Free markets and the decline of democracy

John Weeks 

What is the source of the 21st century tendency to authoritarianism? The central purpose of neoliberal re-regulation is to remove economic policy from control by representative democracy.

It is difficult to find a major country in which democratic institutions are not under stress, in many cases under aggressive attack. The United States has a profoundly anti-democratic regime. In Europe long-standing authoritarian tendencies have enjoyed a quantum leap under the neoliberal austerity regime fostered by the German government under cover of the European Commission. 

The draconian austerity measures that were imposed on Greek citizens represent an obvious and shocking example of the mainstream authoritarian trend in Europe.   Authoritarian movements and political parties hold power in Austria, Italy, Poland and Hungary. Outside the EU, efforts of the government of Europe’s most populous country, Russia, to undermine democracy domestically and in the rest of Europe are well-documented.  The few developments in major countries supportive of democracy come in Spain where the Socialists hold government and the progressive and participatory Podemos is a strong political force; and the shift of the British Labour Party to social democracy with the imminent possibility of an election victory. 

Beyond North America and Europe no major country counters the authoritarian trend, not China, where the government oversees a transition from socialist to market authoritarianism. Superficial flowering of democratic participation in Brazil and India proved short-lived, with a rightwing semi-legal coup undermining representative institutions in the former, and the ruling government in India fostering ethnic-religious intolerance.  In VietNam where I have worked for 25 years, an authoritarian government has completed a transition from central planning to capitalism only slightly less repressive than in China. The Philippines’ democratic institutions, dubious in the past, now suffer under the most brutal regime in Asia.

"Bourgeois democracy"

What is the source of this twenty first century tendency to authoritarianism?  The end of WWI, now 100 years past, ushered in authoritarian regimes provoked by the excesses of capitalism. The Great War, as my parents named it, was the most catastrophic conflict in human history. Ten years later came the most devastating economic crisis the world had known. The excesses of capitalism and the apparent incapacity of representative governments to contain those excesses induced many, especially in Europe, to dismiss “bourgeois democracy” as degenerate and dysfunctional. As the Great War ended, revolutionaries in Russia overthrew capitalism and pledged a governance system in the interests of the working-class and peasantry. The promise and hope for popular democracy went unfulfilled as the workers’ state transformed into thinly disguised authoritarian rule.

In Italy, Germany and Japan discrediting of “bourgeois democracy” led to unabashed dictatorships that celebrated their authoritarian nature. The regimes proved appallingly successful not only in crushing labor movements but also in rolling back the principles of the Enlightenment. Destruction of these savage regimes required a war even more catastrophic than the 1914-1918 conflict.

The "inner nature of capital"

In the wake of economic depression, fascism, war and the consolidation of the Soviet Union, whose military had borne the major burden of the war against fascism, there developed a near-consensus among mainstream political parties in the United States and Europe. Over thirty years of economic catastrophe, dictatorship and war demonstrated even to major elements of the capitalist class the need to manage capitalism. During its brief life this consensus maintained that stability and consolidation of capitalism required control mechanisms to prevent the excesses of the economic system, excesses generated by competition, what Marx called “the inner nature of capital”.

In the immediate aftermath of WWII this recognition of the excesses of capitalism appeared even in the foremost economics journal of the time, The Economic Journal.  In 1947 the British economist K. W. Rothschild wrote an article that should be on the reading list of every progressive course in microeconomics,

…[W]hen we enter the field of rivalry between [corporate] giants, the traditional separation of the political from the economic can no longer be maintained… Fascism…has been largely brought into power by this very struggle in an attempt of the most powerful oligopolists to strengthen, through political action, their position in the labour market and vis-à-vis their smaller competitors, and finally to strike out in order to change the world market situation in their favour...

…The imperialistic aspects of modern wars or armed interventions must be seen as part of a dynamic market theory just as the more traditional ‘economic’ activities like cut-throat pricing…For there is no fundamental difference between the two. (Rothschild 1947, 319)

The rise of financial capital since the 1970s has returned us to the capitalist authoritarianism that flourished in the 1920s and 1930s. Market competition is the source of authoritarian rule, and by its nature competition among oligopolies extends to social and political conflict. 

The current authoritarian tide in European and the United States comes from the excesses generated by capitalist competition, unleashed and justified now not by fascism but by neoliberalism.  Neoliberalism pretentiously claims to be the guarantor of freedom – “free markets, free men” was the title of Milton Friedman’s infamous lecture to London businessmen in 1974. Reality is quite the contrary. Neoliberal market re-regulation over the last thirty years has destroyed freedom. 

“Re-regulation”

I am careful to use the term “re-regulation” not “de-regulation”.  During the New Deal period, and during the European post-war social democratic and Christian Democratic consensus, governments regulated capital in the specific sense of limiting its freedom of movement. Tariffs and “non-tariff barriers”, limitations on conversion of national currencies and strict oversight of financial institutions constrained the form and intensity of competition. The explicit purpose of these policies was to prevent the “free flow of goods”, to restrict capital’s cross-border mobility, and narrowly contain financial speculation.

The neoliberal re-regulation does not merely reverse regulation of capital. Neoliberal re-regulation replaces progressive containment of capital with legal rules that actively facilitate the collective power of capital and undermine the collective power of labour.  Neoliberal re-regulation is not the negation of restrictions on capital. Rather, it is the implementation of active policies to limit the scope for governments to act and intervene in economic, social and political spheres.

Neoliberal re-regulation… is the implementation of active policies to limit the scope for governments to act and intervene in economic, social and political spheres. 

During the New Deal and social democracy in Europe governments regulated capital. In the neoliberal era capital regulates government.           

The central purpose of neoliberal re-regulation is to remove economic policy from control by representative democracy. This requires not only economic re-regulation but also social and political re-regulation.

“Ordoliberalism”

Perhaps the clearest example of enforcing limits on representative government is the right-wing German economic ideology “ordoliberalism”.  The term combines two words, “order” and “liberalism”.  This is not a philosophy of de-regulation; rather it is a philosophy of restricted democracy that advocates strict rules – “order” – to limit governments from enacting legislation that deviates from neoliberal principles. 

Ordoliberalism’s combination of neoclassical economics and emphasis on the state establishing rules to enforce that ideology yields an explicitly anti-democratic system of governance that is now deeply embedded in the two major treaties that serve as the constitution of the European Union. The current German government has spent over a decade successfully inducing other EU governments to legislate limits on their legal scope to design and implement economic policy. Examples of the ordoliberalism approach in the United States are the legislation setting the public debt ceiling and central bank inflation targeting.

Media control

The most odious re-regulation in the interests of capital has been legal measures to weaken trade unions and other popular organizations and movements.  Central to that weakening has been the consolidation of financial capital’s control of the media, itself facilitated by legal changes. This control of the means of communication is central to the re-regulation process that liberates capital. Media control facilitates the propaganda to minimize and deflect criticism, even recognition, of the criminal excesses of capitalism.

Imposing legal and extra-legal limits to personal freedom in the neoliberal era derives both ideologically and in practice from the dogma of market freedom.

Democratic facade

Imposing legal and extra-legal limits to personal freedom in the neoliberal era derives both ideologically and in practice from the dogma of market freedom. Adam Smith’s ahistoric view that markets arise as a “consequence of a certain propensity in human nature... to truck, barter, and exchange one thing for another” could not be further from the reality of capitalism. So-called free markets must be enforced, enforcement achieved by re-regulation by capital. Over the last forty years this re-regulation involved a decommissioning of representative government while maintaining it as a rhetorical facade.

The active regulation of market processes in the United States in the 1930s and Western Europe after WWII suppressed the authoritarian tendency inherent in capitalism.  The re-regulation by capital, especially financial capital, unleashed that authoritarianism.  The emergence of finance capital, so-called financialization, brings to full expression the anti-democratic nature of market processes. 

At the outset of the twenty first century the great oligopolies and powerful industrial corporations about which Rothschild wrote no longer drive the destructive force of capitalist competition. Finance capital not the huge industrial predators of the twentieth century drive competition in this the globalized twenty-first century. The hegemony of finance capital brings forth overtly authoritarian political dictatorship undisguised by democratic trappings./OD