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.

Comments

      • This is one of the most profound statements I’ve ever read on this blog:

        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.

        The key question is how do we achieve this? As Lucius points out below, deficit spending in the developed world has simply bred a culture of entitlement and laziness, and further destroyed our competitiveness.

        The developed world needs to be put back to work making things. We can’t survive selling services to each other, selling inflated assets to each other, or (in Australia) digging up dirt. Our citizens need the opportunity to work hard to produce goods for local consumption and export.

        If we don’t act soon the West will completely lose the ability to produce any of the goods we rely on. If nothing else, this is a huge security issue.

      • Lorax, if you follow this through a little, you tend end up with a protectionist argument, right? That’s the problem I see, I wish I had a good answer. Ultimately the stand-alone services industry will falter (ie no jobs), and the realisation will sink in that we need to ‘productise’ our economy.

      • I agree entirely. I’m not a protectionist, but like you, I don’t have a good answer.

        Labour costs in the developing and developed world have to converge somehow. That’s starting to happen with Chinese labour costs rising, and US labour costs falling (due to the very weak US dollar). Its clearly not happening in Australia because we are riding a bubble in the price of dirt, which threatens our ability to do anything else.

      • Flawse has alerted readers many times to the changes taking place in China It remains that wages are still far below those of Western nations and as part of the natural evolution of globalisation, Chinese manufacturers may/will in turn move production to ‘cheaper’ countries – although probably not a broadly as many think.

        Mining “…which threatens our ability to do anything else”. Seriously? Gross exaggeration methinks!

      • ‘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’

        Lorax, may make sense on one level, but not on another.

        Like it or not globalisation has provided great benefits to developing economies, corporations and global consumers. At consumer level we have all enjoyed the barrage imported goods, from clothing and footwear, to hardware product, industrial equipment, cars and aircraft, defence supplies, toys and kids stuff, electronic goods and of course nearly all modern technology – provided at low-to-very-low cost comparative to domestic manufacture.

        Indeed ‘the need to pay workers well so they will buy the products created the business that employs them’ may be better directed to factory workers in China and Mexico than to us in the developed west. Their needs relative to ours surely more pressing.

        For a couple of decades now we in developed economies have in (occasionally superficial) terms benefited from offshoring – believing we were firmly on the march to ‘clever’ tertiary service sector economies and there is an element of truth in that, for a while it seemed we were. Dalia Marin Prof International Trade Munich) warns that into the future, many services jobs themselves (engineering, technical, IT, routine legal etc) are likely to be offshored. Alas, we are now coming to understand that the robustness of much of the services sector has been built on the back of one of the biggest credit bubbles in history. Not built on a genuinely diverse and robust domestic economy with manufacturing as a base. This supremacy of services will be sorely tested over the next weeks and months and even years as the international finance sector, if it does not implode, recalibrates to a world of reduced growth. It is recognition of this prospect that has caused many, somewhat belatedly, to express concern over the direction globalisation has taken.

        We in the west have been major beneficiaries of a globalised economic world. We have happily transferred ownership of companies to international interests, we have happily offshored much manufacturing in order to both compete domestically and please shareholders. As consumers we have been totally complicit in this opting for cheaper product – making us feel ‘wealthier’, we can afford lots of ‘stuff’. Few questioned the long term merit in the gradual reduction of manufacturing capability, the gradual diminution of employment in the manufacturing sector (which traditionally has been a reasonably strong employment sector, although granted technology developments have impacted). Too busy enjoying this new found ‘wealth’ we had achieved, ignorant of its ephemeral nature. I recall reading something along the lines of “we fooled ourselves thinking that with the importing of cheap goods we would not at some point also import lower wages and deflationary pressure” – if I can find it I will link to it.

        This is where it gets tricky or if you like, a moral question: There are now growing calls for the end of globalisation, for countries to reinvigorate domestic manufacturing, impose tariffs on goods from China, etc. Move the goalposts. So that we in the west suffer no hardship or financial pain in a shift to the new-normal global economic paradigm. What of the developing nations that have so successfully filled these production roles we no longer wanted to participate in, only to profit from? Pull the rug from under them? When we have so much and they so little? Is this the right direction? Will we be prepared to pay the real cost of product if manufactured domestically…I doubt that and this is why the globalisation will not come to a rapid end unless on an international level there is a return to protectionism. I may be completely off the mark but I can’t see that happening on a major scale – the aforementioned financial benefits of globalisation too compelling for business and government (although I would expect some sections of politics to argue vigorously for protectionism on social grounds).

        In regard to Australia I do think we should exploit our comparative advantage, further develop mineral and metallurgical specialisation – these activities we do very well and are not available to landmasses less rich in natural resources that are essential to all aspects of modern life.

        (I should say I am not opposed to a very ‘modest’ percentage domestic supply requirement in major projects, defence and infrastructure but not a wholesale return to the protectionism of old).

        Cheers.

      • As always, you have eloquently described the problems with a services-only economy that speculates on asset prices fueled by ever-increasing debt.

        But you have completely ignored the equally damaging effects of the resources boom on Australia’s economic diversity.

        I think many here would take you more seriously if you acknowledged the downsides of the resources boom every now and again.

      • 3d1k,

        You have some quaint, old fashioned ideas – “comparative advantage”, “mineral and metallurgical specialisation” … sound like words from an old style economics text book. What this article refers to is that there is nothing natural about an economy. Economies did not exist before humans began to shift from hunting and gathering to herding and farming 10,000 years ago. Humans created economies when they developed the first towns, then cities and people began making pottery and other stuff that had never previously existed and traded it in exchange for other stuff.
        Humans are still trying to work out how economies work.

        It took centuries for western societies to develop reasonable levels of equality of opportunity. What we have now entered is a time when that is being unwound. Instead of a noble class who, in earlier centuries believed they were entitled to wealth because they were innately superior, we now have a minority in senior positions in large corporations who are the new princes, with a sense of entitlement to a disproportionate share of income. They attribute business results almost exclusively to their efforts, ignoring the fact that those results are impossible without the people who buy their stuff. Those people are the market and most are not paid a disproportionately large income.

        As the article points out, the assumption is that there is a Law of the Market that overrides other social considerations. But, as Adam Smith wrote (and most economists ignore) the self evident maxim is that “Consumption is the sole end and purpose of all production ….but .. the interest of the consumer is almost constantly sacrificed to that of the producer”.

        The most successful economies are all high trust societies. The factor most damaging to trust is inequality.

        During the middle half of the 20th century the US was a high trust, egalitarian society. From 1980 on equality and trust declined. By 2007 the US had returned income distribution to the same it was in 1929. Throughout the 1930s the US was almost stagnant, with low growth, before plunging into another recession in 1937.

        One of the consequences of the war effort was that the income share of the top 1% plunged from its peak of 23.5%. During the middle half of the C20th the US economy was the driver of the world economy and income share of the top 1% was below 10%.

        From 1980 on, the US returned itself to the same position as in 1929. Time will tell whether the few with the power to suck out a disproportionate share of income have again sucked the resilience out of the economy, condemning the US to another long, slow grinding recovery over the next decade.

        As Stiglitz has pointed out, the nominal US GDP needs to be marked down because so much of it is allocated to a finance sector that serves itself, not the people who both provide and use the funds (instead producing toxic cocktails that burned investors and borrowers), and a “health” industry that is so expensive that most Americans cannot afford it.

        The Comparative Advantage you so quaintly put so much trust in is a low level advantage that creates the same imbalances in the Australian economy that exist in Europe. A mining boom in the 1980s increased the value of the AUD, flattening manufacturing and precipitating a flight to offshore sourcing. The same is happening now. If the Australian economy was even more dependent on mining, the AUD would be even higher, so what is happening is that the existence of other industries that are sufferng actually keeps the AUD lower than it would otherwise be, improving mining profits – the same process that is underwriting trade success of a few countries in Europe, while undermining the economies of others.

        Humans are still experimenting with how to run economies, as they have been for the last 10,000 years. So far, it looks to me like we have learned very little from recent centuries and are destined to make the same errors that humans have been making since the collapse of the previously successful northern Italian republics in the C14th.

  1. +1 .. History repeats as well. European colonial domination in Asia started off in the form of various East India Companies. Now there is just a lot more pretendemocracy.

  2. An excellent article.

    “In America, the Occupy Wall Street movement is probably just the beginning of the political backlash to a disappearing middle class.”

    The backlash started with the Tea Party. The Left wing has ignored this fact and tried to denigrate them, but this was the start of the US middleclass saying somethings wrong and we cant go on piling up debt.

    The EU madarins do not support democracy but prefer to run the ship themslves without referendums or elections if at all possible. Von Rompuy said last night that Italy needs reform not elections and we all saw how the referendum in Greece was stopped. Cameron has also backed away from a referendum he promised Britons in the last election.

    The mandarins in Brussels and the EU politicians have too much to loose to see the EU go belly up. As a result, in my opinion, a break-up of the EU will not occur until the taxpayers of the EU and the world (via the IMF, Gillard et al) have been squeezed of their last dollar in new taxes to keep the EU afloat.

    There are many international comentators now saying we are getting dangerously close to a 1930s scenario when a little Austrian lead a movement which was helped by disasterous economic circumstances.

    • The backlash started with the Tea Party. The Left wing has ignored this fact and tried to denigrate them, but this was the start of the US middleclass saying somethings wrong and we cant go on piling up debt.
      .
      There is an important difference between OWS and the Tea Party. OWS has almost been completely ignored by the MSM and has received no corporate patronage of any kind
      ..
      ..while the Tea Party received disproportionate coverage and even corporate sponsorship from Murdoch (via Fox News) and Koch brothers (via FreedomWorks and AFP).

    • “The backlash started with the Tea Party. The Left wing has ignored this fact and tried to denigrate them, but this was the start of the US middleclass saying somethings wrong and we cant go on piling up debt.”
      Yet strangely (well, not really when you consider the people pulling the strings) came to the conclusion that the best solution to being screwed, is to let the people who have been screwing them, screw them harder.

      The Tea Party is an anti-Government movement.

  3. The BurbWatcherMEMBER

    Not bad, IMHO.

    But I would disagree on this point:

    “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.”

    Call me nit-picky (OK, i can be…) but I would disagree with the implication that the status-quo has the market largely separated from the state – I would disagree on the basis that the parts of the “market” that are contributing so much the “the problem” are in fact simply operating within the very privilaged positions systemically designed, setup and endorsed by the state, to suit their own (even if historically inherited) econo-political ideologies.

    So, I would therefore argue, for the pollies to “bend to the market’s will”, they are in fact bending to the notion of preserving the ingrained econo-political paradigm that they have/do either wittingly or unwittinly endorse and preserve.

    It is a Transfer System – ie. when it operates normally, it net transfers money and power from the less-privileged to the more-privileged, systemically speaking. However, unfortunately, I would argue that the system is inherently net entropic – thus, its demise and collapse is assured by the very fact that it exists and that it is a human system.

    Accordingly, I would also disagree slightly with this premise: “At the moment, we are seeing the nation state at war with the market state.”

    By my reasoning, I would argue that we are not so much witnessing the clashing of these two “sides”, as I have implied above, that their is more systemic overlap and commonality of the two sides than there is not. Consequently, I would instead argue that we are seeing an increasing frequency and magnitude of “casualties” as the system is doing what it was always going to do: break down whilst still transferring money and power from the less systemically privileged to the more systemically privileged.

    Hence, the distinction between Market and State, I would argue, is not nearly as clear as we might like to think.

    Yet, in agreement and keeping with one of the themes are your article, power – it’s preservation and its transfer – remains a key notion of the status quo, but, I would argue the nature of the Principality may not be what we think it to be.

    Instead, the privileged – such as the Finance Sector, who, for example initiate the creation of money on behalf of the govt, out of nothing – have the system-role as agents of the econo-political paradigm.

    Instead, I argue, the distinction is very gray, such that there is only a slightly difference/non-overlap between what is the Nation State and the Market State – they are part of the same Transfer-based, entropically inclined, econo-political paradigm, and operate accordingly.

    My 2c

    (be nice! ;))

  4. I fear this article is conflating the US situation and the European situation to an extent not justified by the facts. In the US, there is clearly a hollowing out of the middle class, with people who once might have considered themselves lower middle class (eg auto factory workers) achieving zero real wage growth over the last 30+ years, while the upper middle class incomes have gone up maybe 60% and the incomes of the rich by 130% or more in real terms. This is at least partly because continuing high migration, together with a deregulated labour market and competition from overseas combined to drive the wages of unskilled labour down. This process probably still has some way to go before the falling US wages meet rising developing world wages somewhere in the middle. Some of the adjustment has also taken the form of jobs being moved offshore.

    The crisis in the US stemmed from excessive private sector borrowing for consumption purposes, at least partly in an effort by some Americans to sustain a standard of living that their wages could no longer support. Much of the consumption was in the form of housing, with the collapse of a large housing construction sector having large flow-on effects which have led to the current levels of unemployment.

    In Europe, on the other hand, high levels of labour market regulation led to chronically high levels of unemployment which, combined with high levels of middle class welfare and an aging population, put national budgets under unsustainable pressure. Rising immigration from Africa and the Middle East has further compounded the problem, as well as leading to social pressures of its own. Governments coped with the problem for many years by continuing to bribe the populace with welfare subsidies while borrowing the money to make up the budget shortfall. This process has reached its logical conclusion, with even Germany’s government debt exceeding 80% of GDP. Now this debt needs to be unwound.

    So although in each case debt is a major contributor to the current woes, in one case it is private sector debt that brought issues to a head, while in the other case it is primarily government debt.
    In Australia we have borrowed a little from each situation, but fortunately have (so far) avoided succumbing to the worst excesses of either. We certainly have had a housing bubble, but at present borrowers, although under stress in some instances, still seem to be holding up (just). Our national government has avoided excessive debt to date, although Howard’s middle class welfare reforms have left it with a legacy that might yet come back to haunt us. Our somewhat better labour market flexibility, plus the much better control we have over illegal immigration, has avoided the many problems faced by most of Europe. Our state governments have struggled in recent years to meet the expectations of the people, caught as they are between being the major dispensers of funds and the minor collectors. Thankfully they have not yet incurred excessive debt.

    Enough raving from me. Over to the rest of the MB community.

  5. There is a lot of confusion caused by the expression free markets.

    For some it means it means markets that are free of distortions and red tape which cause inefficiency and higher costs.

    For others it means a particular and highly selective view of what markets should be free and what that freedom means.

    It would be preferable that people use the term crony capitalism or something along those lines when they have that in mind rather than ‘free markets’

    Just because dissembling economic manipulators hijack terms like free markets doesn’t mean we need to accept their spin and weasel words.

    Unfree inefficient, gamed and distorted markets is a better description of what Wall Street etc have in mind.

    Nothing a trader likes less than a boring market that efficiently brings producers and consumers together.

    Though they may not like each other the OWS on the Tea party are reacting to the same rotting smell.

    • When I read “free markets” I assume what is actually meant is “competitive markets.” Truly free markets are mutually exclusive (in the long run, or in some cases even the short run) with competitive markets since the inevitable result of true freedom is pacman behaviour leading to oligopolies/duopolies/monopolies. In the olden days it was therefore deemed more important to apply restrictions to the freedom of markets (think anti trust laws) to try at least to ensure competition. Nowadays we seem to have neither free markets nor competitive markets.

      (of course we may never have truly had them in the past either but things look rosier in the rear view mirror.)

      • “Truly free markets are mutually exclusive (in the long run, or in some cases even the short run) with competitive markets since the inevitable result of true freedom is pacman behaviour leading to oligopolies/duopolies/monopolies.”

        A very good point. Unregulated markets don’t function well.

        The interests of a market are usually at odds with the interests of the individual. E.g., it’s important for the market that prices are publicly disclosed, even though market participants would often benefit from them staying secret. Symmetry of information only occurs when it’s legally required.

        Even Adam Smith knew this, but most Smith fans either don’t know that, or don’t want to admit it.

      • “Unregulated markets don’t function well”

        Hear Hear.

        So it follows that they MUST be regulated. That role falls on the government (as the representative of the people, in a democracy), but for God’s sake it needs to have some balls to go up against the corporate PR machine.

        How do we build a system that acts as a fair umpire that maintains the system for the benefit of the people that is resistant(impervious even) to corruption?

      • Although truly free markets can lead to oligopolies/duopolies/monopolies, these tend in the end to be unstable. They get complacent and get overtaken by new, more nimble competitors, or they branch out into industries they don’t know as well and end up in trouble, or they get completely sidelined by a new product that makes theirs obsolete. The one thing you can be sure of with free markets is that things will be constantly changing. In this respect it is a bit like the evolution of species, with products and services filling the role of the species and mankind filling the role of the environment. There is a constant struggle for survival, even for the successful.

      • Agree – competitive markets are the important thing.

        My concern is that too many throw the baby out with the bathwater and when railing against non competitive markets by using terms like ‘free markets’ they are losing sight of the importance of competitive markets.

  6. I can’t give this article just +1, it’s serious and it’s scary.

    As a Gen-Y saver reared on a steady diet of globalisation, economic rationalism and laissez-faire regulation under the guise of ‘economic reform’, it feels almost heretical to say that my faith in the concept of free markets, indeed even in the fundamental productivity of the worldwide financial system, trends closer to zero with every passing day.

    I entered the workforce in 2007 and despite the maddening pressure from all corners to buy a house, I have exercised extreme caution in my approach to the real estate Ponzi. Now I park my capital in my credit union, and watch helplessly as my savings are inflated away by central bank bond purchases to preserve the odious credit that rests on the odious debt of my aspirational peers. At the same time, I’m seeing the democratic principles and essential public services I have been raised to trust and rely on being steadily overthrown in silent coups orchestrated by financial technocrats. This is not true capitalism, the market is being perverted to create crony capitalism. We’re witnessing sovereign democracies falling into oligarchy, and this needs to be recognised and named as such if it is to be challenged and reversed.

    While I agree that OWS presents a hope for a peaceful resolution to this crisis, realistically I’m expecting the current course to continue and accelerate until a critical mass of the Western middle class wakes up to the fact that a new order of financial austerity has been instituted without their knowledge or consent. The logical consequence is radicalism, followed by authoritarianism, with or without the diversion of wars of aggression.

    I’d like to share a sample of urban American poetry inspired by the impact of the leading edge of this oligarchical model onto South America’s middle class. In doing so I’m to achieve what I believe will be a MB first: on-topic economic expressionism via the medium of underground hip-hop! The bonus for listening to the very end is an amusing Ronald Reagan snippet – enjoy! (sfw)

    Immortal Technique – Open Your Eyes; http://www.youtube.com/watch?v=sHuPBf89APY

  7. This post seems to suggest that the nation state has been supplanted by the power of “the market”. This has been a very common refrain from both the left and the right since at least the 1840’s. It is an interesting area, with many intersecting ideas and themes, which to some extent have a circular quality to them.

    Economic philosophy posits the existence of “market forces”, taken as a theoretical abstraction, that arise directly from human nature as expressed in a social context; it suggests these forces exist independently of legalisms such as geographical boundaries, the concept/s of property or the invention and development of money.

    This view suggests that at least in part economic forces both account for and propel human behaviour. There is very little opposition to this idea, which, at its simplest, suggests that economic activity is both spontaneous and self-sustaining.

    From this simple-enough proposition, further strands of thinking have evolved, with which we are all very familiar.

    A primary line of thought holds that “market forces” left to themselves will “liberate” human effort and creativity and give rise to welfare-optimizing processes of production, exchange, investment and consumption.

    From a modernist perspective, part of the moral appeal of this view is that it places the consumer at the heart of economic activity, which is to say the satisfaction of everyday, universal human needs and aspirations – rather than the accumulation of wealth for its own sake, for example – is seen to be the very reason for allowing market forces to operate freely.

    This in turn has given rise to the theory of consumer sovereignty and to the definition of a series of customary rights as well as both contractual and extra-contractual legal rights that consumers can expect to exercise.

    As a parallel, the concept of consumer sovereignty stands alongside the idea that political legitimacy derives from popular consent given by the free exercise of democratic choices.

    In this construct, the right to vote and the right to consume have been twinned and joined to a whole series of complimentary rights, including particularly the right to own property of various kinds, the right to hold and freely move and risk one’s capital, the right to bargain one’s labour individually and/or collectively, the right to form and run corporations, and the right to vote on how to extend or abridge these personal economic rights.

    These ideas are now so cross-linked that it is more or less impossible to imagine a society in which the right to vote is separable from the right to work or the rights to create a business or to save and consume.

    (However idealised this sounds, at the very least, you would have to say this was an improvement on earlier philosophies, which defended slavery or serfdom as both necessary and just means for the operation of any economy.)

    A further line of reasoning has evolved from the fusing of individual political “rights” with economic rights. Almost as a matter of definition, “rights” have meaning only when expressed and applied as principles of law. And of course, law is fundamentally a matter of authority or power. So organized economic activity requires the operation of legislative and judicial processes, and therefore necessarily become politicized. This is merely to state the obvious. However, from this we can further observe that all commercial activity – all production, trade, banking, employment, investment, tax-collection, property-creation and every other like process or activity – has been and will continue to be carried out within legally-defined, national jurisdictions.

    That is to say, without exception, economic activities are subject to national laws or, occasionally, to international laws which have come into existence by virtue of treaties between nation states.

    While this is certainly the technical reality, nonetheless some vital and very large-scale economic processes seem to have escaped from the range of matters that can be decided or controlled by our accustomed democratic means or institutions.

    From my point of view, this is accentuating the paradoxical nature of our circumstances. We are accustomed to believing that our destinies are matters of choice. That is to say, by exercising our discretion as voters or as consumers or as workers or savers or investors, both individually and collectively, we expect to be able to determine our economic and political circumstances. Clearly, at this juncture, this is seems impossible, even absurd.

    We can see the system is malfunctioning. The rise of mass unemployment, the return of fiscal instability and financial overload, the creation and bursting of serial bubbles, the loss of political consensus and effectiveness, the occurrence of both inflation and deflation at the same time and the scenes of civil disorder all depict a system that has gyrated away from predictability and even continuity.

    Various diagnoses are offered from both the left and the right and they usually overlap. The accusations are made – either the political system is failing or the market system is failing or both are failing at the same time. There is not enough regulation or too much. There is not enough market freedom or there is too much. Political institutions have become quasi-subsidiaries of corporations, or they have not been even-handed in the exercise of their power.

    I tend to think that both the political system and the economic system are working much as they always have, but that we have not given enough forethought to the propensity of our economic systems to become unstable and to develop self-destructive feedback loops.

    The very worst and most self-defeating reaction has been from those who say that economic management and political intervention are neither possible nor desirable, that in fact any attempt to make things better will only make them worse. This takes us into a logical regress within which human reason and choice become meaningless.

    I think the problems we have are of our own making and I think they are therefore capable of being understood and solved. I think we need to reflect, ask good questions, develop real answers, use our powers of reason and the depth of our convictions. Armed with intelligence, self-belief and democratic methods, we can solve the problems with which we are beset.

    (Great Post S-o-N, very thought-provoking, as usual !!)

    • If I were to to sum up your post.. briefly.. I would say, “Our problems are our own making, and we must use our faculties to solve them.”

      I know it’s a career-killer in the academy these days, but breaking away from farcical grandiloquence wouldn’t be the worst thing you ever did.

      • Lucius, making unsupported assumptions about what I do or don’t do would be a good way for you to start to improve both the logic and the tenor of your arguments.

      • Presumably you mean refraining from making such assumptions would improve the logic and tenor of my arguments? You would be right. I was in a such a bad mood a bit of trolling on the nearest post was unavoidable.

  8. What a load of pseudo-intellecutal reality-denying garbage. I genuinely respect H&H, if he is in accord with this waffle, it is a blight upon what ought to indeed be an esteemed name.

    What is incredible is that you have actually summed up the precise opposite of what has actually happened in Europe (and what is happening in the rest of the indolent, decadent and entitlement-addicted developed world). How can European nations possibly be considered “market states”? Social democracy dominates Europe; in general the market is palpably subservient to the state. This is self-evident. Only a pathological anti-market bias could induce one to survey Europe today and conclude its woes stem from an unhealthy commitment to free markets. Even then, the best one could do would be to blame capital markets for having the temerity to cease pricing sovereign debt at levels that deny the plain insolvency of the Club Med nations.

    I just don’t understand where people get off trying to pin this on the diabolical bankers. The same people demonizing bankers today didn’t seem to have a problem with them when the entitlement-indolence complex was ravenously feeding upon itself through deficit lunacy. Oh no. Back then the bankers were the demos’ best friend. Now it’s time to foot the bill and the true Leviathan (the state) has decided that looking in the mirror to find the source of its travails is too confronting. I’m all for burning creditors that were stupid enough to tip money into the welfare black hole to begin with, but let’s not pretend the demos wasn’t a collection of willing, indeed eager participants in this process.

    If a rejection of the (non)market state is what you desire, fine. Let European basket-cases default, let them swear off ever turning to capital markets again for financing to fund their lavish lifestyles, let them turn back to the clock to whatever fantasy time you imagine to be superior to the money-dominated epoch we find ourselves wallowing in. I actually don’t have a problem with that if it leads to these societies learning a few basic lessons in thrift. But guess what? That will only work if a true market economy is embraced, one in which the demos actually generates the wealth needed to sustain its lifestyle. Somehow I don’t think that’s what you’ve got in mind.

    Ironically, another summary of Europe’s pitiful circumstances appeared in the Oz today; one which is diametrically opposed to your own. The key difference is that the author is absolutely right whereas you are absolutely not.
    http://www.theaustralian.com.au/news/world/europes-social-failure/story-e6frg6ux-1226193115669

    • Some good points there, Lucius. To your comments about the profligacy of European governments I’d add that the “Club Med” countries, as you so colourfully put it, have a chronic productivity problem. Example: Italian car factories, average output of 30 cars per worker per year. Polish car factories, 100 cars per worker per year (probably better quality, too). Italian car workers’ wages = 3 X Polish car workers’ wages. How can anyone think that is sustainable?

      • I’m not sure where your stats are derived, however it is interesting to note that in the years 2000-2010, vehicle production in Italy fell 40%. Fiat, which represents more than 90% of Italian production, has been a major investor in the Polish auto industry and in auto manufacturing in South America. As well, the Italian market has become increasingly import-penetrated over this period and the export-share of auto production remains relatively small. By contrast, exports represent more than 40% of German output.

        It is also worth recalling that labour productivity in auto manufacturing is only modestly influenced by labour cost and quality. Most of any change in productivity is determined by capital investment. Fiat has chosen to invest in locations outside Italy and to supply its Italian plants with components from these sources, with the result that the import share of Italian-finished autos is about 35%. This ranks with French auto-making as the highest import share among European auto producers. From the data I’ve seen, Italian labour productivity (unit output/worker) is not much different In Italy compared with other locations. There are differences in labor cost, but the most significant differences are in what kind of products the Italian industry makes compared with, for example, the German industry.

        No doubt Fiat’s investment decisions have been partly driven by rigidities in the Italian labour market and by the labour cost advantages offered in Eastern Europe. But at the same time, this should be seen as part of a trend in place since the early 1990’s. This has seen the progressive relocation of production of mass-produced low-medium priced vehicles out of Italy, France and Germany (and Australia too, for that matter). Production of vehicles that sell in price-sensitve segments is increasingly heavily concentrated in Eastern Europe, Latin and Central America and Asia. This is true for all makers, not simply for Fiat.

        Only the Germans, who derive 20% of all their total exports revenue from auto sales, and who have been able to develop brands that can compete on terms other than price, have been able to expand their domestic auto industries. Needless to say, production by German makers – especially by VW – in locations outside Germany has greatly outpaced production in Germany.

      • Very informative. A commenter at MB recently pointed out that Italian car workers produced 30 vehicles per worker a year, their Polish counterparts 100!

      • I think the point is that the productivity (unit output/worker) in, say, Fiat plants in Poland, Italy or Brazil is likely to be pretty much the same.

        However, there will be enormous differences between the productivity at Ferrari or Lamborghini compared with Fiat, no matter where the Fiat production occurs. Bearing this in mind, since no Ferrari manufacturing occurs in Poland, it is not so easy to compare Poland and Italy.

        What is certainly true is that, say, comparing Germany and Italy, the cost and flexibility of labour supply has deteriorated in Italy, while the exchange rate system has also advantaged German manufacturers (who supply high value-added brands) and disadvantaged Fiat (who sell cheap products). As a result, Fiat have outsourced their production so they can maintain price competitiveness in their market segment. Even so, Fiat has been losing market share in Italy.

    • You are perhaps misunderstanding what is meant by market states in the context of this article. In fact, you seem to be reading more into this article’s conclusions than actually is there. Reading too much output from those grandiloquent chaps at the Centre for Independent Studies will do that to you.

      PS Your link is behind a paywall. Why pay for something you would otherwise scrape off the bottom of your shoe ?

      • Oh, what a joyously trite response. I don’t much care for the article’s conclusions; it’s false diagnoses are my concern:

        “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.”

        That is simply not what is happening in Europe right now. For decades the markets have been bent to the will of the demos; a demos of fainéants whose sense of cultural superiority is so profound they consider high living standards a right not a privilege, who believe they entered this world with a debt owed to them by both their forebears and posterity, and who were more than happy to vote in leaders that enshrined utterly unsustainable government expenditures in flagrant violation of simple mathematics. And while we’re on the topic of logic, exactly what is meant by ‘financial pseudo-logic’? Would that include ridiculous suggestions such as ‘only borrow what you can afford to repay’?

        When the crisis took hold, the chorus of shadenfreude seeping out of the decrepit Old World was nauseating. Ah, this is what we’ve been telling you freewheelin’ Anglos all along, our continental restraint is the superior model! Le laisser-faire, c’est fini! Hell, we even had the PM of Australia pen a rather excruciating piece on the triumph of social democracy and state-directed capitalism that was wide of just about every mark conceivable. (How this ubiquitous condemnation of liberal economics can be considered an ‘uncritical acceptance of neo-liberalism as quasi-scientific truth’ is completely beyond me). Yet now that Europe’s social democracy has been found utterly wanting, all of a sudden we see this nonsense being trotted out about Europe being overly exposed to the ravages of the market! How completely divorced from reality one must be to swallow such hogwash.

        Thanks for the additional bland smugness in the post script. It is nice to see the progressive mindset in Australia has sunk so low it now doesn’t even bother countenancing the possibility of other perspectives, even as its own philosophy crumbles like the degenerate chimera it always was…

      • So to reduce your argument to its bones, avoiding ‘grandiloquence’: when the contract between debtor and creditor becomes distressed, the debtor should carry the can for misguidedly putting faith in the aspirations their creditors have ever-so-innocently enabled?

        In pointing the finger of blame at the demos, or the continental ‘99%’, for their financial woes, you distract attention from the malign influence of financial rent-seekers who successfully lobbied all Western nation-states for the policy deregulation that enabled this entitlement mentality to ‘extend and pretend’ for years, under the mantra of infinite growth and trickle-down economics. You also fail to acknowledge the widespread extent of the problem outside Greece and Italy – consider that the rest of the Western world is facing a similar problem evidenced by harsh austerity measures lined up for the UK, the US, the Emerald and the Apple Isles.

        I humbly submit that you are engaging in a convenient exercise of blaming the victim. This is a cbaracteristic of a bully – be careful not to trip over your own entitlement mentality.

      • i don’t think it’s blaming the victim so much as trying to be honest about the game (and not necessarily succeeding)

        here’s everyone’s primary strategy: get (as big) a piece of the pie (as possible)

        everyone wants a piece of the pie and how we achieve getting and holding on to whatever piece we can get will be just a tactic – some will use group power to grab some pie and hold it so the group can share it others will use force and others cunning etc

        everyone will claim their tactic is legitimate and those whose tactics are mutually incompatible will accuse the other of unfair play

        Lucious is pointing out what he considers to be a simple rule of the game – that there should be no team players – ie that it should be every man for himself and the referee’s job should be to ensure that this is upheld

        he also asserts that the team players have been made of of teams that to date have been able to win large slices of pies and expect to continue to do so – even if it means bribing the referee or ensuring the referee is really on their team

        underneath all ethics is a simple rule of nature: there will never be enough pie for everyone

        i suggest that we have been living in a world of very big pies for a long time and everything that plays out now will be about how the world deals with both smaller pies and more players

        we’ve been kidding ourselves that the referee exists (we call him “politics”)

        but the real ref is nature and i don’t think nature will listen much to our complaints

        pop

      • Yes yes, the evil moneymen held a gun to the head of every man, women and child comprising the continental ‘99%’ and said, ‘You must accept an unsustainable welfare state or else!’ You know what sucks the life out of financial rent-seekers eager to profit off unsustainable budget deficits? Budget surpluses. If Europeans had even a modicum of interest in abiding by their deficit limits during the good times, their monetary union wouldn’t be in the terminal state it is now. It’s that simple. There really is nothing else to it.

      • I think you are wrong to conflate the 99%, economically illiterate working-class people, with the short-sighted political and economic elites who co-authored these unsustainable policies. IMHO these are the ‘lazy, unproductive types’ that have been partying [b]at the helm[/b] of the unsinkable deficit boat Titanic for years. Also how’s the US national deficit looking? Just sayin’..

      • Typical. The intelligentsia has nothing but contempt for the 99%. I am dumbfounded how anybody could seriously claim that 99% of Europeans are economically illiterate… have you ever actually spoken to a European? Are you aware of the levels of tertiary education in these countries? It’s not the 13th century, we’re not talking about unlettered peasants here. European citizens voted in politicians that sustained or expanded the entitlement-indolence complex because they didn’t want to accept that living standards are dependent upon productivity, not the accumulation of debt. In your mind, only ‘the elite’ are capable of doing bad stuff. News flash: personal responsibility is universal.

        Why in god’s name would you try to catch me out by using the US as an example? Do you think that, in my antipathy for social democracy, I would hold up the US as a model of fiscal rectitude? The US is just as much of a fiscal train wreck as Europe. If it continues on its current trajectory, its time will come just as the Europeans’ time has come. The USD reserve currency status means the US can prolong the inevitable a little while longer, but unless there are serious structural reforms, the day of reckoning will come.

      • No contempt here, friend, quite the opposite. As an example of economic illiteracy, I think the question of the difference between simple and compound interest would stump the average punter, without even touching the subjects of mortgage securitisation, collateralised debt obligations and the sovereign bond market.

        I raised the US as an example of the world’s leading (biggest) economy, yet not one inclined to frivolous spending on welfare programs, but also on the same course as all of the ‘underbelly Club-Med countries’.

        I simply believe there’s substantially more to the complex issue of the resumption of history than middle-class entitlement, but my arguments seem to have upset you. Maybe we should go back to where we started and try again because you seem like a totally pleasant guy.

    • Well if we are discussing Eurpoe.

      People need someone to blame, and bankers and politicians are convenient.

      It would be completely unnatural for the many to acknowledge that their own want for an easy life funded by the state was the root cause of the problem.

      Add to that politicians who were happy to buy those greedy little votes, and banks who had to fulfil ther BASEL requirements and looked for the highest bond returns without questioning why.

      I don’t see any innocent parties, but it is the many who now riot against the outcome who have the most to answer for, any forensic accountant could tell you that. Vote for the fools who will give you what you want. It’s just like stacking a jury to arrive at a desired outcome, and then calling it justice.

      But they will never accept that.

      • So we are all equally innocent, but some more innocent than the rest?

        I would counter that bankers and politicians are looking for someone to squeeze, and the middle class is convenient.

        Who has had the easiest life in the past 20 years leading up to this crisis? The productive classes, or the politicians and bankers who produce funny money and skim the cream off the work and productivity of others?

        I’m seeing more institutional bias in the comments to this article than I’m used to on MB – social democracy is apparently an expendable luxury. It’s an attitude I find revealing, and alarming.

      • Social democracy not necessarily a malady in and of itself; monstrous deficit spending on non-productive lifestyle luxuries in the face of a rapidly declining workforce is not. Unfortunately social democracy has become defined by this lunacy, thus we sit and stare as it collapses under the weight of its own contractions.

      • Rather muddled, started writing one thing and wrote something else. Social democracy, NOT. Deficit spending, IS.

      • Lucius, consider the very unfortunate turn of events in Spain. Their government had not run up huge debts, but the implosion of their own property bubble in 2007/8 resulted in the transfer of enormous new liabilities to the public sector and precipitated a recession – now 4 years long – from which they have yet to emerge. Unemployment is above 20% and youth unemployment exceeds 50%. The Spanish economy continues to generate a primary income deficit in the external account in spite of 4 years of deflation, from which there is no sign at all of any respite. Because the Spanish cannot devalue and reflate, this income deficit will continue, and because of the deeply recessed conditions in the private sector, the deficit will manifest in the public sector. This is absolutely unavoidable. Furthermore, attempts to achieve fiscal balance will be self-defeating, because they will drive down revenues faster than expenditures.

        The disaster in Spain was and is attributable to the design and management of the Euro system and to the runaway creation of housing-related credit in the Spanish banking system.

      • You forgot to mention the parallel labour markets in Spain. The insider/outsider dynamic in the Spanish labour market is the principle source of its woeful employment figures.

        But I’m not going to argue with you over the idiocy of including the festering Club Med underbelly in the eurozone in the first place.

      • Institutional interest no, but a vested interest yes.

        I have a huge investment in democracy, it underpins the rest of my life and the lives of all of my future descendants. To suggest that no citizen of any country that was in receipt of over generous benefits had no idea that they were receiving more than a realistic entitlement that was affordable in the long term, is to suggest that all citizens have an IQ smaller than their shoe size. Deep down at least it would have been obvious to most, but they chose to turn their eyes away and pretend it wasn’t so.

        Therefore like Pascal, I have to wager that they complicitly accepted what they knew they shouldn’t accept, because to wager otherwise means that my investment, present and future is worthless, and so is yours.

      • I didn’t suggest that. I simply object to a kick-the-dog approach where we pretend that bankers and politicians are beyond reproach in this massive systemic FUBAR.

        If we replace the words ‘democracy’ and ‘citizen’ in your comment, with ‘financial system’ and ‘financial wizard’, respectively, we can see the counter to your argument. I personally think the argument holds weight both ways. I don’t think making a scapegoat of the little guy will do much in the way of preserving the social cohesion necessary for a healthy democracy.

      • I’m not making scapegoats, I’m just not prepared to let the voters off the hook without question, as many do.

        Nowhere did I suggest that bankers or politicians were beyond reproach, in fact I suggested otherwise.

        I have to maintain my assumption that voters are not so self interested that they will continue to make the same mistakes by voting for the biggest handouts, but I have some concerns.

        Politicians were certainly equally as bad, but if they perform the will of the people, and that will is entirely self interest, then what do we expect. In all cases we need to look at the root cause.

        I’m not sure about lending standards for banks in Europe generally. I know that Ireland and the UK were loose lenders, but I just don’t know about Spain, Greece, Italy etc. High unemployment will put bank assets at risk regardless of lending standards. But investment in government bonds has become a risk that they would not have forseen some years ago. I have some trouble blaming them for that, although in some cases they may have weighted towards the higher yielding bonds, which are the more risky in that asset group.

        If I were running the bond investment portfolio for a European bank, I would spread the risk between most EU countries, so some holding of Greek, Italian, Spanish, Irish bonds et al would be unavoidable, and a sizeable exposure to risk would be likely, simply by complying with the BASEL requirements.

        Perhaps European banks acted irresponsibly, but I haven’t seen any evidence of that, nor have I heard any direct arguments to support that notion. So in the interests of accuracy, it seems only fair to look more closely at the knowns, and place less emphasis on the rumours, unless of course if you have compelling evidence to the contrary. If so please produce it.

      • The BurbWatcherMEMBER

        +1

        Beautiful!

        (though I do think there is still a fair bit of system-designer and endorser fault to be had…)

  9. SON, your thoughts about the growing conflict are limited by the way you and many others have framed the polarity. I see you struggle with this and offer a bigger picture.
    You see the fight between money and power. I see a bunch of teenagers (e.g. Australian Greens) and parents (Both mainstream parties in Australia and the US) trying to control and spin everything around them. I also see a lack of integrity with most (but not all) of the 1%. Eg accepting bailouts from their mistakes and then giving themselves bonuses or “ripping the opponents face off” in a deal as acceptable would be another.
    I see very few Adults being listened to. We all have an adult within us. I encourage everyone to start listening to it. It talks about balance, and sees both light and dark in everyone. The adult would encourage the teenager to think about delayed gratification (save some of those cookies in the jar for later) and remind the parent that their child (pet project) while important to them is only one of many needing a place in our society.
    In both the power and money polarity, competition is the common theme. Co-operation is only paid lip service. I think the polarity is better expressed as co-operation and competition. The adult would foster a balance between the two and place restraints on both power and money and foster concepts like integrity and the pursuit of truth.

  10. I wrote a piece on the abject failure of the trickle down effect a month or so ago, and instead suggested what should now be introduced is the trickle up effect. Tax the rich and untax the poor. In different words, we agree then.

  11. I see this crisis as the markets fighting back against the states trying to impose ponzi central banks, fiat money and a centrally planned economy which provides cradle to grave welfare for the populace, instead of letting people take responsibility for their actions.

    It will end in bankruptcy and insolvency. There is no such thing as a free lunch.

  12. “….the best one could do would be to blame capital markets for having the temerity to cease pricing sovereign debt at levels that deny the plain insolvency of the Club Med nations….”

    This is a distinctly disingenuous reading of events. The European banks (in mutually rewarding collusion with unelected officials and politicians) have created an even bigger bubble in European sovereign debt than occurred during the US sub-prime fiasco. The more or less unlimited creation of credit by European banks following the adoption of the Euro, facilitated by the completely unregulated growth of the speculative trade in derivative risk, has resulted in a financial impasse that threatens the global economy.

    Now I don’t know who is more to blame for this – the bankers or the politicians. I hardly think it matters and, in lots of ways, there are hardly any differences between the two. But one thing you cannot say is that this was directed by the European States on behalf of pensioners, school students, citizens requiring medical care or the unemployed.

    Your main purpose seems to be to use the crisis in Europe as an opportunity to attack social democracy as such rather than to understand what has happened in their economies and find solutions to what are very grave problems.

  13. wow

    what a cool post and what great comments

    this blog is very quickly becoming one of the most valuable sites on the entire blogosphere

    the only thing i wonder about though is this:

    is a middle class a permanent attribute of the life of the human species?

    we are watching the middle class decimated, used, lied to, stolen from, led astray…

    but i wonder if the middle class is not an anachronism

    i assume it emerged from the sudden and huge release of very cheap energy that America was blessed with – the peak in middle class wealth and happiness seems to have coincided with the peak in domestic production in the USA and has been headed downwards in tandem with the depletion of their reserves

    so much of what has followed seems to me to be the desperate attempts of the middle class to hold on to the new norm that was established over a long period of plenty

    but what if it is not possible?

    what if the ultimate reality is a return to basically two classes – the rich and the poor?

    all the way there we middle class will fight and struggle to hold on to our middle class dreams but they will just continue to pass through our fingers

    we will identify those who do not seem to be sharing our fate at the same rate as ourselves as the cause of our suffering – and those who have the political bent will point the finger at this group or that with simple claims that they are responsible and we will follow them all the way to holocaust after glass shattering holocaust

    perhaps we baby boomers have lived the very peak of human wealth and achievement and everything is downhill from here

    i’ve always taken for granted that i and my progeny should have everything that our mighty marketing systems have told us is our right and our due

    but what if this is just completely false?

    what if the signs we see – the 1% and 0.01% not only seeming to be so “evil” but actively becoming so “evil” because deep down we all suspect and believe what i am saying is the way of it? Nobody wants to see the elephant in the room so we conjure up various other elephants to point at – over-population, wealth disparity etc – when the real elephant is that the very existence of a middle class is in and of itself a black swan?

    how will it all play out in detail if there is nothing for it but the slow but inevitable end of the middle class?

    pop

      • i seem to recall that the original democracy was a construct of the rich – for rich

        therefor future “democracy” will be of the rich for the rich also

        and is this not how it seems to be evolving?

        pop

      • my point was ‘effective democracy’ not a democracy in name only…it was, and remains the middle class and their aspirations that force change on the model preferred by the wealthy.

  14. Social mood is what matters in human affairs. Social mood is directly reflected in the trend of the stock markets. So you could say that the market is what matters in human affairs.

    Authoritarianism begins with a negative social mood trend, which in turn spawns a desire among some to submit to authority and among others to coerce their fellows to submit. At the same time, still others, caught up in the same emotional climate, battle against authoritarianism.

    The current long-term trend toward negative social mood will produce increasingly authoritarian—and anti-authoritarian—impulses and eventually lead to the appearance of severe authoritarian regimes around the globe.

    I pinched those latter two paragraphs from this:

    http://www.socionomics.net/2010/04/authoritarianism/

    Well worth a read.

    • I’d take anything from The Socionomics Institute with a grain of salt. It’s unwise to accept research that is done to fit a certain doctrine without being skeptical.

      It’s an interesting opinion though.

      • What’s your take on their doctrine?

        I’ve read all of Prechter’s socionomics writing, so I have my own understanding of their doctrine, and I would take their research with more than a grain of salt. Which is not to say I agree with all or even much of it, but that I find it enjoyable and illuminating to come at issues from completely the opposite direction to conventional wisdom, which is what they do. Makes you think, if nothing else.

        What’s my take on their doctrine? In a nutshell…. Social mood drives what happens in society (from politics and war to what type of music is popular), and that mood is reflected/visible in the stock market. Since the stock market moves in a patterned way, so does society, which has some predictive value.

  15. A good post, and a lot of good thought provoking comments in response.
    I don’t think the tensions described by posters are new…and to me it basically all boils down to that underlying tension between the desires/needs/rights of the individual versus the collective desires/needs/rights to live harmoniously together in groups. That tension has been there since human ancestors decided there were greater benefits to be found in groups than trying to negotiate through a dangerous world alone.
    In any group the power sharing is never equal…there will always be individual whose desires/needs/rights will be subordinate to others. As groups get bigger, so does the proportion of those individuals who are forced into compromise in order to remain a member of the group (society) and lets face it….there are not too many spaces left on our planet in which to be truly individual.
    We now live in a global community and the groups have gotten very large indeed….it may be we are finally getting to a point where the size of the group is so large, it’s simply not possible to organise an harmonious society where everyone gets some real value out of associating with the group….and that an increasing proportion of the group is negatively affected by membership as the powerful gather more power/benefits to themselves.
    Interestingly, that observation holds true for other species on the planet which typically organise themselves into groups where dominance is the norm, and often members at the fringe are severely disadvantaged. That dichotomy of fortunes gets worse as the group increases above a certain size, there does seem to be a critical size where it appears most benefit more from being in the group as opposed to being outside it. Maybe we have passed that size?
    Fortunately for us…we can think and communicate in detail with each other. And it is the power of modern communications that provides us with hope of finding a way out of the current problems associated with our traditional paradigms of social organisation.
    It’s marvelous that we as a group can have instant information flows about what is happening on the other side of the world in respect of a crisis that now affects us all. It’s also amazing that we as a group can be scattered to the four quarters of the earth and yet remain able to communicate in real time. We have never had such freedom before, and it opens up enormous possibilities in how groups are organised and what they can achieve.
    So I for one, remain positive about our future.

    • I think the thing we have, more than any time previously, is “reach”. That is, the ability to reach things, information, ideas, well beyond the borders imposed on us by our physical capability. Once we can reach the other side of the world, what has then happened is that the ‘time to reach’ has dropped to basically zero.

  16. Some great responses here, very interesting. One comment, though, to the criticisms that seem to assume I am using a simple opposition of markets and state. First of all, Bobbitt is talking of the market STATE, not the markets v state. He argues the market state will replace the nation state (trading regions v countries, for instance). Secondly, and this goes to the complaints about my linking the US and Europe, he argues that there will be a contest of three types of market state: laissez faire (US), managerial (Europe) and mercantile (Japan). China, says Bobbitt is a blend of all three. So the observations about how Europe has made a government-led mess may be quite right, but they do not go to the point being made. This is a historical phase shift. In Europe it is not a nationalist crisis – like the World Wars — it is a crisis of the managed market state. In the US it is a crisis of the laissez faire state and its effect on the middle class, and in Japan we see the limits of mercantilism. The model I am using is not binary, but for purposes of brevity I kept it, well, brief.

  17. The BurbWatcherMEMBER

    For what it’s worth, here’s my take, in summary:

    Government: will screw things up, eventually if not immediately, when it tries to affect certain outcomes (ie. control people, in effect) – rather than simply establishing laws for the land that insist that people treat eachother “well”, and enforce those laws for people that do not treat eachother well.

    The Market (ie. people interacting normally with one another) – will screw things up when they don’t treat eachother well, either eventually or immediately. This can happen even within the bounds of very good and reasonable govt laws.

    And this is an important part of good governance, IMHO – that sometimes what has been done in a relationship, has been done; there is no way to undo it, though the relationship might be able to be reconciled if the two parties are willing. Consequently, people and govts alike need to understand that, often, the fallout from poor Relationship, resulting from poor Morality, cannot be entirely escaped from or mitigated – and sometimes hardly at all, where, if the parties will not reconcile, the best course of action is to assist in the reconciliation of the Relationship where possible, but largely just comfort the two parties. This may involve justice, also.

    But, the core of the issue is poor Morality – not just in word, but in deed.

    And people cannot be controlled – ie. they cannot be forced to wholeheartedly and totally embrace a Morality they have not chosen themselves, either wittingly or unwittingly.

    What we are experiencing are, essentially, Relationship problems (people interacting with people), brought about by poor Morality. Selfishness and Pride are, ultimately, at the core.

    Regulation is necessary, agreed, but only because Humankind is fallen.

    The solution(s), therefore, are not generated from outside a person, and particularly not via coercion from an authority. Instead it requires internal change, not the delusion that mere external, human-generated information and influence can “make it all right”, as if the consequences of the execution of poor Morality and poor Relationship can somehow be escaped.

    But this is exactly from what we are seeing from the govts of the world, and their system-lackys: the govts try to prevent the consequences of poor Morality and Relationship from manifesting (which they cannot stop), and the private parties are happy to accept the transfer of Relational/Systemic favour, wealth and power.

    Hence, the broken status quo largely remains, left to fester under the mis-guided notions that it can actually be saved and somehow it is better to save it – via, in effect, the unjust transfer of Relational privilege (favour, wealth, power) from certain parties to others.

    ie. the private parties are happy to not experience the consequences for their lack of wisdom, selfishness and pride; and the govts are happy to not exercise the mandate that people should treat eachother well and that to not do so requires the unfortunate enforcement of consequence.

    This is a human tragedy, pure and simple, not a mechanical failure.

    My 2c

    🙂

    • Hence the expression “Nice guys, finish last” Try being moral in the business world of today, and see how long you get to keep your job! Morality doesn’t put food on the table.It’s adapt, or die ( speaking from the grave, here 🙂 )

      • The BurbWatcherMEMBER

        Actually, i’ve done quite well out of treating by colleagues and clients in a highly moral way…

        It also requires being shrewd and discerning – which is part of my morality anyway.

    • I agree with your comments about poor morality being central to this issue. To my knowledge, the all-encompassing morality of unregulated capitalism can be expressed as “Greed is Good”.

      Until the sacrifice necessary to resolve this crisis is distributed evenly amongst all ‘guilty’ parties, we will see moods decline and tensions inflame.

      Sadly I have very little confidence in the ability of world leaders to implement this, based on current trends.

      • The BurbWatcherMEMBER

        I can understand your sentiment, and agree with it to a fair degree.

        However, the assertion that “Greed is good” is the morality of regulated capitalism is much more a symptom of fallen people, not of capitalism itself.

        It’s the individuals making choices everyday that a system what is ends up “being”.

        Regulation becomes necessary because people choose poorly; but regulation is a band-aid, not a fix.

  18. Jumping jack flash

    The problems started with the horror of globalisation.

    Cheap labour is the foundation of capitalism. The cheaper the labour, the more markup can be applied and profit is maximised.

    However labour went overseas therefore creating a leak in the system. Wages were no longer spent domestically.

    Wages were spent overseas. A small proportion at first then we reach these modern times where almost all of our wages are used to buy things that are manufactured overseas. The money floods overseas and there is no way it returns at the same rate. Even our mining companies are buying theit materials from overseas. The wages they pay to their employees could double with no effect on the domestic economy because they are mostly spent overseas.

    We need to become competitive again. Manufacture stuff in Australia that is “traditionally” made in Asia. Make it cheaper. Sell it to the world. Flood the global market with our cheap rip offs. Copy and improve the method of the market leaders. Only then will we start making real money.

  19. One final point I’d like to make: for some reason, the generation currently in power (ie baby boomers, of whom I am one) and those who elect them seem to apply a very high discount rate when analysing all sorts of issues. We can see this in the unsustainable pension structures of European states. In other countries, we can see it in the unwillingness to make significant sacrifices now to prevent global warming (for those who believe it poses a significant danger). We can see it in the current mood of rising protectionism in the US. We can see it in the incredible success of pork barreling, small constituency politics. We can see it in the reluctance of governments and individuals to rein in their spending, and their resorting to debt instead to maintain the handouts and the fancy lifestyle.

    The mood of the whole world seems to be, “what’s in it for me, here and now?”

    Why?

    • And therein lies the root cause of the problem.

      You have just affirmed my worst fears and destroyed my faith in democracy, in particular social democracy with a mandate for giving its followers a better life than they deserve based on their work output value.

      If the voters cannot understand that, what hope is there for the future, it will be repeated time and time again.

      Democracy appears short term, not infinite.

    • Good point. I think essentially voters behave like consumers: subliminally, they are involved in brand selection; meanwhile, the parties themselves conceive of politics as a variation on retail trade. They use the same communication strategies and the same brand-construction devices as the successful commercial marketers.

      You can see this in the decay of party/brand loyalty and the ongoing attempts by parties to “re-position” and “re-package” themselves, to try to dominate the news cycle and to aggressively manage perceptions.

      Consumer/voter responses to political “products” and “messaging” are very easily understood in marketing terms. At the end of the day, people’s political wants are quite easy to distil – it’s just that a lot of the time they are contradictory or mutually exclusive…:)