Osborne’s “Fiscal Charter” - an anti-democratic agenda

Osborne's charter is the latest move in a long line of reforms sharing a clear aim - to move decision making from the democratic sphere to the technocratic.

John Weeks
23 October 2015


, CC BY-NC 2.0

The tyranny of expertise

The removal of policy choices from the accountability of the electorate represents an essential element in managing the move from a democratic to an authoritarian society. An overt coup that destroys democratic debate and decision making represents the most obvious way to do this, but not the only way. 

To bring about the peaceful road to dictatorship, the elites that dominate the politics of the advanced countries have in recent decades employed a different technique, one less violent yet more effective in the long run. The prevailing neoliberal politics with its “beyond ideology” façade effects a transition from democracy to authoritarianism without formally abolishing representative institutions. 

Central to the authoritarian transition is obtaining the implicit consent of the electorate to remove major social and economic policies from public debate. This simultaneously removes them from democratic accountability. Powerful private interests have enjoyed considerable success in their campaign to obtain public surrender of democratic decision making.

The most important tactic to achieve this surrender involves convincing the electorate that assessment of policies, especially those that threaten the power of the wealthy, requires the expert knowledge of a select few. The tactic aims to convince the public that throwing contentious issues open to public debate and accountability would result in the egregious sin of “populism” and “populist politicians”. 

When the citizenry accepts the Principle of Expertise a powerful form of censorship results. This is the principle that experts offer informed solutions that serve the general interest, while the untutored public babbles foolish nonsense derived from self-interest and ignorance. “Populism”, once the proud domain of the many challenging the few, through the lens of the Principle of Expertise becomes the vulgar expression of the base urges of the masses (for example, the anti-monopolies US Populist Party at the turn of the 20th century).

The Principle of Expertise seeks to alienate the citizen from the policies that constrain and control her/his life. The word “alienation” applies in the strict sense. The rules and regulations that determine how a person pursues a livelihood, obtains the means of collective reproduction and responds to the ills of society appear to the individual as things rather than what they are, social relations established through collective interaction (analogously to the fetishism of commodities in Marx’s Capital). 

Policies that determine social interaction confront the individual as separate from her/himself, established through an expertise beyond individual or collective comprehension. Policy experts function like priests; they are the intermediaries between the ruling elite and the uncomprehending masses.

Alienation of economic policy - victory to currency speculators

The foremost successes of the Principle of Expertise have come in economic policy.  The alienation of economic policy is both explicit and applauded as a benefit to society as a whole, not just the rich and powerful. Prior to the neoliberal era, during what some called the Capitalist Golden Age (1945-1975), debate over economic policy in the advanced market economies involved how to balance the interaction of policy instruments.

At the level of the economy as a whole, governments had instruments to manage three policy areas, foreign trade and capital flows, money and banking, and spending and taxation. The ideological role of experts in debates over appropriate policies in each of the three areas was quite different and less pernicious during the “golden age” than under today's neoliberal regime. In great part this less pernicious role resulted from the strength of trade unions, which fielded their own experts in policy debates. 

Policy debate before the neoliberal era frequently invoked the cliché “who decides when experts disagree”? While in practice power and wealth went far to answer that question, the conflict of experts made it almost impossible to remove policy decisions from public discussion. Even more important, disagreement among experts necessarily implied that non-experts would make public decisions – elected officials, or bureaucrats subject to the scrutiny of elected officials.

The end of the post-war system of fixed exchange rates among countries resulted in the first major alienation of economic policy from public accountability. Fixed exchanges severely limited the opportunity for international financial speculation, and, therefore, the growth of finance capital. In 1970 the US government unilaterally withdrew from the international treaty maintaining fixed exchange rates (Bretton Woods agreement), generating severe instability in international finance.

The instability prompted a system of notionally “flexible” exchange rates; i.e. currency rates de-linked from any real economic process. In this emergent regime the exchange rate of each country would move against all others, allegedly in response to national economic variables. Within this new ideology of exchange rates arose two concepts extremely important to the coming triumph of a neoliberal political regime, “economic fundamentals” and its witch’s familiar, the TINA principle (“there-is-no-alternative”).

With financial capital now liberated to speculate without practical constraint on currencies, its apologists argued that each country’s exchange rate would reflect the national “economic fundamentals”.  If “sound”, these fundamentals would ensure national and international economic stability. Neoliberal ideology would specify these “fundamentals” – balanced budgets in the public sector, low inflation and deregulation of financial capital, all to ensure that markets functioned “efficiently”.

Those that objected to this package of reactionary policies were told that in the post-Bretton Woods era governments could no longer maintain a fixed exchange rate – “there-is-no-alternative” to the rule of financial capital in international markets.  Previously a subject of debate among politicians accountable to their electorates, the national currency rate became the territory of speculators. 

Financial capital could carry on its destabilizing speculation Teflon-free of criticism or scrutiny, their profit-taking justified as the efficient working of markets. The exchange rate moved into a government-free zone, no longer an instrument of public policy because of the TINA principle. Any observed instability resulted not from private capital but from the failure of governments to maintain “economic fundamentals”.

Bankers seize central banks

After the alienation from public accountability of trade and capital flows policies, the seizure of monetary policy by financial interests followed quickly. Before the neoliberal ascendancy in most advanced market economies, political debate raged over the behaviour of the financial sector, including access to credit. 

In the United States for one hundred years and in most elections candidates clashed publicly over banking and credit policy (most famously in the presidential campaigns of William Jennings Bryan). In Britain one of the great radical reforms of the 1945 Labour government was the nationalisation of the Bank of England, which had been privately owned since it was established in 1694. 

One of the explicit purposes of the nationalisation was to bring the bank under the control of the elected government in order to facilitate the coordination of monetary and fiscal policy. The nationalisation converted the bank into an instrument of government policy, with its policies dictated by the prime minister and the chancellor.

During the 1970s arguments for central bank “independence” gathered pace. These arguments were explicitly anti-democratic. They maintained that monetary policy must be insulated from political influence, and public scrutiny minimized.  Technically sound economic theory dictated proper conduct of monetary policy.  Political influence would represent either feckless populism or a diversion from correct policy in response to special interests.

By the 1990s “independence” became mainstream dogma, with its opponents attacked as populists whose foolishness would generate uncontrolled inflation. Immediately after the election of 1997 the new Labour chancellor “granted” the Bank of England independence from the Treasury, reversing the radical reform of his own party that had been accepted by all British governments for forty years. In the place of accountability to elected officials the chancellor created a committee of “experts” to advise the governor of the bank (the Monetary Policy Committee).

In 1998 the elites governing the European Union carried “independence” to its reductio ad absurdum when it created the European Central Bank. Totally unaccountable to any elected body – merely required to issue reports to the European parliament – the ECB would mock its own claims of independence in its slavish adherence to the austerity packages imposed on several EU members, most disastrously Greece. 

Locking in austerity

After taking control of the management of trade and capital flows and the banking system, financial capital faced one more major task, stamping its brand on public spending and taxation. In part the motivation to control the fiscal system represented narrow self-interest: lower taxes for the rich and the institutions keeping them rich.

But a more fundamental goal drove the neoliberal agenda for spending and taxation – the reduction in the role of the public sector, “shrinking the state”. In the 1980s those managing the presidency of Ronald Reagan developed an extremely successful way to “down-size government”. Successive reductions in corporate and personal taxes resulted in recurrent fiscal deficits. The consciously manufactured deficits were then used to justify expenditure reductions.

The justification of this cycle, lower tax, deficit, expenditure cuts, came from a fundamental fallacy, that governments should balance their budgets. Despite its technical and practical fallaciousness, the balanced budget dogma has become the key weapon in the neoliberal take over of fiscal policy.

The 1991 Treaty of Maastricht took the first major step to alienate fiscal policy from political accountability in Europe by requiring EU member governments to commit to limit budget deficits to less than 3% of gross national product. The neoliberal ideologues driving EU policy (and especially eurozone policy) would in 2011 again engage in reductio ad absurdum, requiring governments to write into their national constitutions a requirement that public budgets be balanced (the “Fiscal Pact”).

George Osborne’s “Fiscal Charter” would emulate the reactionary absurdity of the EU Fiscal Pact if Britain had a constitution immune from direct legislative alternation (a so-called written constitution). Because parliament can by simple majority repeal any law it passes previously, shadow chancellor John McDonnell correctly described Osborne’s charter as a “political stunt”.

However, it is a stunt with a serious political purpose. It seeks to alienate fiscal policy from public accountability, like in the European Union. As for the exchange rate and monetary policy, fiscal policy would become subsumed under the Principle of Expertise

An example of the re-definition of taxing and spending as outside politics occurred in the controversy over Osborne eliminating tax credits. When the Labour party leadership opposed eliminating the tax credits, a Treasury spokesman did not defend government policy on either economic or political grounds. Instead, he made the faux technical TINA argument, do Labour “propose to borrow forever, putting the economic security of working families at risk”? 

The message comes through clearly; to the public it may appear that removing tax credits reduces household disposable income, but expert opinion shows the opposite is true. The public budget must be balanced and how to achieve that balance is a technical problem for experts.

Democratic institutions, despotic rule

Defenders of democratic rights should remain vigilant to the possibility of overt overthrows of democratic systems in the neoliberal era. Of more immediate danger is the process by which entire electorates become alienated from economic and social policy. 

In Europe and North America prior to the neoliberal era democratic debate and decision making operated in a far from perfect manner. However, in the current era neoliberal elites have moved debate and decision making from imperfect to inaccessible. The neoliberal strategy of governance seeks to induce electorates to surrender willingly (if reluctantly) to a new type of oligarchic rule based on the alleged ignorance of the public and the wisdom of the expert.

Alienation from the policies that govern one’s life is objective because the mechanisms for making decisions are removed from public accountability.  Alienation is also subjective. Lack of meaningful mechanisms of public intervention induce ennui and indifference to our political system, further cementing neoliberal rule.

Therein lies the purpose of the Chancellor’s Fiscal Charter that the House of Commons recently approved.


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