A disastrous approach to disaster capitalism

Colm O'Doherty: The captivation of our Fianna Fail-led government by the Milton Friedman /Chicago School policy trinity of privatization, government deregulation and reduced social spending is critically harming our well-being. Our economic crisis has allowed free marketeers to instigate orchestrated raids on the public sphere. The crisis opportunism of disaster capitalism is activated through networks of rule which underpin the governance strategies facilitating our so- called recovery. Economic ideology masquerading as technical and uncontentious adjustments has been engaged to finesse this asymmetrical relationship between power and rationality - power produces rationality and rationality produces power, but power has the upper hand in the dynamic and overlapping relationship between the two.

The hallmark of disaster capitalism - economic shock treatment - is manifested through coercive policies which decouple individual well-being from social well-being, and privilege private gain over common good. The atmosphere of crisis generated by the failed policies of successive Fianna Fail-led administrations has paved the way for an economic settlement which overrules the expressed wishes of citizens and has handed the country over to economic technocrats. As Naomi Klein puts it in the Shock Doctrine (2007,140,) “If an economic crisis hits and is severe enough – a currency meltdown , a market crash, a major recession –it blows everything else out of the water , and leaders are liberated to do whatever is necessary (or said to be necessary) in the name of responding to a national emergency”.

Thus, our recession has provided those economic zealots in thrall to the fundamentalist doctrine (Capitalism and Freedom ,1962) of Milton Friedman with an opportunity to reduce all regulatory obstacles to profitmaking , sell off all public assets , cut back funding of social programmes and keep taxes low. The dominance of this ideological vision is strongly reflected in the competiveness, securitisation and flexibility discourses filling the airwaves.

Fianna Fail and their coalition partners have articulated these political rationalities in a populist idiom - the idiom of frontier politics. Here, politics finds expression through economic sequestration of social citizenship. Abolition of social rights is viewed as a pragmatic “structural adjustment”, and the task of politicians is to follow the money from crisis to crisis. Opposition to frontier politics within the political system is finite, as Fine Gael is also in thrall to economic fundamentalism and Labour lack political muscle. Civil society is the only real opposition, and civil society in Ireland has been shaped and nurtured by the very politicians it now has to challenge and oppose. The capacity of civil society to act as a counterweight to the economic shock therapy now being administered has been undermined by the cut backs and closures imposed on community development/family support projects, and by the tightening of revenue streams for voluntary service providers.

The trade unions are the only remaining force in civil society capable of challenging the Government’s disaster capitalism doctrine, as the Catholic Church’s power has been compromised. However, the trade unions are now engaged in a form of action which is focused on some of the symptoms of our political malaise rather than its root cause. Industrial action which, in the main, impacts on fellow citizens will further weaken civil society and plays into the hands of the Government. What is needed here is a co-ordinated, strategic political campaign organized and directed by the trade union movement targeting Fianna Fail and their coalition partners. Solving our political crisis by confronting a Government who are bent on protecting the wealthy by impoverishing large sections of the population should, logically, be the first step in reforming our ailing economy.

Ireland and Dubai

Paul Sweeney: The Irish economy could collapse? Is this possible? The editorial in Saturday’s Financial Times (28th November 2009), on Dubai, implied that it was possible.

It said: "Markets will not soon return to the panic of September 2008: the financial sector now has state backstops. But because of these guarantees, fearful investors have started to worry about how safe sovereign debt is. Investors are growing nervous about Greece and Ireland in particular."

Last week, interest rates on Greek and Irish government bonds rose, whereas they fell for many other states.

The fall of Dubai is another blow to the neo-liberal economic paradigm. Dubai was hailed as the golden boy of free market capitalism ... which it was not. The myth of free markets, low taxes and no regulation was underwritten at every turn by the Dubai state itself.

Only a few weeks ago, Dubai was selling itself as a threat to the 'over-regulated and over-taxed' City of London. Not alone had Dubai weathered the global financial hurricane, but it was the place for mobile firms to go to avoid regulation and taxes, according to the Dubai International Financial Centre, in a gig two weeks ago in London.

The link between Ireland and Dubai is that Dubai's collapse has focused attention on Ireland (and Greece) as potential defaulters on sovereign debt.

This is not likely. Yes, the government’s guarantees to the banks were risky, NAMA is risky; but we are in the EU; in the Euro; sit on the ECB board; we already have €31bn in state borrowing ready for next year, and don’t really need to go to the markets for more borrowings. Most of the economy is still sound (aside from banking and construction, and both are being sorted - sort of). But markets are fickle. They are too often run by lemmings who all follow each other (over the cliff, occasionally), and the current scare on Ireland is misplaced.

Dubai is an autocratic desert state which only gets 2% of its revenue from oil and gas. The rest is construction, retailing and wholesaling – hardly leading economic sectors.

Dubai was also hoping to attract investment in its banks. It was planning to be a safe haven for rich people running from volatile areas. By implication, it was after illicit money from drugs, tax evasion and crime. Now that Switzerland is finally being hammered on its bank secrecy laws by the OECD, the US and the EU, new havens like Dubai were not welcomed by those of us who pay our taxes and want to continue the move from casino capitalism.

It is run by an autocrat, Sheik Mohammed al Maktoum, who has a few horses here. It is run with little transparency.

The indoor desert ski resorts, palm-shaped reclaimed islands - not to mention the 'World of Islands' - should, like Sean Dunne’s Ballsbridge ego-mania, have warned off any potential investors with sense. It had tried to diversify into tourism, property, tax free zones, trade, transport and banking, but was wildly over-optimistic.

Dubai has debts of $80bn - a huge amount for a small country. It is now (after a delay) being helped out by Abu Dubai, within the United Arab Emirates, because it is thought the autocratic ruler Maktoum did not want to admit the model of free-wheeling desert capitalism had failed.

Dubai’s collapse wiped a significant 2.3 per cent of the FT100 and 3.8 per cent off the Nikkei, and yields on bonds also fell significantly.

Ireland has a sea of troubles but, if we can pull together and deal with them equitably, we won't fall as far as Dubai. The extension of the Recovery Period beyond 2013, advocated by the Congress of Trade Unions, opposed by all classical economists (we [we?] must have lots of harsh pain, quickly, for redemption!) and quietly conceded by Government, is a very hopeful sign. A less deflationary Budget will also help us recover faster.

Authoritarian Capitalism

Nat O'Connor: A Wall Street Journal article raises the question of whether authoritarian capitalism is a robust alternative to liberal democratic capitalism.

In the first ten years after the Berlin Wall fell, there was an initial rush of democratization, but since 1999 to 2009 there has not been an increase in the proportion of liberal democracies in the world (which remains at 46 percent). And countries such as China and Russia, as well as highly developed countries like Singapore, are examples of resilient authoritiarian regimes despite the fact that they adopted capitalist economic systems.

I think this is an important 'big picture' question. For example, it challenges the long-held assumption that global free trade with non-democratic regimes is OK. It was always assumed that internal prosperity and a growing middle class would lead to more freedoms and ultimately democracy in those countries. (Note, I wouldn't throw out this argument just yet, but it is open to challenge as the evidence develops).

One particularly interesting comment came from Prof. Francis Fukuyama. Talking about China's unexpected success at developing a capitalist economy while keeping one-party rule, Prof. Fukuyama said: "They've mastered economic development under authoritarian circumstances, and you can argue they've done it faster because they're authoritarian,"

If it is the case (and it's an 'if') that authoritarian regimes can be more effecient at capitalism than liberal democracies, than we perhaps need to make it very clear that we are not willing to sacrifice democratic freedoms for more efficiency. This may sound obvious, but it is not an argument that has been much discussed or fully articulated, because of the assumption that liberal democracies have the most efficient capitalist economies. That is, we've never had a situation where the indicators of capitalist success were in tension with the indicators of democratic strength.

Of course, the relative 'success' of capitalist economies around the world depends on how they are measured. And much of the success enjoyed by China and Russia may rely on GDP growth measures (which include for example polluting industries, resource depletion, arms manufacturing and poor labour conditions) rather than more nuanced socio-economic measurements. This in turn reinforces the arguments for finding and developing other ways of measuring economic performance and social progress, such as the recent work of Stiglitz, Sen and Foutoussi.

We may ultimately need alternatives to GDP, not just to direct our economies in a more progressive direction, but also to explain why we regulate capitalism to protect democracy.

Financial double-think

Hat tip to Aidan C. for this link to Gillian Tett's piece on financial double-think in yesterday's Financial Times. Tett has been mentioned on PE before, and yesterday she wrote:

One of the founding principles of free market theory, for example, is the idea that markets work best when there is a free flow of information.

Yet, some of those bankers who have been promoting free market rhetoric in recent years have also been preventing the widespread dissemination of detailed data on, say, credit derivatives prices. Similarly, while bankers have taken the idea of creative destruction as an article of faith, in terms of how markets are supposed to work, they have been operating on the assumption that their own industry would never suffer too violent a wave of creative destruction.

You can read the whole piece here. Comments?

The logic of living in a 'free' market economy

Slí Eile: An interesting feature of the Special Group’s deliberations is the extent to which it went beyond its strict remit and expectations. It said:

Against the background of the fiscal realities outlined in Chapter 1, the Group is strongly of the view that these budgetary consolidation targets should be seen as a minimum to be achieved, not as an upper ceiling, and that the scope for realising expenditure savings should be availed of to the fullest extent possible.

One would have thought that given the appetite and enthusiasm of the Special Group to roll back the role of the State that they would have attended to the significant direct and indirect costs of administrative relocation of central government staff, otherwise known as decentralization. Not a word except to acknowledge in passing that the Office of Public Works will require five fewer staff as ‘decentralisation’ proceeds more slowly. Clearly, some issues are just not touchable politically even now.

Would full implementation of the Report of the Special Group seriously dismantle public services? Let the Report speak for itself:

On this basis, the Group is putting forward proposals for initial reductions in public service numbers of over 17,300 (inclusive of reductions of around 6,000 in the Health sector under the Employment Control Framework introduced in 2008). Initial reductions on this scale are the minimum that must be achieved. These savings will require inter alia a commitment to the nonreplacement of staff and the down-sizing of the public service. Critically, while work efficiencies and redeployment should allow for broad continuity in the delivery of key public services, in other cases full savings will only be delivered where there is a political and public acceptance that the State can no longer afford to continue some services at previous levels, or at all.

One of the bizarre aspects of the Report is the way in which it proposes large reductions of investment in science and technology. It claims:
The Group considers that any further STI investment must yield clear economic returns. The evidence adduced to date for the impact of State STI investment on actual economic activity has not been compelling.

In the absence of a clear business need for the doubling of PhDs currently being funded, the Group is concerned that graduates will be underemployed or forced to emigrate.

No mention of education, research and learning serving anything other than measurable, economic, business returns. Sad.

Standing back from the detail and considering the larger picture. Bord Snip sits within a new and challenging context – internationally as well as nationally. It seems to me that if we think and operate entirely within ’given structures’ – in other words the constraints imposed by international and domestic capitalism and the whole range of assumptions and institutional givens that are not up for discussion then we are forced into the kind of policy response that we now see emerging. To put it plainly, if we live by the rules of free market capitalism then we are forced to rise and fall by its workings. When times turn very rough, as they have, we are constrained to go along with its deadly logic:

• Income cuts for the bottom two thirds of the population to restore profitability;
• Privitisation of services and assets previously provided by the State;

In short if we live by capitalism alone then we must live by its logic. Any progressive movement wishing to operate from within that logic – especially in the context of a small, open economy and member of the European Union its scope for policy discretion is severely limited.