Democratic deficits

Liberal democracy faces profound challenges. Radically different future trajectories present themselves. We are living through momentous times.

In Britain the media has spent the last fortnight preoccupied with the Hackgate scandal. Incremental, and ongoing, revelations have exposed the inner workings of the nexus between Westminster politicians and the tabloid media. What we witness is the political class showing an alarming level of deference to powerful economic interests. The alleged intimate connection between sections of the Metropolitan police and the tabloids raises equally urgent questions about the prevailing culture and ethics at the heart of a core social institution.

The British media has been preoccupied with this evolving soap opera involving many of its own. And the scandal has certainly opened up a welcome window of opportunity to reform relationships vital to a healthy democracy. But events unwinding elsewhere are likely to play a bigger role in shaping economic and political trajectories in the short and medium term.

Thursday saw Eurozone leaders strike a deal to provide a remedy for the ongoing fiscal crisis in the region. It  is claimed to represent not only a solution to the Greek debt crisis but also to firm up the foundations underpinning fiscal consolidation in the other relatively weak countries that have found themselves vulnerable to attack in the bond markets. The deal was initially received positively, even though it arguably constituted a managed default by Greece. Whether that positive response persists as the markets get to grips with the details remains to be seen. And whether the deal – including important institutional innovations that place increased responsibilities on supranational organizations – can be steered through the respective national legislatures is equally unclear.

The jam in which the Eurozone finds itself is the product of the fallout from the abrupt end of the debt-fuelled boom layered on top of some chronic, structural problems. While the global financial crisis of 2008 no doubt pulled the rug from under the fiscal positions of a number of governments, some of the problems can be traced back to deep economic imbalances across the European nations. It is possible to detect a degree of schadenfreude among some of the Eurosceptic elements across the British political spectrum.

The convoluted European negotiations to stave off an unstructured Greek default are in danger of being eclipsed by the current deadlock between President Obama and those Tea Party-inspired House Republicans whose negotiating position seems to consist of complete intransigence on the issue of tax increases. Obama appears to have conceded quite a lot to the Republicans, but there is an apparent absence of any flexibility on the Republican side. We’ve been worrying about Greek default. That is not so much because Greece sovereign debt is systemically significant, but because the failure to meet obligations would be read as symbolically significant. US default on the other hand – even the lesser issue of the downgrading of US bonds by the credit ratings agencies – would have direct and dire implications for the global economy. The numbers involved are truly mind-boggling. The extension of the debt ceiling is necessary to cover existing commitments rather than additional spending. Few commentators think that the negotiating position occupied by the Republicans makes sense – even arithmetically. It places all the burden of dealing with the deficit upon living standards and benefits for ordinary citizens while preserving tax breaks for the rich and spending on key sectional interests like defense. It is the antithesis of “we’re all in this together”.

The US problem is again a product of a fiscal crisis – brought about in part by unfunded tax cuts and the costs of foreign wars – and underlying structural issues with the economy. In yesterday’s Guardian Mark Blyth is quoted as characterizing the US economy as:

 like Wile E Coyote who runs off the cliff and it takes him a while to realise it. What has been keeping him up is Chinese blowing air up.

While these three issues perhaps appear unrelated it strikes me that they have much in common. They are all, in different ways, about power. And they all raise the issue of balance. In particular, where should we strike the balance between political and economic power. In each case we witness a democratic deficit. In some cases that is brought about by a fiscal deficit.

Hackgate exposes the illegitimate interpellation of economic power into the political process. The role that sectional interests play in the US political system is more transparent. Those who lobby and fund politicians expect the delivery of policy favourable to their interests. A key feature of the Eurozone crisis is deference to the perceived whims of capricious private bondholders and ratings agencies. It is a case study in the power of anticipated reaction. It leads governments to favour policy solutions that shift costs and risks to populations rather than asset holders because they fear that otherwise asset holders will wreak vengeance on them (and therefore us).

Both the Eurozone and the US crisis have significant geopolitical dimensions. Given that much of the relevant sovereign debt is held by China the continuing inability of western governments to balance the books – in some cases spectacularly – shifts power to those willing to hold government debt. We have already seen that when western governments have considered taking the moral high ground on issues such as human rights abuses in China the ground turns out to be rather shaky. It isn’t wise to be too strident in criticising those upon whom you depend financially. So even if the US debt ceiling is lifted in order to deal with the short term problem, the consequences of the ballooning debt in the longer term – even if it is sustainable – will be profound.

In all of these developments it is populations that find themselves disenfranchised. That is most obviously the case in Greece, where the wishes of the Greek population were fairly low down the list of factors shaping the outcome (as I noted previously). But it is equally an issue elsewhere. The new structures being created to manage the Eurozone are likely to pose significant questions of democratic legitimacy as the power to determine economic policy is passed upwards away from national governments.

The way in which the US budget negotiations are being conducted – largely in secret between two men factoring in all sorts of electoral calculation with an eye on 2012 – means that, again, populations have limited influence over the process. It would seem possible that a relatively small handful of people, with focused but not widespread electoral support, could cause a global economic crisis through sheer bloody-mindedness – or constitutional fundamentalism as it has been more politely labelled. If the President overrides them in order to breach the debt ceiling – as has been mooted – that is likely to set the US off on a whole different trajectory.

Charles Moore wrote a striking piece in yesterday’s Telegraph entitled I’m starting to think that the Left may actually be right. While the precise implications the piece for Moore’s own position are open to interpretation his main point is clear. Since the 1970s the focus of politicians’ ire has been the dead hand of the trade unions and the overmighty monopolistic state. These are terms that continue to feature in the rhetoric of today’s Coalition politicians. This has led to a neglect of the opposite problem – the concentration of power in the hands of unelected and unaccountable private interests or supranational bodies.

Over the last 30 years we have seen rules – checks and balances that prevent this type of concentration and other equally undesirable outcomes – being dismantled in the name of competition and innovation. But the result is frequently neither competition nor an enhancement of welfare. As David Korten observed:

Without rules, a market economy quickly morphs into a system of corporate monopolies engaged in suppressing wages, exporting jobs, collecting public subsidies, poisoning air, land, and water, expropriating resources, corrupting democracy, and a host of other activities that represent an egregiously inefficient and unjust distribution of resources.

Concentrations of economic power can reach a point at which the political process ceases to be one for deliberating and determining the direction for society as a whole in the interests of society as a whole. Instead it becomes a mechanism by which the interests of the few are preserved and protected, to the detriment of the interests of the many. Moore memorably notes the consequences in relation to one of the more egregious examples:

The global banking system is an adventure playground for the participants, complete with spongy, health-and-safety approved flooring so that they bounce when they fall off. The role of the rest of us is simply to pay.

But can governments ensure that they are not a cipher for the militant working class or for particular fractions of capital, as they used to say in the good old days? It depends on whether you believe the state can act autonomously, which is a venerable debate to be saved for another day. Even if you believe in an autonomous state  it requires a degree of reflexivity and a sensitivity to, and respect for, constitutional matters that few contemporary politicians seem to possess.

The conditions under which liberal democracy can thrive are perhaps more narrowly bounded than had previously been thought. It is a fragile beast that requires nurturing. Allowing unchecked concentrations of power in any quarter of society leads to dysfunction. That is, of course, a prescription for pluralism. And a pluralism that, to succeed, needs to be genuinely open and deliberative. For some, pluralism as a normative ideal has suffered at the hands of the imperfections of pluralism as political practice. That is unfortunate. We need to hold to the aspiration, while recognizing that our practice will fall short.

The problems currently facing the world economy and liberal democracy can be viewed as emergencies to be dealt with before getting back to business as usual. That would be to miss an opportunity.  The broader view – and a more sophisticated understanding of the workings of power – need to be retained. The Hackgate scandal seems to have steeled the political classes into having a hard look at press regulation. But the lesson needs to be drawn more broadly. Politicians need to be vigilant that power does not accumulate anywhere without appropriate checks and balances. And that includes a willingness to place themselves under scrutiny and to stay their own hand whenever to do otherwise would throw their own legitimacy into question.

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