The last couple of weeks have seen two European Prime Ministers resigning in response to their countries’ economic plight and the growing clamour for political change. Much of the pressure for George Papandreou and Silvio Berlusconi to quit has come from outside their own countries.
As the leaders of Germany and its Eurozone partners, the US and elsewhere try to get to grips with the continuing Euro-crisis, we’re routinely told that ‘the market’ has responded either positive or (more commonly) negatively to developments. It’s now fairly obvious that ‘the market’ has been instrumental in ousting the elected prime ministers of Greece and Italy. Now, I’m not fan of Berlusconi, and nor am I an expert in European politics, but I do start to worry when democratically elected leaders are being forced to resign by unelected and unaccountable powers.
Of course this is not an entirely new phenomena and the International Monetary Fund has a history of imposing its will on nation states. The UK had to be bailed out in 1976 and Treasury spending plans were put under the microscope, but this was in the days before Thatcher and the widespread privatisation of public services. More recently in the late 70s and early 80s the Latin American debt crisis resulted in loans from the IMF conditional on rapid and wholesale liberalisation of markets – opening up to western firms able to profit. In 23 Things They Don’t Tell You About Capitalism Ha-Joon Chang presents compelling evidence of the damaging effects of this approach.
Most recently the austerity measures imposed on Greece in return for its bailout – increased taxes, selling off state assets and huge cuts to their public sector – has resulted in an immediate fall in productivity amounting to approximately 10% of output over the last 12 months. Silvio Berlusconi refused to play ball – rejecting the conditions of an IMF loan – but with his departure, it’s surely only a matter of time before these measures are accepted.
But, in addition to the dubious role of the IMF and geopolitical institutions, there is a wider issue about the power of ‘the market’. What is this ‘market’ thing?
The market is essentially the structure that allows buyers and sellers to exchange goods and services. The term comes from the ‘marketplace’ and is, at least in theory, similar to the street markets where producers sell their wares to local citizens. The market is a way to connect those who have money and those who have something to offer in return. As surplus capital is invested in companies and shares, derivatives and commodities begin to be traded, so the ‘market’ we recognise today begins to emerge.
But when the ITN News reports that ‘the market got the man they wanted’ (as Italy’s new PM) one begins to wonder who it is that is expressing the opinion on behalf of the market?
Institutional investors have become so large that they are now in effect ‘the market’, operating in a way reminiscent of the Union block-vote at Labour Party conferences. One might contend that this accurately reflects the value of their wealth and their influence is therefore proportionate. But this overlooks two things.
Firstly, much of this ‘wealth’ is not theirs but ours. Our pensions, savings, stocks and shares are all managed by institutional investors on our behalf, with a tiny minority of people taking any interest in where their money goes. A small (and admittedly growing) number of people are concerned enough to choose ethical products which may avoid investing in the most destructive industries – but this operates at a very macro-level, with little choice over specific investments. Despite some progress – and the work of Fair Pensions deserves a special mention here – the choice of ethical investment products is still very limited and tends to have fairly dubious ethical credentials. When the market expresses a view on whether or not the democratically elected prime minister of a sovereign state ought to resign, it is doing so with the implicit backing of countless people who would be uncomfortable with this interference in democracy.
Secondly, while it may be unpopular to say so, the role of the state in the market is not necessarily to interfere as little as possible. Governments across the world are currently trying desperately to get to grips with the Eurozone crisis, stalling growth, sovereign debt, rising unemployment and the risk of banks collapsing. But they are doing so under terms dictated by the market.
States have not just allowed the situation to develop; they have actively encouraged it, through the global pursuit of market liberalisation under the banner of ‘free trade’. The IMF, World Bank and the World Trade Organisation have relentlessly pursued this agenda with the blessing of the largest and most powerful states – including the US and EU member states. Now these same countries are reaping the fruits of their labour…an out of control ‘market’ that is allowed to dominate democracy and dictate events in countries across the globe.
In some ways, perhaps this is a good thing, as it highlights to those of us in the West precisely what the developing countries in the South have experienced for some time. It’s easy to favour market liberalisation for someone else, safe in the knowledge that this won’t ever happen to us. It’s a whole different ball game when the markets come after those who thought they were immune from the fallout of these policies.
In the 1990s there were numerous protests against the spectre of globalisation, often aimed at the WTO under the banner of ‘anti-capitalism’. These tended to be rubbished as being absurd and naive by the majority of our political classes. Today their protests appear to have been rather prescient.