Among other symptoms, the current global financial crisis will result in realignment of the political and financial elites, the latter of which are seeing their role diminished symbolically so far, while the former are managing pressures from disparate social groups demanding immediate and effective solutions to the crisis. The need for realignment is not only that the state has become the economy’s only safety net and main engine of growth, but the private sector having squandered the state’s trust and peoples’ money has no choice but to seek state patronage as the price that must be paid for using bailout funds.
Of course, throughout the history of capitalism in the past 500 years, the state redistributes income from the lower classes to the upper. Bailouts are only another layer of redistribution the state appropriates from the masses to strengthen financial elites. During the transition from the manorial economy to mercantile capitalism (1450-1650), when both aristocracy and bourgeoisie accepted absolute monarchy first in England under the Tudor monarchy and eventually on the continent, statism was a way to engender stability and order.
Capitalists realize today as they did 100 years ago that it isn’t only the emperor who has no clothes but the banker and the corporate CEO standing completely naked with millions in salary compensation and bonuses thanks to a political regime that works for them. All that concentrated wealth in the hands of the financial elites with the state’s intervention the instrument of income redistribution, and what do they have to show for it but a global crisis and social and geographic inequality that increases with each crisis cycle?
The state desperately tries to protect capitalists’ nakedness of rapacious greed that exacerbates social injustice. Operating under the assumption that the existing social order can be stabilized without changes in the system, the political elites are essentially serving the best interests of the financial elites, which in some cases (for example, Silvio Berlusconi) are one and the same thing. Empirical evidence contradicts the assumptions of the state during the current mini-depression that Allen Greenspan now believes may be more serious in some respects than the Great Depression.
Should the millions unemployed thank Mr. Greenspan for this warning, or ask about his part in acquiescently serving the financial elites while he was FED chair? Not that Europe is doing much better. Moody’s has just sounded the alarm for Eastern Europe, where banks of seven west European countries are heavily exposed. The cost to bail out Eastern Europe may be between $600 billion to $800 billion, subject to revisions. What countries should pay for Eastern Europe, and what do consortium creditors receive in return for their credit in these hard times when some politicians and trade unionists are thinking protectionism?
The same question applies to underdeveloped and semi-developed countries in need of credit. Some banks have extended loans that amount between 200 and 500 percent above deposits in Eastern Europe, and the same holds true for banks in Third World countries–all following the US lending model. The EU and IMF are advising debtor countries to embrace modified “austerity programs” in order to secure currency stabilization loans (IMF or EU Central Bank), development loans (World Bank & European Investment Bank), commercial consortium loans from the G-7, and direct foreign capital investment.
Many countries will need IFI certification for creditworthiness and that means “austerity” at the time that inflation is not an issue and the advanced capitalist countries are pursuing deficit financing and statism. The IFIs insist that debtor nations (six within the Eurozone alone) can only secure creditworthiness if they follow a prescription of IMF-austerity-style measures that include everything from higher indirect taxes to lower wages, lower benefits, raising retirement age, and curtailing of social programs in every area from education to mental institutions.
If debtor nations comply, then there is the promise of external equilibrium and economic growth. In reality, the bulk of credit goes to legitimate businessmen who use local credit machinery to generate profits invariably invested in the markets of the advanced countries, but also to speculators, luxury importers, contraband traders. Austerity entails lower living standard for the middle class and workers, higher indirect taxes along with higher cost in essential goods and services, but above all, lower value of domestic assets that become available for foreign investors to own at a substantial discounted price mostly with local financing thanks to the IFI programs.
Consolidation in most sectors from banking to retail in the entire world, combined with greater capital concentration mostly in multinationals, will mean the inevitability of another recessionary cycle. While corporate management will have to go on a “no-caviar and no-champagne diet” in order to save the system until the next cyclical crisis, the middle class and workers will have to fluctuate between financial anorexia and bulimia.
That the financial elites will have to do with greater state interference in exchange for their own protection is inevitable and already taking place. But there is the added insult of billions in money laundering operations that the financial elites appropriated with the acquiescence if not approval of the political elites, given that most heads of state are inexorably linked to financial oligarchs; and yes, this includes US presidents, vice presidents, senators, congressmen, and the occasional Pentagon official. Various media outlets have reported that at least $50 billion and perhaps more than $100 billion were stolen in Iraq alone as part of the reconstruction program.
While it is no secret that Iraq has absorbed several hundred billion dollars, the aggregate cost may come to one trillion. Wall Street’s, banking, and insurance scandals ran parallel to those of the Defense Department contractor money laundering operations. But it is all in the name of spreading freedom far and wide, preaching democracy to the non-believers, instilling patriotism to the cynical youth, and above all protecting the American people from terrorism for the sake preserving of free enterprise. There is no doubt that the political elites will use the bottomless corruption pit of the financial elites to exert preponderate influence over the latter’s objections.
Given that economic and social stability are more significant than ever in a climate of a deep recession, and given that the state is the agent of credit engineering and growth, the financial elites will acquiesce to a preponderate role of the state as guarantor of private capital with accountability mechanisms. Therefore, the neo-liberal deregulation-denationalization-privatization-corporate incentives trend established when Reagan-Thatcher used the state to further empower financial elites will be modified as needed. This is not because of ideological considerations, but out of current economic, political and social realities–the necessity to engender that elusive stability most people want.
Economic recessions or depressions have never caused social revolution and the current crisis is no exception. On the contrary, economic contracting cycles are more likely to bring about right-wing movements, regimes, and military conflicts. In some cases as in France in 1789, however, economic crises have triggered social revolutions whose causes ran deep in the social fabric. Rationalizing the economic system as the political elites are trying to do by setting stricter accountability mechanisms for the financial elites will buy time until the next inevitable cyclical crisis.
Regarding the ” realignment of elites” issue, in the past three decades we have had numerous academic publications, newspapers and magazine articles, and endless radio, TV, and web analysis that hailed the ” triumph of markets over the state.” In fact, many euphoric analysts in many countries around the world went as far as to argue that markets, and by implication the financial elites, are making the state and by implication the political elites increasingly less relevant in society.
Part II:
The markets-over-state (financial elites over political) theme was reinforced and emboldened by the end of the Communist bloc and concurrently the enormous rise of stock markets (irrational exuberance, Greenspan called it) around the world in the 1990s. The end of history was upon civilization, so proclaimed true believers in the market economy, ideologues celebrating the death of their nemesis, presumably serious academics ready to sound the trumpet on behalf of a social order that once seemed unshakable.
The markets-over-state theme was so prevalent that it filtered down to the middle classes throughout the world, and people (from retirees to millionaires) placed their faith and savings in that institutionalized theme driving stock markets.
As I noted when I wrote about Davos-2009 conference and in the piece on realignment of elites, the new reality today is that the financial elites have recognized the market-over-state culture has been obviated by the global economic crisis, far more serious than most people thought even two months ago . As the last resort and presumed arbiter in society, political elites are far more significant in times of any type of crisis to guide the course of the economy than the financial elites. Political elites are under mechanisms (at least some depending on the country) of accountability and have a responsibility for all societal institutions, while the financial elites’ accountability does not extend beyond the investors, if that as we know.
Because the state as the largest entity in the economy and as the main engine of economic stimulus determines the fate of the economy, institutions, and social order, with markets and the larger society clearly asking for such intervention, political elites are currently more hegemonic than they have been in 30 years. Such realignment of financial and political elites of course takes place depending on whether society is undergoing economic crisis, war, revolution, or some other destabilizing episode.
My contention is that the current crisis will result in permanent (long-term rather than temporary) realignment of elites because it will be a very long time before the political climate is such that it permits the revival of the unfettered market-over-state culture of the last three decades. While this does not mean that the political elites will not continue to protect and preserve the existing social order and within it the financial elites, the gradual ascendancy of the cyber-eco-bourgeoisie, as I have argued in previous WAIS postings, will necessarily contribute to the permanent realignment of elites as society itself is undergoing extremely rapid changes.
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