higher interests. In short, we again stand at the beginning of a depressive phase of the “long cycle.” Fighting a system crisis caused by the neoliberal ideology with means of neoliberal symptom therapy would destroy many things in Europe.
The German politicians who have to answer for this are convinced Europeans. They mean well. But whoever navigates with a wrong map steers the ship like a mad man.
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by Colin Crouch
Thursday, Jun. 13, 2019 at 6:48 PM
Market Economy: The Superrich Endanger Democracy
author: Colin Crouch e-mail:e-mail: email@example.com
It is easy to influence politics with a lot of money, and civil society is often just a nuisance. In the US, the problem is everywhere, but Europe is catching up.
There are two main reasons why many observers are beginning to question the assumption -- previously taken for granted -- that capitalism and democracy are firm allies. First, modern capitalism is global, while democracy is mainly rooted at national and more local levels. Second, modern capitalism is driven by finance, which leads to increasing inequality. Yet, high levels of inequality threaten the operation of democracy.
That globalization presents a problem for democracy is clear. Much of the global economy is unregulated, and where it is regulated, it is done so by international organizations only very indirectly answerable to democratic bodies, or by informal and usually confidential arrangements among corporations themselves.
Furthermore, transnational firms can compromise the authority of national democracy by choosing to invest only in countries that pursue policies they like. The most visible manifestation of this is the decline in taxes on corporate earnings that has taken place across the world, as governments compete to offer the most generous fiscal regimes. The result has been a shift in the burden of taxation to individual citizens and a decline in the resources available to public services.
Governments could, of course, counter these developments by joining forces to confront the corporate challenge and protect space for autonomous political decision-making, but the temptation of trying to become the country that offers corporations the most generous terms usually prevents them from doing this. The European Union is a partial exception, and its parliament is the world's only example of transnational democracy. Its impact, however, is weak, with European democracy facing two hostile forces: corporations lobbying the European Commission and individual governments at levels European Parliament cannot reach; and xenophobic populists trying to pull power away from the EU and back to the nation states. And because most populists are from the political right, they are not bothered by nations losing out to corporate power.
Corporate lobbying is so powerful at both the European and national levels because growing inequality has generally strengthened the political might of the wealthy. This is the second threat posed by contemporary capitalism to democracy.
Democracy operates in two different theatres: the formal roles played by elections and parliaments; and the informal actions of lobbying and other forms of political pressure that take place across civil society. For the former, we are careful to ensure considerable equality: one person-one vote, irrespective of wealth. Informal politics, by contrast, does not have many rules, and that is basic to its vitality and to our freedom. We can at any time use many different kinds of pressure to try to persuade governments to pursue various policies, provided we do not resort to corruption or violence. But our ability to exercise pressure depends on the resources we can command, so informal politics favors the rich, even though we all benefit from it. The equality rule that is fundamental to democracy is breached. This does not matter too much if inequality is limited, or if power exercised in one policy area cannot easily be transferred to another. This was broadly the case for the first three decades after World War II. Since then, however, inequality has been growing -- not so much in the form of inequality within the broader population, but inequality between tiny groups of the super-rich and everyone else. One needs a lot of wealth to able to wield political power, and this small group, perhaps 0.1 percent of the population, is in such a position. This degree of inequality is most prominent in the U.S., but it is spreading to Europe.
Capitalism is creating problems for the effectiveness of democracy
The main motor of this inequality is the financialization of the global economy. The ownership and manipulation of financial resources produce earnings like no other form of human activity. Having acquired vast wealth, an individual or corporation can use some of it for political lobbying purposes, and this can mean securing government actions - tax policies, regulatory changes, government contracts - that enable the wealth holder to secure even more income in the future. There is a vicious spiral linking increasing inequality to the weakening of democracy.
There is however another spiral that works in the opposite direction. Modern capitalism depends on mass consumption for its profits, and mass consumption depends on the masses having growing income. In 2014, an OECD Social, Employment and Migration Working Paper (no. 159) indicated that in the U.S., the top 1 percent of earners had captured nearly 50 percent of national income growth between 1975 and 2007 (the year before the financial crash). The great majority of wage earners had experienced static or declining incomes, and yet they continued to consume. This was possible because they took on heavy debt loads, risky behavior accepted by a financial system that had been deregulated thanks to heavy lobbying by the banks. Eventually, the burden of high-risk debt became too much for the financial markets to bear, and the crash, from which we have not yet fully recovered, took place.
Does a form of capitalism that generates increasing inequality but depends on mass consumption have any other way out of its dilemma than to encourage households to take on unsustainable levels of debt? At present, democracy seems unable to find an answer to that question. Global capitalism can only be reined in at a transnational level, while our political parties seem divided between those that have succumbed to corporate lobbying and do not believe in regulation, and those that want to retreat back to the limited reach of nationalism.
Capitalism is creating problems for the effectiveness of democracy, but capitalists have no reason to be dissatisfied with that form of government. Democracy guarantees the rule of law and clear procedures for changing the law, including lobbying for or against those proposed changes. These features are attractive to capitalists. On the other hand, though, democracy can produce a mass of regulations to protect non-market, non-corporate interests. Capitalists' preferred regime is really post-democracy, in which crucial features of democracy continue operating, including, importantly, the rule of law, but where the electorate has become passive, responding to parties' carefully managed election campaigns, but not engaging in disturbing activism, and not generating a civil society vibrant enough to produce awkward counter-lobbies that try to rival the quiet work of business interests in the corridors of government. The resurgence of nationalism creates some problems for this placid scene, but by concentrating on the nation-state, these movements do not disrupt the global level, which remains beyond their reach.
We have not yet arrived at a situation where the corporate dominance of our politics is complete; otherwise, all consumer protection and labor laws would already have been abolished. But that is where we are headed, boosted by continuing growth in inequality and the mutual reinforcement of political and economic power. Democracy in some form probably continues to be the best available shell for capitalism; but the reverse may no longer be true.
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