On global capitalism and the survival of democracy
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Setting the scene
Throughout the last forty years, most governments around the world supported the long-run process of neo-liberal reforms that turned out to be characterised by the financialisation of the capitalist economy. In this historical scenario, monopoly-finance capital became increasingly dependent on bubbles that, both in credit and capital markets, proved to be globally the sources of endogenous financial fragility. This process was reinforced, in a vicious circle, by a concentration of income, wealth and power. By negatively influencing labour and working conditions, it became increasingly difficult for effective demand to reach (or even approach) the level of full employment. In response to this situation, banking and credit policies, also supported by governments and supranational institutions, were inducing consumers to expand their spending through increasing debt. While public spending on social and infrastructural objectives was severely restricted, it expanded in other areas, sustaining the income and the demand of powerful groups.
As a result, in the new millennium, the proliferation of financial assets, with unstable economic growth, has given way to widespread precarious jobs, income gaps and weaker welfare programs. The same policies that have obliterated social services and kept labour cheap have supported the expansion of short-termism and new global business models in the context of deregulated capitalism.
Besides, the onset of the 21st century represents a new political age overwhelmed by the violation of democratic ideals of political equality and social peace. Indeed, democracy has been allowing for election to office but not to power (Madi, 2015). And, as a consequence, policy makers might give priority to their sponsors instead of the needs of citizens – decent work and income equality.
Capital and Labor: Global trends
In truth, global trends in capital accumulation and competition have shaped a scenario where practices in corporate finance favoured mergers and acquisitions aimed to increase the shareholder value by means of a “clash of rationalization”. In this context, competitiveness and productivity have been put together in the attempt to promote higher business performance. In fact, the centralization of capital, through waves of mergers and acquisitions, created new challenges to business stability. As a result of these business strategies, investments that are fixed for society turn out to be liquid for investors. Today, the dominance of a culture based on short-term profits has major implications that go far beyond the narrow confines of the financial markets. The costs of this business model fall disproportionately on society because of the commitment to liquidity. As Keynes warned,
“Thus the professional investor is forced to concern himself with the anticipation of impending changes, in the news or in the atmosphere, of the kind by which experience shows that the mass psychology of the market is most influenced. This is the inevitable result of investment markets organized with a view to so-called ‘liquidity’. Of the maxims of orthodox finance none, surely, is more anti-social than the fetish of liquidity, the doctrine that it is a positive virtue on the part of investment institutions to concentrate their resources upon the holding of ‘liquid’ securities. It forgets that there is no such thing as liquidity of investment for the community as a whole” (Keynes, General Theory, 12, V).
Indeed, corporate decision making has been increasingly subordinated to speculative financial commitments. A financial conception of investment gained ground in the context where financial innovations aimed to achieve short-term profits with lower capital requirements. Managers and owners of firms focused on financial gains often based on speculative shifts of shareholder values. Changes in corporate ownership, through waves of mergers and acquisitions, created new business models where companies, while highly powerful and concentrated, turned out to be simply bundles of financial assets and liabilities to be traded. Hence, current corporate governance came to have the privilege of mobility, liquidity and short-term profits based on high levels of debt.
Moreover, accordingly the OCDE, the current investment chain is complex due to cross-investments among institutional investors, increased complexity in equity market structure and trade practices, and an increase in outsourcing of ownership and asset management functions. In this scenario, the economic and social outcomes have involved a trend to ‘downsize and distribute’, that is to say, a trend to restructure, reduce costs and focus on short-term gains. In practice this has meant plant displacement and closures, changing employment and labour conditions, outsourcing of jobs, besides the pressure on supply chain producers in the global markets.
Therefore, in this setting, there has been an increase in precarious jobs, technological unemployment and informality, in addition to fragile conditions of social protection (Stiglitz, 2011). First, labour-saving technologies have reduced the demand for many middle-class and blue-collar jobs. Second, globalization has created a global marketplace, confronting expensive unskilled workers with cheap unskilled workers overseas and favouring outsourcing practices. Third, social changes have also played a role in the labour market changes, such as the decline of unions. Four, political decisions are influenced by the top 1% who favour policies that increase income inequality.
Power, politics and economics
All these trends reveal issues of current power, politics and economics in a social context where democratic institutions are being threatened.
Taking into account the overall economic, social and political evidence in Western countries, Robert Kuttner, in his recent book Can Democracy Survive Global Capitalism? (2018, WW Norton), highlights that since the 1970s the globalization of capital has affected the very foundation of a healthy democracy. While analysing the consequences of this trend, he warns:
“If democracy cannot harness capitalism, it runs the risk of subverting itself and giving way to neo-fascist regimes that will pretend to manage the market but more often ally themselves with corporations and substitute ultra-nationalist symbols and scapegoats for reform.”
Indeed, this book calls for a deep examination of current power, politics and economics in a social context where democratic institutions are being threatened. Among other issues, its reading suggests some questions:
- Do current trends of social inequality and economic instability stimulate disillusioned voters to support populism?
- Is the alliance of global finance and far-right parties inevitable?
- Is it possible to build new conventions to make capitalism serve democracy?
Answering these questions not only involves critical thinking on the failures of economic policies in the light of current political challenges, but also calls for a reflection on the alternatives to the reversal of the decline of democracy in the West.
References
Çelik, S. and Isaksson, M. (2013) “Institutional Investors as Owners: Who Are They and What Do They Do?”, OECD Corporate Governance Working Papers, No. 11, France: OECD Publishing. http://dx.doi.org/10.1787/5k3v1dvmfk42-en (accessed 10 October 2015)
Fligstein, N. (2001) The architecture of markets, New Jersey: Princeton University Press.
Keynes, J. M. [1936 (1964)] The General Theory of Employment, Interest, and Money. New York: Harcourt Brace.
Robert Kuttner, Can Democracy Survive Global Capitalism?, WW Norton, 2018.From: pp.2-3 of WEA Commentaries 8(3), June 2018
https://www.worldeconomicsassociation.org/files/Issue8-3.pdf
Lima, G. & Madi, M.A. , Capital and Justice, WEA Books, 2016.
Madi, M. A., “2016: Promises and Problems”, WEA Pedagogy Blog, December 29, 2015
https://weapedagogy.wordpress.com/2015/12/29/2016-promises-and-problems
Lazonick, W. (2013) “From Innovation to Financialization: How Shareholder Value Ideology is Destroying the US Economy” , in Martin H. Wolfson and Gerald Epstein, eds., The Handbook of PoliticalEconomy of Financial Crises, Oxford University Press.
Lazonick, W. and O´Sullivan, M. (2000) “Maximizing shareholder value: a new ideology for corporate governance”, Economy and Society, 29 (1).
Stiglitz, J., “Of the 1%, by the 1%, for the 1%”. Vanity Fair Magazine, April 30, 2011.
http://www.vanityfair.com/news/2011/05/top-one-percent-201105.
From: pp.10-11 of WEA Commentaries 8(4), September 2018
https://www.worldeconomicsassociation.org/files/Issue8-4.pdf