History resumes


If nothing else, the European crisis is bringing us back to a timeless reality: power is what matters in human affairs. My esteemed colleague Houses & Holes has long argued for the importance of looking at political economy; the intersection of finance, business and politics; the true matrix of power. It was always a compelling position, and the interesting point was why his view seemed unusual. Hasn’t it always been the case that what mattered is political economy? Who pays, who is in control, where the big money is? It is something of a measure of just how much the tautologies of what is variously characterised as neo-liberalism, economic rationalism or financial de-regulation have been uncritically accepted as quasi-scientific truth.

The reason for this intellectual oddity is what Phillip Bobbitt, in his magisterial book “The Shield of Achilles” describes as the transition from the nation state to the market state (previous iterations of the state were the princely state, the state nation and others). In the market state, financial pseudo-logic rules. The demos and the polity must bend to the markets’ will. Return on investment trumps democracy, civil society, social imperatives. That is precisely what we are seeing occurring in Europe right now. The markets have to be appeased: Berlusconi must resign, referendums in Greece must not be allowed.

The weakness of the nation state was, obviously enough, nationalism and the march of racism and prejudice. World Wars and the horrors of imperialism were the result. The weaknesses of the market state are now starting to emerge. It does not care about people, it only cares about money. As people become aware of this, deep questions will be posed about the legitimacy of the market state. The weakness of Europe, as described by Edward Carr is that it never had support from the demos, in large part because it was first formed as an, ultimately successful, bulwark against communism and fascism (as Bobbitt comments communism and fascism were two versions of the nation state). In America, the Occupy Wall Street movement is probably just the beginning of the political backlash to a disappearing middle class.


Part of the sleight of hand of the early phases of the market state is that democracy and the free market were seen as two sides of the same thing. It is true that the market is made up of people, but this was always rubbish. There is no “trickle down effect”; given the chance the rich keep their money and get richer and the less well off can go hang. In democracy it is one vote, one unit of power. In markets it is one dollar, one unit of power.

That falsehood is now being exposed. Ordinary people are beginning to protest as they are forced out of the middle class and the compact between big business and the middle class — the need to pay workers well so they will buy the products created the business that employs them — is destroyed by globalisation and the outsourcing of labour to low wage countries. As James Fallows says, the Tea Party movement and the Occupy Wall Street movements are responding to the same problem: the social bargain in America has collapsed.

At the moment, we are seeing the nation state at war with the market state. Not least because sovereign debt crises put national governments front and centre. That tension between the nation state and the market state will probably last years, if not decades.


But if Bobbitt is right, it is hard to see the market state being held back indefinitely. Global capital flows are larger, by orders of magnitude, to “real” economies. The trillions of Italian debt are minute compared with such flows (the notional equivalent of only a few hour’s trade). I believe the nation state should fight back by taxing these capital flows (the Tobin tax) but its leaders seem to be paralysed, unable to act.

The question is what will be the political structure of the emerging market state? Will it be able to sustain a middle class? Because if it can’t, as South America showed for much of the twentieth century, it will polarise and become brutal. It is quite likely that the market state will throw up different political philosophies in the same way that the nation state threw up democracy, communism and fascism. As Kenneth Courtis comments: “This is the big one”. He means how the leaders of the nation state will cope with the market Leviathan. But it is the “big one” in other ways. It is asking deep questions about the politics of the emerging market state. Something similar to last centuries’ battle between democracy, fascism and communism may start to appear.