The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear. Antonio Gramsci, Prison Notebooks (1929 -1935)
The social crisis ravaging our societies today has two curious features. The first is that it was not triggered by an economic crisis and therefore, was perfectly avoidable. The second oddity is that the social destitution that is setting in is not triggering a crisis of capitalism. I will argue that rather than being in crisis, capitalism is consolidating – and intellectual critique and political protest, unwittingly, are facilitating this consolidation into what I will describe as a new, post-neoliberal form. Moreover, against common complaints attributing the social crisis to technocracy’s assault against democracy, in what follows, I will attribute the crisis to the withdrawal of the state’s social responsibility that democratic publics have allowed. Thus, ultimately, democratic politics have issued socially irresponsible rule that is the fundamental source of our societies’ current predicament.
From financial crisis to social crisis
The current social crisis was not generated by economic crisis – that is, by a decline in business activity and general prosperity, for instance due to the outsourcing of essential production to Asia in conditions of globally integrated markets. Neither is the social crisis brought on by profligacy, as it is now widely asserted. Spain and Ireland stood out for their low ratios of debt to gross domestic product five years ago, with ratios well below Germany’s. The current social affliction has instead been triggered by the manner in which public authorities chose to deal with the financial crisis of 2008.
The reasons for the financial crisis have much to do with what I call the "commodification of risk" – that is, the capacity of financial institutions to produce and sell risk (in the form of leveraged financial products) to investors – a practice made possible by the privatization and deregulation of banks that governments undertook in the first decade of our century. When the risk accumulated by financial institutions exploded, public authorities opted for avoiding an economic crisis triggered by bank collapse in the style of the early 1930s, and undertook a publicly funded bank bailout. The recapitalization of financial institutions with public money, while the ownership of these institutions in most cases remained in private hands, amounted to allocation of investment risk to society while the opportunities for returns on investment remained in the hands of bank managers and bank shareholders. It is this squandering of public funds that is now triggering a social crisis as governments are cutting down essential social services (especially funds for health and education) in order to restore balance to government finances. This is how the governments of the most mature democracies known in history so far (in Europe and North America) have turned the financial crisis into a social crisis.
The complicity of public protest and social critique
The second curious feature of the social crisis, as I mentioned, is its failure to trigger a crisis of capitalism. Notwithstanding growing public discontent expressed in street protests and banker-bashing, society bears the pain with relative equanimity. Note, for instance, that broad public preferences, as expressed in elections in the course of the five years since the onset of the financial meltdown, have borne witness to the fact that neoliberal capitalism enjoys considerable popular support. With the exception of the recent elections in France, the vote in Europe has gone to the right (to the parties most openly advocating neoliberal economic policy), support to left parties has been at a historic low, while public frustration is mainly expressed in electoral support for extreme-right populist formations.
The way in which public anger has been formulated is also indicative of a lack of principled rejection of neoliberal capitalism as a socio-economic system (in the way the protest of the 1960s had been a radical rejection of the system and its attendant life-style). Social protest is being expressed as (1) rejection of austerity policy, (2) an outrage against growing inequality, and (3) the alleged highjacking of democracy by technocratic elites (mostly on account of the emergency appointments by EU authorities of two heads of governments - Lucas Papandreou in Greece and Mario Monti in Italy - tasking them with the enforcement of austerity measures). I want to question the pertinence of these three trajectories of social protest and critique.
Let us look at the street protests. The rallies of the Spanish indignados, citizens’ fury against the austerity measures the EU and the IMF imposed in the financial bailout of the Greek government, the Occupy Wall Street movements, and the looting that has ravaged English cities – have all signalled growing popular discontent with the dramatically uneven allocation of wealth and increasing social exclusion. “We are not against the system but the system is against us,” announced a slogan of the indignados. Yet this cry of protest is ambiguous – it is an appeal to hold capitalism to its promise for ever rising living standards, rather than a rejection of the way we produce and consume, a cry for the taming of the system to make it more inclusive, rather than to subvert or overthrow it. It is telling that, in an op-ed article in the FT, the Occupy London members quoted Hayek, rather than Marx.
Particularly worrying in the current stance of social critique and public protest is the reduction of issues of social justice to either one of retributive justice (that is, liable to civil or criminal litigation) or of distributive justice. Let me explain.
Take first the popular moral indignation with greedy bankers and the criminalization of allegedly reckless wealth-accumulation. Alongside the prosecution of traders and bankers, one example of this juridification of the problem is the indictment against the former prime Minister of Iceland, Geir Haarde, in September 2011 on criminal charges that his government failed to avert the financial catastrophe. This juridification of the problem mispresents the social injustice generated by the operative logic of capitalism (in the case of banking – the fact that banks can exploit their privileged knowledge and capacity to create profit) as an issue of either supervisory failure (and therefore an object of civil litigation), or personal abuse (an object of criminal prosecution). Bankers will be shamed, bonuses will be waived, some will be dismissed, and a few even imprisoned, to be replaced by new ones playing the same game. In the wake of the Libor rate-fixing scandal, George Osborne, chimed with public outrange as he reprimanded bankers for their culture of “systematic greed” (the culture had to take the blame, as no law was broken). If bankers are to be motivated not by greed, but by serving the public interest, shouldn’t banks be public institutions?
Meanwhile, the outcries against austerity and the calls for growth now expressed both in street protests and in voting booths are the grievances of distressed consumers appealing for a fairer distribution of resources, not of citizens demanding new rules of the game – rules able to ensure sustainable living for all (for instance, by reduced economic competition, job sharing, curtailing advertising, public control of systemically important industries). At policy level, François Hollande’s ‘maverick’ proposal for a Growth Pact has none of the magnitude of 1930s Public Works Administration in the US.
Within the logic of prevailing public protest and policy action, it appears that the remedy does not require a radical redesign of the political economy of modern societies (that is, of the system of ownership, production, management, exchange, distribution and consumption), but only remedial measures – such as the penalisation of abuses of the existing system, fixing mismanagement, and redistributing wealth (in itself a remedial measure, like an aspirin for a headache caused by stress). As much as wealth redistribution is a needed short-term measure in alleviating the social suffering caused by the economic crisis, in the longer term it can neither offset nor sufficiently compensate for the production of social risk that contemporary capitalism generates. (In conditions of globally integrated markets, public authorities do not have the capacity to impose the rate of taxation needed to fund a social safety net. Neither can they continue to rely on borrowing, after the recent sovereign debt crisis).
It is to a great extent due to the weak response from society that neoliberal capitalism is consolidating further, as governments are imposing exactly the ruinous policies that were at the root of the financial crisis – namely further privatization of the economy, liberalization and deregulation of product and labour markets (allegedly, for the sake of a return to growth), and reducing social provision, while the European Union, in the form of the new Fiscal Pact, is further consolidating the institutional framework of the neoliberal economic logic that engendered the current crisis in Europe.
Both public policy and public protest are being enacted more by force of paralysis than judgment. Citizens and public authorities in Europe are equally trapped in what Kant called “the scandal of reason”: reason’s tendency to get entangled it its own contradictions and thereby fall prey either to dogma or to doubt - in the case at hand, to the neoliberal dogma of supply-side economic policy that permeates both the calls for austerity and those for growth, together with the anxiety that motivates public protest but does not allow it to go beyond calls against austerity and ‘fair capitalism’). Even when it is giving expression to valid grievances, public protest, with its insistence on a return to growth (which is likely to be the jobless growth we had before the financial crisis) is only giving added legitimacy to capitalism, while directing attention away from the roots of the social crisis.
What are the roots of the social crisis?
As an entry point to answering this question I will take the rise of xenophobia – one of the “morbid symptoms” (Gramsci) of Europe’s current social malaise. Significantly, the rise of popular support to populist formations did not begin during the economic crisis, it preceded it: anti-immigration populist parties had already begun to mobilise in the affluent nineties in conditions of good economic growth and low unemployment. However, while neoliberal economic policy (that reduces the social safety net for the sake of increased competitiveness) and open markets were effectively generating affluence in what Joseph Stiglitz called “the roaring nineties”, they were also creating a substantial threat to livelihoods – prospects for job losses or reduced income due to employment flexibilization, job outsourcing, or loss of jobs to immigrants. Xenophobic parties were feeding on the sense of uncertainty globalisation was creating - anxiety based on perceptions of physical insecurity, political disorder, cultural estrangement, and employment insecurity (the ingredients of a new order-and-security public agenda that emerged in the 1990s). In this sense we can speak of the novel nature of the current wave of xenophobia in Europe – in contrast to the political and cultural obsessions of ‘classical’ (twentieth century) xenophobia, which called for political sovereignty and cultural purity. Now, we are witnessing the phenomenon of economic xenophobia whose main preoccupation is the preservation of social and economic wellbeing. In this sense it is telling that recently Steeve Briois, the French Front National’s general secretary, accused Jean-Luc Melanchon, president of Front de Gauche, of having pro-immigrant positions, and of being the enemy of the “working people”, rather than of the “French people”, as would have been the case 20 years ago.
The phenomenon of economic xenophobia is a symptom of a larger transformation of the relationship between democracy and capitalism into a new, postneoliberal form, to replace the neoliberal capitalism of the 1980s and 1990s. In the new modality, the imperative of capital accumulation on a global scale, via integrated domestic markets, has been translated into a policy imperative for global competitiveness (rather than simply competition), which has changed important facets of the social contract.
Under the imperative of competitiveness, competition has been sacrificed to allow the privatization of economic sectors that cannot be properly exposed to competition (such as energy infrastructure, rail transportation, broadband), thus giving their owners the privileged status of rentiers – a status marked by reduced risk (due to low exposure to competition) and high earnings.
In the course of these dynamics, the role of political authority in Europe has altered. Governments have been undertaking ever more action to enhance market efficiency (for the sake of global competitiveness), with dramatic increase in social risk, but this same public authority has ceased to assume responsibility for the generated risk (via the provision of a social safety net, as did the post WWII welfare state). With these processes, raison d’économie is given the status of raison d’état – public authority becomes exclusively committed to economic imperatives which trump all social imperatives (of social integration and human development). Note, however, that the policies engendering this situation were not imposed by technocratic elites, but by democratically elected center-right and center-left governments over the course of the past two decades.
Rather than a retrenchment of the state, we have the new phenomenon of increase in the power of governing bodies (and their capacity to inflict social harm), while their responsibility for the social consequences of policy action decreases. Thus, justifying neo-liberal economic policy with the allegedly inevitable nature of globalisation, public authority in recent years has effectively managed to redefine its relationship with citizens: functions linked to the provision of social rights have all but exited this relationship. The state has assumed a new redistributive role: it intervenes to help individual capitalists enhance their competitiveness, not to compensate the weak, and not even to save capitalism (by enforcing competition). As matters of social safety leave the agenda of public debate, they stand beyond the scope of political contestation. Public authority is free to cause social harm for which it does not assume responsibility, as the very publics who are suffering these effects have absolved it from responsibility. Democratic, responsive power has thus granted legitimacy to socially irresponsible form of rule. There is no legitimacy crisis of the system, no mass-scale revolts questioning the very logic and ethos of democratic capitalism (of the magnitude of the social protest in the late 1960s), because the very social contract has been altered to exclude issues of social safety from the public authority’s range of responsibility.
If this hypothesis is correct, then growing impoverishment and inequality are not causes, but symptoms of the social malaise and therefore it will be insufficient to advocate a return to redistribution. Telling in this respect is the fact that ‘economic xenophobia’ is thriving in relatively rich and egalitarian countries such as Switzerland, France, the Netherlands, Sweden and Finland. The cause of anxiety is economic insecurity: perceptions of threat to livelihood – which affect the poor and the affluent alike, in degrees equivalent to their exposure to risk. To repeat - the economic policy engendering these anxieties was not imposed by technocratic elites, but by democratically elected centre-right and centre-left governments. It is in this sense that I find public outrage against inequality and technocratic onslaught against democracy to be missing the point, even if they are expressing valid grievances.
What would socially responsible rule imply?
How can the capacity of public authorities for social policy be regenerated?
If the cause of the social crisis in Europe are the policies of economic insecurity (a maximization of opportunities and risks for the sake of competitiveness), the remedy must be sought in the vicinity of designing a ‘political economy of trust’. The ‘roaring nineties’ combined reduced social charges on business (thus stimulating private enterprise), low levels of taxation (thus fostering consumption), with a relatively generous social provision – a synergy made possible through borrowing. Borrowing, it is becoming clear, is no longer an option. But neither is austerity and fiscal stringency – they reduce incomes, which in turn harms purchasing power and limits the capacity to pay debts. Moreover, the increase in taxation on the wealthy (in the spirit of Francois Hollande’s proposal to impose a marginal 75 per cent tax rate on incomes over 1m euro), would not be sufficient. Most entrepreneurs will not be affected, as they do not amass their wealth in the form of earned income, let alone bonuses. If borrowing and taxation are either untenable or insufficient means for providing the needed funds for social policy, an alternative option would be to reverse the extreme marketisation of the economy by socialising the rents private companies are exploiting – for instance by placing these sectors of the economy in public hands, or by ‘softer’ means such as increased taxation on such businesses (such as the proposed financial transaction tax, which is intended to fund a EU-wide banking insurance). The revenues thus accrued could be used for funding a social safety net – preferably in a European Social Stability Facility (to echo the Financial Stability Facility). This would begin to remedy the discrepancy between the public absorption of risk and the private accumulation of opportunities, and the state’s lack of resources for social policy.
Yet, not even leftist parties are proposing the de-privatisation of parts of the economy, thus failing to pursue a genuine left agenda exactly when the time seems to be ripe for it. This is an illustration of what I call ‘the paradox of judgment’ – the more grand our ideals are (vested in the mantras of capitalism, socialism, democracy), the less useful they are in alleviating social suffering. However, if we were to reduce our ambitions for justice (by, say, seeking a more short-term solution, such as attenuating public anger by shutting immigrants out, by suing bankers, or taxing the rich), the further away we would drift from treating the causes of the social malaise, rather than only its symptoms. A pragmatic approach must remain focused on the structural roots of injustice, shunning equally the ideological labels that attract us, as much as those that repulse us.
 “How Hayek helped us to find capitalism’s flaws”, by Occupy London, The Financial Times, January 25, 2012.
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