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The dangerous politics of market radicalism

About the author
György Schöpflin is a member of the European parliament for Fidesz (Hungarian Civic Union). He was previously Jean Monnet professor of politics at University College London. His website is here

Most of the comment and analysis of the slow collapse of the financial industry in 2007-08 have been about economics, focusing how the crisis came about and what to do next. Yet the processes of the last twenty-five years have had profound political and social consequences as well, and these will not disappear readily. Equally, the collapse is not just about the dominance of the market, but also of the ideology that has grown up around it. It is in this sense that the world may well be moving into a wholly new phase after a transformation that is as significant as the end of communism (see Krzysztof Rybinski, " A new world order", 4 December 2008).  The book discussed in George Schőpflin's essay is György Matolcsy, Éllovasból Sereghajtó: elveszett évek krónikája [From Vanguard to Bringing Up the Rear: Chronicle of Lost Years], (Éghajlat könyvkiadó, Budapest, 2008)

Since 1945, there have been major swings in how the role of the state is to be regarded. The first decades after the war were characterised by an entrusting of the state with the welfare of society and, in effect, by using the state as a substitute for the community that supposedly provides security for the individual. This view of the state was seen as broken by the 1980s, largely because the state was seen as inefficient in guiding the economy and was acting as a brake on the freedom of the individual. This was certainly the perception in the United States and the United Kingdom, as well as in other countries of the Anglosphere.  

The solution was to withdraw the state both from its management of the economy and to some degree from regulating it as well. At the same time, there was an increased preference in economic strategy for financial services over manufacturing, indeed to some extent over the real economy. In the absence of state management and with so-called "light touch" regulation, the market was to be the instrument that would most efficiently allocate resources. This theory of the market, drawing on the ideas of Friedrich von Hayek and Milton Friedman, was dominated by the idea of equilibrium, that market activities would balance themselves out and generate positive-sum outcomes all round. 

This concept of the market as a tool became an ideology, a dogma even. The market came to be regarded as normative and as the optimal solution to the running of modern societies; the characteristic accompanying slogan, as formulated in the early 1990s, was "politics as management", which is clearly a form of depoliticisation. Among its outcomes has been the emergence of populist discourses that feed on the dissatisfaction or despair of social groups that find that neither the state nor political sphere takes any notice of them and their problems, something that is in flat contradiction to current concepts of citizenship and democracy.

The market-driven order

It should be added at this point that even while the market was legitimated as the provider of freedom, it was accompanied in much of the Anglosphere by a mounting reliance on coercive social-control mechanisms, one illustration of which is the existence of the highest levels of prison populations in the democratic world.  

George Schőpflin is a member of the European parliament for Fidesz (Hungarian Civic Union) and was Jean Monnet professor of politics at University College London

Among George Schőpflin's articles in openDemocracy:

"Hungary's cold civil war" (14 November 2006)

"The European Union's troubled birthday" (23 March 2007)

"Russia's reinvented empire" (3 May 2007)

"Turkey's crisis and the European Union" (23 July 2007)

"The new Russia: a model state" (27 February 2008)

From the perspective of society and citizenship, the market-driven order produced paradoxical outcomes, the most important of which was the withdrawal of the state from the assumption of social risk, i.e. economic crises for which the individual could make no provision by reason of inadequate information (information is always imperfect and the market does not invariably return to equilibrium state, leaving the individual significantly worse off).

This pattern of development qualitatively transformed the nature of citizenship as well. The growing income gap between rich and poor in the Anglosphere illustrates this process most vividly, with the consequence that the least successful had next to no stake in the system and felt free to engage in dysfunctional behaviour. There is also some epidemiological evidence of a correlation between perceived inequality and a rise in depressive illness (see Richard G. Wilkinson, The Impact of Inequality: How to make sick societies healthier, Routledge, 2005).

The withdrawal of political power and supervision from the market has meant the corresponding retraction of the state from framing the market, thereby leaving sizeable sections of society - especially those whose skills in this field are low - in the lurch. This withdrawal has also meant that the state could be captured by economic and financial elites with in interest in minimal state regulation, which thereby acquired the capacity to bend state regulation in their direction.

The results of the capture could mean that taxation structures could be rearranged to benefit the rich, a counter-redistribution in a word, even while potential discontent could be suppressed by the agencies of the state, thereby giving the process an air of legality. 

The political and ideological dimension of the market-as-ideology received an enormous boost from the collapse of communism, which was seen as delegitimating all forms of state activity in the economy. Then, the rise of China and India as major economic actors was interpreted as the definitive proof of the correctness of market ideology. What is fascinating intellectually about this entire pattern is its linearity, a kind of renewed faith in "progress" going along a straight line, together with its correlative disregarding all the unintended consequences of radical marketisation. 

It is further noteworthy that the alternatives, as pursued in France and Germany - where the state continued to play a far greater role in determining economic strategy and regulating the economy - were not just disregarded, but excoriated as unsuccessful and deviant, despite considerable evidence to the contrary. As with all normative belief systems, evidence that contradicts the beliefs is simply screened out - the volitive wins out over the cognitive. 

 

Also in openDemocracy on the politics of Hungary:

Roger Scruton, "Viktor Orbán's triumph" (10 April 2002)

Miklos Haraszti, "The real Viktor Orbán" (1 May 2002)

Martin Kovats, "Hungary: between ethnic community and European state" (11 December 2003)

Gabriel Partos, "Hungary: change via continuity" (7 May 2006)

Gabriel Partos, "Hungary: history's battleground" (8 November 2006)

Krzysztof Bobinski, "Hungary's 1956, central Europe's 2006: beyond illusion" (26 October 2006)

Indeed, a part of the European left, drawing on Tony Blair's so-called "third way", embraced the market with enthusiasm. So did much of the post-communist left, seeing this shift to marketisation as an excellent way of securing the gains that it made from the grey privatisations of the very late 1980s or early 1990s during the exit from communism. This shift also allowed the post-communist left to abandon its concern for society, which was in any case taken over by the emergent centre-right.  

The freedom from politics

In this light, the collapse of the market on a global scale in 2008 should be seen as epochal as the end of communism was. In essence, marketisation had become as much of an ideology as communism had been, and left and right were no longer differentiated by their sympathy or antipathy to the market. The need now is to rethink the respective roles of state and market and to create institutions that will guard against the stagnation and sclerosis produced by the state and the excesses of inequality generated by the market. 

In both domestic and international arenas, the period of extraordinary economic growth has allowed new political actors to emerge. The examples of China and India are well known, but others, especially those with extensive energy resources, are also significant, not least because these states have spent some of their new found funds on armaments, thereby affecting the regional balance of power (e.g. Venezuela and Azerbaijan).

In domestic politics, the rise or return of the "overmighty subject" has not received anything like the attention that it should have. Crucially, the overmighty subject - economic institutions deemed "too big to fail" - and its accumulation of political power have largely escaped scrutiny and so also have the changes in social attitudes that these institutions have promoted, like the acquiescence in levels of inequality not seen since before the second world war. By the same token, the arguments made in favour of "society as stakeholder" were mostly brushed off and could be ignored, precisely because of the political power wielded by these economic actors. 

Then, as argued above, the period saw the emergence of the slogan "politics as management" - a clearer illustration of depoliticisation is hard to imagine. The idea that the market is politically neutral in effect says that political forces should not intervene in regulating the market, including the consequences of introducing market values into areas traditionally exempt, basically because markets are self-correcting and will return to the optimal outcome, equilibrium.

The result of this depoliticisation, that there are key areas of activity to which political and social considerations do not apply, has been a kind of political vacuum, now increasingly occupied by populist narratives. A democracy that is notionally based on the equal access to power on the part of all citizens should have roundly rejected this depoliticisation. 

openDemocracy writers dissect the global financial crisis of 2008:

Willem Buiter, "The end of American capitalism (as we knew it)" (17 September 2008)

Ann Pettifor, "The week that changed everything" (22 September 2008)

Fred Halliday, "The revenge of ideas: Karl Polanyi and Susan Strange" (24 September 2008)

Godfrey Hodgson, "The week that democracy won" (29 September 2008)

Tony Curzon Price, "Unprincipled madness" (1 October 2008)

Grahame Thompson, "Deglobalising the crisis" (3 October 2008)

Will Hutton, "Wanted: a fairer capitalism" (6 October 2008)

Avinash Persaud, "Europe's financial crisis: the integration lesson" (7 October 2008)

Paul Rogers, "A world in flux: crisis to agency" (16 October 2008)

Andrew Dobson & David Hayes, "A politics of crisis: low-energy cosmopolitanism" (22 October 2008)

Paul Rogers, "A crisis-opportunity moment" (23 October 2008)

Mike Hulme, "Amid the financial storm: redirecting climate change" (30 October 2008)

Anita Sharma, "The core crisis: standing with the poor" (30 October 2008)

Mary Kaldor, "Crisis as prelude to a new Golden Age" (31 October 2008)

Andre Wilkens, "The global financial crisis: opportunities for change" (10 November 2008)

Simon Maxwell & Dirk Messner, "A new global order: Bretton Woods II...and San Francisco II" (11 November 2008)

Gerry Hassan & Anthony Barnett, "Britain's neo-liberal state" (29 November 2008)

Krzysztof Rybinski, "A new world order" (4 December 2008)

The ideals of egalitarianism, social solidarity and social justice have been badly bruised in this process. The major income inequalities that have resulted have simultaneously affected the life-chances of significant sections of society and have left them without much of a stake in the system, especially where cumulative losers are concerned. Then, the complexity of "money" and the various financial instruments that have been devised, together with the specialised language used, have resulted in a cognitive, semantic and intellectual deficit, even among the politically most conscious sections of society. This has added to the "freedom from politics" that economic actors have enjoyed. This "freedom" has necessarily changed the nature of political leadership as well, so that political actors have accumulated a kind of deficit with respect to society. 

The dialectics of inequality

Outside the well-established and thus properly policed rule-of-law states, the enormous quantities of suddenly acquired money have generated corruption, the emergence of rent-seeking elites and often enough a relationship with criminal mafias. In these states, the power and legal forms of the state have been used to settle accounts with political opponents and with critics of the system; the imprisonment of Mikhail Khodorkovsky in Russia is the most publicised case, but there are many others.

The rule-of-law states have been, in effect, complicit in these processes by allowing the secure western banking system to be used for parking the semi-legally acquired wealth of, for example, Russian oligarchs. In turn, the accumulation of this wealth has also allowed political actors, usually close to the state, to penetrate western societies and to purchase influence, authority and thereby power to promote their own interests. 

The meanings of "left" and "right", let alone "centre", have - as already noted - become hopelessly tangled as a result of the hegemony of the market and the extension of the market into areas hitherto protected from it, like health and education. Historically, the right argued in favour of framing the market - l'encadrement du marché - in a state managed by a highly skilled technocratic elite, albeit under a degree of political control, while coupling this with social solidarity managed by the state. The left sought to bring about egalitarian outcomes through social engineering and disliked the market as the generator of inequality.

Under market radicalism, both left and right have perforce redefined their respective roles with respect to society, albeit with marked differences between the United Kingdom and the continental states. Hence both left and right, having to some degree accepted the autonomy of the market as somehow inevitable, have ended up with negative cultural capital for the future. However, a certain consensus over the revival of the role of the state, its capacity and assumption of risk should now be feasible. A consensus of this kind is a necessary condition for an effective democracy. 

The enormous growth of the period since the early 1980s years have empowered some and disempowered other sections of society, often without any clear explanation for why and whether this redistribution by the market was justified. One of the beneficaries of growth has been civil society, which has been able to tap into some of the profits generated by the private sector and thereby acquired the resources to function as a pressure group. On the other hand, this has also meant that civil society has had a complex relationship with its sponsors, potentially inhibiting it from excessive criticism. Equally, the growth process has allowed the state to exit from some its functions in education, like the financing of blue-skies research. Those who have drawn the short straw, however, have been the weakest, with neither a private sponsor nor a political force to give them voice nor the state assuming responsibility for them. 

What follows from the foregoing is that where the health of democracy is concerned, the importance of autonomous actors independent of the market, cannot be overstated. The continuous monitoring of social and economic processes, coupled with a culture of responsibility and accountability among those who exercise power is a sine qua non. These autonomous actors should monitor the markets, but without an interest in market outcomes. The legal system has a major role to play here and historically it has depended on an explicit professional ethos to sustain its autonomy and authority, but attacks on all the professions has been highly damaging. The basis of the attack is derived from the belief that human beings are impelled to act by their economic interests and only by their economic interests.

This is not only a profoundly narrow and misleading idea of the individual, but to some extent became a self-fulfilling prophecy, so that if everyone assumed that what moved you was greed, then you could cast your scruples and misgivings aside and behave accordingly. To escape this particular blind alley will not be easy, as an entire generation has come to believe this misleading model. 

A Hungarian case-study

Against this background, the fate of individual countries acquires added significance. This makes György Matolcsy's new book - Éllovasból Sereghajtó: elveszett évek krónikája (best translated as From Vanguard to Bringing Up the Rear: Chronicle of Lost Years) - particularly timely. Hungary provides a vivid case study of the impact of these global processes in a semi-developed country with a ruling elite that is incompetent and dogmatic.

György Matolcsy was economics minister in the 1998-2002 centre-right Fidesz government in Hungary (under whose colours, to declare an interest, Hungarian voters elected me in 2004 to represent them in the European parliament); in his book, he tries to account for the dismal failure of the three centre-left coalitions that have been in power since 2002.  

The figures - there are twenty pages of statistical tables and pie-charts in the book - are devastating. Hungary, having been well placed to join the eurozone by around 2007-08, after the centre-left took over, found its entry effectively postponed to an uncertain date, so that even 2014 now seems optimistic. Slovakia was performing a little below Hungary in GDP per capita in 2002 and is now well ahead; indeed Estonia has also overtaken Hungary, actually from a rather lower baseline. Slovakia will join the eurozone in 2009. There is growing poverty in Hungary and the country's international indebtedness has become dangerously high, which is one of the reasons for the IMF and European Central Bank rescue packages of October 2008. 

Matolcsy carefully itemises the gross errors made by the three centre-left governments in their economic strategy. He sees the gravest fault in the decision to concentrate on financial policies and marketisation in an economy which was quite unable to cope with the consequences. In sum, the Hungarian economy is marked by a structural duality. Around one-third of the economy is up to international standard and is generally competitive in global terms. Two-thirds, however, is undercapitalised and lacks the know-how and intellectual capital to cope with international competition; unfortunately, this is mostly made up of the small and medium-sized enterprises (SMEs) that are the backbone of the real economy and are the most effective source of employment.

It is increasingly common to find half-completed construction projects in Budapest that have been suspended or abandoned because the builder has run out of money. An analogous duality can be found, argues György Matolcsy, in most spheres of Hungarian life - in education, in health provision, in the state administration, in social life. The government has done nothing to ease this duality and to bring the backward sectors, the legacy of communism, up to European levels. 

The centre-left government, however, driven by its market radicalism simply left the SMEs to the vagaries of the market and, indeed, contributed to their exit in many cases by introducing a counter-productive tax structure that exacerbated their under-capitalisation, as well as loading them with an unsustainable compliance regime and constant inspections. Many have simply given up, thereby diminishing the economically active population (the lowest in the European Union, at 56%; in the Czech Republic, which is comparable to Hungary in size, the figure is around 70%).

To this may be added the oversized public administration, which employs around 840,000 persons, large for a population of around10 million; under the Fidesz government, this figure fell to 790,000, but the centre-left quickly inflated it. This helps to account for constant government overspending and an increasingly complex bureaucratic regime that hinders economic activity. 

Matolcsy explains the grievous errors of the centre-left by the interplay of a number of factors. The first is that the sense of legitimacy of the centre-left, being a communist successor party, was low, so that it felt that it had to return to the policy of handouts inherited from the communist period to buy popular support. This meant that it could never tackle the over-generous state-pension scheme, which allows for the early retirement of a sizeable section of the active population.

The second factor is that in consequence it never sought to build a national consensus around an economic or social strategy, so that it was always acting in the teeth of considerable social disapproval, which spilled over into passive resistance, like the very low tax morale.

The third is that this led the centre-left to rely heavily on western support, especially that of the European left - always happy to support a government that called itself socialist, regardless of what it did (the Robert Fico government in Slovakia is an example) - and on the international financial markets. These were ready to buy Hungarian treasury bonds as long as there was excess finance in the world system, but it is precisely the drying up of credit that precipitated the crisis of October 2008.

The fourth factor was the reliance on financial rather than economic principles for the running of the economy, marked by the victory of the ministry of finance over economics (the latter was abolished).

The fifth is that foreign enterprises were by 2006 repatriating nearly three-quarters of the profit they earned in Hungary, the result of growing political and economic uncertainty.

The sixth is that as the centre-left governments found themselves in ever greater difficulty - growing foreign debt, shrinking tax base - they resorted to constant short-term course-corrections aimed at re-establishing an equilibrium, but these were never thought through and simply added to the uncertainty. 

A triple chasm

In many ways, Hungary has been a victim of its own government's mismanagement of the economy, which the budget approved by parliament in Budapest on 15 December 2008 offers little prospect of rectifying. But this was something that it could persist with, not least because the international environment was prepared to look the other way; moreover, attuned as this environment has been to short-term profit, it was quite prepared to put up with, even support, a dysfunctional government. When the government in question relied on a communicative strategy that emphasised its openness to market solutions and the privatisation of anything that moved, it could rely on ongoing international backing, regardless of the consequences for Hungary and Hungarian society. In many ways, the Hungarian story can be seen as illustrating the growing gap between form and substance, with too many prepared to go by the form, rather than the substance.

The centre-left government illustrates another proposition dear to the heart of political scientists - the tension between structure and agency. The years 2002-08 in Hungary demonstrate that there most certainly is agency in the world and that structures can be ignored, destroyed or shifted in the favour of the agent; unfortunately, while the government has revelled in its agency, it has deprived the citizens of Hungary of their agency and left them at the mercy of forces that they cannot easily understand and in the face of which they are helpless, even while the global collapse of the ideology radical marketisation has brought the day of reckoning much closer than those in power thought. 

Hungary is many respects an extreme case - Matolcsy's title makes this clear - but that offers a copy-book example of what market radicalism can do to economically weak and politically ineptly-led countries. The upshot has been to degrade citizenship and democracy, to reduce sizeable sections of the population to near-poverty and to ensure that Hungary will long be a laggard in the European Union. Hungary is not a "developing" country, though sections of the population are not far from economic and intellectual poverty, but the combination of market radicalism and government's readiness to surf the globalising waves have had consequences that are familiar outside Europe. The gap between rich and poor has grown, sections of the population have become vulnerable to populist discourses and democratic institutions are downgraded. Both economic and political perspectives are gloomy for a considerable period of time to come, and not just in Hungary. 

The state reconfigured

There are, however, issues raised by the pattern sketched here that demand further analysis - above all, what to do with the modern democratic state. The state basically faces a twofold challenge. The first part is not to withdraw too far from society and thereby let the "overmighty subject" exercise excessive power; this is what seems to have happened in the last generation. The second is not to allow the state too much latitude, so that it establishes itself with too much power over society.

Hence reconfiguring the state will require not only a good deal of rethinking, but also the recognition that an effective state demands flexibility coupled with certainty - definitely a very hard act to sustain, since all systems of power, state administrations very much included, have a clear tendency to become routinised, to insist that they and only they know the answers. 

Thus the re-empowerment of the state in the area of economic policy does not come without risk. Central in this context is the extent to which the state re-establishes - in some cases reinforces - its autonomy over society, including the elected representatives of society. The state may be knowledgeable for certain purposes, but it cannot be allowed to create an etatic monoculture - bureaucratic despotism - of its own. It should be added here that state administrations are not all alike and some have a corporate culture that makes them relatively more responsive, but this can never mean that the state alone should decide on its own benchmarking, its own standards for assessing its performance, its success and failure criteria. 

The critiques of etatism of the 1980s have not lost all their validity, therefore. In common with all concentrations of power, the state will seek to maximise the power that it has, to establish a monopoly over the legitimation of that power and to marginalise critics. A balance has to be struck and this requires agencies independent of the state to challenge the potential monoculture that states try continuously to bring into being. 

This does raise a different point. Who should be the guardians who will watch over these guardians (or, as in the Latin phrase, quis custodiet ipsos custodes)? The last few years have seen the spread of the discourse of "non-elected judges" who exercise power - by implication - without legitimacy. I suspect that those who use it have never asked themselves whether they would like sentences to be handed down by elected judges - I certainly would not. And if we immerse ourselves in the elected/non-elected discourse, then where should it stop? (On a personal note: I have actually been elected, but I doubt if that process alone makes me a superior analyst of politics.)

Should we also talk about non-elected journalists, non-elected bankers, non-elected civil servants or, who knows, non-elected dentists (no, no, no)? The point is that all these actors have the power than comes from specialised knowledge, but does electing them improve their skills or judgment? I doubt it somehow. The implication is that the bearers of specialised knowledge should indeed have the possibility of acting on state activity, but that their activities must take place with maximum transparency. 

The central argument here is that elections are not enough. If one accepts that systems of power are continuously looking to extend their dominance, then elections on their own are not enough to guarantee that this power will be used responsibly and responsively. The holders of power must be kept under scrutiny at all times. Yet a great deal of political analysis turns on the proposition that elections are a sufficient condition for democracy, even when evidence to the contrary is overwhelming - Slobodan Milosevic in Serbia, Vladimir Putin's Russia, Hamas and other instances are quite clear on this. Hence the need for a democratic infrastructure, which at a minimum must include transparency, accountability, self-limitation, feedback between rulers and ruled, rule of law and institutions with their own autonomous authority with a watching brief over the state's exercise of power.

A post-2008 project

The example of Hungary illustrates this proposition as well, not merely that incompetence in running the economy has highly deleterious consequences. 

In looking at possible outlines of a post-2008-crisis state, the heart of the problem that it will have to address is the entity already mentioned, the overmighty subject, in this case, the financial institutions deemed to be "too big to fail".

Whatever regulatory regime is established, preventing the emergence or re-emergence of such bodies must be central and, given climate change, targeting these bodies with an added green agenda in mind would help with its legitimacy, in order to offset the dominance of capital. Ultimately, the ideal should be that no one agenda ever again establishes the dominance that capital has done over the last two decades, because, as we have seen, that dominance goes hand-in-hand with an accumulation of power that should be unacceptable in a democratic system.

The hegemony of capital and the patterns of discourse associated with it - for example, "globalisation is good for you" - were so powerful that they could effectively suppress or marginalise voices that said something else. The cold war was uncomfortable, even dangerous, but it did ensure that neither liberalism nor Marxism acquired dominance, though both tried hard. The victory of liberalism was immediately followed by the capture of liberalism itself, by those who reduced it to an overwhelmingly economic reading of it - the tragedy that precedes farce, as Marx might have said (the farce has still to arrive) - in as much as neo-liberalism took over the economy-centredness of Marxism and successfully reproduced its worst features, above all the marginalisation of politics, which cannot just be "politics as management".  

What follows from the foregoing is the need for innovative thinking to debate the post-2008 state. This project will certainly encounter resistance from many quarters, but it is evident that change is inevitable and, therefore, should not be undertaken haphazardly. For a start, there should be some clarity about a range of state capacities: what the state does well and what it does badly; what constitutes effective state capacity; the degree of openness of the state administration and its unacceptable tendency to secretiveness; the readiness of the state to act as the representative of society as the stakeholders in what the state does; the extent of political responsibility of non-elected political actors; the institutions needed to sustain transparency and accountability; centralisation vs decentralisation; equality and inequality within society.

All this, as well as the responses required by the current crisis in the financial sector. It is a big agenda. The way it is addressed will shape the future of societies in Europe and beyond for decades to come.


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