How capitalist power works

The two main news stories this morning both gave us an insight into how capitalist power works.

The first item is the increase in NICs despite repeated Tory promises not to do so. It would be nice to think this will lead to a backlash against the Tories. But it might not. People don’t like to admit even to themselves that they were stupid enough to let themselves be conned. One trick to protect their egos is to adopt naïve cynicism towards politicians in general: “they’re all the same, aren’t they?”. As the Economist put it:

It is tempting to think that, when policies sold on dodgy prospectuses start to fail, lied-to supporters might see the error of their ways. The worst part of post-truth politics, though, is that this self-correction cannot be relied on. When lies make the political system dysfunctional, its poor results can feed the alienation and lack of trust in institutions that make the post-truth play possible in the first place.

But who benefits from this lack of trust?

Capitalists, that’s who. Collective action, exercised in part through state politics, is a potential constraint upon capitalist power. The less trust people have in politicians, the less this constraint will be used. Colin Crouch has said:

An atmosphere of cynicism about politics and politicians…suits the agenda of those wishing to rein back the active state, as in the form of the welfare state and Keynesian state, precisely in order to liberate and deregulate…private power (Post-Democracy, p23)

Our second item is the news that BlackRock is paying George Osborne £650,000 a year. What are they buying? It’s not his economic expertise – he’d struggle to get a minimum wage job on that account – nor even his contacts. Instead, BlackRock is offering an incentive to the world’s finance ministers. It’s telling them that they too can get big money if they behave themselves in office*.

Such behaviour consists of giving the industry a favourable tax regime, lightish regulation, and ensuring a good flow of easy money. Osborne’s policy of fiscal conservatism and monetary activism had the effect of boosting asset prices (pdf), to the benefit of firms like BlackRock**.

It’s through mechanisms like this that capitalists gain undue influence over the state: there of course several other mechanisms, not all of which are exercised consciously or deliberately.

This influence isn’t perfect – we’d probably not have had Brexit if it were – but it exists. The idea that democracy means equality of political power is a fiction in capitalism.

You might think this is a Marxist point. I prefer, however, to think of it as a Cohenist one:

Everybody knows the fight was fixed
The poor stay poor, the rich get rich

Except that not everybody does know the fight is fixed, because the question of how capitalist power is exercised – like other questions such as whether capitalism impedes productivity or whether hierarchy is justifiable – is not on the agenda. But then, the issue of what gets to be a prominent political question and what doesn’t is another way in which power operates to favour capitalists.

* I’m not saying this is BlackRock’s motive – but it certainly looks like the effect of its decision.

** You might think the revolving door between banks and regulators serves a similar function. This, though, is less clear.

Comments

[Patrick Kirk]

Great article - thanks.

Both stories have a common theme in the total lack of Labour opposition. Particularly the way GO has been rewarded for "good behaviour." Surely its not beyond the ken of someone in Labour to point out that Phil Hammond will be well rewarded by the rich for screwing the low earning self-employed?

[Martin Holterman]

I don't see how libertarians/capitalists are helped by cynicism. They need trust for what public tasks remain.

Exactly when you're not willing to buy the people's trust do you need inherent trust in public institutions.

[Luis Enrique]

Great post. IMO this is where thinking in terms of distributions and magnitudes really matters. If you just think "all politicians lie" then you might as well vote for Trump. You need to think when politicians lie and how badly for what reasons.

imo going back on NIC is no biggie - just recognition of the reality that taxes need to rise after having previously denied that. A far bigger lie is May's speech about how she's going to run govt for benefit of all, helping the worst off etc. and turning round and doing the opposite.

on the Blackrock idea, that'd be extraordinary from a collective action perspective. I mean, it's like a public goods problem - Blackrock stumps up the cash, the rest of the industry benefits. Hard to square with a narrowly self interested conception of bankers.

Maybe they are buying something else you have not considered? (I don't know what)

[Peter K.]

I don't understand leftist bias against easy money. What do they want instead, the gold standard?

Yes fiscal policy works better but monetary policy works as well.

[Blissex]

it is not just Osborne... D Cameron resigned as MP, probably to avoid declaring his "consultancy" income in the members interests register.

[Blissex]

Sensible people and not just leftists don't like easy money when it is targeted just at assets because not only that redistributes upward but also discourages business activity and productive investment.

[Blissex]

LuisE for Blackrock 650000 a year is a minuscule amount, their direct benefits from governent policy are probably orders of magnitude larger, and in any case it is indeed so small they can pay it on behalf of the industry without even noticing.

[David]

Osbourne is just being "paid off" in the usual way for prior services.
Britain has the oldest and best regulated corruption in the world. We have been "at it" longer than any other country.
Don't ask me how I know. Unfortunately it is one of the few things that I do know.

Having been self-employed (genuinely self-employed - not a "gig") since 1979 I am not happy about paying the same contribution.
My NI payments have ONLY been put toward my state pension... nothing else.

Note Mrs May's comment....
"Is it fair? I think it is fair to close the gap in contributions between two people doing the same work and using the same public services to make the same contribution to wider society."

So now NI will pay for libraries, street cleaning and lighting, infrastructure, social care?
I don't think £147M will be enough.
It's very confusing.

[Dave Hansell]

The other sneaky aspect of May's statement which you quote David is the implicit assumption that just because each of the two people are doing the same job they are receiving similar rates of pay.

[David.]

Dave,
Self employment "works both ways" for pay rates. In the gig economy the rates are low... the competition for "jobs" is high and the proponents are not going to be offered employment.... although there is no reason that they should not be employed.

In higher skilled jobs, where a service buyer is constrained by winning new contracts, the rates are higher to compensate for "down time" "holidays (lol) etc. Also for "start-ups" even in the gig economy the risk of contracting employees is high, and often they will be a "band of friends" earning virtually nothing.

The gig company (often large having grown rapidly) generally wishes to force low pay rates and low taxation.
The other wishes to reduce the risk of bankruptcy, and reduce costs in thin periods.

The NI contributions are still proportional to income as I understand their future implementation, but do nothing to reduce the essentially fraudulent use of gig jobs by large powerful employers of low skill workers.

I could never have voted tory, but I am more surprised every day by their shiny new populist armour.
Of course with Brexit offing they could argue with ease that they don't have the time to delve deep for a solution.
They seem irrational, but of course they just wish to retain power.
Rude words spin in my head day and night.

[gastro george]

"Both stories have a common theme in the total lack of Labour opposition."

Gordon Brown is a consultant for PIMCO. Rachel Reeves is already financed by PwC. Etc., etc.

[Dave Timoney]

@Luis,

Blackrock are buying: a) goodwill/insurance, in the sense that future chancellors now know where their best interests lie with regard to the specific company; and b) publicity, in the sense that we, like much of the media, are talking about them.

[Stephen Morris]

The main impediment to collective action is the system of purely "elective" (i.e. non-democratic) government.

The mathematics of elective government suggests that the “winner” will not be the one who appeals to the fabled “Median Voter”, let alone the majority. In a multi-dimensional policy space there is no “median”.

The mathematics of elective government suggests that the winner will be the one who picks off enough highly motivated minority groups to form an overall majority.

Consider:

Voter A is passionately concerned with policy W but less intensely supports not-X, not-Y and not-Z;

Voter B is passionately concerned with policy X but less intensely supports not-W, not-Y and not-Z;

Voter C is passionately concerned with policy Y but less intensely supports not-W, not-X and not-Z;

Voter D is passionately concerned with policy Z but less intensely supports not-W, not-X and not-Y;

You can readily see what happens. A politician could win by offering W, X, Y and Z . . . even though a majority of voters was opposed to each and every one of those policies!!

Remember that each voter gets to cast only a single vote. So if A wants to get W he must hold his nose and accept X, Y and Z. The same goes for every other voters.

Remember also that the politician need win only an overall majority of voters (and in some voting systems only a plurality) of voters from this set of passionate minorities. That leaves plenty of room to win AND keep enough flexibility to do deals for the benefit of one's Mates.

As if that weren’t bad enough, the system is likely to “adversely select” the most megalomaniacal political agents, as Nobel laureate James Buchanan describes:

“[S]uppose that a monopoly right is to be auctioned; whom will we predict to be the highest bidder? Surely we can presume that the person who intends to exploit the monopoly power most fully, the one for whom the expected profit is highest, will be among the highest bidders for the franchise. In the same way, positions of political power will tend to attract those persons who place higher values on the possession of such power. These persons will tend to be the highest bidders in the allocation of political offices… . Is there any presumption that political rent seeking will ultimately allocate offices to the ‘best’ persons? Is there not the overwhelming presumption that offices will be secured by those who value power most highly and who seek to use such power of discretion in the furtherance of their personal projects, be these moral or otherwise? Genuine public-interest motivations may exist and may even be widespread, but are these motivations sufficiently passionate to stimulate people to fight for political office, to compete with those whose passions include the desire to wield power over others?” (James Buchanan and Geoffrey Brennan, “The Reason of Rules”, Cambridge University Press, 1985, p64.)

In short, elective government (without Democracy) will adversely select the most aggressively narcissistic, machiavellian (possibly psychopathic) political agents who will build the minimal coalition of passionate minorities to enable them to get on with the business of looking after their principal clients.

And what makes this all the more extraordinary is that there exists a system that is mathematically guaranteed to return the preference of the median voter in any vote.

That system is the indefinite-pass initiative-and-referendum system with an open-ended number of binary votes. In any one such binary vote the majority must by mathematical necessity include the median voter! And the open-ended nature means that no subset of voters may determine the outcome by strategic agenda setting (i.e. by determining the order in which binary options will be voted upon). At any point it is possible to initiate another vote until equilibrium is achieved.

Now, it is conceivable that an indefinite-pass initiative-and-referendum system would choose to abolish itself in favour of purely elective government, but history suggests that this never, ever happens. Those who manage to achieve Democracy hang on to it.

Anyone who is GENUINELY concerned about collective action (as opposed to simply wanting to game the system to promote their own agenda) would be supporting genuine Democracy.

And for for those who deny the right of the citizens to choose the form of government they prefer for their country or state, the critical question is:

“When were you granted your ‘Charter from Heaven’ authorising you to make this decision on behalf of everybody else??“

[Blissex]

«In short, elective government (without Democracy) will adversely select the most aggressively narcissistic, machiavellian (possibly psychopathic) political agents who will build the minimal coalition of passionate minorities to enable them to get on with the business of looking after their principal clients.»

This is well known, two classic quotes:

«democracy is the worst form of Government except for all those other forms that have been tried from time to time»

«It is the common fate of the indolent to see their rights become a prey to the active. The condition upon which God hath given liberty to man is eternal vigilance»

[Stephen Morris]

>

It's not indolence. It's Prisoners' Dilemma and its effect on collective action.

With a well-entrenched power structure, such as exists under elective government, each citizen (even if non-indolent) will reason thus:

a) if I try to overturn the entrenched interests, and if insufficient others do likewise, I will simply have wasted my time and resources, so my optimal strategy is to do nothing;

b) if I try to overturn the entrenched interests, and if sufficient others DO do likewise, then my own contribution will be negligible and unnecessary, so my optimal strategy is to do nothing and free-ride on the efforts of others; and

c)given that most other citizens will have reached conclusions (a) and (b) (and are therefore likely to free-ride) my dominant strategy is to do nothing, whether or not I am indolent.

The exercise of power depends upon access to and control of “institutions for collective action”. To achieve coordinated collective action requires institutions through which those coordinating it may offer credible promises of future reward to those who are loyal and credible threats of future punishment to those who defect or try to free-ride.

The ultimate such institution is “the state” itself, which is why Elites take great care to ensure that they maintain effective control of the state (whatever rhetoric they may use about “representative liberal democracy”). The system of private property (under which the state protects and enforces the property of those who actually own property) allows property-owners to achieve collective action through the payment of monetary rewards guaranteed by contract (contracts ultimately enforced by the state).

Even where monetary rewards cannot be guaranteed by contract they may still be offered with credibility. The article above describes ways in which rent-seekers may build credibility around their promises of future reward to politicians. There are many other examples which could be cited in the finance and civil construction industries, both of which increasingly rely on political gifts but which must avoid offering any direct kickback which might fall within the narrow legalistic definition of "corruption".

The 20th century was historically anomalous in that the mass of citizens did at times comes close to exercising some effective control over the state. However, in recent times there has been a significant reversion to the historic norm of Elite domination:

a) the concentration of private wealth has been documented by people such as Piketty;

b) the creation of new types of property (such as “intellectual property”) has increased the scope for private ownership and control;

c) the privatisation of strategic monopolies, essential services and critical databases, together with the alienation of public revenues streams (such as road tolls) into the hands of private tax-farmers, has further diminished the ability of citizens to use the state to exert any form of collective action; and

d) the alienation of sovereign powers to opaque private panels under so-called “free trade” agreements has also acted to diminish the scope for public collective action.

The purpose of genuine Democracy is to lower the threshold cost of collective action through the mechanism of initiative-and-referendum.

If there is one policy that those who are GENUINELY concerned about collective action should pursue, it is the lowering of threshold costs through genuine Democracy.

The present period of intra-Elite competition may offer the last opportunity to do so before the onset of "refeudualisation" (http://www.macrobusiness.com.au/2017/01/biggest-risk-technological-change-inequality/#comment-2797887) and the end of the human race as we know it.