Power and Democracy - uneasy partnership

June/July 2012, Volume IV, No. 3

There is much talk these days about a major shift in our economic paradigm or methodology since the financial and debt fiasco that started on Wall Street but eventually spread globally.  This issue of Open Space explores what a few thought leaders say about this.

There is much talk these days about a major shift in our economic paradigm or methodology since the financial and debt fiasco that started on Wall Street but eventually spread globally. Let’s hear briefly what a few respected thought leaders say about this and see how it squares with Catholic social teaching.

Jeff Rubin, longtime Chief Economist of CIBC World Markets, issues in his updated book Why Your World is About to Get a Whole Lot Smaller the following warning: “ We don’t control oil – oil controls us!” He asks the simple question, “What do subprime mortgages, Atlantic salmon dinners, SUVs and globalization all have in common?” His answer, “They depend on cheap oil.” And the days of cheap oil are over.

The basic cause of recent recessions and recoveries, he believes, is the availability or lack of oil – not the secondary causes such as greedy banks, etc. Already a proven forecaster on gas prices in the past, he now expects the price of a litre of gas in Canada to rise to $2.00 in the near future, and to rise unsteadily thereafter. He makes a strong case that the rising demands for oil by China, India, Brazil and other developing nations, together with the steady depletion of older sources, outweigh more costly new supplies from recently discovered sources. Besides, in modern economies, oil has myriad usages beyond fuel.

Transportation will be the first victim of increasing oil prices. Transport by cars, trucks, ocean cargo ships, and planes will all become too costly for massive usage. China will lose its advantage of cheap labour and cheap transportation. World trade will greatly diminish and we will rediscover a new mode of local economy—and perhaps also of neighbourly living.

With our long-lasting tar sands Alberta/Canada will become—somewhat like the biblical Joseph in Egypt with food scarcity—a czar of global oil distribution. However, the downside of expensive oil is that with the price being set globally our expensive dollar will discourage our export trade. In that world, location and distance will be everything. We will still have to face the necessity of supporting a global agreement on emissions, but we may well rediscover Canada and ourselves as a local community.

Let’s return to genuine democracy

John Ralston Saul is the author of The Collapse of Globalismand the Reinvention of the World. He is a respected political philosopher; for some he is a prophet. By 2005, Saul had already confronted the ideology of globalization, which he calls ‘globalism’, and foresaw how it would play out into an economic crisis.

He blames the financial meltdown and its sequel not primarily on the greed of financial institutions but rather on the departments of economics and business management schools which have been teaching their students in Economics 100 the theory of free markets and trade as if it were science rather than theory – thus preparing future financial leaders who absorbed it as ideology and thus could not imagine alternatives in time of crisis.

Witness Alan Greenspan, head of the Federal Reserve, candidly admitting publicly at the time of the meltdown that he could not have imagined that financial dealers could be so greedy. For them the only measures of success were more growth, more trade and more profits. Money and debt had lost their basic purpose as servants of real activity that creates useful products to meet the real needs of real people and only secondarily to earn profits. Once the problem of scarcity was solved, leaders should have turned the economy towards paying the full social costs of mass production instead of rushing to create new needs to bolster demand through marketing and advertising, etc.

In any case, why should we put our faith in the validity of a free-market theory based on a 19th century context where people died, on average, at the age of 50, and patterns of education, work and retirement were so different from our own?

Globalists foresaw that in the future power would be with the global markets. Indeed, economics not politics would shape future events. What was needed were bigger corporations to serve bigger markets – and, yes, bigger, less regulated financial facilities to service these corporations. Already national/local governments can be sued to reimburse losses which foreign corporations judge to be caused by a policy or action of the government of the country in which the corporation is operating.

First Malaysia, and later China, India and Brazil refused to continue to see the world through this narrow western method of analysis. These “emerging” countries wanted to weight the balance of the economic system more in favour of national government action. Trade was good, but sustainability and people’s welfare had priority.

Saul wants to return to more genuine democracy, to what he calls “positive nationalism.” In the immediate future he sees this coming primarily from civil society and the multitude of new non-governmental organizations emerging on almost every important social, economic and political issue.

Why do nations fail or prosper?

MIT economist Daron Acemoglu, and Harvard political scientist James A Robinson have given us a popular new book, Why Nations Fail – The Origins of Power, Prosperity and Poverty. After studying a sample of the economic history of over 30 countries, they came up with a very simple answer to their question, “Why do nations fail or prosper?

They are quick to dismiss such common explanations as education, culture, religion and geography. Their core answer is: it depends on whether they have been able to develop inclusive political and economic institutions rather than “extractive” institutions. Inclusive political institutions are democratic; “extractive”are managed by dictators or small elite groups. Likewise, inclusive economic institutions are open to innovation and “creative destruction;” and “extractive” are more profit-centred and less open to change and to social concerns. They note that greed or power-seeking can at any time upset the balance in these institutions; with the result that progress or development is seldom unilinear.

The authors suggest that a nation can only arrive at inclusive institutions through grassroots initiatives. They can’t be imported or imposed.

A strange lacuna in their massive book was filled in by Acemoglu in an interview with the New York Times [April 1, 2012]. Here he worried out loud that a huge growth in economic inequality is undermining the inclusiveness of America’s institutions… “The real problem is that economic inequality, when it becomes this large, translates into political inequality.”

Corporations: a new class of supercitizens

David Rothkopf is a Washington insider. Besides writing a book entitled Inside Story of the National Security Council (he was a key advisor for President Clinton on international affairs), Rothkopf is CEO of the Foreign Policy Magazine Group and of his own company. He knows a lot about power and does not think it impolite or Marxist to name it clearly. His story in Power Inc. is about the rise of private power in our times and how little it is understood.

After suggesting that in today’s international system between 70% and 80% of nation states are in fact now only “semi-states”—no longer able to measure up to what a state was supposed to be, he continues:

At the same time, private actors [multinational corporations] have grown so large that perhaps two thousand of them are more influential than those 70% to 80% [of nation-states].   

These private actors are a new class of supercitizens, entities that can marshal and project to their advantage the economic, human, natural, or political resources that once were available only to nations. 

 

Ask why the world can’t or won’t address concerns from global warning, to embracing new forms of energy, to containing global diseases, to regulating derivatives markets, and you will see the not-so-invisible hand of these megaplayers. 

These enduring private actors, which were built on an idea once created to serve national interests – the idea of the corporation – have morphed into a group that plays a leading role shaping national and international priorities, often without regard for the interests of any one society anywhere – a group with the money and the power to institutionalize their ideologies and serve their interests by successfully supporting efforts to translate their ideas into laws or, alternatively, carefully carve out legal and regulatory voids. [18]    

If you listen to movements like the Tea Party in the USA, you would believe that governments are steadily growing bigger and more powerful. But the opposite may be true. Bigger budgets do not mean more power or more available money. In fact, today’s budgets are mostly taken up with paying for commitments to previously established programs, not to mention interest on onerous debts. Governments today feel their power shrinking in their efforts to serve two classes of voters – the real people and the “artificial” people – the corporations with their small, elite armies of lobbyists. To mention one example: Wal-Mart Stores, the world’s largest company, has revenues higher than the GDP of all but twenty-five of the world’s countries. Its employees outnumber the population of almost a hundred nations.

Governments often feel impotent to collect taxes from multi-national corporations (MNCs) whose loyalty is, to say the least, flexible. Some corporations even have their own foreign policy offices and security forces. Rothkopf suggests that a power capable of making millions of judgments a day allocating trillions of dollars is the real shaper of the global economy - quite independently of what government thinks or says.

And yet the celebration of capitalism as the natural, inevitable victor after the fall of communism was premature. The growing flaws in the American system caused the recent financial and economic meltdown, and now the big global picture looks different. It appears that the American style of free-market corporate capitalism is losing its supremacy. It is being challenged by different forms of capitalism. Indeed, it is becoming evident that a country need no longer imitate America to succeed.

Rothkopf suggests that new forms of capitalism are emerging which give more emphasis to public and people concerns than does America. He lists five competing systems of capitalism in today’s world:

  1. The American “Government-lite” system.
  2. “Capitalism with Chinese Characteristics.”
  3. Indian and Brazilian “Democratic Capitalism.”
  4. German, French and Scandinavian “Eurocapitalism.”
  5. and Singapore’s “Entrepreneurial Small Market Capitalism.”

The fact that every form of capitalism “on the market” allots a significantly greater role for the state than that advocated by the US model “suggests that not only is the US view unlikely to prevail, but indeed the momentum is actually with the alternatives.” [360]

Bill Ryan sj