Globalization And The Crisis Of Democracy

By Jerry Harris and Carl Davidson

Perspectives on Global Development and Technology

January 2013

The Occupy Wall Street movement is a demand for democracy in a world of financial power beyond the reach of popular will. People have reacted not only to the inequality of wealth, but also to the inequality of power that makes it possible. Starting with youth the rebellion has swelled with millions no longer accepting the legitimacy of Wall Street nor their political representatives in Washington.

The movement is a reaction to the current economic crisis, but also to a historic shift in the nature of capitalism. The populist content of bourgeois rule that emerged with the American and French revolutions is being exhausted and corrupted. Globalization has given rise to a transnational capitalist class with access to world labor and markets. The result is the shredding of the social contract and democratic political restraints.

By targeting Wall Street, the current wave of resistance also underscores the connection between financial power and government. The state has always function to enforce and stabilize the relations of production. These relations form the basis of class power and need to be surrounded by laws, regulations and methods to mediate conflicts.

But the elite rarely rule by force alone. As Antonio Gramsci explained, both consensus and coercion is the dialectic of capitalist hegemony. The consensual aspect of rule is not simply smart politics. A degree of democracy and economic opportunity are essential aspects of bourgeois society inherited from its revolutionary beginning. This is why the loss of jobs and democratic influence are felt so deeply as a betrayal, and resistance often expresses as a desire to ‘take back’ the country and government. To connect to the disappointment and boiling anger of the current upsurge the left needs to understand the dynamics of this legacy.

Workers, farmers, peasants and the poor were at the heart of the revolutionary upheaval that rid France of its aristocratic ruling class. Protection of property rights and markets for the capitalists shared the stage with liberty, equality and fraternity for the masses. In North America a similar set of working masses, although primarily those of European origin, fought the first great anti-colonial war under the leadership of the rising bourgeoisie and slave-owning planters. Alongside property rights was the Bill of Rights guaranteeing free speech, assembly and press. Out of these two revolutions came notions, however flawed with the birthmarks of the old order, of citizenship, human rights and nationalism.

From its inception capitalist society was thus a political and economic compromise between workers and farmers and the capitalist class. The idea that men were born free and equal in rights was inscrolled in the Declaration of the Rights of Man and Citizens as well as the Declaration of Independence. This was as fundamental a part of the new societies as was slavery and the inexorable logic of capitalism to exploit labor and nature. Over the years in times of crisis, these rights have been challenged and abandoned, expanded and contracted. In large measure, that historic process is the wellspring that sparked the current rebellions.

The economic social contract has a long history in Western society and is closely tied to imperialism. In 1895 British imperialist Cecil Rhodes wrote:

I was in the East End of London yesterday and attended a meeting of the unemployed. I listened to the wild speeches, which were just a cry for 'bread,' 'bread', and on my way home I pondered over the scene and I became more than ever convinced of the importance of imperialism...My cherished idea is a solution for the social problem, i.e., in order to save the United Kingdom from a bloody civil war, we colonial statesmen must acquire new lands for settling the surplus population, to provide new markets for the goods produced in the factories and mines. The Empire, as I have always said is a bread and butter question. If you want to avoid civil war, you must become imperialists.

This strategy, so well articulated by Rhodes, established a sector of the working class with middle-class incomes founded on the exploitation of global labor in the colonized world. A few decades later Henry Ford doubled the wages of his auto workers so they could buy his cars. And after W.W. II, under massive pressure from the working class and an era of economic expansion, home ownership, health care, good education and rising wages formed the basis of the "Golden Era" of Western capitalism. Social Democracy in Europe and the New Deal in the U.S. meant a significant sector of the capitalist class accepted the social contract and the stability it brought to their system. The social contract was an important construct of the capitalist leading hegemonic bloc. In the U.S. military Keynesian policies underwrote the consensual aspect that laid the foundation of support among many workers.

But the contradiction between the rights of private property and the rights of society becomes particularly intense during period of crisis when the capitalist class has less room to solve social tensions. Capitalism, as a competitive system of accumulation has an internal logic to push labor and nature to extreme limits of exploitation, and it rarely will shy away from the use of violence to achieve its ends. This has been the constant reality for people in the global South. But in the West the history of democracy also came with jailing, beatings and death. This was true during all the great social movements of women, minorities and unions. But unlike the Global South were armed struggle was the primary path to independence and self-determination, the Western countries maintained enough flexibility to adapt to many of the democratic demands of the working class. This flexibility existed because of the democratic content of the bourgeois revolutions, a content that imperialism rarely, if ever, extended to the third world.

The question before us now is to understand the historic context and character of the current global crisis and its implications in the struggles for popular and economic democracy. As in every period of severe social crisis a reactionary movement can take power, but progressive and revolutionary movements can also form. In the past these movements arose within an international system of nation states. The crisis now takes place within a more deeply integrated transnational system lead by finance capital, and we believe the global character of contemporary capitalism affects the nature of the reactionary threat.

From its inception, global capitalism fostered a greater centralization of economic and political power, driven by the cold logic of efficiency and profitability without any democratic concerns or the burdens of social responsibility. Fundamental aspects of economic governance were put in the technocratic hands of the International Monetary Fund (IMF), the World Trade Organization (WTO), the World Bank and other transnational institutions. These were designed to be far removed from any form of democratic input or control. This project was lead by the transnational capitalist class (TCC), that sector of capital whose profits and power are embedded in patterns of global accumulation. The TCC came to power in the 1980s in all Western governments and many countries of the global South under the onslaught of neo-liberal policies. While united by a common project to build a world of unrestricted and integrated capital, this new hegemonic bloc also has specific national characteristics. Each nation is drawn into global finance and production at its own pace determine by local conditions. This long drawn out process is full of contradictions, competiting visions and policies. But key elements are in place that have situated a great amount of economic and political power in the hands of the TCC with its natural impulse towards centralization and technocratic authoritarianism.

Under the TCC new forms of imperialist rule began to appear in the Global South where the first post-1960s economic crises broke out. Using the IMF, transnational capital enforced draconian Structural Adjustment Programs and raided state-owned industries through forced privatizations. Economic governance emanated from transnational institutions and the bureaucratic functionaries of the TCC restricting and transforming national control. Such forms of domination were different from earlier era imperialism where countries belonged exclusively to their colonial overlords. Then capital didn't have a singular global identity, but a specific national one tied to the various ‘Great Nations.’ In opposition, the post W. W. II years ushered in the Bandung period of greater political independence in the former colonial world. But with globalization, transnational capital has overridden national political governance and local economic relationships with the use of a variety of forms of authoritarian corporate rule.

Now the chickens have come home to roost. Capitalism can no longer export its crises to the third world because the doors between the South and North have been pushed wide open. Access to two billion new workers in China, India and Russia has resulted in the shredding of the social contract on the home front. Capitalists can't resist their own logic that argues cheaper labor equals greater profits. The result has been ‘race to the bottom’ policies resulting in growing unemployment in the E.U. and U.S. In addition has been the digital/information revolution creating technologies that have displaced a generation of unskilled and semi-skilled workers. With unemployment spiraling upwards and wages spiraling down, capitalists pumped up the economy with hundreds of new speculative markets, expanding consumer debt and the housing bubble. It was a structure built to collapse and when it did, finance used its power over government to bail itself out, while ignoring or discounting everyone else.

The transition of national economies into an integrated global economy was also accompanied by attacks on government social services in the advanced capitalist countries. These were the flip side to the Structural Adjustment Programs enforced by the IMF abroad. Both liberals and conservatives carried out this political agenda for the TCC, often in the face of mass protests. As the economic crisis hit with full force in the E.U. the TCC has offered nothing but further neo-liberal austerity programs that have utterly failed to resolve their problems. Now European countries are being treated in the same manner the IMF treated Thailand, South Korea, and Indonesia when the Asian crash occurred in 1997.

What better example than Greece, whose people find themselves deprived of any semblance of power over their own political system. When Prime Minister George Papandreou attempted to let Greeks vote on the unforgiving EU bail-out agreement he was quickly summon to his TCC overlords for daring to assert an iota of national sovereignty. Or as the Financial Times put it, for having the "disruptive desire for democratic legitimacy." The message was clear, authority resides with hierarchical power structures outside the nation, and those inside national governments must implement policies in-line with TCC priorities.

It doesn't take a radical to see the growing crisis of democracy. Neo-Keynesian economist Paul Krugman writes:

We have a society in which money is increasingly concentrated in the hands of a few people, and in which that concentration of income and wealth threatens to make us a democracy in name only. We still like to think of ourselves as a middle-class country. But with the bottom 80 percent of households now receiving less than half of total income, that’s a vision increasingly at odds with reality... extreme concentration of income is incompatible with real democracy.

The Transnational Character of Concentrated Capital

The authoritarian threat of global financial capital doesn't spring from an affinity to reactionary nationalism but exactly the opposite, its alienation from embedded national relationships. We can look at some economic data to explore the deeply transnational character of finance capitalism. According to the Bank for International Settlements (BIS) the externally held assets and liabilities of banks as of June 2011 was over $61 trillion dollars, almost equal to the world's GDP. In the table below we can examine the external assets of banks from ten major countries. These are not the top ten, but the table gives a spread of major countries throughout the world. Offshore centers are also important, holding 14% of world totals. The BIS list 22 offshore banking centers, the Cayman Islands with holdings of over $1.8 trillion is the largest.