Capital's political power

The Tories are corrupt. That’s the message of handing out PPE contracts to government cronies; Cameron’s lobbying for Greensill; the murky financing of Johnson’s home “improvements”; and Robert Jenrick’s doing the bidding of Tory donors. All this, says Grace Blakeley, highlights the problem of “politicians and business people being in each others’ pockets.”

All this, however, is only part of the story. Even if our politicians were honest and even if the media were unbiased capitalists would still have disproportionate (pdf) power over government. Grace is right to say that “our ‘democracy’ works for the powerful, not the people.” But this is due not to the shortcomings of particular individuals, but to systemic forces.

One of these was pointed out by that great left-wing economist Adam Smith. We have, he wrote, a “disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition”:

We frequently see the respectful attentions of the world more strongly directed towards the rich and the great, than towards the wise and the virtuous. We see frequently the vices and follies of the powerful much less despised than the poverty and weakness of the innocent…The great mob of mankind are the admirers and worshippers, and, what may seem more extraordinary, most frequently the disinterested admirers and worshippers, of wealth and greatness.

Gordon Brown – a more honest man than his successors – was prone to this. He praised top bosses as “wealth creators” and courageous leaders, inviting several to become ministers or advisors, such as Mervyn Davies, James Crosby, Shriti Vadera and David Freud.

The financial crisis and decade-plus long stagnation in productivity have of course shown that bosses in aggregate do not have the especial expertise Brown imputed to them. But the deference continues. If you listen to pretty much any 7.20 interview on Radio 4’s Today programme you hear bosses being interviewed as if they were impartial (even heroic) experts, whereas trades unions are portrayed as sectional interests.

It’s not just politicians and journalists who are deferential, though. So too are voters. How else to explain their belief that the Tories are economically competent when the truth is that they are criminally stupid?

Such deference amplifies a separate lever that capitalists have – business confidence. This, it is believed, is essential for investment and job creation. And so, wrote Michal Kalecki, “everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis.” Hence the success of demands for low corporate and top tax rates.

There’s a third lever – ideology. John Jost has written of system justification theory (pdf), which he defines as the “process by which existing social arrangements are legitimized, even at the expense of personal and group interest.” This works through many mechanisms. There’s a form of anchoring (pdf) effect: Kris-Stella Trump shows how our perceptions of what’s fair are heavily influenced by the existing distribution of income. There are reference group effects: we compare ourselves to those around us, so many low-wage workers resent benefit claimants more than rich bosses. Then there are status quo biases and the just world illusion – mechanisms whereby we tolerate or even deny existing injustices.

Related to this is an asymmetric noise effect. As Amartya Sen pointed out, the very worst off are often “more easily reconciled to deprivations than others reared in more fortunate and affluent circumstances” (Ethics and Economics, p45). And so they make less noise than the wealthy, even if the latter’s complaints are trivial or arise from narcissistic over-entitlement.

I’ve no doubt that our media magnify these ideological biases towards capital. But I’m not sure they create them. One reason I say this is that we see the same cognitive biases that dispose voters to accept inequality in other domains such as the stock market. For example, analysts’ forecasts for a firms’ earnings growth are wrongly anchored (pdf) by the industry average growth, and the same reference group effect that causes people to punch down or across rather than up might help explain where there is often no risk-reward trade-off in finance. It has long puzzled me that when I write about cognitive biases in stock markets I’m seen as an intelligent technocrat but when I discuss the same ones in politics I become a loony Marxist drivelling about false consciousness.

None of this is to say that it is always a terrible thing that capital has undue sway over politics: sometimes the interests of capital and labour coincide. Our problem is that, in recent years, it has been the most backward segments of capital that has had most influence – rentiers rather than genuine entrepreneurs.

My point, though, is that the political power of capital over governments is not merely the result of cronyism and corruption. It is not therefore something to be cured simply by electing decent, honest people – although this job seems too much for the British electorate. If we are to have genuine democracy – in the sense of equality of political power – we need structural change.

Comments

[pablopatito]

By "structural change", is there a more elegant solution to the lack of labour representation versus capital than giving more power back to unions?

Are countries with stronger unions (e.g. Germany) less corrupt as a result?

[Paulc156]

Give workers participation on company boards. Grant 50.1% ownership of all PLCs/large companies to workers.

[rsm]

Basic income is more elegant, because then workers can quit and work on smarter stand-alone production devices that they can share the designs of. Unions are subject to the corruptions and perversions of all institutions ...

[Blissex]

«I’ve no doubt that our media magnify these ideological biases towards capital. But I’m not sure they create them.»

Indeed, the better insight here is that in a large aggregate there is a likely to be every feasible variation, and the media's propaganda role is largely to select those who are given prominence and thus usually popularity. This can be done by selecting journalists who already committed to the desired orientation (personnel is policy) or making clear to uncommitted one that a certain orientation helps their career. The same for Economists, politicians, market analysts, academics, which by no coincidence tend to be "sell-side" in a large majority.

[Blissex]

«One reason I say this is that we see the same cognitive biases that dispose voters to accept inequality in other domains such as the stock market.»

That seems to me somewhat poorly expressed, as it is the previously mentioned "ideological biases" (often derived from theological biases) that "dispose voters to accept [some value]", rather than "cognitive biases".

Cognitive biases are those that involve misestimation of facts, not dispose to acceptance of values.

Some ideological biases about values may be justified or supported by misestimation of the import of those values, for example if it is misestimated that greater inequality always improves productivity through social darwinism; but even so acceptance of some values is not a cognitive bias as such; it is also rather often because of motivated (by self interest) reasoning more than ideological biases as such.

That seems to me an important distinction, which however may be difficult to see for wykehamists, who seem to have a "Candide" style ideological bias :-).

[Blissex]

«Are countries with stronger unions (e.g. Germany) less corrupt as a result?»

That depends on what is meant by "corruption": broadly speaking it means "improper" self-dealing, and a lot hangs on that "improper", as the pursuit of some self-interest is widely regarded as legitimate.

Stronger unions may mean that business self-dealing is done in the interests of both workers and executives, rather than just that of executives.

For example stronger unions may mean that unions "sponsor" politicians too, not just the City or big pharma or the association of builders etc.; does that mean that there is more corruption? If one see that means more corruption, is that necessarily a negative?

As in, more people self-dealing may be less of a negative than just a few people self-dealing. Consider the corrupt self-dealing by southern residential property owners who vote for governments that gift them unfair policies at the expense of those poorer than themselves, is the corruption of a large minority better or worse than that of a small minority?

The argument could be made, as per the malevolent sophistry of Burke for example, that politicians should be wykehamist philosopher kings un-corruptly pursuing the "national interest", rather than "sponsored" by the few (Conservatives) or the many (Labour). But I guess well know such arguments are just thinly disguised propaganda for those who want to label their own corruptly self-dealing as the "national interest".

[rsm]

Regulators are disposed to accept inequality in the stock market by imposing restrictions on retail traders that benefit large players.

Rather than regulate, they should be innovating volatility products to insure more fully against panics.

[Nanikore]

"I’ve no doubt that our media magnify these ideological biases towards capital. But I’m not sure they create them."

I think Blissex answers this well, but in some ways I think this is also demand driven.

A lot of people complain that what keeps the Tories in power and enabled Brexit was the Tory-dominated press. But really they are just giving their readers what they want. Read the commentary of the Daily Telegraph, and it is still obsessed with the "evil EU", even though we are completely out and with so much other news around. But they have calculated that this is what the readers want and what sells papers.

[aragon]

One thing the bible gets right:
"For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows."
Timothy 6:10 KJV

Politics like everything else in society has been Financialised, and Boris and Gordon Brown think greed is good.

Finance is corrupt and corrupts everything it touches, it is short term greedy, knows no limits and no purpose other than greed and power.

This is the reason for the decline of the West.

I have material to support this conclusion.

We need people, who to quote "Mr Robot" S01E01

People who: "Don't give a shit about money"

[rsm]

Traders are ruthless but their weapons are virtual. Why not sandbox greed in financial markets, by insuring everyone against market panics? Then preachers can convert traders using rhetoric, not regulations. Win-win for nonviolence ...

[Blissex]

«We need people, who to quote "Mr Robot" S01E01 People who: "Don't give a shit about money"»

For example: wise and just wykehamists as our philosopher-kings. That may be an ancient line of dangerously wishful thinking. :-)