Thursday, 24 November 2011
The debate about what caused the financial crisis seems to have been settled. Greedy bankers have gambled recklessly with our money and when the bad bets came off, the people had to bail out the financial institutions. This narrative operates with the notion that bankers are motivated solely by greed, essentially placing their actions outside the realm of normal behaviour.
I have previously argued here that this strikes me as a highly simplistic narrative. It rests on the questionable assumption that bankers are somehow different to the normal population, engaging in high-risk conduct which no ordinary person would condone. My reservation about this account flows from the simple idea that human behaviour across populations at large and across cultures is fundamentally stable, which means that those who argue that bankers are profoundly different to ordinary human beings need to demonstrate how they came to be so different from everyone else.
A more plausible explanation of the banking crisis may be that reckless behaviour is taking place wherever restrictions and sanctions on what is harmful to society are either vague or absent. In other words, bankers did what they did because they could. And, arguably, few of us would probably have acted differently.
There is however another dimension to the financial disaster that is rarely discussed. It is a deeply unpopular trope because it points the blame at least partially to all of us. Kieran O’Hara hints at this point in his recent book:
‘The house price bubble, the rise and fall of credit were all engineered by bankers and financiers of course - but were only possible because very large numbers of people wished to spend money they had not earned.’ (p.255) (O’Hara: Conservatism, 2011)
This is a deeply uncomfortable truth. The desire to find better interest rates for investment, to seek out the highest return for savings or the satisfaction that many of us felt when house prices reached stellar heights, is testimony of our own personal greed. Ditto our pension funds, and how much we wanted a decent return for our monthly pension payments when we retire.
This is of course not a narrative that you are likely to hear from politicians who are only too eager to blame bankers. Yet, the fact remains that our society has lived on borrowed means and many of us were only too happy to turn a blind eye to the reckless way in which wealth was created out of thin air.
Better regulation of the banking sector may produce more stability for our financial system in due course, but unless we also come to value hard work again, and stop believing in ever increasing returns through financial wizardry, our society will be a mirror image of the greed in all of us. And for that there can be no regulation; only our moral code and common sense can protect us from seeking immoderate personal gains.
Thursday, 10 November 2011
Polly Toynbee, the celebrated Guardian columnist, is off to write a book. Her contributions in the Guardian will be sourly missed, especially by Ed Miliband, the leader of the opposition. Toynbee is one of his most vocal, and increasingly few supporters in the media.
After another shaky performance at the dispatch box this Wednesday (9 November), observers were unanimous in their criticism of the Labour leader. He is good at PMQ when he can wrongfoot Cameron with questions about intricate policy details such as how many businesses have so far been supported by the Business Support Scheme of the government. But these are easy wins. Since Cameron does not know where Milliband will go, questions about detail may temporarily show the prime minister as less informed than he should be.
However, the public knows the rules of the game and will eventually see through this strategy of scoring with questions on minutiae of policy. What Miliband has still failed to do is to hit home on the general policy front. And how could he? The Labour Party is still stuck in an endless policy review process which so far has produced little. It leaves Miliband appearing non-committal on many issues, apart from matters emerging from the tussle of daily politics, or current affairs such as the hacking scandal, that dominate public debate and gain large media coverage for a brief period of time.
The upshot of this narrowing of options for Miliband is that he often looks like somebody jumping on a bandwagon rather than somebody defining public debate. The opinion polls provide ample testimony for this impression of a leader tossed about by whatever daily politics throws his way. Eighteen months into the coalition government, the polls see Labour and the Conservatives within the margin of error (2 per cent). For a mid-term blues, a debt crisis at our shores and anemic growth rates, this is good news for the coalition. In other words, Miliband and the Labour Party still thoroughly fail to capitalise on the troubles of the government.
His performance at the dispatch box does not improve his chances to be the next Labour prime minister. His body movements are awkward, often unnecessarily overwrought and displaying anxiety rather than manifesting calm and confidence. Sitting on the bench and listening to Yvette Cooper during the recent grilling of Theresa May, his demeanor was painful to watch, more akin to a 9th grader struggling to keep up with the debate.
Much of this of course has little to do with his ability to become prime minister. Presentational issues beset other prime ministers too, such as Gordon Brown. However one cant help wondering if the way he speaks and presents himself is actually a true exposition of his inner lack of confidence, a nagging doubt he himself habours about his qualification for the most powerful job in the country. If it is, he will have to conquer his own demons very soon, or he wont make it to the other side of the chamber, with or without the help of Polly Toynbee.
As Greek and Italian politicians scramble to form new governments, many people are gasping at the unedifying spectacle of prime ministers holding on to their positions. Yet before welcoming any Greek grand coalition or an administration of ‘technocrats’ in Italy we should perhaps pause and ask ourselves whether these interim governments have a track record of delivering the radical reforms both countries need.
Germany has an interesting history of grand coalitions. The first coalition between the main parties between 1966-69 is widely believed to have been a failure. While it prepared the Social Democrats (the junior partners of the CDU) to government, it did not initiate the reforms the country needed.
In fact, most modernising reforms in the social and economic sphere were introduced by ‘small’ coalition governments under the leadership of visionary Social Democrats, such as Willi Brandt and Gerhard Schroeder. Both sought a strong democratic mandate from the German voters and introduced reforms through ‘small’ coalition governments (with the Liberals and the Greens respectively), implementing reforms often against the own parties and, more often than not, against the Christian Democrats in the Bundestag and the Bundesrat.
So, if grand coalitions have the combined parliamentary support of the two main parties, why does their supposedly strong mandate not translate into decisive legislative action? The reason lies in the way in which representative democracy is set up. Political parties represent sectional interest of society, their clash of interests in the chamber is supposed to produce a consensus between those, often conflicting, interests. Where governments are formed by one party, or as in Germany and the UK at the moment, by one major and one smaller party, legislative programmes can by and large be implemented without significant hurdles. The struggle of ideas moderates their stance but does not prevent them from carrying out a coherent legislative agenda.
Where two large parties come together, the interests they represent are often diametrically opposed, for example in the reform of labour law with the conflicting interests of trade unions and employers. The result is stasis, two parties blocking each other’s reform ideas. Their viewpoint of what constitutes the best way forward are bound to be farther removed from each other between two large parties than between a large and smaller party. And their habitual opposition to the other party’s proposal does not bode well for future co-operation either.
So what about technocratic governments, so-called administrations of experts? Is their removal from the tussle of party political life not an advantage at times of crisis? Sadly not. While governments of technocrats may have a sound notion of how to break the reform deadlock, they often lack the support to get their ideas passed by parliament. The history of the Weimar Republic is a fascinating example.
Once political parties blocked each others legislative programme in the Reichstag, the call for a technocratic Chancellor, someone above party politics, became stronger. Yet, it quickly transpired that this only quickened to move away from parliamentary politics in the first place, since the political parties in the Reichstag had little incentive to support someone without any loyalty to their ideological principles.
In effect, technocratic Chancellors in the last years of the Weimar Republic governed without parliamentary mandate and hastened the end of representative democracy (the ironic twist of this story is of course Hitler who had achieved a strong relative parliamentary majority in the elections of July 1932 but was not appointed Chancellor until January 1933 and another round of elections where the share of the NSDAP went down).
So what is the way forward? There may be no clean, neat option for those who find themselves in the straightjacket of overdue economic reforms and global market dynamics. To placate the markets, technocratic governments or grand coalitions may be an interim solution, yet we should not expect them to deliver the radical reforms that are necessary in either Italy or Greece.
Ultimately, the voters will have to go to the polls again to provide the democratic mandate for such reforms. To weaken parliaments or to silence the struggle of ideas by artificially forcing technocratic solutions on political parties will only produce the impression that democracy does not work and undermine representative democracy in the long run.
Tuesday, 8 November 2011
The protesters outside St Paul’s couldn’t be more clear: it’s the market that has ruined this country. Or, more accurately, the belief that the market dominates our lives. The charge is not new, yet the pitch of those claims has reached dizzying heights after the financial crisis and the economic downturn of 2008.
There are two things that are conspicuously missing from the criticism of the market. One is a good analysis of what markets are for. The other, the articulation of a viable alternative. Here are some comments on how to fill this blind spot.
Public debate often conflates free market with un-regulated market. In fact, as Hayek made clear many decades ago, these concepts are not exchangeable. The lack of regulation in the market place means nothing else but the absence of freedom. The freedom to sell and buy is conditional on the application of strict rules that allow people to chose in an un-coerced manner. Where monopolies develop and price cartels emerge, the freedom to chose is significantly curtailed. Hence a functioning market requires good regulation. A free market is only one that is effectively regulated.
The critics of the market often think that the play of market forces gives rise to social and economic inequalities. That may be so, and it raises some important moral issues about how we mitigate the effects of the market in a modern society. What critics assume in the wake of this argument, however, is that this renders the market an unacceptable and morally repugnant vehicle to exchange goods.
Yet this means holding the market to standards it is by no means supposed to meet. The moral aspect of markets hinges on the ability of individuals to operate freely and fairly within the regulative framework that exists at any given time and which applies to everyone without exception. It’s the potential of the market to offer a space for individual self-fulfillment and self-determination that speaks to its moral dimension. Whether this leads to unacceptable inequalities in society is a question of political import, not something for which we can find the answer in any philosophy of the market itself.
Downscaling the expectations of what markets can and cannot do opens up a more plausible perspective on what markets are for, the aspect that the critics at St Paul’s have so far failed to address.
Markets are not primarily means to make money or enrich some at the expense of the few. Markets are mainly the most suitable mechanism to establish the value of things in society. This is not so because everything is ‘marketable’ but because markets allow us to accumulate a myriad of pieces of information that we otherwise would not be able to obtain. This is where Hayek made his most important contribution to the debate on markets and society, something that is echoed in the thinking of even left-leaning liberals such as Surowiecki (see his book ‘The Wisdom of Crowds’).
In effect, markets are the centre piece of a ‘discovery process’ about the needs of human beings and their ability to engage with each other in economic exchanges. In other words, markets function as a mechanism to aggregate knowledge about those human needs and wants and transmit this knowledge to the producers of goods. Since knowledge about human wants is highly fragmented in society, no central authority can effectively gather this information on a national scale, although we certainly have tried hard to achieve this in the past through nationalisation of industries and economic planning.
And it is here that the protesters outside St Paul’s still have to develop a viable alternative to markets. If they want to jettison the market as a mechanism revealing human preferences and the value of goods through a free and fair exchange, they need to explain what is to take its place. What has previously been a main candidate for this, a dirigist planned socialist economy is not an option anymore. Some hard thinking is in order on their part.
A couple of weeks ago, John Humphrey's investigated the 'Future State of Welfare' for the BBC. You can find his report HERE .
He went back to Splott in Cardiff, where he was raised, to listen to the people who have been out of work for years or have never had work. His report is balanced, instructive and eye-opening. While the people who are unemployed get the chance to tell their side of the story in the documentary, listening to them evoked feelings of pity and despair in me.
Curiously, what was absent from their views was the damage unemployment causes to themselves and their offspring. While they were very vocal in asking for higher benefits and adamant that they would never work as long as they only get a minimum wage, they seemed to reflect little on the fact that being unemployed placed them outside the mainstream of society in many respects with the attendant consequences.
The debate on social rights has taken a wrong turn somewhere, to the extent that some of the interviewees in the programme were clear that they have a right to be unemployed which we would have to respect. This idea is a strange one. Rights entail obligations. So if there is a right to chose worklessness then there must be an obligation on somebody else to finance this unemployment. The people Humphreys interviewed were clear that everyone else had to support them.
But what about right of the rest of society to decide whether or not we should carry this obligation in the first place? In effect, what has taken hold in the public debate, and is neatly reflected in the responses of those unemployed mothers and fathers Humphreys spoke to, is a culture of claims made against society coupled with impunity for their own actions. In their view their 'choice' to remain out of work does not entail any consequences for themselves. They are convinced that those who decide to work day in and out (and sometimes for the minimum wage!) have to shoulder the responsibility, not just for their own choice, but also for the choice of the others who are unemployed.
Yet, this topsy-turvy view of personal responsibilities is not all there is in this confused worldview. What is often less commented on is the damage to their own lives they cause by remaining on benefits. Effectively they are condemning themselves to life without any occupational pension, old age poverty and increased chances of mental health problems.
Arguably, no one can refuse to observe the main standards of society without detrimental effects to their psychological well being. It is this disregard for their own lives that provides the strongest argument for the radical shakeup of the benefits culture in our society. The people who are damaged most by continuous worklessness are the people who chose to settle into a life of idleness. In a sense, eerily similar to how we treat drug addicts, we may have to save them from themselves.
Thursday, 3 November 2011
Wednesday, 2 November 2011
For the last couple of days, there have been several hundred people camping outside St Paul's in London. They have made life very difficult for the Church of England which is not quite sure whether it should support them or seek an eviction order to have them removed from the steps of the Cathedral.
Yesterday, the Church decided to cave in and join the protesters. It withdrew its support for an eviction notice that was sought by the Corporation of London and subsequently, the Corporation ditched the idea too. This means the camp is to stay for the foreseeable future.
I fully support the right to protest. After all, I grew up in a country that did not allow these sort of demonstrations. So it is only right and proper that we should carefully balance the rights of protesters with public order issues and, if in doubt come down on the side of demonstrators who exercise their freedom to public assembly and protest.
Today, however, the Archbishop of Canterbury did something that went beyond tolerating the protesters outside the Cathedral. He said he supported the so-called 'Robin Hood' tax, a tax that was mooted by the German and French government to be levied on every transaction taking place on the stock exchange.
This strikes me as odd in several ways. Remember the outcry in the media and from left-leaning commentators when the government introduced some bills that were not in the party election manifestos? The fundamentals of democracy were at stake we were told. The government had no mandate to introduce these bills because the electorate had not voted on them in May 2010.
Now, here is what puzzles me with the Archbishop's suggestion. He says that we should listen to the campaigners outside St Paul's. Yet I do not remember voting for them, nor do I think they have stood for elections and have obtained a mandate from the British electorate. As many commentators on the left of the political spectrum correctly remarked months ago: This is a question that goes to the heart of British democracy. Who has a mandate to make policy?
The Occupy London camp claims that it speaks for everyone but the 1% super rich in the country. How do they know? So far, they have not produced a list of their demands. I am at a loss of whether or not they even have my support since I do not know what they stand for. Yet, they seem to think that they have 99% support in society, a claim by the way that is eerily reminiscent of the election results of the country in which I grew up where people could NOT camp outside churches.
So, why should government listen to a few hundred people camped out on the pavement in London? The simple answer is: it should not. The right to protest is a right to make your voice heard. This is not the same as the right to make decisions on behalf of an elected government.
The Occupy London protest makes an important contribution to the public debate, yet it should stop claiming that it represents 99% of the British people. Chances are it does nothing of this sort, and even if its (yet unknown) demands chime with the sentiments of the majority of people in this country, the protesters have no mandate to govern. Mandates have to be obtained in democratic elections. If we fiddle with this principle, we may as well outsource policy making to Speaker's Corner and every fruitcake can have a go.