The deficit is social and political and neo-liberal economics are to blame

By: Bruce Davis

The deficit is social and political and neo-liberal economics are to blame
Global wealth is being captured by and increasingly disconnected elite and creating a vacuum ripe for the rhetoric of UKIP and other extreme parties

Neo-liberal economics create the perfect situation for the rise of extreme parties, says Bruce Davis.
The real crisis isn’t financial, it is social, ethical and democratic.

Purple, it seems, is the political colour of the week. Whether it’s peddling the politics of prejudice or providing the backdrop for capitalists offering a series of empty statements of the need for reform without any sense of how they’ll do it. The real crisis continues to grow as a real and present threat to the long term health of our social democracy.

The Inclusive Capitalism Conference at Mansion House this week prompted some searing critiques of capitalism from both capitalists and royalty, but strangely, the focus was on how to preserve the current system not how to create a new one. Here in lies the issue.

Mark Carney, governor of the Bank of England, and Christine Lagarde, chair of the International Monetary Fund issued dire warnings that capitalism was doomed without ethics and that banks in particular had not gone far enough to reform themselves for the benefit of society. But the underlying message was clear, despite everything, neo-liberal capitalism is good for you.

I am always sceptical about people in power telling me what is good for me, especially when I have the distinct impression they have not spent very long considering what good is. What I heard was a narrative which said, “look, we need to show that we are going to turn down the music and promise to clear up the mess or the neighbours are going to get angry and stop the party … does anyone know charades?”

Why when George Monbiot comprehensively buried the idea of endless growth as mathematically and physically absurd, did we all just retweet it and then get on with our lives like nothing has changed? The problem is that we don’t like to confront our absurdity. Progressives have always had the ability to demolish the argument but then find it hard to find an equally attractive idea to replace it with.

Owen Jones pointed to the elephant in the room, the economy, as the cause of a potentially explosive social crisis and the growth of the nihilistic politics of UKIP. But, again the assumption is that we need to fix the economy if we are to fix politics rather than the other way around.

Actually, we need to break the idea that the problem is an economic one of financial deficit. You just need to throw money at a financial deficit. The deficit is not financial, it is social and political and it is generated by the way neo-liberal markets undermine social democracy, not the other way around.

You could go so far as to say that the response to the credit crunch in 2008 merely served to exacerbate a social crisis that sees the majority of the population failing to share in the increase in wealth of the last 30 years. Instead global wealth is being captured by an increasingly disconnected elite of individuals and institutions whose trademark seems to be that “normal” rules do not apply. With great wealth comes great power and the outcome of great power is seemingly the ability to live irresponsibly.

This is what we must grasp, fundamentally and wholeheartedly. How markets work is a political and social choice. We make the laws in a democracy and it is laws that decide the workings of markets. They are not ordained by a higher power or simply a natural function of competition. What economist Thomas Piketty and others are saying is that markets, as currently constituted, are far from being bastions of individual freedom (the watchword of a democracy). Instead they are naturally selective as to which individuals profit and which do not. It is a game of winners and losers that means power has moved to the winners and left the losers in the equation in a vacuum that is ripe for the rhetoric of UKIP and other extreme views.

Let’s be clear. The world didn’t stop being ethical and social, it is just that we feel powerless as individuals in the face of a market that privileges the winners – “to the victor the spoils and society the costs”. We need more than ethics for markets; it is not an upgrade we need, but a complete reboot. We need moral markets.

Moral markets are ones that generate social and cultural value not just short term financial returns and rents. Moral markets measure success in terms of what they create for society not the profits they make. We can serve the idea of profit or we can make profits serve the interests of society. We have it in our power to create moral markets because in reality they have existed over the centuries.

Before I am accused of being an idealist, consider Ecology Building Society. This is one of many moral markets now thriving. It has made a profit every year for 30 years by investing in sustainable housing. However, profit is not the meaningful measure of its success, it is the number of sustainable houses it has created for its customers.

Individuals and society can benefit from moral markets. It is the old system that is bankrupt. Society is calling for something more. We make the markets we deserve.

Notes:  Bruce Davis is cofounder of Abundance and Visiting Research Fellow at the Bauman Institute, Leeds University.

Photograph: Mark Thomas/REX