Tag Archives: crisis

Anastasia Stratigea and Dimitris Kavroudakis (eds.), Mediterranean Cities and Island Communities: Smart, Sustainable, Inclusive and Resilient (Cham: Springer, 2018)

I approached this book from the perspective of a historian dealing with issues of urbanisation in Mediterranean spaces. The history of the Mediterranean is characterised – and indeed often ‘dominated’ – by the history of its urban communities. Generated by a continuous flow of human beings and multiple culture-contacts, the high level of anthropisation of Mediterranean environments has historically been one of the main challenges for policy-makers in the area. Mediterranean Cities and Island Communities, edited by Anastasia Stratigea and Dimitris Kavroudakis, proposes a different, intriguing approach that focuses primarily on how Mediterranean environments can now be “smartened” through the combined use of new technologies, participatory approaches, and the efforts of policy-makers. Mediterranean regions are seen here as complex environments simultaneously characterised by their liminality, vulnerability and attractiveness. In this crucial hot spot, sustainability needs to be enhanced. The region thus represents a space filled with opportunities despite the severe state of recession that has affected Southern Europe over the past decade.

In fact, while it clearly constitutes a dramatic state of affairs for the majority of the population, the economic crisis is not the only context in which changes are taking place. In the long run, it has also served as an effective stimulus for generating powerful answers to concrete challenges. As one of the authors points out, “in times of scarcity, to share resources and assets means to collaborate for more sustainable ways of living” (p. 284).

The main core of the book concerns how the smartening of urban areas could promote sustainable development. This concept could also be rephrased using the four key-words provided in the subtitle of the book: ‘Smart’ – combined with ‘inclusiveness’ when responding to challenges – goes hand in hand with ‘resiliency’, intended as the capacity to respond to complex issues in a creative manner, often resulting in a new environmental status quo. This synergy then contributes to ‘sustainability’.

The twelve chapters of the book deal, alternatively, with the different aspects of the ‘smart’ triad technology-people-governance, the combined effect of which leads to a different way of improving quality of life, with a less intrusive environmental impact. Contributions are grouped according to their thematic similarities.

The first group focuses on technology and how it can be employed to manage cities in a more efficient, sustainable manner. Chapter 1 presents virtual reality as a tool for testing smart cities. The authors explain how virtual reality can offer a far more complex level of interaction and visualisation with information in ambient intelligence, thereby increasing the capacity to test new solutions linked to urban environments (such as policing, urban planning, and transportation). Chapter 2 describes the experience of ICS-FORTH in designing and implementing an Internet of Things and Open Data infrastructure in the Municipality of Heraklion – the largest city in Crete. The Municipality’s desire to take part in an innovative project to build a smart city ecosystem attests to a long-term investment in fostering intelligent decision making. Optimising the management of large quantities of data with a view to enhancing policy making is another key issue, which is covered in Chapter 3. In this regard, the authors analyse how the migration of services to the cloud could be designed in stages (i.e., in the form of a road-map) and how it could improve governmental processes and services themselves.

The second group of papers sets out different interpretations of the synergy ‘technology-community engagement’. Chapter 4 enquires into the efforts undertaken by the Municipality of Korydallos (Attica) to promote smart, participatory city management during the period 2004 to 2016. The authors also focus on the consequences of the economic crises on the process and the negative effects of the lack of a participatory culture in Greece. Chapter 5 examines how a participatory approach combined with the engagement of public institutions could result in culture-oriented solutions to urban planning. This is the case with the urban walk in Gdansk (Poland), for example, which led to a democratisation of art by bringing it into the public arena. Chapter 6 explores the interaction of artists and the general public, taking the virtual city of Abadyl as a case in point. As part of the People Smart Sculpture project carried out in the cities of Kristianstad and Copenhagen, the project Wanderlost proposed an emotional rediscovery of the urban space. Chapter 7 employs the concept of ‘Integrate Valutation of Ecosystem Services’ to identify specific approaches to territorial tourism in the Italian region of Basilicata. This approach is expected to foster more informed policy decisions, as well as more carefully considered natural and cultural tourism programmes. Sustainable, place-based tourism in a culturally wealthy rural area is also the subject of Chapter 8, which describes the application of a multilevel participatory spatial planning framework in the Cretan Province of Kissamos. The focus here is on how competitiveness can be achieved through the employment of technologies for mapping natural and cultural assets and the involvement of different stakeholders.

The third group of papers deals with resource management. Chapter 9 analyses the positive effects of serious game and gamification techniques for enhancing consumer engagement and awareness of Demand Response in relation to energy supply. The playful interaction between consumers and technology is seen to result in more conscious, flexible energy usage, with a positive effect on future Demand Response programmes. Chapter 10 deals with an attempt to build an integrated participatory approach to Sustainable Urban Mobility Plan in Rethymno (Crete). The case study examined focuses on how to harness the maturity of participatory planning in Greece to overcome the lack of trust typical of the region, in order to foster more active public engagement in mobility plans. Chapter 11 analyses the possible spatial distribution of aeroevacuation vehicles in the Aegean island. The spatial optimisation of helicopter bases and the use of spatial analytics are described as a way of promoting better-informed decisions on such a crucial issue as the provision of health services. Finally, Chapter 12 examines how the sharing economy has changed the tourist accommodation sector in Greece. Through well-known platforms such as Airbnb, the sharing economy is creating new challenges (such as taxation) and trends (such as the peer-to-peer approach) in the tourism sector.

The book is a fascinating collective volume that offers a useful overview of what is feasible at the very local level, adopting an intriguing perspective according to which “mayors can change the world”. However, a strong connective framework, which would establish a coherent place for each contribution, seems to be lacking. For example, the two chapters that deal with non-Mediterranean case studies are not sufficiently connected to the Mediterranean space that is described, from the book cover onward, as the focus of the volume. Furthermore, the papers offer a non-homogeneous fresco of both the problems and opportunities offered by new technologies. In fact, while the problems linked to privacy and data protection in data management are clearly identified in Chapter 3, Chapter 12 fails to report the disastrous repercussions of Airbnb on the long-term rental markets in Athens and on the Greek islands.

Yanis Varoufakis, Adults in the Room. My Battle with Europe’s Deep Establishment (London: The Bodley Head, 2017)

Henry Kissinger, an academic turned politician, is said to have quipped that academic disputes are extremely bitter because the stakes at universities are painfully low. The book reviewed hereby is authored by Yannis Varoufakis, another academic turned politician, and it suggests, in an entirely unintentional manner, that political disputes are fairly polite and verbally restrained even if the stakes are incredibly high, such as the livelihood of millions, e.g. the common people of Greece as of 2010.

Varoufakis’ book chronicles his turbulent and short time qua finance minister of the Hellenic Republic in 2015 (chapters 6 through 17) while adding a number of reasoned observations about the world’s, Europe’s and Greece’s economic sorrows since the annus horribilis 2008 (chapters 1 through 5). Finally, it informs the reader about some of the latest developments in Varoufakis’ own recent career as a Greek MP (Epilogue), including the launch of a new political party, called “Democracy in Europe Movement” (or “DiEM25”). The idea of founding a new political party matured several months after Varoufakis left his post in the Hellenic cabinet headed by Alexis Tsipras, the young leader of the initially broad leftist alliance Syriza, which came to power during the most painful years of Greece’s economic collapse (chapter 5).

Tsipras and a now much ‘thinner’ Syriza have recently celebrated the formal end of the nation’s subjection to its creditors’ representatives—the so-called “troika” aka the European Commission, the International Monetary Fund (IMF) and the European Central Bank (ECB)—and their notorious Memorandum of Understanding (cf. especially chapters 8 and 9). Therein, the socially chilling and economically contractionary conditionalities of the debtor country are cast black on white in the pursuit of three bailout agreements that future European scholars, politicians and activists ought to retrieve, peruse and reflect upon whenever contemplating how nations should deal with their creditors. Latin American and African ones are likely to be familiar with the score at issue. The conditionalities accepted by three different Greek governments included repeated rounds of cuts to old-age pensions and public expenditures on healthcare, culture and education; mass dismissals of public-sector workers; reduced funds to tax-monitoring bodies; loss of State control over public bodies that must thereafter respond directly to the creditors (cf. especially chapter 2).

It transpires from the book’s accumulated evidence that many experts, especially within the IMF, knew perfectly well that such conditionalities would strangle Greece’s economy and make it incapable of generating the revenue whereby to repay its creditors, and that only the most creative economic modelling could buttress the official position of the troika (cf. Appendix 2). Nevertheless, the creditors pressed all the same such conditionalities onto the Greek State and particularly, despite growing signs of snowballing deterioration, onto the government led by Syriza, which many eggheads in Europe’s governing elite feared qua resurgence of the political left, evidently to be snuffed out in its cradle (chapter 9).

The first and the second bailout agreements were required to salvage German and French banks that had invested in Greek bonds and were now unwilling to oblige to market discipline, which John Kenneth Galbraith had once claimed to be praised by all market sycophants as long as it applies to people other than oneself (Tout savoir, ou presque, sur l’économie, Paris: Editions du Seuil, 1978). The third one had a specific political mission to accomplish, whether the money involved in the process was going to be recovered by the creditors or not. Had the European authorities and the German leadership failed “to win Alexis [Tsipras] over to their side”, then they should “create such chaos that his government fell, allowing for its replacement with a compliant technocratic administration, just as they had in 2012.” (92).

Meeting by meeting, debate by debate, telephone call by telephone call, e-mail by e-mail, SMS by SMS, the actual exchanges between the protagonists of this intricate political saga come across as surprisingly civil under most circumstances and most carefully worded in public as well as in private conversations, even when great tension and palpable disagreement occur. Gallant propriety endures even when starkly opposed conceptions of the European unification project are voiced and debated, such as German conservative Wolfgang Schäuble’s plan to “ditch […Europe’s] welfare states” as no longer affordable vis-à-vis the competition of “places like India and China”, contra Varoufakis’ aspiration to the “globalization of welfare benefits and living wages” (212). Greece, in this debate, is revealed to be the starting point in Schäuble’s plan for the pauperisation of Europe’s middle class that also the IMF’s director, Christine Lagarde, seems de facto keen to facilitate, starting “with Greek pharmacies” (367).

Some nasty epithets did fly now and then, and the media’s recurrent, blatant and effective smearing campaigns are duly noted too, including a horrid “set up” scene in which an “irate businessman” attacked Varoufakis in July 2015 as the “former minister” who had ruined him (476). However, unlike the talks between Varoufakis and a long list of high-ranking European officials and politicians appearing in his book, these mucky incidents of character assassination are not worth being recalled with equal care and written all down for posterity to muse upon. Incidentally, we learn that “vulture fund” is regarded in high-level political circles as too crass a term, hence “hold-out” is preferred instead (508 n33). Apparently, strong language is not required in determining or merely discussing whether the wealthy creditors’ pecuniary concerns or the vulnerable people’s more immediate ones—shelter, food, health, survival—should be given precedence in a time of conspicuous recession. As the leading European institutions and the IMF are concerned, the former come obviously first.

Perhaps, as several passages of the book point to, the generally cautious politeness of the conversations can be explained by the way in which all these powerful individuals talking to each other seem generally aware, if not afraid, of being spied upon, recorded and/or leaked to the press. As a result, all these powerful individuals regularly hide their real meanings beneath layers of ambiguity and vagueness, which too blunt a language would impede. As an amusing account of a conversation between Varoufakis and the US economist Jeff Sachs discloses, some spies can show “no compunction whatsoever about revealing they were tapping [Varoufakis’] phone” (396).

Honest and constructive rational dialogue is thus one of the victims of the endless tactical games played by the powerful and frequently unscrupulous individuals paraded in the book. Lying is considered by many of them a sign of intelligence, deafness to argument a sensible stratagem, and the most political issues of all—who gets what, when and how—are couched dogmatically as technical matters. Time, energy, resources, decency and integrity, if not humanity itself, are sacrificed to strategies aimed at outsmarting and manipulating one another, until the point comes when a modicum of frank exchange is eventually permitted, almost as the last resort (cf. especially chapter 11).

As a scholar born and raised in Italy, this recurrent and over-intelligent lack of honesty reminds me of the (sub)culture of so-called furbizia (cunning), whereby each individual takes undue advantage of other people by way of selfish duplicity (e.g. skipping queues, double parking, giving backhanders, ignoring regulation). When this kind of seemingly smart individual behaviour is generalised, however, it results into inane collective inefficiency (e.g. delays, traffic jams, lost income, fire hazard). Game theory, in its neat complexity, confirms this simple realisation that so many southern Europeans, Greeks included, have to cope with on an almost daily basis (cf. Appendix 3).

Varoufakis’ chronicle is detailed, carefully reconstructed from personal diaries and, as a matter of fact, from recorded conversations (cf. the opening “Note on Quoted Speech”, ix). Also, it includes a substantial body of explanatory endnotes and appendixes, which remind the reader of its author’s background as a well-established university professor and an experienced economist who, in a Cassandra-like fashion, had foreseen the crisis to come because of “the bubble in American real estate and in the derivatives market” and feared a novel “Great Depression” (30).

Varoufakis’ declared and effectively “heroic” aim is to be nothing short than a “whistle-blower” and reveal the secretive workings of Europe’s top-level bureaucracy, the IMF, and the realm of transnational finance at large (12). The price to be paid for such a brazen act of defiance is quite straightforward. Varoufakis is bound to join the ranks of institutional “shooting stars” that will never again be allowed to be members of the international elite wishing—frequently in vain—to control world’s events, since in order to belong to this elite one must not let the outside know what goes on in the inside (12). Larry Summers, Jean-Claude Trichet and Mario Draghi would never write a book like the one reviewed hereby.

Once again in an unintentional manner, such a lengthy and sometimes fastidious chronicle of Euro-bureaucracy and cabinet meetings does more than what it sets itself to accomplish. Varoufakis’ book contains many informative elements allowing the reader to grasp the larger picture in which the Greek events have unfolded, namely “the myth of the ‘new economy’, popular around the turn of the millennium and centred on the claim that technological progress had made business cycles obsolete” (Jóhann P. Arnason, “Questioning Progress”, Social Imaginaries, 4(1): 180).

Specifically, the reader is reminded of how the deregulated and liberalised largest private banks and financial institutions of the world made a killing with the waves of privatisations, mergers and acquisitions kick-started by Thatcherite Britain and Reaganite US in the late 20thcentury (chapter 2). Unsupervised by State authorities and entrusted faithfully to the presumed providential invisible hand regulating the markets, these increasingly larger and larger private banks and financial institutions ended up believing themselves invincible, the true masters of the universe (chapter 1). Indeed, the best and brightest that they proudly employed thought themselves capable of such technical wizardry as to disperse risk once and for all in novel and most ingenious ways, securing at the same time further profits ad infinitum (chapter 1).

Alas, all this much-cherished and trumpeted financial genius—which John Kenneth Galbraith had famously claimed to be nothing but a rising market (The Economics of Innocent Fraud, Boston: Houghton Mifflin, 2004)—concocted bad products leading to bad investments, namely the now-forgotten “toxic American derivatives” monopolising the media’s attention in 2008 (31). This toxic kind of financial assets, which are still a threatening presence, annulled ten years ago the trust that the very same private banks and financial institutions had in themselves and in each other (cf. Michael Greenberger, “Too Big to Fail U.S. Banks’ Regulatory Alchemy“, Working Papwr No. 74, Institute for New Economic Thinking, 2018). Paralysed by the fear of massive losses, their lending came to a grinding halt and a global credit crunch took place. Money was no longer available to big- as well as to medium- and small banks, and to their customers too: from States themselves down to small businesses and individuals. The financial crisis became an economic crisis, causing enterprises to go bust, people to lose their jobs, demand to collapse, and the downward spiral of depression to materialise. Pace the widespread beliefs in the end of history and financial capitalism’s unstoppable triumph, 2008 was truly the new ominous “1929” and another Great Depression could not but ensue (125).

Libertarians, whom Varoufakis often compares himself with, would leave the spiral of depression free to destroy as much of the existing economic and social life as required before finding a new equilibrium, perhaps at a lower level of civilisation, in which creative new entrepreneurs could emerge and flourish; but such libertarians are a minority even in the US that, by and large, have been spawning them in great number (cf. chapters 7 and 13). Traditional socialists, whom Varoufakis collaborated with as finance minister, would seize the opportunity to skip the middle man, i.e. the private banks and financial institutions lending money that only the State can lawfully warrant, and replace them with public ones; but few such socialists can be found in the world after the end of the Cold War: not even within Syriza is the “Left Platform” at the helm (cf. chapters 10 and 17). Old and new Keynesians, whom Varoufakis is associated with, would let the State and its central banks step in and pour fresh money into the depressed economy by way of, inter alia, large-scale public works and public investments, but the ECB is prevented from doing so by its own charter and regulations, unlike, for example, “the Bank of England, which from the moment the City went through its 2008 credit convulsion had printed billions to refloat the banks and keep the economy ‘liquid’”. (35)

What happened in the European Union is that the governments of its member States, through the ECB, decided first of all to buy worthless paper belonging to the inept large private banks and financial institutions as though it was still the gods’ ambrosia. On both sides of the Atlantic Ocean, not just in America, there were bankrupt conglomerates that, albeit culpable for their own toxic mess, were deemed “systemic” or “too big to fail” (138). At the same time, these bankrupt but unsinkable banks would buy the new debt issued by those States to keep funding part of the latter’s activities, i.e. saving the very same banks and institutions, while cutting other expenditures in order to pay for the rescue itself and avoid the inflation that huge emissions of new debt could engender (chapter 2).

Told suddenly that they had been living beyond their means, the citizens of Europe were imposed “austerity” measures, and their tax money was used along so-called “quantitative easing” (and “credit lifelines”, “liquidity injections”, etc.) to salvage the incompetent institutions bearing prime responsibility for the crisis (92). The burden of this crisis was shifted intentionally from the private sector to the public one: “taxpayers” from a vast rainbow of countries “were actually paying for the mistakes of French and German bankers” (27).

Soon after 2008, in a climate of growing economic precariousness for millions of Europeans, “banksters” and the “1%” were quickly forgotten as the object of general opprobrium. As the crisis’ burden got shifted from the private to the public sector, “PIIGS” and “profligate” States became the new target for media-fuelled public anger. Later still, it was the turn of foreign migrants coming from countries that had already been squeezed in previous decades by unsustainable debt, the IMF’s heavy-handed technical advice, and the dubious wisdom of currency unions (e.g. the French-Franc-tied CFA currencies in Central and Western Africa). In an eerie recurrence of the 1930s, “the deepening crisis would produce a xenophobic, illiberal, anti-Europeanist nationalist” reaction (482). To add scorn to injury, “it is one of history’s cruel ironies that Nazism is rearing its ugly head in Greece” with the electoral success of the ultra-right Golden Dawn party (215).

As a scholar and a citizen of Iceland, which despite its geographic isolation and economic peculiarities (e.g. energy security by geothermal power) experienced a complete financial collapse immediately after the 2008 credit crunch, Varoufakis’ account of the recent “Greek tragedy” flags out significant differences that are worth thinking about (49; Iceland’s woes have been covered extensively in Nordicum-Mediterraneum, especially issues 6(1), 7(1) and 8(1)).

  • Iceland, after a failed attempt at rescuing its national banks, opted essentially for letting them go bankrupt. Greece and the whole European Union committed themselves to saving them at any cost, even if it meant letting Greek pensioners starve, Greek citizens die because of unaffordable healthcare, and Greek homelessness explode (i.e. the “humanitarian crisis” denounced by Varoufakis, 37).
  • “[C]apital controls” were reintroduced in Iceland “in the wake of its own financial collapse in 2008” and kept in place for a decade in order to prevent capital flight and allow the Icelandic State to have a manageable monetary mass whereby to restart and reorganise the national economy (121). The European Union did nothing of the sort, and actually allowed financial speculation between member countries to take place as well as the continued siphoning of large amounts of money into non-EU countries and tax havens (cf. the recent Panama Papers and Paradise Papers scandals).
  • A new Icelandic government not tainted by collusion with the banking sector came eventually into power in 2009. Their role was to clean up the mess left by the conservative parties that had always claimed to be the business-savvy ones. The new Icelandic government proved genuinely disposed and overall adept to serve the common good, even if it meant conflicting with the IMF or pushing for what Rachael Lorna Johnstone and Aðalheiður Ámundadóttir call “progressive regressive measures”, i.e. austerity for the better off so as to pay for the welfare needed by the worse off in times of dwindling resources (“Defending Economic, Social and Cultural Rights in Iceland’s Financial Crisis”, The Yearbook of Polar Law3, 2011: 454-77). Syriza’s new and largely untainted government in Greece, under its creditors’ enormous pressure, did much less to alter the regressive-regressive measures that the previous two governments had already enacted. Varoufakis regrets that his own achievements as finance minister were, in this respect, meaningful but scarce, given the extent of his country’s gruelling humanitarian crisis (e.g. the prepaid “plastic card[s]” providing for the needs of the poorest families, 476).
  • Iceland’s currency could be devaluated and was devaluated, first by sheer speculative pressure and then by central bank’s fiat, thus making the nation’s export goods and incoming tourism more attractive. Greece’s Euro, which is also the currency of its chief creditor countries with a very different set of post-2008 problems, could not and was not devaluated.
  • In Iceland, the new government, the central bank, the trade unions and the industrialists’ representatives participated in largely cooperative and constructive behaviour to keep unemployment in check and favour the nation’s recovery. In Greece, not to mention within the EU, bitter divisions affected all interest groups and prevented the same synergy from being firmly established. The pulverising atomism of selfish furbizia trumped comprehensive cooperation: the common good, consequently, agonised.
  • Debt bondage by foreign loan or so-called “rescue packages” became a likely outcome of the Icelandic crisis too. The international pressure towards this dubious solution was noteworthy, as epitomised by Gordon Brown’s Labour government invoking in 2008 the UK’s anti-terrorism legislation so as to freeze the assets of all Icelandic nationals and businesses based on British soil. Against all odds, the Icelandic nation rejected debt bondage, i.e. getting loans to repay other loans to repay other loans to repay other loans and so on ad nauseam (French economist Gérard de Bernis used to call it “the usury model” of State funding: cf. his 1999 essay “Globalization: History and Problems“). This refusal occurred via two referenda promoted by a president of the republic in search of lost popularity—this long-time president having been too vocal a cheerleader of the banks that, a mere five years after their privatisation, had brought the country to its knees. Only one allegedly ‘populist’ centre-right party supported the rejection of the “Icesave” agreement with the Dutch and British governments on both occasions (i.e. the Progressive Party), while the self-proclaimed “responsible” parties spoke favourably of it, on either occasion (e.g. the Left-Greens) or even on both occasions (e.g. the Independence Party). In 2015, the people of Greece voted by a sizeable majority against the third bailout agreement that the Syriza government had itself opposed but ended up accepting nonetheless—a U-turn that Varoufakis defines aptly as “the overthrowing of a people” (467).

Varoufakis’ new book is most interesting, well-written and, above all, it constitutes a political memoir that future scholars, politicians and activists should consult in order to be ready for the next major crisis that, sooner or later, will come to pass. On top of that, it is an apology, in at least two senses. First of all, it is a self-defence by a politician who, in the panic and confusion of the Greek depression, has been accused of all sorts of nasty schemes and treacherous actions, sometimes grotesquely. Secondly, it is a token of self-promotion, for Varoufakis has now a Europeanist party to sponsor, with the aim of making European institutions much more democratic and considerably less technocratic.

Apologetic partiality aside, there is no doubt that the conversations and the events reported in Varoufakis’ book did occur as we are told, or at least the vast majority of them, as the robust critical apparatus of the book can help confirm. Any person interested in current socio-political affairs should read them and meditate upon the astounding amount of deceitful cynicism, harmful cleverness and obtuse pride that they display. Every attempt at improving the world’s economic order and political praxes—and Varoufakis’ book spots good will, intelligent leadership and responsible policy too, in both Nordic and Mediterranean nations, as well as on both sides of the Atlantic Ocean—is bound to have to face and, hopefully, surmount such obstacles. Varoufakis, on his part, has been trying hard for years, but to no avail.

Collin Crouch, Governing Social Risk in Post-crisis Europe (Cheltenham: Edward Elgar, 2015)

In Governing Social Risk in Post-crisis Europe, Colin Crouch gives a detailed review of the state of social risk in different policy regimes across Europe. The social risk that is examined here, is the risk relating to personal income- and livelihood uncertainties. This comparative study examines the issue of social risk on a temporal as well as a geographic scale. Pre- and post- the economic crisis, and between geographic regions. Though the development post the crisis is an important topic, the greater take away is how well different countries coped and adapted to the changed circumstances. In the analysis of policy regimes, Crouch goes beyond the classic dichotomy of liberal vs. socialist governance and introduce the category of the traditional policy regime, where social security and social mobility is provided through the family. With a model consisting of social (state), traditional (family) and liberal (market) policy profiles, he categorizes the countries of Europe between these with a wide range of economic and labour market statistical data.

With this policy landscape imposed on the nations of Europe, clusters of policy become evident and the book gives a more detailed mapping of governance and risk, than the commonly used north-south or East-West contradictions. It is discussed how national traditions and cultures have shaped national policy trajectories and then the author goes on to analyse how social groups are affected, marginalised, or included in different ways in each country and hence governance profiles.

In the first chapters of the book, the theoretical framework is presented and central themes are translated into operational concepts for statistical analysis. Of the many concepts he translates into international comparable statistical variables, I find the variable representing class solidarity debatable. The number of labour union members is used as an indicator of the strength of class solidarity. Nevertheless, many different factors can influence union size and class solidarity can materialise in many ways other than union membership. However, Crouch does point out that it is a proxy for class solidarity in absence of any better alternative.

The chapters in the central part of the book are devoted to the statistical comparisons and analysis of the European countries. The focus is on how the different policies displace the economic risk of the population. This is examined in the chapters, separating workers from consumers, separating consumption from labour income, and integrating consumption and labour income. Here he shows how risk is transferred, dependent on the policy regime, between social groups, between present and future, or between the collective and the individual.

The last part of the book discusses the larger scale developments in Europe, and if the degree of social risk correlates with governance profiles, in particular, if a lower level of social risk is associated with the social-democratic policy regime. The author contemplates on what futures the three policy regimes hold and what possibilities they give for innovation, competitiveness, collectivity and inclusion.

The book does not give a deeper discussion of risk, nor does it offer any governance recommendation. It present a benchmark of social risk in the different EU countries and policy regions. It examines how social risk is related to governance profiles, while the outcome they have on different population and class segments are thoroughly discussed. It is a post-crisis assessment of how policy traditions on the European continent mitigate and shape social risk.

As a thorough and nuanced analysis of social risk in relation to policy regimes, this is a relevant and interesting read for scholars in the social sciences, particularly in the fields of public policy or European studies. Although policy- and decision makers would benefit from reading this book, it seems intended more for academia than the political profession.

Poets/Trump/Philosophers: Reflections on Richard Rorty’s Liberalism, Ten Years after His Death

Starting with a prescient 1998 quote on the impending decline of US liberal democracy into right-wing, strong-man-based demagogy, this paper outlines Richard Rorty’s political philosophy, which I believe can help us understand perplexing political trends in today’s political reality well beyond the US alone. Specifically, I tackle three key-terms encapsulating the thrust of Rorty’s political philosophy, i.e. “liberalism of fear”, “bourgeois” and “postmodernism”. Also, I address a contraposition that explains how Rorty would approach and attempt to defend liberal democracy from contemporary right-wing, strong-man-based degenerations, namely the priority of “poetry” over “philosophy”. Essentially, if one wishes to win in the political arena, she must be armed with the most effective rhetorical weaponry, however good, solid and well-argued her political views may be. Finally, some remarks are offered on the role that “philosophy” can still play within the same arena.

 

Richard Rorty

Richard Rorty (1931–2007) was probably the most famous American philosopher at the end of the last century. As I pen this introduction, ten years after his death, his name has re-appeared on the pages of many newspapers, at least in the Anglophone press, and some aspects of his political thought are going ‘viral’ across the world-wide-web. We live in the age of Facebook, Snapchat and Twitter, after all. Various passages of his 1998 book, Achieving Our Country: Leftist Thought in Twentieth-Century America (Cambridge, Mass.: Harvard University Press), have been ‘unearthed’ and variously circulated. Among them we read what follows:

Members of labor unions, and unorganized and unskilled workers, will sooner or later realize that their government is not even trying to prevent wages from sinking or to prevent jobs from being exported. Around the same time, they will realize that suburban white-collar workers—themselves desperately afraid of being downsized—are not going to let themselves be taxed to provide social benefits for anyone else… At that point, something will crack. The nonsuburban electorate will decide that the system has failed and start looking around for a strongman to vote for—someone willing to assure them that, once he is elected, the smug bureaucrats, tricky lawyers, overpaid bond salesmen, and postmodernist professors will no longer be calling the shots… Once the strongman takes office, no one can predict what will happen. [However, o]ne thing that is very likely to happen is that the gains made in the past 40 years by black and brown Americans, and by homosexuals, will be wiped out. Jocular contempt for women will come back into fashion… All the resentment which badly educated Americans feel about having their manners dictated to them by college graduates will find an outlet… [e.g. in] socially accepted sadism… directed toward people such as gays and lesbians[.] (ibid., 81ff)

To past European generations and probably most modern historians, a socio-political picture like the one portrayed above is likely to recall the rise of autocratic demagogues such as Napoleon III or Benito Mussolini. Today, however, this passage sounds like an eerily accurate prediction of the bitter conclusion of triumphant post-Cold-War globalisation and its ‘inevitable’ sacrifices, epitomised by the rise of Donald Trump. And so it has been taken by media outlets and opinion-makers, e.g. Stephen Metcalf’s 10th January 2017 “cultural comment” for The New Yorker, entitled “Richard Rorty’s Philosophical Argument for National Pride” and discussing also the media attention received by the passage above.

 

Donald Trump

Fresh US President and long-time billionaire, Mr Trump won in 2016 a harsh electoral campaign against a seasoned politician, Ms Hillary Clinton, who, it should be noted, was the publicly vocal and politically proactive US First Lady when Rorty’s book was published qua, inter alia, scathing critique of the increasingly right-wing, free-market policies promoted by the Democratic Party, which Rorty regarded as his own party of choice in the US. Whilst describing the leading 20th-century Democrats, from F.D. Roosevelt to L.B. Johnson, as outright social-democrats, Rorty did not approve of several decisions taken by the Clinton’s administration, such as the controversial 1994 NAFTA agreement with Canada and Mexico and the 1999 repealing of the long-lived Glass-Stegall Act, a child of the Great Depression and a piece of legislation that had limited the systemic threat of unbridled finance (cf. Richard Rorty, “Una filosofia tra conversazione e politica”, interview by Giorgio Baruchello, Iride, 11(25), 1998, 457–84; translation mine). Those of us who remember the roots and the fruits of the 2008 financial collapse, namely the Great Moderation at one end and the Great Recession at the other, should not find it difficult to realise what momentous consequences the Clintons’ friendliness toward Wall Street has been outpouring. It is in fact in a climate of unresolved under- and un-employment, globalisation-induced economic insecurity, and increasingly strong anti-immigration and anti-establishment feelings that Donald Trump came to prominence qua political leader.

Prominent, if not brazen or simply unusual, were his language and many of his declared stances throughout the electoral campaign of 2016. As recorded and frequently criticised by mainstream media, Mr Trump often: (1) uttered racist, sexist and homophobic slurs; (2) fashioned himself qua anti-establishment champion of the impoverished, economically insecure, and primarily white working class of his country; (3) paraded his willingness to cooperate with foreign dictators and political leaders whose human-rights record is far from spotless; and (4) insouciantly condoned words and concepts that make violence, torture included, seemingly acceptable in the public sphere, both domestically and internationally. Evidence of all this is not hard to find. Trump’s electoral speeches are archived and available online (cf. also a selection of his statements by The Telegraph). In power for only few weeks at the time of writing, Trump has already started delivering on his electoral agenda, at least as regards tightening immigration rules in the US, though it is far too soon to pass any trenchant judgment yet. Cruelty, in the shape of “socially accepted sadism” or worse (e.g. extensive warfare), might regain the front stage as a major ingredient in the political life of the world’s sole nuclear super-power, whose 500 and more military sites outside US borders and territories span across most continents, and a fortiori in the political life of all countries at large. I write “front stage” because Trump’s predecessor did not halt, say, police violence in the US or the bombing of the populations of foreign countries by US drones (e.g. Libya, Syria, Iraq, Afghanistan, Pakistan, Yemen), but he never spoke publicly of such issues in as cavalier a manner (concerning the US military foreign sites, cf. Department of Defense, Base Structure Report – Fiscal Year 2015 Baseline). Bombs may have been dropped throughout the two-term Obama administration, but not verbal ones.

For all we know, the new US presidency might prove less prone to endorse the highly destructive forms of legally termed humanitarian intervention and politically proclaimed promotion of Western-style democratic institutions seen, say, in 21st-century Libya, Iraq and Afghanistan under George W. Bush and Barak Obama (e.g. military occupation, air raids and killings by remote-controlled drones). On the domestic front, Trump himself might succeed in becoming an effective tribune of the common people, or at least of a large segment of it. Chronically disenfranchised blue-collar Americans might end up enjoying more and better jobs than they have over the previous three decades. Who knows? They might even witness the end of the gross – when not grotesque – imbalance in incomes and influence between Wall Street and Main Street that Ronald Reagan’s economic policies kick-started in the 1980s, and that Bill Clinton’s aforementioned abolition of the 1933 Glass-Steagall Act definitively entrenched. Rather than christening involuntarily a shantytown, as some of his predecessors did (i.e. post-1929 “Hooverville” and post-2008 “Bushville”), the name of a flamboyant US billionaire might go down in history for reverting the forceful re-affirmation of patrimonial capitalism that has been occurring in most countries on Earth since the days of Thatcherism. Unlike Obama, Trump might not “stand between [the bankers] and the pitchforks” (Lindsay Ellerson, “Obama to Bankers: I’m Standing ‘Between You and the Pitchforks’“, ABC News, 7th April 2009). Alternatively, as Rorty suggests in the same foreboding pages of Achieving Our Country, the elected “strongman” will just “make peace” with “the international super-rich” and appease the masses via jingoistic militarism and charismatic posturing. Time, as always, will tell. Cruelty, whether in the shape of petty humiliation of minorities or military extermination of scores of people, is never too far away.

 

Poets

Cruelty matters a lot, at least for Richard Rorty, who championed one specific school of political thought that, in the late 20th century, made this notion central to the understanding of social and political life, claiming that Western liberalism is characterised by a unique abhorrence of cruelty in the public sphere. Called “liberalism of fear”, this school of thought was a theoretical creation of Harvard political scientist Judith Shklar (1928–1992), but it is commonly recalled today in connection with Richard Rorty, who was and still is far more famous than Judith Shklar. The quintessence of their political stance is simple to express: “liberals… think that cruelty is the worst thing we do” (Richard Rorty, Contingency, Irony, and Solidarity, Cambridge: Cambridge University Press, 1989, 73). Therefore, they draw a clear distinction “between cruel military and moral repression and violence, and a self-restraining tolerance that fences in the powerful to protect the freedom and safety of every citizen” (Judith Shklar, Ordinary Vices, Cambridge: Belknap, 1984, 237). Liberals opt for the latter option and defend all those institutions (e.g. parliaments, constitutions, human rights, judiciary independence, freedom of the press, etc.) that foster peaceful coexistence over violent oppression, debate over force, individual liberty over State control, and people’s safety over their systemic endangerment.

Rhetoric also matters a lot for Rorty. Ironically, it is of the essence. According to Rorty: “The principal backup [for liberals] is not philosophy but the arts, which serve to develop and modify a group’s self-image by, for example, apotheosizing its heroes, diabolizing its enemies, mounting dialogues among its members, and refocusing its attention” (“Postmodernist Bourgeois Liberalism”, The Journal of Philosophy, 80(10), 1983, 587). The art of rhetoric must be understood in a catholic manner here. In his texts, Rorty would normally speak of “arts”, “narrative”, “poetry” or “literature”. What he means, however, is that he does not trust traditional philosophical argument and repeated appeals to reason to do the job. Reason matters, of course. Rigour too. But relevance vis-à-vis the context and the audience is the actual key, hence the ability to persuade that one can attain by reaching people’s hearts as well as their minds, especially when fundamental social values are at issue, rather than the day-to-day activities of tribunals or elected councils. Only in this manner can liberals hope to achieve any progressive aim. Truth does not imply per se any victory whatsoever in the public arena; nor does it matter much, in the end. Speaking and writing well in favour of liberal principles and institutions do, instead; they are much more crucial, even if we may not be able to demonstrate once and for all why we should prefer liberalism to Nazism or Social Darwinism. As Rorty writes: “Whereas the liberal metaphysician thinks that the good liberal knows certain crucial propositions to be true, the liberal ironist thinks the good liberal has a certain kind of know-how. Whereas he thinks of the high culture of liberalism as centering around theory, she thinks of it as centering around literature (in the older and narrower sense of that term – plays, poems, and, especially, novels)” (Contingency, Irony, and Solidarity, 93).

Rorty did actually speak of “rhetoric” as well, but only occasionally. Nonetheless, it has been argued that, as far as the 20th-century American academic community is concerned, the ancient art of rhetoric regained ground primarily thanks to him, pace Kenneth Burke’s (1897–1993) efforts in this sense since the 1930s. First came the 1979 publication of Richard Rorty’s Philosophy and the Mirror of Nature (Princeton: Princeton University Press), by now a widely acknowledged modern classic, which excavated the metaphorical roots of all objectivist, rigorous, scientific and pseudo-scientific terminologies. Then, a series of conferences were held in the mid-1980s at Iowa and Temple Universities, out of which was launched the “Project on the Rhetoric of Inquiry” (POROI). Richard Rorty participated in them and another participant, Herbert W. Simons, credits him with coining at one of the meetings the now-popular slogan “the rhetorical turn” (The Rhetorical Turn: Invention and Persuasion in the Conduct of Inquiry, Chicago, IL: Chicago University Press, 1990, vii).

Interested in persuading wide audiences rather than producing bullet-proof arguments for academic circles, Rorty declares himself to be candidly partial to “the Hegelian attempt to defend the institutions and practices of the rich North Atlantic democracies… [i.e.] ‘postmodernist bourgeois liberalism’.” (“Postmodernist Bourgeois Liberalism”, 585). As he writes: “I call it ‘bourgeois’ to emphasize that most of the people I am talking about would have no quarrel with the Marxist claim that a lot of those institutions and practices are possible and justifiable only in certain historical, and especially economic, conditions.” (ibid.) Money matters too, then. Liberal institutions, high and low, depend upon appropriate material conditions. This is the fundamental insight and theoretical legacy of Marxism, according to Rorty. We must take the “structure” seriously into account, if we wish to make sense of the “superstructure”, even if we consider the latter to be partially independent from the former and not fully determined by it, i.e. a sort of mere epiphenomenon. That is why economic insecurity and inequality matter so much in liberal polities, as Donald Trump’s election has further confirmed.

Rorty’s acknowledment that material conditions are important does not mean that he subscribed to Marxism, Chicago-style liberalism, Randian Objectivism or any fundamental claim about the nature of the human soul and human societies. According to Rorty: “There is no answer to the question ‘Why not be cruel?’ – no noncircular theoretical backup for the belief that cruelty is horrible … Anybody who thinks that there are well-grounded theoretical answers to this sort of question – algorithms for resolving moral dilemmas of this sort – is still, in his heart, a theologian or a metaphysician.” (Contingency, Irony, and Solidarity, xv-i). A self-declared champion of American neo-pragmatism, Rorty followed this tradition in believing that “morality is a matter of… ‘we-intentions’… the core meaning of ‘immoral action’ [being] ‘the sort of thing we don’t do’.” (ibid., 59) There is no grand narrative; no ultimate vocabulary as Kenneth Burke understood this term, i.e. a theory or discourse capable of ordering all relevant conceptual elements, including apparently conflicting ones, into one synthetic vision, account or system. As Rorty explains: “I use ‘postmodernist’ in a sense given to this term by Jean-Francois Lyotard, who says that the postmodern attitude is that of ‘distrust of metanarratives,’ narratives which describe or predict the activities of such entities as the noumenal self or the Absolute Spirit or the Proletariat. These meta-narratives are stories which purport to justify loyalty to, or breaks with, certain contemporary communities, but which are neither historical narratives about what these or other communities have done in the past nor scenarios about what they might do in the future.” (“Postmodernist Bourgeois Liberalism”, 585)

Let me add that, according to Rorty, postmodernism is not relativism: “Relativism certainly is self-refuting, but there is a difference between saying that every community is as good as every other and saying that we have to work out from the networks we are, from the communities with which we presently identify. Post-modernism is no more relativistic than Hilary Putnam’s suggestion that we stop trying for a ‘God’s-eye view’ and realize that ‘We can only hope to produce a more rational conception of rationality or a better conception of morality if we operate from within our tradition’.” (ibid., 589) One thing is to say that we can, in theory, set all moral or political options beside one another and state that they all have the same value. Another thing is to say that we cannot do it, because we can only and must operate from within one option at the time, building or burning bridges with the others. The latter being Rorty’s stance on the matter.

 

Philosophers

We are philosophers, scientists, academics. Rational argumentation is our bread and butter. Yet, it is ours. It is probably also the judges’, the lawyers, the engineers’ and some others’. It is not theirs, though, i.e. ‘common’ human beings’ at large. Talk to your relatives; your neighbours; the ‘man of the street’; have a conversation in a bar, shop, or parish hall. Arguments matter, generally, but only to a point. Sometimes, it is plainly futile to even present one and expect it to be listened to, not to mention being taken so seriously as to change the listener’s beliefs. Let us ask ourselves, why do we engage in rational debate? Because we expect it to bear fruit. In other words, we do so under two major assumptions: (1) we can find reasons; and (2) reasons matter. As Rorty once stated: “To take the philosophical ideal of redemptive truth seriously one must believe both that the life that cannot be successfully argued for is not worth living, and that persistent argument will lead all inquirers to the same set of beliefs” (“The Decline of Redemptive Truth and the Rise of a Literary Culture“, 2000).

Perhaps we can find some reasons. Perhaps even good reasons. No final, ultimate reasons can be found, though, according to Rorty, who claims chimeric any conclusive philosophical grounds of agreement that correspond to a universal and unchanging human nature, the essence of things, pure rationality, the hidden structure of historical dialectics, God’s plan for the universe, etc. According to Rorty, when we look deep and hard into ourselves, the most profound things that we can get a glimpse of are the most entrenched prejudices of our own culture, our ethnos or, as quoted above, “our tradition”. But this is not everything. Even if there were any such deeper, ultimate reasons, who would listen to them? Some people would. Perhaps a fair amount. Not most human beings, however. Religion, politics, marketing, economic history, psychology and many ordinary experiences bear witness to the limits of human rationality. Albeit not irrational, people are frequently unreasonable, impervious to logical thinking, biased in many ways, and unwilling to reconsider their basic, often deeply engrained and sometimes blissfully unaware assumptions. If this is a plausibly correct assessment of humankind under contemporary democracy, how can liberals win in the public arena? Rorty’s answer is patent: a “turn against theory and toward narrative” (Contingency, Irony, and Solidarity, xvi). In other words, rhetoric is needed. A good one, of course, in both content and form.

As regards the content, Rorty’s own political plans and works show what it should be: the principles and institutions of liberalism. To them, he then adds specific projects that liberals should focus upon (e.g. universal healthcare; cf. “Una filosofia tra conversazione e politica”). As regards the form, that is where “poets” excel or, as Rorty also calls them, successful “agents of love” (i.e. ‘missionaries’ reaching non-liberals) and “justice” (i.e. enforcers of liberal principles within liberal ethnoi; “On Ethnocentrism”, Objectivity, Relativism, and Truth – Philosophical Papers vol. I, Cambridge: Cambridge University Press, 1991[1981], 206). Let us learn from them: read good books; watch good films; read good books; practice your communication skills; read good books; engage in your own ethnos’ ongoing moral and political conversation (e.g. by joining a political party, charitable organisation or a trade union); and, to top it all, read good books. There are no ideal Platonic philosopher-kings here; poets are the kingmakers. “Poets” too must be understood in a catholic manner, though. They can be priests, film-makers, propagandists, teachers, political leaders, etc. They may not be able to produce a definitive demonstration of why liberalism is to be preferred and pursued; however, at least for us children of liberal institutions, it is not a serious issue. What really matters is to keep them going; and that is what poets can help us with. What is left for us as philosophers? I have three suggestions:

(A) We can and, perhaps, should join the ranks of the “agents of love” and “justice”. Become better at speaking and writing well, and use your skills to fight the good fight—the liberal fight, according to Rorty. Be an engaged intellectual. Be a promoter of democracy in the schools, as the US pragmatist John Dewey (1859–1952) had already tried to do and let American teachers do. If you cannot be a leader, help one to emerge. Rorty himself regarded his work as making room for, or paving the road to, greater minds, such as Jacques Derrida (1930–2004; cf. “Una conversazione tra filosofia e politica”).

(B) As Rorty never denied, there are people, a minority of course, who do respond to philosophical arguments; philosophers can still be useful in finding ways “of making political liberalism look good to persons with philosophical tastes” (“On Ethnocentrism”, 211).

(C) My personal contribution is that philosophers can provide ideas, social legitimacy and psychological encouragement to poets. In our culture, pace Rorty’s “turn against theory”, poets are not expected to give us rational arguments and axiological foundations, whereas philosophers still are. Then, even if such an aim is ultimately utopian and as long as this division of intellectual labour holds in our culture, poets can find things to say and work upon. The rhetorician’s inventio and topoi can unfold in close contact with the texts by philosophers that they admire and may decide to rely upon. Dante Alighieri had Thomas Aquinas, Ugo Foscolo Condorcet, George Bernard Shaw Friedrich Nietzsche, Luigi Pirandello Henri Bergson, Mahatma Gandhi Lev Tolstoy, James Joyce Giambattista Vico, and Zeitgeist’s Peter Joseph John McMurtry. Through their association with established philosophers and philosophies, moreover, the same poets can obtain a higher degree of social acceptance, insofar as their ethnos still acknowledges the special status of philosophers as those members of society who grasp ‘deeper’ or ‘higher’ things. Poets themselves may be reassured and sustained in their fights by the knowledge that there are thinkers who, in more analytical and articulate ways, agree with them.

(A)–(C) may not seem much, prima facie, especially if one recalls the Platonic ideal of philosopher-kings; but they are more than enough for a meaningful existence, both personal and professional, in a contemporary liberal ethnos, which political leaders like Donald Trump would seem to endanger and, at the same time, reveal to us all – as sceptical and blasé as some of us may have become – as awfully valuable.

The Icesave Dispute: A Case Study into the Crisis of Diplomacy during the Credit Crunch

Introduction* 

The legal and political dispute Iceland fought with the UK and Dutch governments over responsibilities of deposits in the fallen cross-border Icesave Bank in wake of the international financial crisis – which hit Iceland severely hard in autumn 2008 when its three oversized international banks fell – not only revealed inhered weakness of the European financial system but also led to profound crisis of diplomacy during the Credit Crunch. The legal ambiguity of responsibilities was testing understandings and interpretations of international law in cross-border finance. Not fitting squarely within EU- diplomatic- or financial law it can be argued that the case in its process illustrates contested and hybrid construction of legality as here is explored. Rajkovic et al, (2016) understand international legality as interrelated processes of social and interpretive contestation in the construction of what is understood as (legal) rule in the world. In this regard the Icesave dispute illustrates how larger and more powerful countries were politically able to pressure a much smaller state in time of crisis into abiding to their own interpretation of law and in doing so rallying behind them support of international organizations like the EU and the IMF.

The Icesave dispute was thus not only a matter of international law, but rather also a case of contestation between cross border actors over determination of authority during the crisis. By empirically studying the Icesave dispute this paper discusses a profound crisis of diplomacy and the political processes of international legality of the financial sector during the Credit Crunch. This can be coined as case of perfect legal storm in international relations; a crisis of public international law, diplomatic law, EU law and finance law. This case study traces the dynamics of how international legality is produced and remade during the course of this particular inter-state crisis and in doing so thus contributes to analysis of political construction of international legality.

The study deals with interpretive contest in international relations on what is considered legal, in this particular instance dispute of responsibility over guarantying deposits of a fallen cross border bank. In this case intersecting practices and expertise were to revolve in a struggle over cross border insolvency law. By pressuring the Icelandic government into accepting responsibility of the fallen bank in UK and the Netherlands this was an international push towards sovereign socialization of private debt through twists of circumstances and practise.

At its core, perhaps, this is a study of struggle over who decides authoritative interpretations, of what in this particular instance is understood as international legality, which is constructed, construed and contested through multi-actor and multi-level interaction of multi-national relations.

The Crisis

Iceland was the first victim of the of the global Credit Crunch when its three international banks came tumbling down in October 2008, amounting to one of the world’s greatest national financial crises. This was a financial tsunami without precedent. Glitnir Bank was the first to run into trouble when planned nationalization was announced on 29. September 2008. On the basis of emergency laws rushed through Parliament, Landsbanki was taken into administration On October 7th. The following day then British Prime Minister Gordon Brown invoked the UK Anti-Terrorism, Crime and Security Act 2001 (passed after ‘9/11’ in 2001) to freeze all Icelandic assets in the UK. Operating with little information and in a climate of confusion this was, he argued, to protect UK depositors in the bank. That act served as the final blow to Iceland’s last and largest bank still standing, Kaupthing. The vastly oversized Icelandic financial system was wiped out. Iceland is one of the smallest countries in the world and borders on being a microstate with just over 300,000 inhabitants. However, this experience ranks third in the history of the world’s greatest bankruptcies (Halldórsson & Zoega, 2010). Iceland also responded significantly differently to the troubles than most other states, allowing its financial system to default rather than throwing good money after bad.

Iceland had few good options. The IMF would not consider Iceland’s loan application until the dispute with the UK and Dutch governments over the Icesave deposits accounts was settled. The fallen Landsbanki had set up these deposit accounts in those countries, leaving many of their citizens without access to their money. Even though the Icelandic government steadfastly argued that it wasn’t legally at fault and that the state would fulfil all its legal obligations regarding Icesave, the IMF wouldn’t budge. Iceland was being pressured by the UK and Dutch governments, which were backed by the whole EU apparatus.

This was a staring contest Iceland could not afford to drag out as the state was running out of foreign currency. Early agreements in October and November 2008, first so-called Memorandum of Understanding with the Dutch government and then a more broad based Brussels Guidelines, which included EU involvement, were signed by Icelandic ministers in order for the IMF to be allowed to be brought in to stabilize the economy, not least through the introduction of capital controls and the co-funding of a loan package with the Nordic and Polish governments. By mid 2009, after change in government, these early agreements were abandoned for bilateral agreements with the finance ministries of the Netherlands and the UK, where Iceland accepted responsibilities for deposits of the fallen bank. In an extraordinary move the President, however, refused to sign the bills, referring them to referendums, in which they were rejected by large majority, spurring one of the greatest international disputes Iceland had ever fought.

Not only was Iceland denied any access to united efforts within Europe to bailout banks but the UK and the Netherlands were able use their position within the EU to pressure Iceland to accept their own interpretation of EU laws Iceland was to follow. Though ambiguity still remained as to who was legally liable for the loss, the UK government was using all means available to pressure Iceland to accept responsibility, as is documented later in this paper.

On 28 January 2013, the EFTA Court finally ruled on the case, concluding that no state guaranties were in place on the deposits and, thus, dismissing the claim of the British and Dutch authorities (Judgment of the Court, 2013). The ruling vindicated the Icelandic state of any wrongdoing. In early 2014 the Dutch and the Brits filed claim against only the privately held Icelandic Depositors Guaranty Fund before the District Court of Reykjavik.

A Systemic Flaw

The collapse of the Icelandic banks clearly revealed a serious weakness in the European banking passport system, a macroeconomic imbalance within the Single European Market. It was a weakness that some of the more established banking nations had warned against when the system was being constructed (for more, see Benediktsdottir, Danielsson, & Zoega, 2011). The main flaw lay in the fragmented nature of supervision on an otherwise common market – European-wide regulation but only state level supervision resulting in a tapestry of schemes and insurance levels across the EU. This had caused a mismatch between access to market and adequate supervision.

There was also an inhered flaw in the setup of Iceland’s link to the EU through the EEA agreement. Being in the Single European Market through the European Economic Area agreement (EEA) but outside the fence of EU institutions left Iceland without shelter when the crisis hit. This neither-in-nor-out arrangement – with one foot in the Single European Market, with all the obligations that entailed, and the other foot outside the EU institutions, and therefore without access to back-up from, for example, the European Central Bank – proved to be flawed when the country was faced with a crisis of this magnitude: The oversized Icelandic banks were operating in a market that included 500 million people but with a currency and a Central Bank that was backed up by only roughly 330,000 inhabitants. As a participant in the EU Single Market, Iceland was inside the European passport system so the banks were able to operate almost like domestic entities throughout the continent.

Landsbanki had in 2002 acquired the British Heritable Bank and in 2005 furthermore opened a separate subsidiary in London. However, when marketing the Icesave deposit accounts in October 2006 Landsbanki decided to bypass both and instead opened a branch from the Icelandic Landsbanki collecting the deposits. This was done to be able to transfer the money upstream to the mother company in Iceland (SIC 2010, Vol. 6, Ch. 18: 8), something the subsidiary system does not allow. Furthermore, branches were under general surveillance in the home country of the parent bank, while subsidiaries were subject to such monitoring in the host country. However, according to this setup, liquidity surveillance should have been in the hands of the British FSA, which also had authority to intervene in marketing of the deposit scheme in the UK. Interestingly, however, when setting up the accounts, Landsbanki had negotiated exemption from the FSA liquidity surveillance until 2011 – liquidity surveillance of Icesave was thus only in the hands of the mother company in Iceland.

At the time no one seemed to even contemplate the risk involved. Without any objections from either Icelandic or UK authorities, the bank quoted the EU/EEA Directive 94/19/EC on Depositors Guarantee Schemes, they insisted was in place in Iceland, which, they said, would protect all deposits up to €20,887. Then they referred to the British top up guaranty for the rest – British authorities were by then promising to cover up to 50.000 Pounds per account. This was however always very ambiguous.

Kaupthing opened a similar high-yielding Internet deposits scheme, named Kaupthing Edge. However, unlike Landsbanki with Icesave, Kaupthing used its subsidiary, Kaupthing Singer & Friedlander, to host the deposits. Edge deposits therefore had to be kept in the UK and were under British banking regime surveillance. At the time, few noticed the difference, which after The Crash left those involved in the two cases a world apart.

Playing on an Icelandic symbol, Icesave was marketed to tap into the trust associated with Nordic economies. Soon attracting the favourable attention of the financial media, the scheme became an instant success. The Sunday Times, for example, wrote enthusiastically about the scheme under the headline: ‘Icesave looks like a hot deal’ (Hussain, 2006). Before the end, Icesave had attracted almost as many savers as there were inhabitants in Iceland. Landsbanki had for a while enjoyed better ratings than the other two because it was able to tap into the Icesave deposits to keep liquidity flowing. This was, however, a mixed blessing, as reliance on deposits leaves a bank much more vulnerable to bad news than if it is funded in the wholesale market. Even a minor issue can result in a run on a bank with avalanche of withdrawals if it is portrayed in the wrong light. Still, all three banks were passing the Icelandic Financial Supervisory Authorities (FME) stress tests with flying colours. In theory, the banks were all doing well. Amongst those buying this story was the Financial Times, which as late as August 2008 wrote that ‘fears of a systemic financial crisis in Iceland have dissipated after the country’s three main banks announced second-quarter results showing that they are suffering amid the downturn – but not too badly’ (Ibson, 2008).

The Central Bank stretched itself to the limit to keep the banks liquid in domestic króna, for example accepting their own bonds as collateral – the so-called love letters. However, to back up the overinflated banking system in such dire straits it needed a sizable sum in foreign currency. The Central Bank thus went knocking on doors in the neighbouring countries asking to open similar swap lines as others were negotiating, that could be drawn on in time of need. This was meant to boost confidence in Iceland’s capacity to back up the financial system. To the surprise of the government, however, apart from earlier limited swap-lines with the Nordics, Iceland met with closed doors in most places. This was at a time when the neighbouring states were still upholding much more extensive currency swapping agreements.

Not only had the banks been pushed out of the international capital market, but the government had as well. For the international financial system tiny Iceland was as a state not thought to be too big to fail. Iceland first approached the Bank of England in March 2008 for a swap-line agreement. Initially, the request was positively received, but with a suggestion that the IMF would analyse the need. A month later, the climate had changed. It had become clear that the central banks of Europe, the US and the UK had collectively decided not to assist Iceland. Later it became known that the governor of the Bank of England, Mervin King, offered instead to co-ordinate a multinational effort to help scale down our financial system. His offer was instantly turned down by the leading governor of the Icelandic Central Bank, Mr. Davíð Oddsson (See for example, Wade & Sigurgeirsdottir, 2010.

UK Concerns

When Northern Rock was running into trouble in late 2007 and taken into receivership in February 2008 worries over further volatility in the banking system were spreading in the UK, raising concerns of health of many other banks. By 2008 Landsbanki had collected around 4 billion pounds through the Icesave scheme. With the International Financial Crisis now blazing and the apparent wide exposure of Iceland’s oversized banking system this was causing increasing concerns in the UK, especially because of the poor state of the Icelandic Depositors Guaranty Fund holding only around 1 per cent of the liabilities of the Icelandic banks now facing headwind (Jónsson, 2009). This caused an avalanche of negative reporting in the UK media on the Icelandic banks. On 5th February 2008 The Daily Telegraph for example asked in a headline: “Is Iceland headed for meltdown?”(“Is Iceland headed for meltdown?,” 2008). Subsequently increased withdrawals were almost amounting to a run on the bank, which the bank was barely able to withstand, before deposits started picking up again in April.

These events lead the British FSA to push for restructuring of the online branch, for example proposing revoking an exemption Icesave had negotiated from liquidity surveillance in the UK. This was raised in meetings between governors of the Icelandic Central Bank and the Bank of England on 3d March 2008 and again in meeting the FSA had with Landsbanki management on 14th March 2008. In these meetings the FSA furthermore proposed moving the deposits to Landsbanki’s Heritable subsidiary and thus entirely under jurisdiction of the British Financial Services Compensation Scheme  (SIC 2010, Vol. 6, Ch. 18: 12, 13). For this, however, demands were made that assets had to follow from the parent bank in Iceland to the UK, which Landsbanki had trouble meeting (Ibid). The liability amounted to half Iceland’s GDP. Additionally such transfer would have to be with depositors consent, though force majeure situation might justify a quicker move. This was the start of increased tension between Iceland and the UK over the Icesave deposits, ultimately resulting in the UK authorities seizing the bank in October 2008 when the parent bank was falling in Iceland.

The tension was heightening in frequent exchange of letters over the coming weeks and months. In a letter dated 29th May 2008 the FSA finally revoked the exemption from UK liquidity surveillance and subsequently demanded that the Icesave deposits be moved to subsidiary (SIC 2010, Vol. 6, Ch. 18: 16). The FSA had concerns that neither the Icelandic Guaranty Fund nor the Central Bank had ability to back up the bank in times of crisis. The FSA also asked that the Icesave deposits would be capped at 5 billion pounds level which they were now reaching close to and that interests would be set below featuring on best buy tables (SIC 2010, Vol. 6, Ch. 18: 17). Landsbanki replied on 15th July 2008 agreeing with the general aim of moving the deposits to subsidiary but refusing both capping the deposits and the request of setting interest below best buy level. In the meantime the issue had been reported widely in the UK, for example discussed in the House of Commons were MPs quoted report in The Times on 5th July stating that collectively the deposits of the Icelandic banks in the UK were amounting to 13,6 Pounds or “twice the country’s entire GDP”  (SIC 2010, Vol. 6, Ch. 18: 19).

On July 22nd 2008 the FSA wrote back saying that Landsbanki’s reply was worrying, that risk of run on the bank was increasing and that the FSA would be forced to consider applying its legal measures against the bank if its requests were not being met. That is; a solid cap, solid liquidity buffer and firm time tabled intention of subsidiarisation. (SIC 2010, Vol. 6, Ch. 18: 19). Though Landsbanki voiced willingness to comply in its letter to the FSA on 28th July it also explained why it might have difficulties in implementing what was being requested unless the FSA would agree on flexibility regarding some of its conditions in the transition period. On these conditions Landsbanki and the FSA were never able to agree on. While the FSA was operating in order to protect UK based depositors the Landsbanki management was rather concerned with saving the mother bank in Iceland. These aims proved contradictory and caused prolonged frictions (see SIC 2010, Vol 6.).

The FSA was not only applying its pressure in letters and meetings with Landsbanki but also in ongoing correspondence with the Icelandic FME and Central Bank. In a letter to Landbanki on August 5th 2008 the British FSA demanded Landsbanki to confirm within a week how the bank would comply with conditions set by the FSA in order to move the Icesave deposits to its subsidiary in London, otherwise it might be forced to apply its formal legal measures (SIC 2010, Vol. 6, Ch. 18: 23). This was the second time the FSA threatened in a letter to directly intervene in the bank’s operations.

The Icelandic Central Bank was now directly involved. Reportedly it considered openly defying the FSA but decided against that approach as it might risk the stability of the entire Icelandic financial system (SIC 2010, Vol 6). On 11th August 2008 the Icelandic FME wrote back to the FSA pleading on behalf of Landsbanki for flexibility while transferring Icesave to the Heritable Bank in London. The two surveillance authorities talked in a teleconference a week later where the FSA suggested that Landsbanki might sell Icesave. In the meantime, the FSA had written Landsbanki once more on 15th August 2008, demanding increasing reserves to 20 per cent of deposits. At the end of the letter the FSA threatened for the third time that it might apply its formal authoritative legal measures against the bank and stop deposit collection into Icesave accounts (SIC 2010, Vol. 6, Ch. 18: 25). The Icelandic actors, that is, the Landsbanki, the Icelandic FME and the Central Bank however believed that would only trigger liquidity crisis – not only for Landsbanki but for all Icelandic banks and indeed also the UK fragile banking system (SIC 2010, Vol 6).

It was now clear that the British FSA considered Landsbanki being in non-compliance with its conditions and that it was already failing. The Landsbanki management pleaded with the Icelandic Minister of Commerce to intervene, who with a team of officials met with UK Chancellor of the Exchequer Alistair Darling in London on 2nd September 2008. Mr. Darling has since reported that he was disappointed with the Icelanders as he felt they did not appreciate the seriousness of the situation (SIC 2010, Vol. 6, Ch. 18: 31, 229). Following up on the meeting few days later, leading official in the British Treasury dealing with the Icelandic case, Clive Maxwell, called the Icelandic Ambassador in London, expressing the Chancellors concerns and explaining how politically difficult the relationship with Iceland had become in the UK. This was perhaps a warning that tougher measure might be taken against Iceland.

In a letter on 3d September 2008 the FSA once again wrote to Landsbanki saying it was considering applying its formal legal measures if the bank would not before 8th September 2008 explain how it would comply with the conditions. Before the deadline Landsbanki replied by again voicing willingness to comply but explaining why it might be difficult to meet all the requests. In wake of several subsequent meetings and correspondence between agencies in the two countries the FSA wrote back on 17th August 2008 announcing that it would apply its legal measures. It was now ordering the bank to fully comply with bringing assets to the UK to underpin withdrawals from Icesave accounts and in order for them being transferred into the British financial space (SIC 2010, Vol. 6, Ch. 18: 33). The state of the international financial system had by then gone from bad to worse when Lehman Brothers collapsed in the US on 15th September 2008.

In a desperate reply on 19th September 2008 Landsbanki indicated that it would comply before turning straight to the Icelandic FME asking for help. The two surveillance authorities were still in correspondence on the issue when further trouble arose for the Icelandic banks, which I turn to next.

Heightening Pressure

When a planned nationalization of one of the three banks, Glitnir, was announced in Reykjavik on Monday September 29th depositors were flocking to nearest branch and withdrawing their savings. When the news travelled abroad, many of the 300,000 Icesave depositors in the UK, also rushed online to withdraw their money from the Icesave accounts. Throughout the continent, central banks and governments were harmonizing their response to the crisis. The ECB and the Bank of England, for example, were providing massive liquidity to European banks, but despite a wide-ranging emergency plea, Iceland would not be allowed access to these funds. The same was also to become true in Washington. Iceland was flatly refused as neighbouring governments collectively opposed a bailout, referring it instead to the IMF. Being the first Western country in four decades to surrender to the IMF was seen as a humiliation and a defeat for the Icelandic postcolonial project (see Bergmann 2014b).

In the UK, worries over the poor state of the Icelandic banks had been growing for some time. Since May, unsuccessful negotiations had been under way to move the Icesave deposits to Landsbanki’s Heritable Bank and thus under the cover of the UK banking scheme. On Friday 3d October the FSA formally announced applying its legal measures against Landsbanki stipulated in the Financial Services and Markets Act 2000 (FSMA). The bank was already by Monday to install funds amounting 20 per cent of the Icesave deposits into the Bank of England, lower free access deposits to below 1 billion pounds by end of 2008 and cap total deposits at below 5 billion pounds (SIC 2010, Vol 6). The bank was also to bring its interest below best buy levels and halt all marketing of free access deposits. As Landsbanki did not at the time have funding available to comply this was in effect equal to killing of the bank.

In the evening Alistair Darling called his counterpart raising concerns that 600 million pounds were illegally being moved out of Kaupthing and back to Iceland. To this the Icelandic authorities had no answer. By close of market the same day The European Central Bank had placed a margin call of 400 million Euros on Landsbanki in Luxembourg, threatening to seize many of its assets. However, on Sunday evening the ESB revoked the call and by doing so releasing some of the tension (SIC 2010, Vol 6).

Thus, while Iceland was desperately trotting the globe shopping for money, the UK authorities and the ECB were not only refusing any funding but indeed pressing it for cash. The firm stand of the Bank of England, the ECB and the US Federal Reserve against Iceland also made the Scandinavian neighbours hesitant to help further (SIC 2010, Vol 6). To stem the bleeding of the Edge and Icesave accounts, both Kaupthing and Landsbanki were frantically selling off assets at rock bottom prices. With the rapidly increasing flow of negative reporting abroad, the run on Icesave in the UK grew stronger. On Saturday 4th October, depositors could no longer access their accounts online. On the website an explanatory note read that this was because of technical problems. Traffic had increased more than fivefold. Really, however, this was not least because the bank was already exhausted by the run; it could no longer honour the withdrawals. Out of the £4.7 billion the 300,000 or so depositors held, more than £300 million ran off the accounts on that day alone. Foreign reporters and government authorities responded by asking whether Iceland would provide the same protection to foreign depositors as it had already announced for domestic ones. Pressure rose when the government struggled to find a diplomatic answer (Jóhannesson, 2014).

Around dinnertime on Sunday 5th October British PM Gordon Brown called his Icelandic counterpart Geir Haarde, urging him to seek IMF assistance. They were old acquaintances, since both had served for years as finance ministers, meeting on several occasions. Brown also voiced concern that money amounting to more than one-and-a-half billion pounds was unlawfully being brought over to Reykjavik out of Kaupthing’s London subsidiary, Singer & Friedlander, which would not be tolerated. The amount had thus grown by billion pounds in only couple of days since the call from Darling (see SIC 2010, Vol 7).

This claim of illegal money transferring out of the UK, which was repeated by many UK officials over these dramatic days, later proved unfounded as was for example stated in report to the House of Commons Treasury committee (2009, April). The UK was in this regard already burned by Lehman Brothers, which prior to its default had sneaked back to the US eight billion dollars from the City of London, and would not allow the same thing to happen again. The call ended without a solution, with Brown all but begging Haarde to call in the IMF rescue team. The message from the UK side in frequent correspondence over the weekend was always the same: no bailout money would be available internationally for Iceland except through an IMF programme (SIC 2010, Vol. 6, Ch. 20: 100).

The UK authorities were threating to seize Icesave already by Monday. To halt the blow the FSA demanded 200 million pounds immediately to underpin Icesave and further 53 million to stabilize the Heritable Bank (SIC 2010, Vol. 7, Ch. 20: 145). All attempts to shift the Icesave accounts into British banking space had thus failed. Negotiations with the British FSA to allow Landsbanki to move the deposits to its London Heritable Bank and thus under the UK banking regime were stuck. The British were asking for more money alongside it than either Landsbanki or indeed the Icelandic state could possibly raise. The Icelandic Central Bank could only bailout one of the three big Icelandic banks. All of them seemed to need around 500 million Euros for only short-term rescue. When it came clear that Kaupthing would win the lottery of which to bail out, as it was deemed to have the best chance of surviving, the light was finally out on Landsbanki.

God Bless Iceland!

When the markets opened on Monday October 6th, the FME had stopped trading the banks’ stocks and the banks themselves froze all fund transactions. To counter the almost inevitable avalanche of withdrawals, the government issued a blanket protection for all deposits within the country. The UK and Netherlands were issuing top-up guarantees for deposits above the €20,887 stipulated in Directive 94/19/EC up to €40,000 in the Netherlands and, by Wednesday, up to £50,000 in the UK. Many European states were also issuing complete guarantees, including Ireland, Germany, Denmark and Austria. Iceland was, however, only guaranteeing domestic deposits but could not explicitly state what would happen in foreign branches, apart from a vague general pledge to the effect that the banks’ Depositors and Investors Guarantee Fund would be ‘supported’. That promise was always very ambiguous and, furthermore, it was always clear that it might anyway be difficult uphold, as deposits in foreign branches of Icelandic banks, most of which were on Icesave accounts, amounted to around £8.5 billion, about 80 per cent of the country’s GDP, whereas the fund held only about 1 per cent of that total amount, which, though, was comparable to other countries. The ambiguity of the statements coming out of Reykjavik was thus worrying neighbours, especially government officials in Whitehall (see Jóhannesson, 2014).

It was clear that Landsbanki would already be defaulting the following day. This was a stark reversal of the bank’s situation from just a few months before, when it seemed to be well funded with a comfortable €800 million liquidity and strong inflow of foreign deposits. Furthermore, redemption of loans was low until late 2009. And even though it was exhausted of foreign cash by the run in the UK, the bank still had enough money in Icelandic króna to survive this storm; the problem was that the króna was no longer tradable for foreign currency. This was thus a double crisis – a banking crisis and a currency crisis – starting already in March (see Bergmann, 2014).

Around noon Monday 6 the UK embassy in Reykjavik reported to London on events over the weekend. Interestingly the ambassador mentioned the Icelandic governments guaranty of domestic deposits but then indicates that the government had sent similar statement to London because of Kaupthing and Landsbankis operations in the UK (Jóhannesson, 2014). This was a misunderstanding but it seems clear that the UK government believed that such a promise had been given, that the Icelandic government would at least protect the minimum of EUR 20.887 (ibid). This proved to be a wrong interpretation of what Icelandic officials meant when stating that the Icelandic Depositors Guaranty Fund would be ‘supported’ (ibid), but given the fact that Iceland officials at the time were avoiding contact with the British and only providing them with as vague responses as possible (ibid) one can understand that there was wide room for such misunderstandings.

In the afternoon on Monday 6 October the Icesave bank was being closed in the UK by formal issue of the FSA. Around the same time PM Geir Haarde was announcing that the Icelandic state would not have the means to bail out the banks. By trying so it ran a risk of being sucked with them into an economic abyss. (Haarde, 2008). An emergency legislation was rushed through parliament, allowing the government to split the banks into a domestic only good bank surviving and bad bank taken into receivership. This method was according to advice of a financial specialist, Marc Dobler, sent from the Bank of England to Reykjavik (SIC 2010, Vol. 7, Ch. 20: 120). The legislation also altered the order of payments of claims out of the fallen banks by moving depositor’s claims to the front. This was a force majeure situation. The government simultaneously wanted to protect domestic depositors in Iceland and the state from claims from abroad. The action was part of the defensive wall being raised around ordinary households. Foreign creditors would simply have to accept losing most of what they had loaned to the Icelandic banks.

This was a time of chaos. UK authorities were desperately trying to get information out of Iceland. It didn’t help when Alistair Darling could get through to neither the Icelandic PM nor the Finance Minister, who he was asked to contact again the following morning. The UK government’s frustration was reported in correspondence throughout the evening by the UK ambassador with Sturla Sigurjónsson of the Icelandic Prime Ministry. He reported a message from London: if convincing explanations would not come out of Reykjavik, that would be negatively interpreted in London and might have serious effect on the bilateral relationship between the two countries. (SIC 2010, Vol. 7, Ch. 20: 147).

Before opening of business on Tuesday morning, a board for a new Landsbanki had been appointed. Meanwhile, in the UK, the FSA issued a moratorium on Landsbanki’s London based Heritable Bank.

With all funding opportunities closed, the situation was growing bleaker by the hour. As planned Alistair Darling called on Tuesday morning to discuss these and other grave matters with Finance Minister Árni Mathiesen. When he could not get a clear state guarantee out of his Icelandic counterpart, an assurance that UK depositors would be protected, at least up to €20,887 according to Directive 94/19/EC, he stated that this would be ‘extremely damaging to Iceland in the future’ and then ended the call saying, ‘the reputation of your country is going to be terrible’ (“Samtal Árna og Darlings,” 2008). Mathiesen could not but agree, but he understood from their conversation that he would still have some time to work things out.[1]

Invoking Anti-Terrorist Act

Seen from the UK and the Netherlands, the situation was simply that Icesave depositors were left without access to their accounts. The website was inaccessible and no trace of the bank was left in the UK or the Netherlands. No one answered the phone and there was not even an address to go to. Depositors were in an intolerable position – the bank had disappeared without a trace from the face of the earth. This caused a seriously strained relationship Reykjavik had with London and The Hague. The British and the Dutch governments decided to compensate their depositors, even beyond the €20,887 mark guaranteed by Directive 94/19/EC. For this they demanded payback with interest from the Icelandic government.

In Whitehall, preparations had been under way for dealing with the Icelandic crisis. Icelanders would not get away with simply cutting off their foreign debt, shutting the doors and leaving British citizens out in the cold. It did not help that UK officials had learned of the message from governor of Iceland’s Central Bank on TV few days earlier, in which he stated that foreigners could only expect between 5 to 15 per cent of their claims. The plan was to be kicked into action. The British claimed that giving preference to depositors in domestic banks over those in foreign branches was a breach of European regulations, which Iceland subscribed to through the EEA.

In the early morning of Wednesday 8th October 2008 Alistair Darling appeared on BBC Radio 4 claiming that the Icelandic government was reneging on its responsibility to UK depositors, and that this would not be tolerated. Referring to his conversation with Iceland’s finance minister Mathiesen the day before he said: ‘The Icelandic government, believe it or not, told me yesterday they have no intention of honouring their obligations here’ (Darling, 2008). In a joint press conference at 9:15 Darling and Gordon Brown announced a massive bailout of UK-based banks, to the tune of £500 billion. As a result of pumping the money into the banks, the British state acquired a majority stake in the Royal Bank of Scotland and steered the merger of HBOS and Lloyds TSB, in which the state had acquired third of the shares. There was, however, not a penny for Icelandic-owned banks in the UK. On the contrary, Brown claimed that Iceland’s authorities must assume responsibility for the failed banks and announced that the UK government had taken ‘legal action against the Icelandic authorities to recover the money lost to people who deposited in UK branches of its banks’ (quoted in Balakrishnan, 2008). Director of the British FSA, Hector Sants, is reported to have told the management of Kaupthing Singer and Friedlander in the UK: ‘Those funds are not for you’ (SIC 2010, Vol. 7, Ch. 20: 171).

Earlier in the morning, the UK FSA had called Kaupthing demanding £300 million instantly be moved from Reykjavik to Singer & Friedlander to meet the run on Edge accounts, which with the Icesave website down also was blazing, and then a further £2 billion over ten days. This was an impossible demand for Kaupthing to meet, and it instead called the Deutsche Bank, asking it to sell off Kaupthing’s operations in the UK. Deutsche’s brokers thought that could be done within 24 hours (Jónsson, 2009).

The legal actions Brown had mentioned in his press brief, however, went much further. At 10:10 in the morning, deposits in Landsbanki’s Heritable Bank were moved to the Dutch internet bank ING Direct for free when the ‘Landsbanki Freezing Order 2008’ took effect (The Landsbanki Freezing Order 2008, 2008). The action was based on the Anti-Terrorism, Crime and Security Act, which had been put in place after the terrorist attacks in the US on 11 September 2001. Not minding that around a hundred thousand people worked for Icelandic-held companies in Britain, the UK government invoked the Anti-Terrorism Act to freeze the assets of Landsbanki in the UK and for a while also all assets of the Icelandic state including the Icelandic government, the Icelandic Financial Surveillance Authority and the Icelandic Central Bank (SIC 2010, Vol. 6, Ch. 18: 40).

Later that day the FSA took control of the Heritable Bank and Landsbanki’s subsidiary in London. The Landsbanki Freezing Order was issued with an explanation reading:

The Icelandic authorities have announced that Landsbanki has been placed into receivership but has not given any indication as to how overseas creditors will be dealt with. The Icelandic Government has also announced a guarantee of all depositors in Icelandic branches. However, overseas depositors have not been covered by the guarantee. This exclusion on grounds of nationality is discriminatory and unlawful under the rules governing the European Economic Area. The UK government is taking action to ensure that Landsbanki assets are not transferred from the UK until the position of UK creditors becomes clearer. The UK authorities are seeking to work constructively with the Icelandic authorities to ensure speedy resolution.

Subsequently, Landsbanki and for a while also Iceland’s Central Bank and Ministry of Finance was listed on the Treasuries home page alongside other sanctioned terrorist regimes, including Al-Qaeda, the Taliban, Burma, Zimbabwe and North Korea.

While Kaupthing’s CEO, Sigurður Einarsson, was in his London office in the late morning discussing with Deutsche Bank over the phone the fastest way to liquidate its assets, he read a banner running on the TV screen saying that the FSA had already moved Kaupthing’s Edge accounts to ING Direct in the Netherlands. Their phone conversation quickly ended, as there was no longer anything to talk about. In the afternoon, the UK authorities issued a moratorium on Singer & Friedlander, showed its Icelandic CEO, Ármann Thorvaldsson, the door and sealed the offices (Thorvaldsson, 2009). This instantly prompted a flow of margin calls and a further run on the mother company. When the dark set in, Kaupthing Bank was itself taken into administration in Reykjavik. Thirty thousand shareholders lost all their investment. Interestingly, both the previously mentioned report to the House of Commons Treasury committee (2009, April) and also the British FSA later found out that no money had illegally been moved from Singer & Friedlander to Iceland (Júlíusson, 2009), which, however, had been one of the main justifications for the UK’s attack on Iceland.

On this same day, Thursday 9th October, Brown told BBC that the actions of the Icelandic government were effectively illegal and completely unacceptable. ‘They have failed not only the people of Iceland; they have failed people in Britain’ he said. Then he said his government was ‘freezing the assets of Icelandic companies in the United Kingdom where we can. We will take further action against the Icelandic authorities wherever that is necessary to recover money’ (quoted in “Brown condems,” 2008). Later that day, Brown told Sky News that Iceland, as a state, was bankrupt and that the ‘responsibility lies fairly and squarely with the Icelandic authorities, and they have a duty in my view to meet the obligations that they owe to citizens who have invested from Britain in Icelandic banks’ (“Brown Blasts Iceland Over Banks,” 2008). Iceland was being completely rebuffed. In fact, in the coming days Brown’s rhetoric against Iceland was only to harden.

With UK depositors holding a stake of £700 million in Icesave, including many charities’ funding, Brown stated that the Icelandic authorities were now responsible for the deposits. Even in the UK, many were stunned by Brown’s harsh response to the Icelandic crisis. Many claimed that by attacking Iceland, a foreign actor, Brown was attempting to divert attention from difficulties at home, perhaps much as Margaret Thatcher had done during the Falklands crisis (Murphy, 2008). Initially it did indeed work. On its front page the Daily Mail declared ‘Cold War’ (2008) on Iceland and the Daily Telegraph screamed across its front page: ‘Give us our money back’ (2008). And these were papers that did not even support Brown or his Labour Party.

With access to the estimated 7 billion pounds the Icelandic government and banks held in assets in the UK no longer being available, the wall finally came tumbling down. Invoking Anti-Terrorist legislation against a neighbouring state and fellow NATO and EEA member was virtually an act of war, as is indicated in the interviews conducted for this paper. This was an unprecedented move against a friendly state, which cost Iceland dearly, in both economic and political terms. Moody’s instantly downgraded Iceland by three full points, to A1. Money transactions to Iceland were stopped not only in the UK but as a result also widely in Europe, where many banks refused to trade with Iceland after it had been listed in the UK with terrorist actors. The payment and clearing system for foreign goods collapsed. In only two days, all trading in króna had ceased outside Iceland’s borders (SIC 2010, Vol. 7).

By Thursday 9 October 2008, almost the entire Icelandic financial system had collapsed in a dramatic chain of events, which later became known simply as The Crash. Ironically, this was a full week before Glitnir’s 15 October deadline – which had started the whole thing.

Explaining the UK Attack

In hindsight it seems clear that the UK authorities went in their actions much further than needed in protecting British interests. Invoking the Anti Terrorist Act was for example in stark contrast to responses elsewhere. Authorities in the Netherlands, for example, saw no reason to freeze assets and in Stockholm the Swedish Central Bank was still trading with Kaupthing’s Swedish branch. In this segment I attempt explaining some of the reasons behind the harsh response of the UK government against Iceland.

First thing to note is that this was a time of utter chaos, frustration and widespread political as well as economical upheaval. Perhaps part of the reason can be found in the fact that Iceland’s economic fragility turned the mirror on the UK and its own volatile financial situation. Economist Willem Buiter (2008) who had studied the state of the economy in both countries, saw the similarity and wrote that it was no great exaggeration to also describe the UK as a huge hedge fund.

From private off-the-record interviews I conducted for this paper in late 2013 and early 2014 with several leading UK officials, within for example the UK Treasury, Foreign Office and the Labour Party, who were at the heart of these events at the time, it seems clear that the UK government finally lost faith in not only the Icelandic banks but also the Icelandic government over the weekend from Friday 3d to Sunday 5th October, 2008. This conclusion is for example also supported in unpublished report Icelandic stakeholders commissioned a leading business investigation firm in London to conduct into the issue.[2] The report states that the UK government believed until October 3d 2008 that a ‘high level political deal’ was in place of fast-tracking Icesave deposits to British banking space. The alleged deal included stipulation of insurance premium to be paid by the Icelandic government, that the ‘Icelandic government [was] to transfer 200 million pounds to the UK’.

How the UK authorities came to believe this deal was in place is not clear as no such understanding is sheared amongst Icelandic officials at the forefront of these events at the time, who also were interviewed off the record for this paper in late 2013 and early 2014. Neither are there any public documents available to support such alleged ‘deal’ at ‘high political level’ as the report claims.

UK officials interviewed for this paper point out that this was a time of great uncertainty and misinformation. Long lasting still ongoing tension at the time between the British Foreign Office (FCO) and the Treasury had weakened British institutions. Under Gordon Browns premiership it is reported that the Treasury was leading all actions against Iceland and that the FCO was hardly involved. Still, the little information that was available on Icelandic politics within the UK government was kept at the FCO. It is furthermore reported in the interviews I conducted that there was a serious communication malfunction between the Treasury, the FSA and the Bank of England. This was unfortunate as reliable intelligence on the Icelandic banks was rather within FSA and the Bank of England than in the Treasury.

In addition to not understanding Iceland, the Treasury was overworked by challenges of the international financial crisis blazing at the time. It is furthermore reported that as relatively young and small ministry in the UK the Treasury was suffering from high staff turnover and thus lack of institutional memory. All of this combined meant that when dealing with little Iceland the Treasury neither had the means nor knowledge to properly contemplate the highly complex situation.

My interviewees concur in saying that when trouble arose Iceland was thus not in focus in the Treasury, in fact it was rather viewed as troubling black hole preventing the UK from dealing with the big picture. Unlike the Foreign Service the Treasury had no room to contemplate political implications cross borders, in dealing with Iceland this was just a financial issue like all others. ‘This was just nuts and bolts finance’ said one of this papers interviewees. While desk officers were of course analysing Icelandic banks like all others, higher-level officials were ignorant about the country.

One interviewee for this paper, senior official in the British Foreign Service said that this was in effect a failure of diplomacy. He said that on both sides there existed surprising lack of understanding between the two governments, that the Icelanders did not know British governance and the UK side was almost utterly ignorant about Iceland. He pointed out that even though Gordon Brown and Geir Haarde were on good terms and for example met at Number 10 after Brown took office, that friendship did not amount to much at time of crisis. ‘To think so was foolish’, he said.

Plan A and Plan B

British officials interviewed for this paper pointed out that repeated references in FSA letters to Landsbanki to its legal authority to interfere with the banks operation in the UK, discussed earlier in this paper, was nothing short of blatant threat of seizing the bank. This warning seems, however, not to have been taken equally seriously in Iceland. According to British officials interviewed for this paper a low level and at first rather vague plan to deal with Iceland was slowly starting to emerge since May 2008, developing in gradual steps until the very end when the UK government finally struck on October 8th 2008 with implementing of the Anti Terrorist Act. The plan consisted of two options. Plan A revolved around getting Icelandic authorities on board with moving Icesave to the UK, which was to include proper insurance premium funds coming with it. If however, that would not work out, plan B was quite simply unilaterally seizing the bank.

As mentioned before, until Friday October 3d, Treasury officials believed a deal was in place with Icelandic authorities. Over the weekend however the UK side lost faith in the Icelanders, resulting in Plan B being kicked into action. The above mentioned investigative report prepared for Icelandic stakeholders also indicates that the UK side feared that the government of Iceland was losing control over to Central Bank governor Davíð Oddson, the country’s previous long standing PM and that he was planning to ‘veto the scheme’ – that is, the alleged deal on moving Icesave against 200 million pound insurance premium. The report also noted an expectation existing in the UK that the nationalized Icelandic banks would be ordered to reclaim their funds from abroad following such an Oddson veto. Furthermore, hints of Russian rescue money flowing to Iceland caused further concerns of Iceland going rogue.

When coming to the conclusion of applying plan B, UK officials interviewed for this paper claim that when dealing with Iceland, Brown and Darling wanted to been seen as being tough on rouge bankers. They pointed out that Iceland was viewed to be small enough to be made an example off; that it might serve as stark warning to others. Thus, when the big bank bailout was announced on Wednesday October 8th 2008, being tough on Iceland set the right political tone domestically, i.e. being tough on bad bankers while also preventing the banking system from collapse. Thus, this was also a balancing act. Applying the Anti-terrorism Act against Iceland was thus purposely used by the UK government to send a strong message and in doing so preventing others from straying off from the right path.

UK officials interviewed for this paper agree that the UK government had no idea what implication their action would have on the Icelandic banking system, that they were not thinking about Iceland as such in their actions, that this was quite simply only about British politics in time of crisis and that they did for example not contemplate Kaupthing collapsing as a result.

This view of events is somewhat supported when examining conversation between Icelandic Finance Minister Mathisen and Lord Paul Myners, the British Financial Services Secretary, on 8th October 2008. Myners said that it had worried UK authorities not being able to get reliable information out of Iceland on whether British depositors would be compensated or not. Lord Myners said that the UK government had thus decided to take action in protecting British financial interests against Iceland (SIC 2010, Vol. 7, Ch. 20: 151). When discussing the issue in the House of Lords on 28th October 2008 Myners cited the same reasons for applying the Anti-terrorism, Crime and Security Act, that is; lack of sufficient commitment from Iceland regarding deposits in the UK but also adding that the actions had been necessary because of volatility on the UK financial market. He said it had been necessary to act vigorously when Iceland seemed to be taking actions hurting British interests (SIC 2010, Vol. 7, Ch. 20: 154).

Quite clearly, we can conclude that these actions were a co-ordinated attack that had been in the making for days, if not weeks. Indeed, it was a bomb, which was to blow up the defensive wall that the Icelandic government was trying to build around domestic households.

When PM Haarde called in the morning on Thursday 9th October to complain about this brutal treatment, Brown did not even answer. Haarde was instead referred to Darling, who in their phone conversation justified the actions of the British authorities by referring to his talk with Icelandic Finance Minister Mathiesen two days earlier. Darling said that Mathisen had not been able to provide guaranty for the Icesave deposits and that he had indicated that obligations of the FME might not be honoured. Records of their 7th October conversation however do not support Darlings recollection from their talk (See SIC 2010, Vol. 7, Ch. 20: 152). Interestingly, when interviewed for this paper a senior UK Foreign Office official pointed out that Mathiesen had made a mistake when agreeing to talk on the phone with Darling that day, by doing so he had given Darling the excuse he needed to attack Iceland. The British official said that the phone call had made it easier for the UK to apply the legislation they had already for some time been preparing to use if the need presented itself.

From correspondence between the UK embassy in Iceland and the Treasury in the UK, now partly made available by the Freedom of Information Act 2000, the UK authorities seem to have felt quite confident of success in their dealings with Iceland. On late October 11th the UK ambassador reported to London that Treasury officials were travelling back from Iceland and that a deal on Icesave was within reach. UK officials discussed imminent ‘quick wins’ in the dispute against Iceland and contemplated ‘lifeline’ to be handed to Iceland after securing their victory (See in Jóhannesson, 2014).

The Icelandic government only made weak attempts to protesting against these actions taken by the UK. On 13th February 2009 the UK Treasury finally provided explanations in a letter signed by Clive Maxwell, claiming that the actions were not taken on grounds of terrorist operations. The letter quoted instead protocol in the law saying that the Treasury can act against those whose actions are construed as being to the detriment of the United Kingdom’s economy. The letter maintained that the British Treasury had believed it to be likely that the Icelandic government was discriminating in favour of Icelandic depositors and against UK and other foreign creditors. The letter quoted the 7th October phone call between finance ministers Mathiesen and Darling, claiming that the Icelandic authorities had failed to issue credible protection to foreign depositors. The letter also stated that the Icelandic government had provided contradictory information and said that the Icelandic actions were threating financial stability in the UK and that there was real risk of contamination (SIC 2010, Vol. 7, Ch. 20: 155). This is somewhat different to the explanation Finance Minister Darling told PM Haarde in their phone call on 9th October 2008.

Forced Agreement

Though ambiguity remained over many legal aspects of this highly complex situation, the UK and Dutch governments were pressuring Iceland to accept full responsibility for the Icesave accounts. While also pressuring Iceland to turn to the IMF, these governments were, with the help of the EU apparatus, lobbying neighbouring capitals to refuse it any loans except through an IMF programme (See in Independent Evaluation Office of the International Monetary Fund, 2014). Iceland’s government, however, was still afraid of the stigma of being the first Western state in four decades to surrender to the IMF (See for example, Mathiensen & Jósepsson, 2010)

Iceland gradually caved under the collective pressure and sought help from the fund. To Iceland’s surprise, the IMF board refused help unless, Iceland was made to understand, first clearing up the Icesave dispute with the British and the Dutch. Initially at the IMF yearly meeting in Washington already on October 11, Finance minister Mathiesen signed a Memorandum of Understanding with the Dutch where he agreed to an arbitrary court ruling on the issue. Only in its wake, on 22d October, was Landsbanki removed from the list of terrorist regimes on the UK Chancellor’s website. This agreement was however abandoned by the Icelandic government upon Mathiesen’s return in Reykjavik and in November it was replaced with a much more broadly based deal, what was called the Brussels Guidelines, which included EU involvement. The deal stipulated that Iceland would indeed accept responsibility, but that its European partners would help shouldering the cost. Holding out for not much more than a month, the government thus threw in the towel and under impossible pressure, accepted to guarantee deposits up to the minimum €20,887 stipulated by EU Directive 94/19/EC.

The EEA connection did not amount to much. IMF assistance was only made available after Iceland gave into the Dutch and the British. The government’s apparent weakness in responding to the UK attack added to the public’s frustration, especially when it had become clear that no money had illegally been moved out of the UK.

The initial forced Icesave agreements (The Memorandum of Understanding and the Brussels Guidelines) angered the public, which in wake of the Crash had taken to the streets in ever-greater numbers. After a series of protests, which later became known as the Pots and Pans Revolution (búsáhaldabyltinging), the grand coalition of the Independence Party (IP) and the Social Democratic Alliance (SDA) was ousted from power in late January 2009, paving the way for a new left-wing government – the first purely left-wing coalition in the history of the republic.

The severity of the currency crisis, which followed the banking collapse, can for example be seen in the fact that Iceland was the only country that had to revert to such extreme measures as implementing capital controls. The economy seemed paralysed. On Friday 10 October, the first of many popular protests started.

While the crisis was tightening its grip leading up to The Crash, Iceland’s neighbours had refused help unless it was through an IMF programme. After the collapse of the banks, the IMF gradually emerged as Iceland’s only viable option as it was still being isolated internationally. The British and Dutch governments had been successfully lobbying both the ECB and other European states not to aid Iceland independently, while at the same time pressuring Iceland to accept responsibility for the Icesave deposits. Iceland’s government, on the contrary, insisted that according to Directive 94/19/EC it was only obligated to ensure that a Depositors Guarantee Fund was in place and not explicitly responsible for foreign branch deposits (Blöndal & Stefánsson, 2008). Referring to a report written for the French Central Bank in 2000, Iceland argued that the Directive did not explicitly dictate that the state had to pick up the balance in the event of a systemic collapse (Banque de France, 2000).

This was, however, a difficult argument to get through in the crisis-ridden climate at the time. In order to prevent a further run on their own banks and to regain enough credibility to keep them afloat, the British, during these same days, led a coalition of G20 and EU states promoting collective international action emphasizing almost blanket depositors protection (see, for example, Pilkington, 2008). Allowing Iceland to leave depositors in foreign branches without such protection was seen as countering these efforts and indeed undermining the entire global financial system. In Whitehall, many feared that the Icelandic crisis was spreading to the UK, which also had approached the brink of widespread banking collapse. As a result, Iceland was being turned into an international villain. Iceland was trapped.

Though Iceland was still stubbornly hesitating, a joint economic programme was informally being negotiated that would include $2.1 billion from the IMF and a further $3 billion from the Central Banks of Denmark, Finland, Norway and Sweden in addition to a separate loan from Poland. Iceland’s resilience was however diminishing by the day. The pressure to accept responsibility for the Icesave deposits grew. According to some reports, Iceland was even threatened with being expelled from the European Economic Area (EEA), its economic lifeline to the outside world (Hálfdanardóttir, 2008). With dwindling foreign reserves and at risk of a serious shortage of, for example, medicine, food and other necessities from abroad, Iceland finally threw in the towel and applied to enter the IMF emergency program on 25 October.

IMF Blockade

Based on informal query the government expected that the IMF board would accept Iceland’s application on 3 November (Sveinsson, 2013). In the meantime, however, the British and Dutch governments, which previously had been pressuring Iceland to go to the IMF, were now lobbying behind the scenes against Iceland being allowed into the program unless first accepting responsibility for the Icesave accounts (Duncan, 2008). The NRC Handelsblad in the Netherlands reported that the blockage was being orchestrated by Dutch Finance Minister Wouter Bos and his British colleague Alistair Darling (Banning & Gerritsen, 2008). Later, the chief IMF representative in Iceland admitted to a block of not only the British and Dutch governments but also the Nordic states (Rozwadowski, 2013).

When Iceland would not concede, the IMF board postponed its decision and made clear that the plea would be blocked until accepting of liability for Icesave. During this time, a senior advisor in the IMF’s external relations department publicly acknowledged that the delay was directly due to unresolved disputes with the Netherlands and the UK (Transcript of Press Briefing by David Hawley, 2008). As Iceland was not a member of the EU and thus not subject to the European Court of Justice, and as the EFTA Court had no jurisdiction in the UK and the Netherlands, there seemed at the time to be no available legal body to rule on the dispute – apart from the previously mentioned initial arbitrary court that Finance Minister Mathiesen had felt forced to agree to on October 11 but the Icelandic government later abandoned on the ground that it was skewed in favour of the UK and the Netherlands through the EU’s involvement.

Iceland was thus caught in a tight spot. It needed money to prevent further deterioration of the already devastated economy but that meant agreeing to liabilities it did not want to accept. According to the Brussels Guidelines brokered by the French EU Presidency the government of Iceland agreed to cover the deposits of depositors in the Icesave accounts in accordance with EEA law. Iceland was to repay the Icesave debt over ten years, starting three years after signing, with 6.7 per cent interest on the loan. The agreement also entailed that the EU would continue to participate in finding arrangements that would allow Iceland to restore its financial system and economy. This was a precondition Iceland set for paying out according to the agreement. A stabilization package of financial assistance from the IMF was an explicit part of the agreement, which was to be discussed at the IMF Executive Board meeting on Wednesday 19 November (Agreed Guidelines, 2008).

Though these early agreements on the Icesave deposits were meant to end the quarrel, the dispute was only just starting. Ambiguity still remained. To keep up the pressure, and even to increase it, the Dutch Foreign Minister, Maxime Werhagen, threatened to veto Iceland’s EU bid in July 2009 (The Hague Threatens Iceland, 2009). The Icelandic government justified the agreements by claiming that it had had no choice. Either it bit the bullet and accepted responsibility or the country would remain frozen out, thus without access to vital imports such as medicine and food. The Icelandic government explained that no one supported us; not even our Nordic neighbours were willing to listen to Iceland’s legal arguments. Without agreement, Iceland would no longer have been considered a modern state, internationally recognized as equal to others, but would rather have been relegated to being an isolated outpost surviving on local agriculture and fisheries alone. The signing was, however, a serious blow to the country’s political identity, as the postcolonial national identity insisted on not giving in to foreign pressure. It thus caused great strain domestically (Bergmann, 2014b).

After Iceland’s concession to the British and the Dutch over Icesave, the general public took to the streets in even greater numbers than before, now not only protesting against our government’s mismanagement of the economy but also against apparent foreign oppression. Frustration grew as businesses closed and more and more people were laid off while inflation rose to 20 per cent. The protest was now spreading around the country.

Icesave II and III

The new left-wing government parachuted in on the canopy of the Pots-and-Pans revolution contested some of the premises of the Brussels Guidelines, which they claimed was unlawfully imposed by foreign forces. Under the leadership of Finance Minister Sigfússon, chairman of the Left Green Movement, the new government abandoned the multinational approach and instead sent their representatives to London and The Hague to renegotiate terms. This result, which in effect was merely a loan agreement with the foreign ministers of the Netherlands and the UK, where Iceland accepted to cover up to €4.5 billion, instantly became one of the most unpopular agreements in the history of the country. Only after it’s signing however was the freezing order on Landsbanki and related Icelandic assets lifted.

Similar delaying tactics within the IMF on reviews, as when entering the program initially, was furthermore confirmed in a report by the Independent Evaluation Office of the IMF into its response to the financial crisis. The report spoke of ‘the active involvement of (at least some) Nordic countries served to delay the first review by several months because […] pressure […] by their European partners not to provide financing assurances in an attempt to influence the outcome of the ongoing discussion on the extent of deposit guarantees for Icesave.’ (Independent Evaluation Office of the International Monetary Fund, 2014)

Parliament reluctantly accepted the agreement, but only after adding to it new preconditions, referring to Iceland’s ability to pay. These the UK and the Dutch refused. A new negotiation committee was thus formed, which was able to lower the interest rate a little further. After a fierce debate, the amended agreement was accepted in Parliament on the last day of December 2009. The new government was now also accused of caving in to foreign pressure and surrendering Icelandic interests to external forces.

The saga took a dramatic turn on 5 January 2010, when the President of Iceland, Ólafur Ragnar Grímsson, denied signing the law necessary to ratify the new agreement after receiving a petition of 60,000 Icelanders asking him to reject the deal. (He had signed the revoked earlier one). This was an exceptional move.

In early 2010, Icelanders once again found themselves in unknown waters. A quarter of the electorate had signed a petition to be put to the President asking him to decline signing the bill, which was thus as a result of the non-signing subsequently put referendum were 90 per cent of voters refused ratifying it. The country was in a mood of defiance. Many felt betrayed by the UK government when it had invoked the Anti-terrorist Act – an action that ultimately drove our last bank into the ground. Icelanders therefore found the idea that they should foot the whole bill alone difficult to swallow. There was also a legal twist. Directive 94/19/EC upon which the British and Dutch had based their claim was rather unclear. It stipulated only that states are obliged to set up special deposit guarantee schemes. It did not speak of a state guarantee. Many Icelanders were thus frustrated by the fact that the British and the Dutch had refused the request for an impartial court to rule on the issue.

The general perception in Iceland was thus that the government had again been bullied by an overwhelming foreign power into signing an unjust agreement. It is generally accepted that the government and Parliament only accepted the initial deals to achieve other ends, rather than because they felt under obligation to pay. It was simply a necessary evil to gain access to the IMF. And then there was the cost. €4.5 billon might have seemed a small figure by UK standards but this was almost half Iceland’s GDP. Divided by Iceland’s small population, the bill amounted to more than €12,000 per head, or just under €50,000 per household. If Landsbanki’s assets deteriorated any further, this would place a devastating burden on an already debt-ridden population.

In addition to the wide-ranging general feeling of frustration, the appearance of leniency towards the British and Dutch spurred a new wave of protest in mid-2010, which heightened when Parliament resumed in the early autumn, to find thousands of protesters surrounding the building, once again.

After twice going back on signed agreements (in addition to abandoning the two initial deals), the government found it difficult to go knocking on doors in London and The Hague asking to renegotiate the deal once again. Headed by a hired American negotiator, the new team was nevertheless in the end able to bring the interest rate down to 3 per cent. This time, a large majority emerged in Parliament when the IP joined ranks with the government in backing the new deal. The Progressive Party (PP) though still opposed any agreement. Yet, to the surprise of most, President Grímsson also refused the third agreement. In a second referendum, on 9 April 2011, the new agreement was refused by a two-thirds majority, illustrating a clear division between Parliament and the public. Now, there was no longer anything to negotiate. The case was sent to the EFTA Court, where the EU was backing the claim of the UK and the Netherlands and the EFTA Surveillance Authority against Iceland. Finally, on 28 January 2013, the court ruled in favour of Iceland, which was vindicated of wrongdoing in its handling of the Icesave deposits (Judgment of the Court, 2013). The court refused the EU’s and the UK and the Dutch governments’ claims of a state guarantee, such as Iceland had been forced to accept in the earlier Icesave agreements. Later UK and the Netherlands filed a much more limited claim before court in Reykjavik, still pending judgment at time of writing.

Conclusion

Internationally the Icesave dispute reveals interesting contestation and political production (and re-production) of constitution of international legality. Development of international legality, as understood by Rajcovic et al (2016), has in this paper been traced throughout the course of this particular crisis. Domestically the issue was dictating politics in the post-crisis period in Iceland. To the surprise of many Icelanders, after the Crash had left Iceland in financial ruin, the Dutch and the British still enjoyed the full backing in the Icesave debacle of our neighbours in the European community. The UK and Dutch authorities were able to use both the EU and the IMF to pressure Iceland into accepting responsibilities that Iceland’s authorities never believed were theirs to shoulder.

 From interviews with UK officials conducted for this paper is seems clear that the UK side believed that a high level political deal was in place with the Icelandic government of fast tracking Icesave into the UK banking space and that the deal included insurance premium injection from Iceland of 200 million pounds. Interestingly, though, Icelandic officials claim not to have any knowledge of such a deal. It is furthermore evident that the UK government lost faith in Icelandic authorities during the weekend of 3d to 5th October 2008, finally kicking into action plan B of attacking Iceland by use of the Anti-terrorist Act, which had for a while been in the making in Westminster. When doing so it served the UK government well to take a tough stand on Iceland, while simultaneously bailing out banks domestically – being tough on Iceland became a balancing act, serving the purpose of sending tough message to others when announcing the massive bank bailout.

The Icesave case illustrates that in time of crisis international muscle power still prevails. In time of need small states have difficulties when defending off larger states sharp attacks. In a European context, being formally a non-EU member made it easier for the UK and the Netherlands to deploy the EU apparatus to pressure Iceland than they would against a fellow member state. The illusion of a shelter amongst the family of Nordic states was furthermore also shattered during Iceland’s Crash, which was therefore not only economic but also political and indeed psychological. Iceland had been frozen out in terms of diplomatic relations. Suffering the deepest crisis in its post-war history, the country was already drained of foreign currency when the IMF finally opened its doors in November 2008, after Iceland had, under coercion, finally agreed to guarantee the Icesave deposits. By use of delaying tactics of reviews within the IMF the UK was, with the help of some of the Nordics, able to maintain the pressure on Iceland. However, after the immediate crisis was over, it was through the EFTA Court, a European institution, that Iceland, as a small state, was finally able to escape the pressure applied by the British and Dutch governments.

 

 

 

References

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* Acknowledgements: This research was conducted by examining generally available data and through semi-structured off-the-record background interviews with several officials in the UK and Iceland. The interviews are referenced where appropriate in the text but due to anonymity they are not individually listed in the bibliography. The research was financially suported by the Social Science Instute of the University of Iceland, through a project analysing foreing impact on the Icelandic banking collapse. Parts of the paper are furthermore based on my book Iceland and the International Fiancial Crisis: Boom, Bust and Recovery (2014). Basingstoke and New York: Palgrave Macmillan.

Endnotes

[1] Authors interview with Mathiesen in Desember 2013.

[2] I was allowed only reading the unpublished report in Reykjavik on October 21st 2014

Interpretation of Economic, Social and Cultural Rights by Human Rights Bodies in Times of Economic Distress. The case of Greece

Introduction

Economic, social and cultural rights have borne the brunt of the recent economic crisis and the austerity measures adopted to counter it. Due to their gradual implementation and the need of positive measures to implement them, they were the first to be attacked especially in developed countries where certain achievements in the field of labour rights and social security had attained quite a high standard. The proposals to amend the labour law in France and the fierce reaction of the people are indicative of this trend[1]. Given that these achievements were the result of the progressive implementation of economic, social and cultural rights, as stipulated by international human rights treaties, most of the initiatives to restrict them result in prohibited retrogressive measures.

States falsely consider that it is easier to limit economic and social rights instead of civil and political rights for various reasons. First of all there is much discussion regarding the real justiciability of social rights. Secondly, social rights are interpreted by international human rights bodies mainly through an expansive interpretation of civil and political rights. Thirdly, the dire situation of economic, social and cultural rights in most developing countries renders the discussion of their limitation in developed countries somewhat inappropriate or at least awkward. Finally, certain researchers maintain that sometimes social rights are given lower status as a matter of ideological choice[2], while their real protection is difficult due to inequalities especially within the urban centres. After discussing the possible ways of applying economic, social and cultural rights in the first part of the essay, I will then examine their application during economic crises with a special reference to Greece focusing mainly on two fields, labour rights and social security rights, and the case-law produced by international human rights bodies in that respect.

The rise and current protective framework of economic, social and cultural rights in international human rights law

I. The global normative framework: indivisibility of civil and political rights and economic, social and cultural rights

1.  At the international level

References to human rights in general and economic, social and cultural progress and development in particular are already included in the UN Charter[3]. The first international instrument – albeit not legally binding[4] – that refers both to civil and political rights and economic, social and cultural rights is the Universal Declaration of Human Rights (UDHR)[5]. Civil and political rights – the so-called “first generation” rights – were distinguished from economic, social and cultural rights or “second generation” rights in that they required no positive action by the state in order to be safeguarded. The latter had only to refrain from interfering with the right. To the contrary, it was deemed that economic, social and cultural rights required the allocation of resources and public expenditure. Therefore, they were not of immediate implementation but could be achieved only progressively. During the Cold War, Western states considered civil and political rights to be the only enforceable rights. There is also a “third generation” of rights that comprises the rights to development, self-determination, healthy environment, natural resources, collective rights etc.[6].

One can easily draw the conclusion that this is an obsolete argument that cannot firmly support a human rights separation theory, since it has already been established in international human rights jurisprudence that abstention is not enough for the protection of civil and political rights but these require positive measures as well[7], while the Vienna Declaration and Programme of Action[8] reaffirmed that: “All human rights are universal, indivisible and interdependent and interrelated. The international community must treat human rights globally in a fair and equal manner, on the same footing, and with the same emphasis”[9]. Even before that, the Proclamation of Teheran in 1968, stressed that “human rights and fundamental freedoms are indivisible, the full realization of civil and political rights without the enjoyment of economic, social and cultural rights is impossible”[10]. Moreover, the Committee on Economic, Social and Cultural Rights has repeatedly reaffirmed that human rights are “interdependent and indivisible”[11].

While most international human rights treaties of special protection contain provisions both for the protection of civil and political rights and economic, social and cultural rights, verifying thus their interconnected character[12], this approach was not followed by the UN Economic and Social Council when the issue of adoption of a universal covenant arose. At that time, the delegates considered that civil and political rights, on the one hand, and economic, social and cultural rights, on the other, could not be implemented in the same way[13]. The former required that states refrain from certain harmful action, while the latter could be implemented only progressively, by means of positive measures and appropriate legislative action.

Hence, the UN General Assembly took the policy decision to request the drafting and eventual adoption of two separate covenants, one dedicated to civil and political rights and the other to economic, social and cultural rights[14]. Both were submitted simultaneously for consideration to the General Assembly so that their unity could be emphasized; it was the International Covenant on Civil and Political Rights (ICCPR) and the International Covenant on Economic, Social and Cultural Rights (ICESCR). They were adopted on the same day by the same UN General Assembly resolution[15]. However, the two moved hence on separate tracks.

The competent organ to control implementation of the ICCPR, through the consideration of periodic reports submitted by states-parties, is the Human Rights Committee[16]. On the contrary, monitoring of the ICESCR was entrusted initially to the ECOSOC, which had the duty to receive – through the intermediary of the UN Secretary General – and consider reports on the measures that states have adopted and the progress made in achieving the observance of the rights recognized in the ICESCR[17]. The Committee on Economic, Social and Cultural Rights was established only in 1985 under resolution 1985/17 (28 May 1985) of ECOSOC and was mandated to carry out henceforth the monitoring functions assigned to ECOSOC in Part IV of the ICESCR[18].

Furthermore, the ICCPR was equipped from the very beginning with an Optional Protocol which empowered the Human Rights Committee to receive and consider individual communications on alleged violations of the rights of the Covenant. Through the mechanism of individual communications the Human Rights Committee has accumulated a remarkable case-law, which is referred to very often by other international judicial and quasi-judicial human rights bodies. The Optional Protocol to the ICESCR, which established a similar individual complaints procedure regarding economic, social and cultural rights was adopted only in 2008 and entered into force on 5 May 2013. This lack of individual complaints mechanism constituted a major practical obstacle for those that supported the justiciability of economic, social and cultural rights.

2. At the European level

The same separation is prevalent within the European continent, where this differentiation of first and second generation rights was reflected in the adoption of two instruments having a different control mechanism. The main instrument of general human rights protection, the European Convention on Human Rights adopted in 1950 and binding on all Council of Europe member states[19], and its Additional Protocols recognise only civil and political rights (and the right to education from second generation rights by virtue of article 2 Protocol no 1). What is more, the instrument is vested with a unique implementation mechanism. A European Court of Human Rights (ECtHR) is entrusted with considering individual applications on human rights violations, issuing judgments that are binding upon the respondent state, while a political organ, the Committee of Ministers, is responsible for monitoring the compliance of the member state involved, whenever a violation is found by the ECtHR, through the proposal of individual and general measures to remedy the violations. While the ECtHR protects mainly civil and political rights, it also guarantees indirectly economic, social and cultural rights by interpreting them under the prism of civil and political rights[20].

Economic and social rights as such are guaranteed by the European Social Charter (1961) and the Revised European Social Charter (1996), ratified by 27 and 34 states respectively[21]. The instrument is equipped with an Additional Protocol providing for a system of collective complaints (1995). The monitoring organ in this case is not a court but rather a Committee, the European Committee of Social Rights (ECSR), which is composed of independent experts. The latter monitors the compliance of the contracting states through two procedures: the reporting procedure, according to which states are bound to submit national reports regarding the implementation of the provisions of the Charter, and the collective complaints procedure which allows for the lodging of complaints. The ESCR examines the reports and adopts conclusions, while in respect of collective complaints it adopts decisions. Neither of them is binding.

Finally, the Charter of Fundamental Rights, adopted in the framework of the EU and having the same legal value as the founding treaties by virtue of the entry into force of the Lisbon Treaty[22], translates in a binding document the indivisibility of human rights as it was officially recognised in the Vienna Plan of Action: human rights are universal, indivisible and interdependent and interrelated[23]. Therefore, the Charter includes all three sets of rights: a) classical first generation rights (civil liberties, political rights, judicial protection), b) second generation (economic, cultural and social rights), 3) third-generation rights e.g. protection of the environment. And rights that do not fit in any of the abovementioned categories, e.g. data protection, consumer protection. There is however a gap as to which social rights are declared as principles and which as justifiable rights.

II. The justiciability of economic, social and cultural rights[24]

Formerly there was much discussion on whether economic, social and cultural rights could be considered justiciable. The prevalent opinion was that civil and political rights and economic, social and cultural rights remain in two different legal instruments and the latter have not attained the same degree of justiciability and enforceability as civil and political rights. The main arguments against are the following[25].

The “policy argument”

  • First of all it was considered that the implementation of economic, social and cultural rights was clearly a matter of policy. According to this point of view, courts are an inappropriate forum to adjudicate and pronounce on issues of social policy. And in case they are called to adjudicate, they should accord a considerable margin of appreciation to the state authorities[26].

The “limited resources argument”

  • Moreover, since their effective protection required resources, it rested solely on the state to realize them progressively. Accordingly, states argue that they do not have adequate resources to provide even the most elementary socio-economic rights to their populations. Therefore, courts could not play an active role in this procedure, because otherwise they would have to meddle in the legislative and executive function by making the law rather than applying it. It would be, in other words, an impermissible form of judicial activism. The partisans of the progressive realization approach had an unexpected ally: article 22 UDHR which stated that “Everyone, as a member of society … is entitled to realization, through national effort and international co-operation and in accordance with the organization and resources of each State, of the economic, social and cultural rights indispensable for his dignity and the free development of his personality”.

The “effective remedy argument”

  • Another argument raised by those maintaining the non-justiciability of socio-economic rights is the fact that the ICESCR does not contain any provision on the duty of states to provide an effective remedy in the national legal order to individuals whose socio-economic rights have been violated. Indeed, the right to an effective remedy is a cornerstone provision in all human rights treaties protecting civil and political rights[27].

Those arguments representing a rather traditional view on the matter have thence been rebutted by the following[28].

The “violations approach”

  • One alternative, maintained by A. Chapman is the “violations approach”[29]. According to this, one should set aside the progressive realization of economic, social and cultural rights, which does not allow for their monitoring, and rather focus on the state conduct that violates these rights. Thus, violations could result from governmental measures that actually contravene the provisions of relevant international instruments or from the creation of conditions that do not foster or permit the realization of these rights and, last but not least, from policies and legislations that fail to fulfill minimum core obligations. For example, a state in which a significant number of individuals are deprived of essential foodstuffs, of primary health care, of basic shelter and housing or of basic education is failing to discharge its obligations under the ICESCR[30]. In that context, the Committee on Economic, Social and Cultural Rights has also stressed that vulnerable members of society must be protected, even in times of severe resources constraints, caused by adjustment programmes, economic recession or other factors[31].

The evolving role of courts in a democratic society

  • Another argument in favour of the justiciability of socio-economic rights relates to the role of courts in general in a democratic society. Indeed, a constant disagreement among lawyers is the difference between “legal” and “political” matters. One could seize the courts for the former but not the latter. For a long time it was suggested that matters involving the allocation of resources should be left to the political authorities rather than the courts. It is an invalid argument, if we take into account that a great range of matters have always political implications. This should not impede the courts from adjudicating on them. Likewise, courts are already involved in cases which have considerable resource implications. This approach has been also adopted by the Committee on Economic, Social and Cultural Rights, which has pointed out that the active involvement of courts in questions implicating socio-economic rights is imperative, in order to protect the rights of the most vulnerable and disadvantaged groups in society[32].

Economic, social and cultural rights that can be enforced immediately

  • Furthermore, one could distinguish between those socio-economic rights that could be enforced immediately and others that are by definition subject to progressive realization. The Committee on Economic, Social and Cultural Rights, in its General Comment no.3[33], asked for the provision of judicial remedies with respect to rights which may be considered justiciable. It also enumerated a non-exhaustive list of rights that “would seem capable of immediate application by judicial and other organs in many national legal systems”. These include the equal right of men and women to the enjoyment of all economic, social and cultural rights (article 3), the right of everyone to the enjoyment of just and favourable conditions of work (article 7a)i), the right of everyone to form trade unions and the right to strike (article 8), the rights of children (article 10 §3), the right of free and compulsory primary education (article 13 §2a), of parents and, when applicable, legal guardians to choose for their children schools (article 13 §3), the right of individuals and bodies to establish and direct educational institutions (article 13 §4), freedom indispensable for scientific research and creative activity (article 15 §3). As the Committee stated, “the fact that realization over time is foreseen under the Covenant, should not be misinterpreted as depriving the obligation of all meaningful content”[34].

Domestic application of the Covenant

  • Fourthly, the absence of a provision on effective remedies does not constitute per se an obstacle to the justiciability of economic, social and cultural rights. Although the ICESCR does not contain a counterpart to article 2 §3b ICCPR, it does stipulate that: “Each State Party to the present Covenant undertakes to take steps, individually and through international assistance and co-operation, especially economic and technical, to the maximum of its available resources, with a view to achieving progressively the full realization of the rights recognized in the present Covenant by all appropriate means, including particularly the adoption of legislative measures” (article 2 §1). Pursuant to General Comment No. 9 of the Committee on Economic, Social and Cultural rights the phrase “appropriate means” also includes domestic legal remedies, which reinforce every other initiative[35]. According to the Committee: “Where the means used to give effect to the Covenant on Economic, Social and Cultural Rights differ significantly from those used in relation to other human rights treaties, there should be a compelling justification for this, taking account of the fact that the formulations used in the Covenant are, to a considerable extent, comparable to those used in treaties dealing with civil and political rights”[36]. In the same vein, the Inter-American Court of Human Rights has used article 25 ACHR to request effective remedies for the demarcation and titling of indigenous land in cases where civil and political rights and economic, social and cultural rights intersect[37].

The “permeability principle”

  • Another way to address the question of justiciability is through the “permeability principle”[38]. According to this, civil and political rights are used as a basis for admitting complaints concerning economic, social and cultural rights. For instance, allegations regarding the violation of the right to adequate housing could be treated though the right to property or violations of the right to health could be admitted as a possible infringement of the right to life or the right to humane treatment. The contribution of the Inter-American Court of Human Rights case-law to this discussion is priceless. Indeed, the IACtHR cuts the Gordian Knot of the justiciability of socio-economic rights, by protecting them through the dynamic and broad interpretation of civil and political rights. In that way, the indivisibility and interconnected character of the two generations is reinforced, since economic, social and cultural rights are inherent in civil and political rights.

The impact of austerity measures on economic and social rights. Issues of effective protection

I. The position of the Committee on economic, social and cultural rights

The centrepiece of the ICESCR is the obligation on States parties to respect, protect and fulfil economic, social and cultural rights progressively, using their maximum available resources[39]. Moreover, states parties to the ICESCR have an immediate obligation to ensure the implementation of a minimum essential level of all economic, social and cultural rights. This minimum core[40] covers for instance all obligations that ensure an adequate standard of living such as essential health care, basic shelter and housing, basic forms of education etc. In order to achieve this goal, available resources have to be allocated proportionately. Thus, for instance, a budget that relies heavily on military expenditure will save little for education or health care. Even if available resources are totally inadequate, the state bears the burden of proof to demonstrate that it has used all its resources in a proper manner so as to cover the minimum core[41].

However, states enjoy a wide margin of appreciation (to borrow the phrase inaugurated by the ECtHR)[42] regarding the implementation of socio-economic rights. The obligation of progressive realization carries naturally the prohibition – albeit not absolute – of retrogression. According to General Comment no 3, any deliberate retrogressive measure, if not prohibited, requires “the most careful consideration and would need to be fully justified by reference to the totality of the rights provided for in the Covenant and in the context of the full use of the maximum available resources”[43]. This obligation remains the same even in times of economic distress or adjustment programmes.

Hence, unlike the International Covenant on Civil and Political Rights, derogations are not allowed from the ICESCR even during times of economic emergency[44]. According to the Maastricht Guidelines on violations of economic, social and cultural rights, states are obliged to respect, protect and fulfil economic, social and cultural rights through appropriate legislative, administrative, budgetary, judicial and other measures and failure to observe this obligation may result in violation of said rights[45]. For instance, arbitrary or sweeping forced evictions, which are frequent in situations of economic crises[46], violate the right to housing. Withdrawal of basic labour standards protecting private employees may amount to a violation of the right to work. Last but not least, denial of basic health care may result to a violation of the right to health in extreme circumstances even of the right to life or the prohibition of degrading treatment.

Despite the fact that full realization of economic, social and cultural rights is achieved progressively, this does not alter the legal obligation of states to adopt measures immediately or as soon as possible to that direction. States are obliged to demonstrate that they are actually taking such measures and that they are making progress for the full realization of these rights. Thus, the notion of “progressive realization” cannot be used as a pretext to avoid full execution of the Covenant’s provisions. Furthermore, certain minimum core obligations such as essential foodstuffs, essential primary health care, basic shelter and housing, or the most basic forms of education have to be satisfied, irrespective of the economic distress or the availability of resources[47]. In a letter[48] addressed by the Chairperson Pillay to all states parties it is stressed that even though states are allowed to adopt austerity measures in order to overcome severe financial crises, however these decisions should not lead to the denial or infringement of economic, social and cultural rights, especially if this results in negative impacts on vulnerable and marginalized individuals such as the poor, women, children, persons with disabilities, older persons, people with HIV/AIDS, indigenous peoples, ethnic minorities, migrants and refugees. Hence, while adjustments in the implementation of economic and social rights are inevitable, these should not lead to regression. It is interesting that the Chairperson referred to “the pressure that is exercised on many States parties” without clarifying where this pressure comes from: the overall economic necessity or third parties?

In her letter the Chairperson also identifies four requirements that have to be met by adjustment programmes: a) they must be a temporary measure, b) they must be necessary and proportionate, c) they must not be discriminatory but they must strive to mitigate inequalities especially with regard to the disadvantaged, d) the minimum core content of economic and social rights, as developed by the International Labour Organization, must be ensured at all times. Strangely enough, these requirements are identical to those applied for derogation measures from civil and political rights during states of emergency[49].

II. The case-law of the European Court of Human Rights

Even before the current economic crisis, the ECtHR had rendered judgments that included an economic dimension: violation of the right to life regarding the death of fifteen children in a home for children with severe mental disabilities due to lack of food, heating and basic care[50], inadequate access to health care for detainees or asylum-seekers raising issues under articles 2 and 3 ECHR[51], health rights of prisoners[52], violation of article 8 ECHR due to the planned eviction of Roma from an unlawful settlement without proposals for rehousing[53], total deprivation of a social pension[54], qualification of all social benefits as possessions even if they are non-contributory, so as to be covered by article 1 of Protocol No. 1 ECHR[55] etc. Of particular interest was a case regarding insufficient amounts of pension and the allegation of the applicant that this amounted to inhuman treatment, although the Court did not find a violation[56].

With regard to austerity measures adopted by states embroiled in budgetary crises and adjustment programmes, the European Court of Human Rights has already set a clear legal precedent. In Da Silva Carvalho Rico/Portugal the outcome was quite predictable: the ECtHR has dismissed the case applying the “proviso of the possible” doctrine[57]. According to this theory, borrowed by German constitutional law and applied by the Portuguese Constitutional Court as well, the state cannot be forced to comply with its obligations in the framework of social rights if it does not possess the economic means to do so[58]. Thus, budgetary constraints on the implementation of social rights can be accepted provided that they are proportionate to the public aim sought and they do not deprive the right of its substance. With a similar reasoning, the Court declared manifestly ill-founded applications against pension reductions for civil servants in Portugal[59] or the temporary reduction in the pensions of judges in Lithuania[60] which had their origin in austerity measures as a response to the economic crisis.

Against this background, we are waiting with extreme anticipation the judgment of the Grand Chamber that will reconsider the case Béláné Nagy/Hungary. The Chamber has already found that the removal of a disability pension through consecutive amendments to the eligibility criteria was considered excessive and disproportionate, thus constituting a violation of article 1 of Protocol No. 1[61].

The global economic crisis of 2007-2008 and its impact on Greece

I. The beginning of the crisis

The causes of the global economic crisis of 2008 have already been extensively discussed and will certainly continue to preoccupy political economists in the years to come, especially insofar as no safe exit from the overall crisis is yet envisaged. Consequently, we will not purport to delve into the multifaceted causes of the financial crisis, but rather to offer an overview of it and most importantly the way it has impacted on Greece and how it prompted the relevant austerity measures.

The financial crisis traces its roots in the USA back in 2007. The crisis hit initially a small segment of the financial markets, namely subprime mortgages, but soon it resulted in global recession[62]. Shortly after the initial blow, many financial institutions mostly in developed countries have been affected. National governments were required to bailout banks; the housing market was affected resulting in evictions, while prolonged unemployment became a quasi-permanent feature of contemporary societies. The crisis has had an adverse impact both in developed and developing countries, the latter mainly through the trade channel or through workers’ falling remittances[63]. According to reports, the losses of gross domestic product amounted to 10% of global output in 2008-2010, while the loss in values of assets and the loss of personal income precipitated by the austerity measures cannot still be calculated with certainty[64].

II. The immediate aftermath: the European sovereign debt crisis

The global financial crisis resulted in a European sovereign debt crisis in the end of 2008-2009 which affected primarily Iceland, Greece, Portugal, Ireland, Spain and Cyprus. The affected countries were unable to repay government debt or to bail out over-indebted banks without the assistance of third parties. Given the particularities of the European integration – the eurozone is only a currency union and not a fiscal union thus member states maintain different tax, remuneration and pension rules – the options available to political leaders to react were limited. In fact, EU and the eurozone in particular had no contingency plan to counter the effects of an economic crisis of such a magnitude.

The first mechanism that was put in place was the European Financial Stability Facility (EFSF). The EFSF was established in June 2010 as a “société anonyme” under Luxembourgish law and has provided financial assistance to Ireland, Portugal and Greece, through the issuance of bonds and other debt instruments on capital markets. It has 17 shareholders, namely the eurozone member states. Since 1.7.2013 the EFSF is not allowed to engage in new financing programmes or enter into new loan facility agreements. The EFSF assistance programme for Greece expired on 30 June 2015[65].

It was replaced by the European Stability Mechanism (ESM), a permanent international financial institution, established by an intergovernmental treaty signed by the euro area member states on 2 February 2012[66]. ESM is a crisis resolution mechanism, providing stability support to eurozone countries threatened by severe financing problems. Its financial assistance is not funded with taxpayer money; the funds are rather acquired by issuing capital market instruments and engaging in money market transactions. ESM has 19 shareholders – the euro area member states – and is open for membership to all EU member states that will adopt the euro as their sole currency in the future. Since 1 July 2013 it is the sole mechanism for responding to new requests for financial assistance and has thus far assisted Greece, Cyprus and Spain, the first two through loans subject to macroeconomic adjustment programmes and the latter through a loan to government for bank recapitalization. Greece is the sole eurozone member state that has received support from both institutions and the only one to remain in the ESM stability programme. Cyprus has exited successfully the programme on 31.3.2016, while the financial assistance programme for Spain expired on 31.12.2013[67].

Participation in these financial stability mechanisms entails as a short- and long-term consequence the adoption of austerity measures and far-reaching privatization programmes. In fact, austerity measures were the primary political choice of governments in their effort to stem the effects of the economic crisis and reduce deficit and public debt[68]. Even when applied with restraint, austerity measures have an adverse impact on the enjoyment of acquired economic and social rights and thus on our ordinary and everyday life. This approach was inaugurated by the International Monetary Fund that implemented the Structural Adjustment Facility in 1986 and the Enhanced Structural Adjustment Facility one year later, making financial assistance conditional on the implementation of neoliberal structural adjustment programmes impacting adversely on human rights[69].

III. The impact of the economic crisis on Greece

1. The financial assistance provided to Greece

Due to its macroeconomic imbalances[70] and the lack of flexibility resulting from its status as a eurozone member state, Greece was the first eurozone country affected by the global economic crisis. Overcoming the “no bail-out” clause of article 125 of the Treaty on the Functioning of the EU, which prohibits the Union and individual member states from assuming the commitments of governments and other public authorities[71], the first financial assistance package for Greece was agreed in April 2010 and consisted of bilateral loans from eurozone member states and the International Monetary Fund (the so-called Greek Loan Facility).

However, the Greek Loan Facility was inadequate to counter a more or less systemic crisis. Therefore, in March 2012 the Eurogroup approved a second support programme for Greece, provided again by the Eurozone member states and the IMF. This time, the Eurozone assistance was not provided though bilateral loans but through the EFSF. Furthermore, the Eurozone member states decided to apply the procedure of the Private Sector Involvement (PSI) in the restructuring of the public debt. Thus, in May 2012 about 97% of privately held bonds took a 53,5% cut of the face value of the bond, corresponding to an approximately 107 billion euro reduction in Greece’s debt.

Overall political instability and reluctance of the Greek governments to adopt and implement measures and reforms requested by its lenders led to another impasse in the summer of 2015 when Greece, unable to repay its debts, arrived very close to official insolvency. Controls were imposed on Greek banks to avoid a massive flow of capital and the Greek government decided to submit a request for financial assistance to the ESM. After laborious negotiations of 17 hours the parties reached an agreement (the Financial Assistance Facility Agreement) on 13 July 2015. The agreement was approved by national parliaments and on 19 August 2015 by the ESM Board of Governors. The precise amount of ESM financial assistance will depend on the IMF’s decision regarding its participation in financing the programme, and on the success of reform measures by Greece, including the privatisation of state assets[72].

2. The measures adopted

In order to receive the financial support packages, Greece was requested to adopt a series of specific measures of adjustment the implementation of which was monitored in the first two phases (Greek Loan Facility and EFSF) by officials from the European Commission, the European Central Bank and the IMF, the so-called “Troika”, a unique institution of an ad hoc nature whose establishment lacked an appropriate legal basis in primary EU law. For this purpose a Memorandum of Understanding was signed between the member state concerned and the “Troika”, whereby the member state – in our case Greece – undertook to carry out a number of actions in exchange for financial assistance. The assistance was provided on the basis of strict conditionality; thus the successive Greek governments enjoyed limited leeway in the adoption of the measures required to overcome the crisis[73]. The same stands for the ESM: a set of prior actions were requested urgently in order to enter into negotiations for the reform agenda as it was set out in the most recent Memorandum of Understanding which was approved by the ESM Board of Governors on 19 August 2015 following its endorsement by ESM members according to their national procedures. The MoU of August 2015 focuses on four key areas: restoring fiscal sustainability; safeguarding financial stability; boosting growth, competitiveness and investment; and reforming the public administration.

Given the urgency of the situation, the measures adopted at the national level in the course of the three successive financial assistance packages were not carefully balanced leading to restrictions on economic and social rights. A series of laws, presidential decrees and ministerial decisions form the backbone of the austerity legislation. Due to their high number and lengthy content a detailed analysis of the said legal documents is beyond the scope of the present article. We will provide a selection of the most representative legislations adopted and we will focus on the ones that are detrimental on the social rights selected for analysis in the present article: social security and labour rights.

The first set of social rights attacked by austerity measures were labour rights and social security rights. A set of laws[74] introduced tectonic changes, amongst which figure the following[75]:

  • modifications to both public and private pension schemes;
  • reduction of public sector wages by 12% and later a further reduction of 3%.;
  • remuneration of special apprenticeships for people between 15-18 years old with 70% of the general minimum wage, while new entrants in the labour market under the age of 25 would be remunerated with 84% of the general minimum wage;
  • establishment of the wage setting system by law, whereas the minimum wage would be determined by a government decision, after consultation with the social partners;
  • reduction of the general minimum wage by 22% for workers older than 25 years old and by 32% for younger workers;
  • precedence of the company level CEAs over sectoral or occupational ones even if the latter contained more favourable provisions, provided that the safety net of the National General Collective Agreement is observed;
  • arbitration procedures could be initiated only upon mutual consent of the parties, while the arbiter shall take into consideration the economic distress and the requirements of the adjustment programme;

 

Austerity legislation and effective protection of economic, social and cultural rights[76] in Greece

I. Social security rights

Article 12 of the European Social Charter guarantees the right to social security. Pensions are a principal branch of social security[77]. Both the European Court of Human Rights and the European Committee of Social Rights examined cases related to pension cuts, reaching totally different conclusions.

In Koufaki and ADEDY/Greece, the ECtHR found no violation of article 1 Protocol 1 ECHR, guaranteeing the right to property. The Strasbourg court reaffirmed the wide margin of appreciation that states enjoy with regard to their social policy and concluded that the reductions pursued a legitimate aim and were not disproportionate[78]. Moreover, there was no evidence that the applicant run the risk of falling below the subsistence threshold, while the removal of the thirteenth and fourteenth months’ pensions had been offset by a one-off bonus.

To the contrary, the European Committee of Social Rights, concluded in five decisions on collective complaints against Greece that the cumulative effect of the modifications of the pensioners’ social protection were a violation of the right to social security under Article 12 ESC[79]. In particular, the Committee ruled that certain restrictions such as those related to holiday bonuses, restrictions of pension rights in cases where the level of pension benefits is a sufficiently high one and in cases where people are of such a low age that it is legitimate for the state to conclude that it is in the public interest for such persons to be encouraged to remain part of the work-force than to be retired, did not in themselves constitute a violation of the ESC. However, the cumulative effect of the restrictions would bring about an overall degradation in the standard of living of the pensioners concerned.

It is interesting that the Greek Government tried to conform to the decision of the European Committee of Social Rights by notifying to the Committee of Ministers the measures it had taken to remedy the violations. The measures had a twofold approach: firstly the protection of vulnerable groups and secondly the improvement of the social security system. As to the first pillar, the government asserted that the pensions below 1000 euros would be guaranteed, the Benefit of Social Solidarity (EKAS) which is a non-retributive benefit for the protection of the elderly with low pensions would continue to be granted, a pension of 360 euros would be granted for the non-insured elderly based on certain conditions, while according to Law 4052/2012, the programme “Pensioner’s homecare” had been established. It had also introduced favourable regulations regarding the payment of the Extraordinary Special Property Tax, tax exemptions for certain types of pensions, as those granted to war victims, war invalids, blind persons or invalids and beneficiaries of EKAS, while cuts on pensions were not made if the beneficiary or members of his family receive small pensions, or are invalids[80]. As to the improvement of the social security system, the government tried to counter problems of fraud in social security and incidents of “contribution evasion”

While the measures notified are in themselves welcome, it is doubtful whether they are going to last, especially as there is no sign of overcoming the crisis and Greece is supposed to introduce further measures in view of the ESM assistance package she is going to receive.

Contrary to the hesitant approach of the ECtHR regarding the right to social security in economic emergencies, the Inter-American Court of Human Rights has consistently applied a different approach. In case “Five Pensioners”/Peru[81] the problem was the reduction by 78% of the pensions of the public sector workers while by law and Constitutional Court judgments their pension was planned to gradually equalize the salary they used to receive. The Inter-American Commission on Human Rights claimed the violation of articles 21 (right to property), 25 (right to judicial protection) and 26 (progressive development) of the Convention. The respondent state, for its part, invoked the argument of the state of emergency due to the economic crisis that it faced at that time.

The Court dwelt upon two questions: a) whether the right to a pension could be considered an acquired right, and b) what parameters should be taken into consideration to quantify the right to a pension, and whether it is possible to cap a pension[82].

Although the first question has been answered in the negative by the ECtHR in Koufaki and ADEDY/Greece[83], the IACtHR followed its own path of reasoning, assisted in part by the Constitution of the country and the jurisprudence of its Constitutional Court. Indeed, the former stipulated in its provisions that the “social regimes established for the pensions of public sector employees do not affect legally acquired rights, particularly the right corresponding to the regimes of Decree Laws 19990 and 20530”[84] (these decrees constitute the legal basis for the granting of the pensions in question). Furthermore, the Constitutional Court indicated that, once the requirements for granting a pension set forth in Decree Law No. 20530 have been fulfilled, the employee: “[…] incorporates into his patrimony, by virtue of the express authority of law, a right that is not subject to recognition by the Administration, that is not something that the law grants in some way, that, as has been recalled, arises from compliance with the requirements established by law. Thus, those who were subject to the regime of Decree Law 20530 and who, until the entry into force of Legislative Decree 817 had already complied with the requirements indicated in the norm, that is, they had worked for twenty years or more, have the right to an equalized pension, in accordance with the provisions of Decree Law 20530 and its modifying provisions”[85]. Bearing into consideration the foregoing, the IACtHR concluded that the right to property, stipulated in the ACHR, protects also the right of the applicants to receive an equalized retirement pension in the sense that it is an acquired right[86]. The Court referred also to the limitation clause of the San Salvador Protocol (article 5), holding that, although states may restrict the enjoyment of socio-economic rights in order to preserve the general welfare in a democratic society, and consequently the right to property, such restriction should take place only through the appropriate legal procedure[87]. However, in the instant case no legal process has been applied.

What is most important in the Court’s reasoning is indeed its approach of the right to property in conjunction with the right to a pension. The Court emphasized that from the time that a pensioner pays his contributions to the pension fund, ceases to work for the institution in question and opts for the retirement regime set forth in the law, such pensioner acquires the right to have his pension governed by the terms and conditions established in such law. It is a very important statement, especially if we take into account the adjustments brought about to pension systems all over the world due to the current economic crisis[88]. The Court applied the same reasoning in another case brought before it by the Commission against Peru[89].

Of particular interest is the dictum of the Court regarding the violation of article 26 of the American Convention on Human Rights. The Court did not deny its violation. Instead, it refused to pronounce upon it, stressing that the progressive development of economic, social and cultural rights should be measured in relation to the growing coverage of the right to social security and to a pension of the entire population and not in the circumstances of a very limited group of pensioners[90]. In any case, it did not preclude a prospective violation of the article in the factual and legal framework of another case[91].

 II. Labour rights

The right to a decent remuneration which is enshrined in article 4 of the European Social Charter[92] was examined thoroughly by the ECSR in complaint no. 66/2011. The Committee examined the differentiated reduction of the minimum wage of people under 25 and it concluded that it constituted a violation of the right to fair remuneration[93]. The Committee held that although in certain circumstances it is acceptable to pay a lower minimum wage to young workers, this wage must under no circumstances fall under the poverty level of the country. In the same set of decisions (no 65/2011), the Committee has found further violations of article 4 ESC, in particular para. 4. More specifically, the Greek state by equating the first twelve months of employment in an open-ended contract with a trial period, made dismissal without notice or compensation possible during this period, thus violating directly article 4 para. 4 ESC.

Unlike the decisions on violations of the right to social security, where the Greek Government has introduced measures of remedy, here the Greek delegation before the Committee of Ministers, while accepting the conclusions of the ECSR, it pointed out that the measures were of a provisional nature and that the Greek Government had the firm intention to revoke these measures as soon as the economic situation of the country would allow. However, due to the political and economic constraints, “it was not possible to envisage a set timeframe, although it was unlikely that tangible results in Greece would be apparent before 2015”[94].

In this respect we should also cast an eye on the jurisprudence of the Inter-American Court of Human Rights. The right to salary was central in case Abrill Alosilla et al./Peru[95], regarding the retroactive application of decrees that between 1991 and 1992 eliminated the salary scale system that was in effect. Although the state acknowledged its international responsibility before the Commission (in relation to the right of “amparo” – article 25 ACHR – and not the right to property – article 21 ACHR), the failure to conclude promptly a friendly settlement brought the case before the IACtHR.

In this case, the Court did not make any specific reference to economic, social and cultural rights or the San Salvador Protocol. Nevertheless, the national legal documents examined by the Court (judgments of the Constitutional and Social Law Chamber of the Supreme Court of Justice) and the facts of the case imply the violation of socio-economic rights and in particular the right to receive remuneration.

The issue in question was the repeal, by virtue of decrees with retroactive effect, of the salary adjustment system known as “salary scales”.  This system was not subject to collective bargaining and consisted of the automatic adjustment of monthly remuneration for the personnel at that time denominated as Functionaries and Senior Management, taking as its basis a) the remuneration of the unskilled laborer or lowest position at the company and b) the Salary Scales or Indexes, or Variation Coefficients previously established and assigned to each position. In effect, each time the company increased the salary of the lowest positions as a consequence of a collective bargaining process, by necessity it also resulted in increases for the other positions in the company that could not benefit from that process[96]. The suppression of the “salary scales” system had as a result not only the reduction of salaries but also the retroactive collection of payments[97].

The Court reminded that it has developed a broad concept of property and that it has, through article 21 ACHR, protected vested rights, which are understood as “rights that have become part on an individual’s wealth”[98]. It also emphasized that the principle of non-retroactivity of the law meant that the new law does not have the authority to regulate juridical situations that have been duly consolidated. In this respect the IACtHR observed that the “salary scales” system had generated an increase in wages that had become part of the wealth of the victims, i.e. a vested right. The Court differentiated between the system of salary adjustments, which was not a right of the victims per se, and the salary increases already received that had already become part of the workers’ wealth. In effect, the latter constituted a vested right that was affected by the retroactive application of the law, resulting in violation of the right to property[99].

One should note the “human face” shown once more from the Court, regarding the personal situation of the applicants. In effect, the IACtHR paid particular attention to the fact that all workers had organized their finances based on their salaries and that the salary reduction compromised their opportunity to provide, for instance, economic support to sick family members, while some of them were obliged to sell possessions. It is a human approach that we rarely observe in an international tribunal, even a human rights one[100].

Concluding remarks

Even though international bodies reaffirm in every occasion that retrogression in the protection of economic, social and cultural rights is prohibited and despite the reassurances of the Greek government in one set of complaints before the ECSR that it is doing everything possible to guarantee the protection of vulnerable groups, the situation in Greece is far from stabilising or improving. The new request of assistance before the ESM brings along a new series of measures affecting socio-economic rights (Laws 4389/2016 and 4387/2016) and a great array of privatisations in public assets and organisations that touch upon the minimum core of social rights. A salient example is the announced privatisation of the Athens and Thessaloniki Water and Sewerage Company against the ruling of the Greek Council of State[101] that such a move could put public health at risk due to the uncertainty regarding the quality and affordability of the services[102]. We have a long way ahead until we can declare with certainty that socio-economic rights in Greece enjoy the level of protection they did before the economic crisis.

Notes

[1] Loi travail : 17 % de grévistes à la SNCF pour la première journée de grève illimitée, Le Monde.fr avec AFP, 01.06.2016, http://www.lemonde.fr/economie/article/2016/06/01/loi-travail-debut-d-un-mouvement-de-greve-illimitee-a-la-sncf_4929935_3234.html

[2] Garcia Pedraza P., Crisis and social rights in Europe. Retrogressive measures versus protection mechanisms, Institute for Human Rights, Åbo Akademi University, 2014, p. 18.

[3] See articles 1, 55, 56, 61, 62, 68.

[4] There is a general consensus that most of the human rights norms enumerated in the UDHR have acquired a status of customary law, see in particular, Henkin L., The age of rights, Columbia University, New York, 1990; Meron T., Human rights and humanitarian norms as customary law, Clarendon Press, Oxford, 1989. This argument is further corroborated by the fact that the UN Human Rights Council in its Universal Periodic Review mechanism (established in 2006 by virtue of UNGA res. 60/251) is using as a reference instrument not only the human rights treaties binding upon states and the UN Charter but also the UDHR.

[5] UNGA res. 217 A/10.12.1948.

[6] For this categorization see Karel V. Human rights: A thirty year struggle. The sustained efforts to give force of law to the Universal Declaration of Human Rights. UNESCO Courier, 30:11, Paris, November 1977. Contemporary scholars have overridden this conceptualization (see infra).

[7] Mowbray A., The development of positive obligations under the European Convention on Human Rights, Human Rights Law in Perspective, vol. 2, Hart Publ., Oxford-Portland Oregon, 2004.

[8] Adopted by the World Conference on Human Rights in Vienna on 25 June 1993.

[9] ibid. Part. I, §5.

[10] Proclamation of Teheran, Final Act of the International Conference on Human Rights, Teheran, 22 April to 13 May 1968, U.N. Doc. A/CONF. 32/41 at 3 (1968).

[11] See for instance, General Comment no 9 “The domestic application of the Covenant”, UN doc. E/C.12/1998/24, 3.12.1998: “The adoption of a rigid classification of economic, social and cultural rights which puts them, by definition, beyond the reach of the courts would thus be arbitrary and incompatible with the principle that the two sets of human rights are indivisible and interdependent”, §10.

[12] International Convention on the elimination of all forms of racial discrimination, UNGA res. 2106 (XX), 21.12.1965; Convention on the Elimination of all forms of discrimination against women, A/RES/34/180, 18.12.1979; Convention on the rights of the child, A/RES/44/25, 20.11.1989; International Convention on the protection of the rights of all migrant workers and members of their families, A/RES/45/158, 18.12.1990; Convention on the rights of persons with disabilities, A/RES/61/106, 24.1.2007.

[13] See for an account of the relevant discussion, Craven M., The International Covenant on Economic, Social and Cultural Rights: a perspective on its development, Clarendon Press, Oxford, 1995; Eide A., Economic, social and cultural rights as human rights, in Falk R., Human rights: critical concepts in political science, Routledge, London, 2008, p. 299-318.

[14] See A/RES/6/543, 4.2.1952.

[15] A/RES/2200(XXI) A, 16.12.1966. ICCPR has 167 ratifications, whereas ICESCR 160.

[16] Arts 28 et seq. ICCPR. Similar committees of independent experts have been set up by all core human rights treaties.

[17] Art. 16 ICESCR. The procedure of examination is described in arts 16-23 ICESCR.

[18] “Review of the composition, organization and administrative arrangements of the Sessional Working Group of Governmental Experts on the Implementation of the International Covenant on Economic, Social and Cultural Rights”, Economic and Social Council resolution 1985/17.

[19] Convention for the Protection of Human Rights and Fundamental Freedoms (as amended by Protocols no 11 and 14), Rome 4 XI 1950, ETS 005.

[20] The Council of Europe promotes the indivisibility of human rights and the ECtHR has emphasised already in its very early jurisprudence that “there is no water-tight division” between social and economic rights and civil and political rights, Airey/Ireland, appl. no. 6289/73, judgment 9.10.1979, para. 26. The regional court that has an extensive jurisprudence on economic, social and cultural rights through an expansive interpretation of civil and political rights is the Inter-American Court of Human Rights, see in that respect Saranti V., Economic, social and cultural rights in the Western Hemisphere under the prism of the Inter-American Court of Human Rights case-law, Annuaire International des Droits de l’Homme, VII/2012-2013, p. 515-553.

[21] Greece ratified the European Social Charter on 6 June 1984 by virtue of Law 1426/1984 accepting 67 of the Charter’s 72 articles. The Revised European Social Charter has been ratified on 18 March 2016. Greece has also ratified the Additional Protocol and has accepted the system of collective complaints on 18 June 1998. However, it has not made the declaration that would allow non-governmental organisations to submit collective complaints.

[22] In 2000 the European Parliament approved the Charter which was given legally binding force in 2010 when it was incorporated into the consolidated version of the TEU, by virtue of article 6 TEU that declared that the Charter shall have the same legal value as the Treaties. However, UK and Poland have chosen for a special status through the Protocol on the Application of the Charter of Fundamental Rights of the EU to Poland and to the United Kingdom. Pursuant to this instrument, the ability of the Court of Justice of the EU or any other court or tribunal of Poland or of the United Kingdom is not extended to find that the laws, regulations or administrative provisions, practices or action of Poland or of the United Kingdom are inconsistent with the fundamental rights, freedoms and principles that are reaffirmed by the Charter. Thus the Charter does not create justiciable rights applicable to Poland or the United Kingdom except in so far as Poland or the United Kingdom have provided for such rights in their national law. See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2007:306:0156:0157:EN:PDF

[23] Vienna Declaration and Programme of Action, Adopted by the World Conference on Human Rights in Vienna on 25 June 1993, §5,  http://www.ohchr.org/EN/ProfessionalInterest/Pages/Vienna.aspx

[24] See for a general discussion Coomans F. (ed.), Justiciability of economic and social rights. Experiences of domestic systems, Intersentia, Antwerp, 2006; de Schutter O., International human rights law, Cambridge University Press, 2010, p. 740-771; Langford M. (ed.), Social rights jurisprudence: emerging trends in international and comparative law, CUP, 2009; Liebenberg S., The protection of economic and social rights in domestic legal systems, in Eide A., Krause C., Rosas A. (eds.), Economic, Social and Cultural Rights. A textbook, 2nd ed., Martinus Nijhoff Publ., 2001, p. 55-84; Matscher F. (ed.), The implementation of economic and social rights: national, international and comparative aspects, N. P. Engel, Kehl am Rhein, 1991; Ramcharan B.G. (ed.), Judicial protection of economic, social and cultural rights, Martinus Nijhoff Publ., Leiden, 2005; Scheinin M., Economic, social and cultural rights as legal rights in Eide A., Krause C., Rosas A. (eds.), Economic, Social and Cultural Rights. A textbook, 2nd ed., Martinus Nijhoff Publ., 2001, p. 29-54.

[25] Dennis M.J., Stewart D.P., Justiciability of economic, social and cultural rights: should there be an international complaints mechanism to adjudicate the rights to food, water, housing and health? 98 AJIL, 2004, p. 462-515 ; Bossuyt M., La distinction juridique entre les droits civils et politiques et les droits economiques, sociaux et culturels, 8 Revue des Droits de l’Homme, 1975, p. 783-820; Vierdag E.W., The legal nature of the rights granted by the International Covenant on Economic, Social and Cultural Rights, 9 Netherlands Yearbook of International Law, 1978, p. 69-105.

[26] For instance, the European Court of Human Rights has repeatedly reaffirmed that states parties enjoy a wide margin of appreciation, when they determine their social policy, especially if their resources are limited and they have to set priorities, see Koufaki and ADEDY/Greece, nos. 57665/12 and 57657/12, decision 7.5.2013, §31 ; Terazzi S.r.l./ Italy, no 27265/95, 17.10.2002 ; Wieczorek/Poland, no 18176/05, 8.12.2009 ; Jahn et al./Germany, nos 46720/99, 72203/01 and 72552/01; Mihaieş and Senteş/ Romania, nos 44232/11 and 44605/11, decision 6.12.2011 ; Frimu and 4 other applications/Romania, nos 45312/11, 45581/11, 45583/11, 45587/11 and 45588/11, decision 7.2.2012, §§40, 42 ; OReilly et al./Ireland, no 54725/00, decision 28.2.2002 ; Pentiacova et al./Moldova, no 14462/03, decision 4.1.2005 ; Huc/Romania and Germany, no 7269/05, decision 1.12.2009, § 64.

[27] See art. 2 §3 ICCPR, art. 13 ECHR, 25 ACHR. The African Charter on Human and Peoples’ Rights does not contain an equivalent provision. However, article 26 of that instrument stipulates that: “States parties to the present Charter shall have the duty to guarantee the independence of the Courts and shall allow the establishment and improvement of appropriate national institutions entrusted with the promotion and protection of the rights and freedoms guaranteed by the present Charter”.

[28] See, van Hoof G.J.H., The legal nature of economic, social and cultural rights: a rebuttal of some traditional views, in Alston P., Tomasevski K. (eds.), The right to food, Martinus Nijhoff Publ., 1984, p. 97-110.

[29] Chapman A., “Violations approach” for monitoring the International Covenant on Economic, Social and Cultural Rights, 18 Human Rights Quarterly, 1996, p. 23-66. Also, Chapman A., Russell S. (eds.), Core obligations: building a framework for economic, social and cultural rights, Intersentia, Antwerp, 2002.

[30] Committee on Economic, Social and Cultural Rights, General Comment no. 3, “The nature of states parties’ obligations (art. 2 §1 of the Covenant)”, UN doc. E/1991/23-E/C.12/1990/8, Annex III, §10.

[31] ibid. §12.

[32] General Comment no. 9, “The domestic application of the Covenant”, UN doc. E/1999/22, §10. See also decisions of national courts that give effect to socio-economic rights such as the right to housing, the right to education and the right to food, Government of the Republic of South Africa/Grootboom and others, Constitutional Court of South Africa, judgment of 4.10.2000; Yated – Non – Profit Organization for Parents of Children with Down Syndrome and 54 Parents/Ministry of Education, Supreme Court of Israel, judgment of 14.8.2002 (HCJ 2599/00); People’s Union for Civil Liberties and another/Union of India and others, Supreme Court of India, judgment of 2.5.2003. Relevant excerpts are quoted in de Schutter O., International human rights law, Cambridge University Press, 2010, p. 751 et seq.

[33] “The nature of states parties’ obligations (art. 2 §1 of the Covenant)”, UN doc. E/1991/23-E/C.12/1990/8, Annex III, §5.

[34] ibid. §9. See also the Limburg Principles on the Implementation of the ICESCR, UN doc. E/CN.4/1987/17, “Although the full realization of the rights recognized in the Covenant is to be attained progressively, the application of some rights can be made justiciable immediately while other rights can become justiciable over time” (principle no 8).

[35] Similarly, despite the absence of a clause on effective remedies in the Convention on the Rights of the Child, the respective Committee has emphasized that effective national remedies must be available to redress violations, underlining that “economic, social and cultural rights, as well as civil and political rights, must be regarded as justiciable”, see General Comment no. 5 “Implementation of the Convention on the Rights of the Child, arts 4, 42 and 44 §6, UN doc. CRC/GC/2003/5, 27.11.2003.

[36] General Comment no. 9, “The domestic application of the Covenant”, UN doc. E/1999/22, §7.

[37] See, for instance, Mayagna (Sumo) Awas Tingni/Nicaragua, 31.8.2001.

[38] Office of the UN High Commissioner for Human Rights, Economic, Social and Cultural Rights. Handbook for National Human Rights Institutions, New York and Geneva, 2005, p. 50.

[39] Art. 2 para. 1 ICESCR.

[40] See General Comment no 3 The nature of States parties’ obligations (art. 2, para. 1, of the Covenant), §10,  “a minimum core obligation to ensure the satisfaction of, at the very least, minimum essential levels of each of the rights is incumbent upon every State party. Thus, for example, a State party in which any significant number of individuals is deprived of essential foodstuffs, of essential primary health care, of basic shelter and housing, or of the most basic forms of education is, prima facie, failing to discharge its obligations under the Covenant”.

[41] Sepúlveda Carmona M., Alternatives to austerity: a human rights framework for economic recovery, in Nolan A. (ed.), Economic and social rights after the global financial crisis, CUP, 2014, pp. 25-27.

[42] In the “Maastricht Guidelines” it is described as “margin of discretion”, Masstricht Guidelines on Violations of Economic, Social and Cultural Rights, Maastricht, January 22-26, 1997, para. 8.[43] General comment No. 3:  The nature of States parties’ obligations (art. 2, para. 1, of the Covenant), Fifth session (1990), UN doc. E/1991/23, para. 9.

[44] See, Press Release no 71/16, Inter-American Commission on Human Rights Expresses its Concern Regarding the Declaration of a “State of Exception and Economic Emergency” in Venezuela, June 1, 2016.

[45] January 22-26, 1997, para. 6. “On the occasion of the 10th anniversary of the Limburg Principles on the Implementation of the International Covenant on Economic, Social and Cultural Rights (hereinafter ‘the Limburg Principles’), a group of more than thirty experts met in Maastricht from 22-26 January 1997 at the invitation of the International Commission of Jurists (Geneva, Switzerland), the Urban Morgan Institute on Human Rights (Cincinnati, Ohio, USA) and the Centre for Human Rights of the Faculty of Law of Maastricht University (the Netherlands). The objective of this meeting was to elaborate on the Limburg Principles as regards the nature and scope of violations of economic, social and cultural rights and appropriate responses and remedies”, Maastricht Guidelines, Introduction. See, https://www1.umn.edu/humanrts/instree/Maastrichtguidelines_.html

[46] Almost 100 families evicted daily in Spain – statistics, Published time: 6 Mar, 2015, https://www.rt.com/news/238349-spain-families-lose-homes/

[47] “Maastricht Guidelines”, para. 9.

[48] CESCR/48th/SP/MAB/SW, 16.5.2012, http://www2.ohchr.org/english/bodies/cescr/docs/LetterCESCRtoSP16.05.12.pdf

[49] Human Rights Committee, General Comment no 29, States of emergency (article 4 ICCPR), UN doc. CCPR/C/21/Rev.1/Add.11.

[50] Nencheva and others/Bulgaria, appl. no. 48609/06, judgment 18.6.2013, paras. 117 et seq.

[51] Nitecki/Poland, appl. no. 65653/01, judgment 21.3.2002.

[52] Alexsanyan v. Russia, appl. no. 46468/06, judgment 22.12.2008

[53] Yordanova and others/Bulgaria, appl. no. 25446/06, judgment 24.4.2012. See also Winterstein/France, appl. no. 27013/07, judgment 17.10.2013.

[54] Kjartan Ásmundsson/Iceland, appl. no. 60669/00, judgment 12.10.2004; Moskal/Poland, appl. no. 10373/05, judgment 15.9.2009, Larioshina/Russia, appl. no. 56869/00, decision 23.4.2002; Kutepov and Anikeyenko/Russia, appl. no. 68029/01, decision 25.10.2005; Budina/Russia, appl. no. 45603/05, decision 18.6.2009.

[55] Stec and others/ the United Kingdom, appl. nos. 65731/01 and 65900/01, decision 6.7.2005.

[56] Larioshina/Russia, op.cit. See, in general, ECtHR, Seminar Background Paper, 25 January 2013, Implementing the European Convention on Human Rights in times of economic crisis, http://www.echr.coe.int/Documents/Seminar_background_paper_2013_ENG.pdf; Steering Committee for Human Rights (CDDH), The impact of the economic crisis and austerity measures on human rights in Europe, Feasibility study, 84th meeting 7 – 11 December 2015, CDDH(2015)R84 Addendum IV, http://www.coe.int/t/dghl/standardsetting/cddh/CDDH-DOCUMENTS/CDDH%282015%29R84%20Addendum%20IV_EN.pdf

[57] “Vorbehalt des Möglichen”. See, for this doctrine in constitutional law Perlingeiro R., Does the precondition of the possible (Vorbehalt des Möglichen) limit judicial intervention in social public policies? NLUO Law Journal, vol. II, issue I, August 2015, pp. 20-45.

[58] Da Silva Carvalho Rico/Portugal, appl. no 13341/14, decision 1.9.2015, par. 44.

[59] Da Conceiçã Mateus and Santos Januário/Portugal, appl. nos. 62235/12 and 57725/12, decision 8.10.2013

[60] Savickas and Others/ Lithuania, appl. nos. 66365/09 et al., decision of 15.10.2013.

[61] The dissenting judges contented that the majority has expanded the scope of the right to property, since article 1 of Protocol No. 1 has never been interpreted “by this Court as obliging member States to provide persons with the right to social security benefits, in the form of disability pensions, independently of their having an assertable right to such a pension under domestic law”, Béláné Nagy/Hungary,appl. no 53080/13, judgment 10.2.2015, joint dissenting opinion of judges Keller, Spano and Kjølbro, para. 1.

[62] Priewe J., What went wrong? Alternative interpretations of the global financial crisis, in UN Conference on Trade and Development – Hochschule für Technik und Wirtschaft Berlin, The financial and economic crisis of 2008-2009 and developing countries, 2010, p. 17-18.

[63] Dullien S., Kotte D., Márquez A., Priewe J., Introduction, in UN Conference on Trade and Development – Hochschule für Technik und Wirtschaft Berlin, The financial and economic crisis of 2008-2009 and developing countries, 2010, p. 1.

[64] Priewe J., What went wrong? Alternative interpretations of the global financial crisis, op.cit.

[65] See for further details and legal documents, http://www.efsf.europa.eu/about/index.htm

[66] T/ESM 2012-LT/en.

[67] See for relevant information and legal documents, http://www.esm.europa.eu/index.htm

[68] Garcia Pedraza P., Crisis and social rights in Europe. Retrogressive measures versus protection mechanisms, Institute for Human Rights, Åbo Akademi University, 2014, p. 7.

[69] Skogly S., The human rights obligations of the World Bank and the International Monetary Fund, Cavendish Publ. Ltd, London/Sydney, 2001.

[70] In October 2009, the incumbent greek government discovered a high fiscal deficit amounting to 15,7% of GDP and a public debt amounting to 129,7% of GDP. These unexpected high numbers resulted in the downgrade of Greece’s sovereign debt by Fitsch, Standard & Poor’s and Moody’s which had as a consequence the inability of the government to receive funding from the financial markets. See for a brief account of the facts, ELSA, International legal research group on social rights, Final report: austerity measures and their implications. The role of the European Social Charter in maintaining minimum social standards in countries undergoing austerity measures, July 2015, pp. 647-648.

[71] The assistance was finally provided on the basis of article 143 TFEU according to which when a member state is in difficulties regarding its balance of payments either as a result of an overall disequilibrium in its balance of payments or as a result of the type of currency at its disposal and where such difficulties are liable to jeopardize the functioning of the internal market or the implementation of the common commercial policy, the Commission shall recommend to the Council the grant of mutual assistance.

[72] ESM Programme for Greece, http://www.esm.europa.eu/assistance/Greece/index.htm.

[73] See in that respect P7_TA(2014)0239, Role and operations of the Troika with regard to the euro area programme countries, European Parliament resolution of 13 March 2014 on the enquiry on the role and operations of the Troika (ECB, Commission and IMF) with regard to the euro area programme countries (2013/2277(INI)).

[74] Law 3833 of 15 March 2010, Law 3845 of 6 May 2010, Law 3847 of 11 May 2010, Law 3863 of 15 July 2010, Law 3865 of 21 July 2010, Law 3866 of 26 May 2010, Law 3896 of 1 July 2011, Law 3986 of 1 July 2011, Law 4002 of 22 August 2011 and Law 4024 of 27 October 2011, Law 4046/2012, 4051 of 28 February 2012, Law 4093/2012 of 12 November 2012, Law 4172/2013. Joint Ministerial Decision 6/28.02.2012

[75] See for a detailed description of the measures adopted, ELSA, International Legal Research Group on Social Rights, Austerity measures and their implications. The role of the European Social Charter in maintaining minimum social standards in countries undergoing austerity measures, July 2015, pp. 646-754.

[76] See for a general reference to Europe, Poulou A., Austerity and European Social Rights: How Can Courts Protect Europe’s Lost Generation?, 15 German Law Journal, 2014, pp. 1145-1176; Jimena Quesada L., Adoption and rejection of austerity measures: current controversies under European law (focus on the role of the European Committee of Social Rights), Revista catalana de dret públic, núm 49, 2014, pp. 41-59.

[77] Committee on Economic, Social and Cultural Rights, General Comment No. 19,The right to social security (art. 9), E/C.12/GC/19, 4.2.2008, par. 15.

[78] Koufaki and Adedy/Greece, appl. no 57665/12 and 57657/12, Decision 7.5.2013, par. 31, 41, 44-46.

[79] Federation of employed pensioners of Greece (IKA-ETAM) v. Greece (no. 76/2012); Panhellenic Federation of public service pensioners v. Greece (no. 77/2012); Pensioner’s Union of the Athens-Piraeus Electric Railways (I.S.A.P.) v. Greece (no. 78/2012); Panhellenic Federation of pensioners of the public electricity corporation (POS-DEI) v. Greece (no. 79/2012); and Pensioner’s Union of the Agricultural Bank of Greece (ATE) v. Greece (no. 80/2012). All decisions on the merits were rendered on 7 December 2012.

[80] Resolution CM/ResChS(2014)7 et seq. adopted by the Committee of Ministers on 2 July 2014 at the 1204th meeting of the Ministers’ Deputies.

[81] C-98, 28.2.2003.

[82] ibid. §95.

[83] With regard to the right to property it stated that it should not be interpreted as giving right to a pension of a determined amount, §33 (with further references to the Court’s case-law).

[84] Five pensioners, op.cit. §97.

[85] ibid. §98.

[86] ibid. §102.

[87] ibid. §116.

[88] See in that respect the judgment of the European Court of Human Rights in Koufaki et ADEDY/Greece, op.cit.

[89] Acevedo Buendía et al. (“Discharged and Retired Employees of the Comptroller”)/Peru, C-198, 1.7.2009.

[90] ibid. §147. See, also the Reasoned Concurring Opinion of Judge Sergio García Ramírez.

[91] However, in case Acevedo Buendía (§106) that followed it did not find a violation of article 26 ACHR, stating that the issue under consideration was not a measure adopted by the State that hindered the progressive realization of the right to pension but it was rather the non-compliance of the state with the payment ordered by the domestic courts. Therefore, the violated rights were only the right to amparo and the right to property. This was a landmark judgment in that the Court, shortly after the adoption of the Optional Protocol to the ICESCR, emphasized the existence of the “principle of non regression” regarding the limitations in the exercise of a right, Burgorgue-Larsen L., Úbeda de Torres A., op.cit. p. 632-635.

[92] With a view to ensuring the effective exercise of the right to a fair remuneration, the Contracting Parties undertake: 1 to recognise the right of workers to a remuneration such as will give them and their families a decent standard of living; 2 to recognise the right of workers to an increased rate of remuneration for overtime work, subject to exceptions in particular cases; 3 to recognise the right of men and women workers to equal pay for work of equal value; 4 to recognise the right of all workers to a reasonable period of notice for termination of employment; 5 to permit deductions from wages only under conditions and to the extent prescribed by national laws or regulations or fixed by collective agreements or arbitration awards. The exercise of these rights shall be achieved by freely concluded collective agreements, by statutory wage fixing machinery, or by other means appropriate to national conditions.

[93] General Federation of Employees of the National Electric Power Corporation (GENOP-DEI) and Confederation of Greek Civil Servants’ Trade Unions (ADEDY) v. Greece (no. 65 and 66/2011), decision on the merits of 23 May 2012, “As such, the provisions of Section 74§8 of Act 3863/2010, and now Section 1§1 of Ministerial Council Act No 6 of 28-2-2012, are not in conformity with Article 4§1 in the light of the non-discrimination clause of the Preamble of the 1961 Charter”.

[94] Committee of Ministers, Resolution CM/ResChS(2013)3, Adopted by the Committee of Ministers on 5 February 2013 at the 1161st meeting of the Ministers’ Deputies.

[95] C-223, 4.3.2011.

[96] ibid. §53.

[97] ibid. §64.

[98] ibid. §82.

[99] ibid. §§84-85. The case was recently closed (21.6.2013), when the last payments were received. The remedies for material and moral damages, costs and expenses, as a whole, amounted to a total of nearly 3 million dollars, see Resolución de la Corte Interamericana de Derechos Humanos, 22.5.2013, Caso Abrill Alosilla y otros vs. Perú, Supervisión de Cumplimiento de Sentencia.

[100] There is no doubt that the IACtHR case-law has been influenced a great deal by the enlightened long-year presidency of judge A.A. Cançado Trindade, who is a dedicated figure of the “human face” of international law, see in particular his book, “Le droit international pour la personne humaine”, Pedone, Paris, 2012.

[101] Judgment no 1906/2014, 28.5.2014.

[102] Realising the human rights to water and sanitation: A Handbook by the UN Special Rapporteur Catarina de Albuquerque, 2014, Book 6: Access to justice for violations of the human rights to water and sanitation, p. 9.

John McMurtry, La fase cancerígena del capitalismo, de la crisis a la cura (Valencia: Tirant Humanidades, 2016)

Las reticencias y críticas contra la globalización neoliberal nacieron prácticamente con la emergencia del fenómeno mismo, sin embargo, en los últimos años de crisis se ha venido fortaleciendo una nueva tendencia, creciente y heterogénea, de posturas críticas y acciones contestatarias contra este modelo de producción y comunicación mundial. La desconfianza y rechazo hacia una  integración global de las comunidades humanas dentro de los márgenes del neoliberalismo se dejan ver en movimientos sociales, partidos políticos y propuestas teóricas que, desde orientaciones políticas y morales distintas, cuando no opuestas, exhiben sus deficiencias y consecuencias negativas , así como el extravío e inviabilidad de su presunto horizonte emancipador.

La obra del filósofo John McMurtry, La fase cancerígena del capitalismo, se integra dentro de esta tendencia crítica, con la destacable ventaja de que su primera edición fue lanzada en 1999. En aquellos años, en los que aún predominaba un aire de triunfalismo liberal sobre las experiencias históricas que pretendieron acabar con el capitalismo, McMurtry lanzó su diagnóstico sin complejos: el sistema capitalista es un trastorno cancerígeno que puede acabar con la vida humana y con la base natural que la soporta. Es posible que hace quince años, cuando diversas regiones del planeta vivían un auge económico, esta valoración haya podido generar ciertas dudas en algunos sectores, pero con la crisis económica, política, ecológica y cultural que se ha cristalizado desde el 2008  a nivel mundial, su pertinencia es innegable. Debido a esto, el autor lanzó una segunda edición aumentada en el 2013, en la cual añade y analiza los datos y acontecimientos más determinantes de los últimos años retomando el marco analítico de la primera publicación. La edición que a continuación referiremos es la primera traducción al castellano que acaba de publicar la editorial Tirant Humanidades (McMurtry, 2016).

La investigación que nos presenta McMurtry parte de la idea de que todas las sociedades tienen una estructura de reglas subyacente, un tipo de gramática nos dice, que rige las acciones, el discurso y el pensamiento de sus miembros. Estas metareglas son la codificación del sistema de valores prevalente. Es en el metanivel  de los sistemas sociales donde el autor cree que la filosofía debe excavar para poder evaluar “su verdad y su valor en la búsqueda de su forma más completa” (p.19). Por consiguiente, en esta obra se abordan los valores que regulan, en última instancia, el mecanismo del sistema capitalista, partiendo del supremo principio que lo define: la maximización del beneficio privado monetario en detrimento de las bases naturales y civilizatorias de la vida humana.

A lo largo del texto se despliega una ontología social que postula como primer  y necesaria instancia de la existencia humana y sus sociedades el ámbito natural-material y socio-cultural, los cuales integran el life capital[1]. Éste comprendería “(…)las riquezas naturales y las creadas por el hombre que más producen en el tiempo sin pérdidas”(p.420) y estaría constituido por el capital de la tierra, el capital del conocimiento, el capital social y el capital ecológico. En esta propuesta el concepto de Capital desdobla su significado y trasciende al de la economía política clásica y neoclásica, ya que es concebido como la riqueza total –material, cognitiva y simbólica- que sostiene y garantiza la vida y, por ende, deja de limitarse al de una magnitud de valor social  tendiente a la infinita valorización del valor monetario y a la totalidad de los bienes mercantiles de los sujetos individuales y colectivos. Es así que, el life capital constituye la corporeidad y las condiciones de posibilidad reales de los sistemas sociales.

Para abordar la condición actual del sistema global y del life capital que en última instancia lo sostiene, el autor trasladara desde la medicina el marco conceptual clínico del cáncer. Pero, antes, nos aclarará que esta traslación no busca la postulación de una metáfora sino la construcción de un “modelo explicativo” (p.p.64-5) que dé cuenta de un trastorno  que invade literalmente los cuerpos orgánicos y los cuerpos sociales por igual. El principal y determinante agente cancerígeno que opera en nuestras sociedades sería las Secuencias de Dinero Privado Transancional (SDPT), aquello que la prensa mundial llama, con sospechosa neutralidad, los mercados o los flujos de capital. Estas secuencias son reproducciones monetarias anómalas de las dinámicas de intercambio y producción social que tienden a la automultiplicación sin ninguna función vital, operando igual que las células cancerígenas que invaden los organismos biológicos: “(…)Ambas se multiplican fuera de control. Tampoco tienen ninguna función  en compromiso con la vida. Ambas invaden y se extienden  al depredar y despojar al anfitrión de sus recursos. Y la clave para sucumbir en cada nivel, es la insuficiencia del sistema inmunológico en reconocerles” (p.91).

Precisamente en el no reconocimiento del trastorno radica parte de su fuerza. Al respecto, McMurtry percibe una pasividad en los economistas y los filósofos por no cuestionar estructuralmente las bases axiomáticas del sistema cancerígeno: “(…) Ningún economista hace esto porque cada paso es bloqueado a priori  por la estructura profunda de la doctrina y su modelo cientificista. Ningún filósofo moral lo hace tampoco, en la medida en que está por fuera de los límites el reconocerlo dados los tabúes metodológicos y sociales” (p.31). El cáncer capitalista se ha convertido en un tabú social, toda vez que los medios de comunicación y las instancias del conocimiento presentan profundas lagunas respecto a su análisis.  Ante esta situación nos recuerda que en la era del oscurantismo medieval :

(…)La reflexión social registrada está mas o menos confinada  a la teología moral especulativa  decretada por Roma. Las cuestiones de fondo se hacen a un lado en el plano normativo. Las relaciones sociales preestablecidas, bien se mantienen por fuera de la discusión en su conjunto, como un tabú innombrable de los medios del momento, o se les concede una mera disculpa y justificación. A esto le llamamos <<Era del oscurantismo>> por una buena razón. Pero una Era de Oscurantismo puede volver a ocurrir.(…) ¿No nos enfrentamos a una nueva teología absolutista, de las leyes eternas del mercado, en lugar de las de Dios, como los mandamientos del mundo?. (McMurtry, 2016, p. 205)

El período cancerígeno que se analiza en la obra tendría sus orígenes en la derrota estadounidense en Vietnam, el golpe de estado chileno del 73, el cambio del patrón oro por el patrón dólar en 1974 que permite la reproducción de moneda fiduciaria sin arraigo directo en la materialidad y la llegada al poder de Donald Reagan y Margaret Thatcher y la consecuente liberalización de los mercados. En los años que van de 1973 a 1999 nuestro autor observa la consolidación de una nueva “soberanía supranacional” , un tipo de “poder colectivo de secuencias monetarias” (p. 32), que circula por todo el planeta destrozando por igual las soberanías de los estados nacionales, los ecosistemas, los ámbitos culturales locales y la salud misma de los organismos humanos. A partir del 9/11  se despliega una estrategia que busca consolidar el poder global de las Secuencias de Dinero Privado Transnacional después del reacomodo que supuso la caída de la URSS y de la emergencia de varios fenómenos contestatarios que empezaban a  tomar consciencia de los impactos dañinos del sistema. Esta estrategia estaría basada en la reconstrucción de un enemigo , habida cuenta de la caída del monstruo soviético, para justificar la ampliación de la metástasis capitalista.

Pero, a pesar de el sombrío diagnóstico que nos presenta, McMurtry también se encarga de proponer unos principios mínimos, una “ontoaxiología”, que en la práctica funcionaría como “la cura” contra el cáncer capitalista. Esta “cura” estaría basada en una de las facultades naturales de los cuerpos sociales: el “(…)sistema inmune social de capacidades y competencias sobre el que todo el funcionamiento de la sociedad y cada vez más personas y especies dependen para su supervivencia y prosperidad”(p.320) . Este sistema inmune social expulsa o elimina los agentes extraños y dañinos que amenazan con desequilibrar, atacar o destruir al organismo social que supone una comunidad y estaría constituido por un conjunto de prácticas, regulaciones, prescripciones, instituciones y procesos que están orientados a proteger la vida general. Los agentes encargados de desplegar y operar la potencialidad del sistema inmunológico de la sociedad  serían los “comunes civiles” : “(…)cualquiera y todas las construcciones sociales que permiten el acceso universal a los bienes vitales” (p.497). De esta forma, “(…) el movimiento progresista, la izquierda, la comunidad, los sindicatos y las cooperativas”(p.497), explícitamente avocados a la defensa y garantía de la vida, serían los elementos operativos del sistema inmunológico social.

Mcmurtry no se limita a sostener su propuesta curativa sobre una ideal moral, sino que también lo argumenta con algunos ejemplos socio-políticos actuales que  considera saludables. Estos ejemplos serían las actuales políticas en defensa y protección de los ámbitos públicos, los recursos naturales y la vida humana que han implementado países como Venezuela, Brasil, Ecuador, Argentina y Bolivia por medio de nacionalizaciones, renegociaciones de la deuda pública, recuperación y protección de zonas naturales estratégicas, así como la revitalización del cuerpo social por medio de programas sociales orientados al fortalecimiento de la salud, la educación y el conocimiento de la población. Por ello, nos dice que “En toda iniciativa política y legislativa en América Latina existe una lógica unificadora de recuperación: la reivindicación pública de la economía al servicio de las necesidades conocidas de su gente y sus condiciones de vida.” (p.80).

En lo referente al aspecto teórico-critico de esta obra, nos parece relevante destacar que su análisis no se integra en la línea del pensamiento marxista o posmarxista. El propio autor  marca distancia con algunos aspectos de esta corriente porque que considera  que el life capital no es captado en sus postulados. Y es que Marx, nos dice, centró su atención en las células básicas del capitalismo, la mercancía-dinero p. e., sin mirar las auténticas fuentes de la riqueza , las cuales no pueden ser reducidas a la fuerza de trabajo, ya que  ésta se encuentra también sustentada sobre las mismas, es decir, sobre el life capital. A pesar de ello,   McMurtry no duda en reconocer la importancia de la obra marxiana:

(…)Lo que abre el espacio de reflexión para el análisis crítico  de los presupuestos sociales de una vez por todas, es el profundo trabajo estructural sin precedentes de Karl Marx(…) su obra rompe de forma decisiva la larga aquiescencia de la teoría con el statu quo y los privilegios de clase dominante (…) Yendo mucho más allá de Sócrates o Rousseau, él expone a la crítica sistemática la estructura de poder material de todo lo hasta hoy hay de existente en la sociedad civil(…) Ningún filósofo de la historia antes de esto se había atrevido a ir tan lejos. Desde entonces, la obra de Marx ha sido un punto de referencia fundamental en el panorama filosófico: un punto de referencia para los pensadores cuya preocupación por las estructuras subyacentes se extiende a las formas sociales dominantes, y no meramente a los ordenamientos naturales y conceptuales. (McMurtry, 2016, p.212)

Para finalizar, diremos que, al margen de las diferencias onto-epistémicas que hay  entre McMurtry y Marx, las propuestas de ambos se emparentan en el hecho de que están enfocadas en el análisis de las condiciones materiales, sociales y culturales de la existencia humana. En consecuencia, ambos toman como primer principio de referencia los hechos históricos y la estructura constitutiva y causal de los sistemas sociales que los genera. Por ello, es de agradecer que en La fase cancerígena del capitalismo las críticas y argumentos se sustentan en diversos escenarios y acontecimientos históricos actuales, con lo cual, McMurtry, como Marx en su tiempo, rompe con la endogamia metafísica de algunas corrientes de la filosofía que han decidido hacerse a un lado ante la acuciante realidad de nuestros días. Creemos que esta obra nos recuerda que, en los tiempos vertiginosos que corren, es un imperativo ético para los filósofxs  exponer  el potencial crítico de la filosofía ante un sistema desconocedor de la vida que está dominado por “egoísmos atómicos automaximizadores”.

[1] No hay traducción posible en castellano que haga justicia al concepto de Life capital, ya que capital vital y capital de vida tienen una connotación distinta en castellano

“Crisis and Crisis Scenarios: Normativity, Possibilities and Dilemmas” (Lysebu Conference Centre in Oslo, Norway, April 9th — 12th, 2015)

This special issue of Nordicum-Mediterraneum contains select proceedings from the third meeting of the Nordic Summer University research circle called “Crisis and Crisis Scenarios: Normativity, Possibilities and Dilemmas”, held April 9th — 12th, 2015 at the Lysebu Conference Centre in Oslo, Norway. The circle’s research program runs from 2014 to 2016 and is aimed at examining the concept of crisis as it is used today in academia and public discussion. In this collection of papers from the symposium we present some of the different ways in which the topic of the study group was addressed.

Continue reading “Crisis and Crisis Scenarios: Normativity, Possibilities and Dilemmas” (Lysebu Conference Centre in Oslo, Norway, April 9th — 12th, 2015)

A Presentation of IDIN

The network has been established with financial support from NordForsk for four years, 2011-2014, and has initiated in the project period several scientific events. Many researchers and PhD candidates have participated in the activities, and the increasingly diversified realities in the Nordic context have been approached from various angles. Contributions have come from a wide range of disciplines in the social sciences, humanities and economics, and from network members as well as invited scholars. Continue reading A Presentation of IDIN

Papers from the NSU Summer session of 2014 – study group 3: “Crisis and Crisis Scenarios: Normativity, Possibilities and Dilemmas”

 

The general theme of the meeting was CRISIS: Crisis and Crisis Scenarios: Normativity, Possibilities and Dilemmas. In addition we had the special theme Neoliberalism, Economic Crisis and a New Economy.

 

The general discussion was a continuation of the work of the crisis study group on topics such as: the concept of crisis; democracy in crisis: the European Union and the public sector; crisis, existence and culture; Arctic crisis, climate change and environmental issues; crisis, paradoxes and new technology; globalization and crisis.

  Continue reading Papers from the NSU Summer session of 2014 – study group 3: “Crisis and Crisis Scenarios: Normativity, Possibilities and Dilemmas”

Reflections on Castoriadis’ “The Crisis of Modern Society”

In his 1965 talk “The Crisis of Modern Society”, Castoriadis retrieves five crises or dimensions (107): (1) axiological; (2) productive; (3) political; (4) familial; (5) educational. While Castoriadis discusses the notion of crisis in other works of his, he focuses therein on one or two of these five specific elements (e.g. (1) in “The Crisis of Culture and the State”, (1) and (3) in “Un monde à venir”, (5) in “Entretien avec Cornelius Castoriadis”). Thus, what makes this particular 1965 talk so interesting is its broader, perhaps more superficial, but undoubtedly more comprehensive scope. In essence, it is as synthetic a picture of what Castoriadis understood as crisis, and particularly as modern crisis, as there can be. Also, it must be noted that Castoriadis revised his assessment of (4) in a later work of his focussed upon crisis (“The Crisis of the Identification Process”), which seems to reduce considerably the relevance of this element. Later assessments of (1)-(3) and (5) do not differ much from what he stated in 1965, instead.

  Continue reading Reflections on Castoriadis’ “The Crisis of Modern Society”

The Crash Course from Iceland

I. Preamble

In October 2008 dramatic events unfolded in Iceland when it became apparent that its economy could no longer sustain the sensational economic growth the country had experienced in the previous years. To most of the public the news of the downfall came as a frightening surprise. The country’s banking sector, which had led the growth of the economy and expanded to over ten times the gross domestic product (GDP) in a short time span, collapsed almost completely. Nearly all of the largest companies in Iceland were owned by the notorious financial Vikings, who owned the controlling shares in the oversized banks. Iceland’s crash was in part so drastic because of the unhealthy cross-ownership of companies and banks. As a result, share values in the country’s stock market were nearly erased. Iceland’s independent micro-currency, the Króna (ISK), that had attracted a lot of foreign hot money seeking high returns during the boom, was all of the sudden in free fall. Unemployment, which was unheard of during the boom (1%), went all of the sudden to 9% and some analysts worried that it could spiral upwards even more as events unfolded. The instability was underlined with interest rates and inflation moving upwards to a staggering 18 per cent and GDP predicted to fall around 10%.[1]

On the streets people were angry and wondered: How had it come to this? Everything was in tatters. Nothing captures this as well as the story of Landsbanki, traditionally a State-owned bank, which had functioned as a cornerstone of Iceland’s economy since 1885 and played a part in the country’s road to independence in 1944. Under State ownership the balance sheet of the banks had remained for decades modest in relation to GDP and yet stable even though the country did experience some turbulent times. Iceland’s economy is massively reliant on fisheries and the bank had seen difficulties when fish stocks suddenly fell or even when whole stocks like herring disappeared completely. External factors like two World Wars and the Cod Wars against the British did also have their impact. In 2003 the bank was fully privatized in an attempt, as the politicians of the day would phrase it, ‘to unleash the powers of the free market’, which is precisely what happened. In the years from 2003-2008 Landsbanki, under their new ownership, managed to expand its balance sheet from under 50% of GDP to over 250% of GDP, when it eventually collapsed. Such massive expansion was also experienced by the other two main banks, Glitnir and Kaupthing, whereas the banks not only expanded in Iceland but led an outvasion in acquiring huge assets and leading ventures abroad. This was duly felt in the United Kingdom where the financial Vikings grabbed headlines with investment in known brands on the high street as well as English football clubs.[2] One of the main owners and chairman of Landsbanki, Björgólfur Thor, made a trademark oligarch move and bought West Ham United in 2006; he became chairman in 2007, until he lost the club after the crash in 2008. This event raised eyebrows since, given the size of Iceland’s economy, the room their businessman were taking in the UK and elsewhere was considerable.

The country asked assistance from its Nordic neighbours and the International Monetary Fund in order to stop further deterioration of the economy and avert a total collapse. Not only did Iceland face a banking crisis, but also a currency crisis and a huge economic crisis. Politicians in other parts of Europe, where dark clouds were gathering overhead, stressed that although they might have problems of their own, at least they were definitely not Iceland. Such voices have now been silenced, since the country has experienced a remarkable turnaround in economic terms. In August 2011 the country completed its successful IMF programme and the fund concluded that key objectives had been met and the government had stabilized the economy. Growth resumed with numbers that many troubled countries in the Europe would give a lot for (2,7% in 2011, 1,5% in 2012, 3,3% in 2013). The budget deficit was turned into a surplus, unemployment was reduced to 5% and continues to fall, interest rates went down by 12%, inflation was maintained at under 4%, the currency was stabilised albeit under capital controls. Growth for 2014 is predicted to be 3,7%.

Although several economic problems remain, the country has emerged from its deep crisis. New banks were successfully resurrected that are dwarfed, however, in comparison with the monsters that emerged during the financial Vikings’ era. Both private and public debt stabilized and is on a downward trajectory with the sovereign successfully entering capital markets again in 2011. Iceland’s economic crash and recovery has sparked huge interest in this tiny economy of 300.000 inhabitants, which managed banks whose bankruptcies are among the largest in history. The before- and after-crash tale is dramatic, full of surprises and extravagances.

 

 

II. Success stories

The success stories told of how Iceland bounced back from its near-death economic experience are many. Here is an example of something I have in mind:  

In contrast, Iceland avoided a public health disaster even though it experienced, in 2008, the largest banking crisis in history, relative to the size of its economy. After three main commercial banks failed, total debt soared, unemployment increased ninefold, and the value of its currency, the krona, collapsed. Iceland became the first European country to seek an I.M.F. bailout since 1976. But instead of bailing out the banks and slashing budgets, as the I.M.F. demanded, Iceland’s politicians took a radical step: they put austerity to a vote. In two referendums, in 2010 and 2011, Icelanders voted overwhelmingly to pay off foreign creditors gradually, rather than all at once through austerity. Iceland’s economy has largely recovered, while Greece’s teeters on collapse.[3]

 

There are various versions, but what they have in common is that they attribute success to the fact that Iceland did not bail out the banks. Some of them thank not the people for halting a bank bailout, but the government at the time. From this supposed fact Iceland did not have to impose austerity policies that are thought to have had a further negative impact on crisis-ridden countries such as Portugal, Ireland, Italy, Greece and Spain (PIIGS). In Iceland policy-makers seem to have escaped an IMF bailout package conditionalized upon imposing austerity and recapitalized oversized banks with toxic assets. [4] This in turn is given as an explanation as to why Iceland experienced a rapid recovery while the other countries, especially Greece, have seen very little progress.

I think there is a need to urge for caution in comparing economic crises of different countries. Greece and Iceland had very different problems leading to crisis. Greece did not have a banking crisis like Iceland and Iceland did not have a public debt crisis before the crash like Greece. Ireland had a banking crisis like Iceland, but the former has the Euro as currency and the latter the independent Króna. Putting to one side the need for caution in these circumstances, then this Icelandic saga of a heroic escape from the bad banker is just a myth and lacks any factual basis. Iceland attempted a bank bailout, but it failed, and the cost of the Icelandic crash has been considerable both in economic and social terms. Although Iceland escaped better from the circumstances than many had envisaged, the impacts of them are still being felt.

 

 

III. The mini-crisis of 2006

The tragedy in the Icelandic case is that so much harm could have been averted if the authorities had only taken measures in a mini-crisis, called the Geyser crisis, that hit the economy in 2006. Analysts, especially outside of Iceland and most notably from Denmarks Danske Bank, gave out warnings that Iceland was heading for disaster as its banking sector was seriously unstable.[5] This is what economist Gudrun Johnsen calls the ‘missed opportunity’ for Iceland and points out that, rather than taking this criticism to heart, domestic politicians and bankers responded to it by shooting the messenger. They maintained that the analysts had ill intentions as they were in competition with the banks or that they did not understand the Icelandic banking miracle. So, instead of reviewing the fundamentals of the financial system and asking questions about the direction of the banking outvasion, all the wrong lessons were learned from the Geyser crisis. Bankers and politicians agreed that in order to correct the misperceptions over the banks, a PR campaign was needed as well as a restructuring of how they financed themselves so that they could continue to grow. The bank managers saw that they could not only rely on the international bond market, as the view was getting more commonplace that all was not fine in Iceland. Funding was getting harder and more expensive by the month, which these heavily leveraged banks could not withstand. Most notably, this meant the banks moved into introducing high-interest-rate accounts. Landsbanki, for example, introduced the now infamous Icesave online accounts out of their branches in the UK and the Netherlands. It managed to accumulate billions of pounds in deposits in just over a year. However, when the accounts became unavailable due to the collapse of the bank in October 2008, the UK authorities used anti-terrorism laws to freeze all Icelandic assets on UK soil, sparking a hefty row between Iceland and the UK that ended before the EFTA court in 2011. In 2013, however, the EFTA court came to an interesting verdict, acquitting the Icelandic State of any claims made by the UK and the Netherlands to reimburse them for moneys paid to depositors of the failed branches of Landsbanki. Rather, the UK and Dutch insurance deposit schemes stand to get reimbursed by the winding-up process of the failed bank but, importantly, the Icelandic State is not liable.

 

 

IV. Contingencies

After the 2006 Geyser crisis, the banks did not only change their strategy and turn to the pockets of depositors. In addition to accumulating deposits, the banks manipulated their access to the Central Bank of Iceland and the European Central Bank for funding when international markets closed on the Icelandic banks. As Johnsen notes, ‘[i]nstead of using their existing asset portfolio (which was depleted), they issued new unsecured bonds in the domestic market at a favourable rate, then colluded on exchanging these bonds among themselves. Another bank could then use them as collateral against short-term lending from the Central Bank’.[6] Or to put it simply, the banks were taking money out of the Central Bank in exchange for IOU tickets they had exchanged among themselves. These tickets became known as “love letters” in Iceland. In effect, they were printing money, and on a massive scale. One of the results of this is that the Central Bank of Iceland became de facto bankrupt, with losses estimated at 11.1% of GDP, which is another peculiarity of the Icelandic case.[7] A court case is currently ongoing in Iceland where the CEO’s of Kaupthing are charged for financial transactions and loans made in the final weeks leading to the crash. Part of the money used in those transactions, 500 million Euros, was a large portion of Iceland’s currency reserve loaned to the bank by the Central Bank of Iceland.

 

The years between 2006 and 2008 are key in understanding the Icelandic case. One of the main questions one gets when discussing the lessons from Iceland is: Was the quick recovery due to how the country ‘burned’ the creditors? Myth has it that when things got tough for the banks, the Icelandic government denied to bail them out and the country therefore escaped the difficult long-term consequence felt by, for example, Ireland. But that is a serious distortion of what happened. The Icelandic banks were on Central Bank life support from 2006 to 2008. After the Geyser crisis, the banks got the funds needed in order to continue their ventures. Paradoxically, what turned out to be Iceland’s luck in the circumstances was that heads of other Central Banks did not abide to the demands of their colleague in Iceland, Davíð Oddsson, for a loan to continue funding the banks. In all actuality, it turns out that it was the Icelandic authorities that were the last to spot the ill health of their own banks. In a response to a letter from the Governor of the Bank of England Mervyn King, where he proposes the need for a downsizing the banking system and that more funds are not what is needed, Mr. Oddsson writes:

The Icelandic banks are well capitalized but they are dealing with a problem of perception. The signals we receive from the markets are that a swap facility for the Central Bank would contribute immeasurability to the alleviation of the problem. I hereby kindly ask you to reconsider this matter.[8]

 

Mervyn King did not reconsider nor did any other Governor of a Central Bank in Europe, which then meant that the authorities, out of necessity, had to switch to plan B i.e. to split up the banks and make them go into administration. For admirers of historical contingences, this case is a treat. Iceland did not take a calculated decision to let the banks fail, but an attempted bail-out failed. This meant that that its tackling of a banking crisis took an unexpected turn, as banks were put into a winding-up process, a move only considered in the face of failure. If drastic measures against the banks had been taken in 2006, then Iceland would offer a role model for averting crises. But then an interesting political question arises. The banks fuelled sensational growth. What politician would stop the promoters of such growth and who would vote for him? And in a political climate of complete confidence in the self-regulation of markets, the role of regulators gets very small.

 

 

V. Iceland’s bad/good bank move

Iceland’s bank manoeuvre has received a lot of interest because it deviates in important ways from the current orthodoxy in crisis response in Europe, where the argument for a bank bail-out is the standard. The recipe needs mentioning. In response to the crisis, the Icelandic Parliament passed emergency laws in 2008 that gave the financial services authority (FME) the tools to take drastic measures and intervene in the financial market. An important part of the legislation was to give all depositors (wholesale and retail) priority status over other creditors such as bondholders. On this basis domestic deposits were moved into new banks that received a capital injection from the State and assets and loans from the old banks matcing the deposits. The failed banks were then put into administration, which makes this a good/bad bank split. And even though Iceland did not deliberately choose this route, it turned out to be beneficial, which proves an important point that alternatives to bank bailouts are possible. One should also note, however, that the good bank / bad bank move is based on sound principles that are sadly overlooked by policy-makers in Europe. If the State finds it necessary to salvage a financial institution, then State funds should only be allocated to such bail-outs provided that the assets of the financial institution are sound and important for the functioning of society. Rather, it may be sensible to seize the opportunity to minimise risk by downsizing the banks and eliminating toxic debt. A bank that faces default is doing so for a reason and the government needs to ensure that it is not throwing good money after bad money. The argument that banks should always receive tax-payer money because of systematic importance and contagion fears should not be accepted as a wholesale argument. The State does not of necessity need to bail out the banks in the exact shape they are in when they seek assistance.

 

So, although Iceland stumbled upon the correct route eventually, the attempt to sustain the banks since 2006 became immensely costly. Despite the much-praised route taken by Iceland, the total cost of the economic crisis for the State has surpassed Ireland’s, which was thought to be the very bad case, in terms of GDP (Ice 70% Ire 60%).[9] The most recent IMF report discusses this surge in debt and estimates it for Iceland even higher than previously assumed, stating that ‘the collapse of the banking system led to an increase of Icelandic public-sector debt to almost 100 percent of GDP’.[10] The reason is that the pure size of the banking system was such that even though a late good/bad bank manoeuvre rescued Iceland from complete economic annihilation, the crash remained immensely costly for the tax-payer. But there are also important caveats to stress here. The fiscal costs are in part caused by the refinancing of the new banks. A lot of the increase in public debt is due to establishing an adequate foreign reserve of currencies to support the Icelandic Króna. The State also recapitalised the new banks and so the majority of the financial sector is now largely owned by it. And as Iceland’s economy is growing again, the assets of the banks are improving and the State will in the future be able to receive considerable revenue from the banks to repay its own capital contribution. Hopefully, it will all be repaid in full and with interest, which would make up for some of the costs of the crisis. Nevertheless, Iceland did not miraculously escape the crisis; although its recovery has been positive.

 

 

VI. Emerging from crisis

There are many factors that explain Iceland’s emergence from the crisis. Economists would point to the stabilizing and downward path of private and public debt and stabilization of currency, which brought down inflation. Another peculiarity of the Icelandic case is the introduction of capital controls in an IMF programme, which helped stabilize the currency. Some would point to how the depreciation of the currency helped hasten the recovery for an export-driven economy. But keeping in line with the peculiarities of the Icelandic experience, I want focus on other factors that I consider pivotal in its recovery. Bergmann notes that in terms of the recovery, a key component of it was that it was welfare-orientated.[11] One of the main aims of the government was to do as much as it could to protect Iceland’s Nordic welfare system and the consolidation measures implemented after the crash were based on social principles.[12] Cuts in the budget were curtailed to shelter the most important elements of the welfare structure. To meet the rising costs of such a social protection scheme after the crisis hit, in addition to falling revenue, considerable tax reform was introduced. An increase in income tax on the highest wages was introduced instead of a flat rate. Capital and corporate income tax rates were raised, new special wealth taxes and a bank levy introduced, environmental and carbon emission taxes launched. The capital controls also helped by preventing capital flight once they were set in place and they also retained the assets of the creditors of the failed banks. A special resource rent tax on the export-driven fishing industry that targeted substantial increases in profits resulting from the depreciation of the Króna was introduced. This and running a deficit to fund certain social programs necessary to soften the impact of the crisis were important in achieving economic progress. For example, in 2011 and 2012, 1% of GDP each year was used to subsidize interest rates to indebted households and a special social stimulus package was introduced in 2011 which increased wages and benefits. Both the IMF and OECD have pointed to this social emphasis with the latter claiming that “[c]onsolidation policies appear to have been designed in an overall equalising manner.”[13]

 

As a result Iceland was the only country within the OECD where the average income of earners at the top of the scale fell more than that of those at the bottom of the scale. During the boom inequality increased significantly, making Iceland an interesting test case for the debate surrounding Professor Thomas Piketty’s claims on wealth inequality and the development of capitalism.[14] But in tackling the crisis, socially just principles contributed to Iceland’s recovery. The Icelandic authorities were terrified of the prospects of a double-dip crisis which could have easily become the reality if funds were not redistributed through the tax system and social protection shielded from cuts. Strong moral arguments support such an approach, as measures should focus on getting the whole of society through the crisis and not just financial institutions, but they are also economically sensible. The focus should be on maintaining as much as possible the purchasing power of low- and middle-income groups. A counterproductive move would have been to cut unemployment benefits when it peaked, in the name of cost-cutting, and then introducing extra costs in areas people highly rely on, such as education or health services. Austerity not only hurts the individual who lost his job, but also the community that relies on him as a consumer, as his diminished income needs to pay for public services he previously did not have to.

 

The Icelandic boom, bust and recovery story offers a fascinating study for policy-makers, journalists, academics or just anyone interested in understanding financial crises. The big question is whether Iceland can offer any lessons to other countries that face a crisis. I think the verdict is mixed. There are lessons in the failures leading up to the crisis and in what made the country emerge from crisis. It is right to stress that every country faces a different set of circumstances, even though they are all lumped together as countries facing economic crisis in discussions on “crisis”. But maybe the most important lesson from Iceland is that when tackling a crisis there are always more possibilities available than are usually laid on the table. Even when facing serious consequences, taking the unexpected route is not so disastrous.

 

 

References  

 

Baruchello, G. (2013a), ‘The Picture—Small and Big: Iceland and the Crises’, Nordicum-Mediterraneum, Vol. 9, no. 3, available at: http://nome.unak.is/nm-marzo-2012/vol-9-no-3-2014/73-conference-paper/480-the-picture-small-and-big-iceland-and-the-crises

 

Bergmann, E. (2014). Iceland and the International Financial Crisis: Boom, Bust and Recovery. Palgrave Macmillan.

 

Byrne, E. & Thorsteinsson, H. (2012):‘Lessons for Ireland from Iceland’s financial crisis?’, in Lucey, B., Larkin, C. & Gurdgiev, C. (eds): What if Ireland Defaults?, Dublin, Orpen Press, pp. in press.

 

Halldórsson, Ó.G. & Zöega, G. (2010): Iceland’s financial crisis in an international perspective. Economic Institute Working Paper Series W10:02. Reykjavík, University of Iceland Economic Institute.

 

Huijbens, E. & Thorsteinsson, H. (forthcoming): Maintaining welfare in the wake of collapse – the case of Iceland‘. Geografiska Annaler B

 

IMF (2011): ‘Iceland’s Recovery – Lesson and Challenges’ The International Monetary Fund, 27th October, retrieved from: http://www.imf.org/external/np/seminars/eng/2011/isl/index.htm, 9th November 2011.

 

IMF (2012): Iceland 2012: Article IV Consultation and first post-program monitoring discussion. Washington, D.C., International Monetary Fund.

 

IMF (2013a): Baltic and Icelandic Experiences of Capital Flows and Capital Flow Measures. Washington, D.C., International Monetary Fund.

 

IMF (2013b): Fiscal Monitor April 2013 Fiscal Adjustment in an Uncertain World. Washington, D.C., International Monetary Fund (World economic and financial surveys, 0258-7440)

IMF(2014): Iceland: Fourth Post-Program Monitoring Discussions-Staff Report; Press Release; and Statement by the Executive Director for Iceland. Washington, D.C., International Monetary Fund. .

 

Johnsen, G. (2014). Bringing Down the Banking System: Lessons from Iceland. Palgrave Macmillan.

 

Lane, P. R. (2012). The European sovereign debt crisis. The Journal of Economic Perspectives, 26(3), 49-67. Chicago

 

Karanikolos, M. (2013) et al. “Financial crisis, austerity, and health in Europe.”The Lancet 381.9874: 1323-1331.

 

Konzelmann, S. J. (2014). „The political economics of austerity“. Cambridge Journal of Economics, 38 (4): 701-741

 

Loftsdóttir, K. (2010). The loss of innocence: The Icelandic fnancial crisis and colonial past. Anthropology Today, 26(6), 9-13.

 

Magnússon, G. (2010): Lessons from a small country in a financial crisis or Dr. Minsky and Mr. Ponzi in Iceland. Economic Institute Working Paper Series W10:03. Reykjavík, University of Iceland Economic Institute.

 

OECD (2011): OECD Economic Surveys: Iceland. Paris, OECD.  

 

OECD (2013): Crisis squeezes income and puts pressure on inequality and poverty. Paris, OECD.  

 

Ólafsson, S. and Kristjánsson, A.S. (2012): Skýrsla I: Umfang kreppunnar og afkoma ólíkra tekjuhópa [Report I: The scope of the recession and returns to different income brackets]. Reykjavík, University of Iceland Social Research Centre.  

 

Thorsdottir, T. K. (2013). Iceland in Crisis. Women and Austerity: The Economic Crisis and the Future for Gender Equality, 102.

 

Piketty, T. (2014). Capital in the Twenty-first Century. Harvard University Press.

Wade, R. and Sigurgeirsdóttir, S. (2010): ‘Lessons from Iceland’, New Left Review, 65: 5-29.

 

Wade, R. and Sigurgeirsdóttir, S. (2012) “Iceland’s rise, fall, stabilisation and beyond.” Cambridge Journal of Economics 36.1: 127-144.

 

 


[1] For an overview of main economic indicators before and after crash see IMF 2011, 2012 & 2014 and Halldórsson & Zöega 2010.

[2] Financial Vikings are discussed in Loftsdóttir 2010 and see Baruchello 2014 for discussion on the neoliberal ethos during the boom years.

[3] Stuckler & Basu. “How Austerity Kills”. New York Times. May 12, 2013. See also Karanikolos et. al. 2013 and see discussion in Byrne & Thorsteinsson.

[4] See Lane 2012 on crisis packages for European countries especially p. 57-59. On the history of the idea of austerity see Konzelmann 2014.

[5] Christensen 2006

[6] Johnsen 2014:93

[7] Byrne & Thorsteinsson 2011. See also Magnússon 2010.

[8] Johnsen 2014:185

[9] IMF 2013b

[10] IMF 2013b: 11.

[11] Bergmann 2014:159

[12] For detailed argument consult Huijbens & Thorsteinsson forthcoming.

[13] OECD 2013: 3. Gender issues are discussed in Thorsdottir 2013. See also Ólafsson & Kristjánsson 2012 for discussion on how changes in the tax system sheltered low income groups.

[14] Piketty 2014.

Pieter Bevelander & Bo Petersson (eds.), Crisis and Migration. Implications of the Eurozone Crisis for Perceptions, Politics, and Policies on Migration (Lund: Nordic Academic Press, 2014)

 

The volume addresses some of the consequences for the European Union (EU) of the prolonged economic crisis resulting from the 2008 implosion of Wall Street’s financial wizardry. One particular consequence, or area of concern, is at the heart of the essays included in the volume, i.e. migration, meaning chiefly, though by no means exclusively, the movement of people from outside the EU into the EU. Albeit clear, relevant and useful statistics are offered both in the introductory chapter by the book’s editors (pp. 9-24) and in the second chapter, penned by economics professor T. Hatton (pp. 25-47), theoretical issues of socio-cultural perception are given more room in the book’s studies than empirical issues of demographics, econometrics and/or specific legislative acts.

  Continue reading Pieter Bevelander & Bo Petersson (eds.), Crisis and Migration. Implications of the Eurozone Crisis for Perceptions, Politics, and Policies on Migration (Lund: Nordic Academic Press, 2014)

Sven-Olof Olsson (ed.), Managing Crises and De-globalization. Nordic foreign trade and exchange 1919-39 (New York: Routledge, 2014 pbk.)

 

Historical memory is unwelcome by people who have too much at stake in the short term to realise that they may have much more to lose in the medium and/or long term. Historical memory is also unwelcome by people who wish that economic history could fit neatly within the theoretical constructs that they favour because of ideological, political, moral or pecuniary commitments of theirs (cf. Francesco Boldizzoni, The Poverty of Clio: Resurrecting Economic History, Princeton: Princeton University Press, 2011).

  Continue reading Sven-Olof Olsson (ed.), Managing Crises and De-globalization. Nordic foreign trade and exchange 1919-39 (New York: Routledge, 2014 pbk.)

Jón Ólafsson (ed.), Lýðræðistilraunir. Ísland í hruni og endurreisn [Democratic experiments. Iceland in collapse and renaissance] (Reykjavík: Háskólaútgáfan, 2014)

 

The indications are that the costs are 44% of Iceland’s GDP, meaning that it is internationally the third costliest financial collapse ever (Luc Laeven og Fabian Valencia. 2013. Systemic Banking Crises Database. IMF Economic Review, 61, pp. 225-270). The series of events leading to the collapse and what has happened afterwards has had serious consequences for Icelandic society and government. The most obvious sign of these consequences is that trust levels within Icelandic society have declined. The banks enjoy least trust of all Icelandic institutions, as is to be expected, as only 10.2% of Icelanders said in October 2014, six years after the financial collapse, that they trust Icelandic banks (MMR Market and Media Research). Just 12.8% trust Alþingi, the Icelandic Parliament, according to the same source.

 

One of the consequences of the financial collapse was that in 2009 the Icelandic republic had the first left-wing government in its history, i.e. since it was established in 1944. This government had to deal with all the most serious consequences of the financial collapse. On top of that, it tried to engineer changes to important Icelandic social institutions like the fishing quota system, which has been controversial since its inception in 1983, and the Icelandic constitution. The reasons behind the changes to the quota system were based on justice and fair allocation of natural resources. The reasons behind changing the constitution were not as clear, but it seems to me that the best construal of them is that the attempt to change the constitution was a confidence-building measure, an attempt to reconstruct the most important legal document of the republic´s legal system and secure general trust in governmental institutions. According to the same survey firm as referred to above, the legal system as a whole enjoyed the trust of 28.9% last November, but in November 2013 the same measurement was 38.1% and in October 2009 the trust in the legal system as a whole in Iceland was 36.5%. There is no reason to read too deep a meaning into these measurements, but they are some indication that the preparation, writing and rejection of the draft constitution have not affected public trust in the legal system. Some may think that we can infer from this that the whole affair surrounding the drafting of a new constitution was in vain. But this may be too hasty.

 

What actually happened in this process? First, there were public protests against the sitting government ending in its fall in early 2009. Second, after the general election in 2009, the first left-wing government in the history of the Icelandic republic was established. The prime minister of that government had long been of the opinion that the constitution needed revision. Third, some general meetings were arranged early in 2009, trying to find out which were the most important values of Icelanders. The government organised a similar meeting in early 2010 to figure out those values that should govern the revision of the constitution. Fourth, the government established a committee gathering data and evaluating various ideas about such a revision, thus preparing the work of a constitutional assembly. Fifth, the government decided that an assembly should be elected by the general public to write a new constitution or revise parts of the existing one. Sixth, the election to the constitutional assembly was declared null and void by the Icelandic Supreme Court after a legal challenge. The government decided then to establish a constitutional committee with the same mission and the same individuals as voted onto the assembly. Seventh, the constitutional committee delivered in four months a draft of a new constitution. This draft was never assented to twice by the majority parliament with a general election in between, as it must do according to the rules laid down by the present constitution.

 

This book is a collection of essays in Icelandic about this whole process and other democratic experiments in Iceland’s recent years. It is written by two Icelandic authors and six international authorities on democracy and democratic developments. Jón Ólafsson edits the book and writes an introduction describing the development of the constitutional project and other democratic experiments in Iceland. James Fishkin analyses some of the processes that took place in the constitutional preparation and the drafting of the new one, and he evaluates to what extent deliberation and rational discussion were features of them. His conclusion is that neither the general meetings nor the constitutional committee reflected the general population and we should be careful about drawing any conclusion about the views of the meetings and the committee coinciding with the views of the population as a whole. He is also critical of the lack of rational discussion both in the preparations and the drafting of the new constitution.

 

Hélène Landemore examines the process of preparing and writing a new constitution in Iceland from an epistemological point of view. She is interested in: how the constitutional committee dealt with the problem of writing a constitution; and how it used “crowdsourcing”, meaning the competence and the intelligence of the general public, especially in writing the draft of the new constitution. She is critical of the role of experts in writing and editing the draft of the new constitution; she believes that the process had serious drawbacks, as she thinks that the general public and its representatives are capable of writing a constitution upon the condition that as many as possible take part in the process. She believes that the current Icelandic method for establishing a change to the present constitution or adopting a new one is too restrictive. Tom Ginsburg and Zachary Elkins approach the preparations and process of writing the draft of the new Icelandic constitution from a comparative point of view. They review various views of transparency in such a process, as well as the role of experts. They are, like the other experts writing in this book, favourable to the opening up of the process for preparing and writing a constitution and the government process in general, but they realise that there is no simple solution or simple recipe for a constitutional process, in Iceland or anywhere else. Thus, they ask the difficult question: If the new constitution was the result of a grassroots movement, why was it so easy to stop it in parliament? Why were those parties that opposed the new constitution elected as the new parliamentary majority in 2013? There is no simple answer to that question and there are two appendices to their article that are informative and interesting.

 

Paolo Spade and Giovanni Allegretti write about novelties in democracy or new initiatives in democracy, especially participatory financial budgeting as practised in a number of Brazilian cities. They explore the connection between these new initiatives and the new possibilities that have opened up on the net. They realise that these connections are complex and they can easily become counterproductive from the point of view of participation, if not used carefully. Democratic experiments in other places are drawn into the discussion such as Portugal, Germany and the United States, and in Reykjavík, Iceland. This is not directly relevant to the process around the constitution but the discussion broadens the picture of new initiatives in democracy. The last article is by Kristinn Már Ársælsson and is an overview of democratic initiatives in Iceland in the years 2009-2013, i.e. the years of the first left-wing government of the Icelandic republic. These include the preparation and the writing of the draft constitution, plus two national referenda on the Icesave agreements between the Icelandic government and the British and Dutch governments. These referenda were engineered by the refusal of the Icelandic president to sign two laws supported by the majority of parliament. In both cases the general public voted against these laws. These were the first national referenda since 1944, when it was decided to establish a republic. He also discusses the initiatives taken by the city council in Reykjavík.

 

All these articles are interesting, make important points and throw light on the events that have taken place in Iceland in the last five years. This is of particular value for a small society like Iceland, because very few people outside the country can understand what happens here and why. Icelandic scientists are a part of their own society and sometimes find it difficult to analyse what actually happens. The critical distance of foreign scientists can bring benefits.

 

This distance has its drawbacks too. This is clear from the discussion of the constitutional process. There is no attempt to relate it to the political culture in Iceland. What is most interesting about this process, which elected a constitutional assembly from members of the general public, is also a major break with the Icelandic tradition of politicians and legal experts discussing and drafting changes to the constitution. Part of this tradition is that all the major parties have had to agree to the changes put forward. Even though this is not literally true of all the changes proposed, it is true of most of them. This has guaranteed that the changes proposed and consented to in parliament before it is resolved, are consented too unchanged in the newly elected parliament. This threshold to changes to the constitution has not proved to be serious or impossible in the Icelandic context. Changes have regularly been made to the Icelandic constitution. It is not fashionable nowadays to take Icelandic political culture seriously, since its vices rather than its virtues have been more prominent in recent years, but it seems to me that one of the reasons working against the new constitution was that there were serious political disagreements about it. Pushing it through parliament would have been a serious break with the national consensus tradition. You may not think very much of this tradition, but it is an historical fact; besides, traditions in political cultures have to be reckoned with.

Crisis and Crisis Scenarios: Normativity, Possibilities and Dilemmas

 

‘Crisis’ can mean a confrontation between old and new. ‘Crisis’ can mean a rupture with the old ways of thinking and a chance of dislodging rigid ways of thinking, including those in the academy. There is a crisis of a notion of any stable ‘subject-hood’ in which new critical theories and philosophical ideas might also have a place. We could propose ways of looking at ‘crisis’ in gender relations, the arts and the humanities, and the continuing debates on the crisis of the current capitalist practices. Why is it that the latter has so far not produced any real change? A discussion of ‘crisis’ and the ways in which the notion is impacting culture and society might be of interest.

  Continue reading Crisis and Crisis Scenarios: Normativity, Possibilities and Dilemmas

From War to Financial Crisis – Analyzed with Critical Systems Theory

In his 1973 book Legitimation Crisis, Jürgen Habermas described a transformation mechanism that can lead an economic crisis into an administrative crisis, if the capitalist economy and state administrations do not reorganize themselves to handle the problems facing the economy. This transformation accurately describes what happened from 1974 to the mid 1980’s, to say nothing of what has been happening ever since.

However, Habermas developed the transformation hypothesis still further and took it to the realm of politics. If the public administration could not simply reorganize, it would have to invoke a number of reforms that involved claims for legitimacy. This shift from the economic system to the administration system and to the political system could happen smoothly, and not entail a transformation of the lifeworld of citizens. Accordingly, Habermas only conceived crisis as a phenomenon that in the lifeworld involves a legitimacy crisis in the motivational resources that are involved in those reforms undertaken in the political system. This transformation machinery can be re-described and applied in many contexts. Critical systems theory describes how it is difficult, if not impossible, to govern self-referential systems functionality differentiated from political systems: Accordingly, they may pose severe problems for their environments, and eventually lead to legitimation crises. Modern functionally differentiated systems are probably more difficult to govern than we use to think. In between Habermas’ theory of crisis transition and the work of his German contemporary, sociologist and leading systems theoretician Niklas Luhmann, a reconstruction of legitimation crisis theory has taken place. This is articulated in Poul Kjaer, Guenther Teubner and Alberto Febbrajo’s co-edited volume The Financial Crisis in Constitutional Perspective – The Dark Side of Functional Differentiation (2011). My aim here is to add a still darker side to this critical systems analysis.

            In the present article I will first describe the classical problem of political transformations and revolutions that occur due to financial constraints. As we will soon observe, those crisis scenarios historically often develop in the aftermath of wars. Hence, I proceed to analyze the structural coupling between the wars in Iraq and Afghanistan and the overall game of superpower strength. In order to get the problem right with regard to the dynamics of war and its resulting financial costs, I turn to Carl von Clausewitz’s form analysis and his concentration on the transformation of the center of gravity from the battlefield to the costs of war. This, finally, leads to an analysis of the structural couplings between wars, state-building and financial crises.

The classical problem of war and credit

Ernst Hinrichs (1986) used these same ideas to interpret the crisis that led to the French political revolution in the second half of the 18th century. Whereas Habermas also, albeit briefly, mentioned ecological crises and military crises as two differently induced crisis phenomena, Hinrichs developed the transformation from war to finance to reorganization, political reforms and motivational transformation. In the present article, the point is to deal with the structural coupling from war systems to military organizational systems to financial systems, and the critical limitations imposed upon such a transformation. The actual background, of course, is the present financial crisis that began in 2007-8 and its links to the Afghanistan and Iraqi wars, as well as to the currency and credit systems that have developed in the capitalist world since the end of the Second World War. My main point is that the present crisis was extremely foreseeable from the end of the 1980’s, since it repeats the structure of those relations that have imposed themselves on the modern social order since the 16th century. The heritage of that long-term form and path dependency imposed a self-referential system of wars that could only be developed if government organizational systems took absolutist power over the ‘reason of state’ and asked for a financial revolution in the structural coupling between tax systems and credit systems. Those systems came to a decisive breaking point at the end of the 18th century. They had already by the early 18th century implied a functional differentiation of the social order that imposed itself in opposition to an absolutist state in an estate society.

            A centrally placed observer of those developments such as Immanuel Kant concisely saw what was at stake in such a modernized society. In his 1793 treatise On the Common Saying: ‘This might be true in theory but does not apply in Practice’, there is a short but an extremely accurate analysis of a number of paradoxes in the relation between politics and war, including the following description of the structural coupling between finance and war:

The increasing culture of the states, along with their growing tendency to aggrandize themselves by cunning or violence at the expense of the others, must make wars more frequent. It must likewise cause increasingly high expenditure on standing armies, which must be kept in constant training and equipped with ever more numerous instruments of warfare. Meanwhile, the price of all necessities will steadily rise, while no-one can hope for any proportionate increase in the corresponding metal currencies. No peace will last long enough for the resources saved during it to meet the expenditure of the next war, while the invention of a national debt, though ingenious, is an ultimately self-defeating expedient. Thus sheer exhaustion must eventually result, in what goodwill ought to have done but failed to do: each state must be organized internally in such a way that the head of state, for whom the war actually costs nothing (for he wages it at the expense of others, i.e. the people), must no longer have the deciding vote on whether war is to be declared or not, for the people who pay for it must decide. (This, of course, necessarily presupposed that the idea of an original contract has already been realized.) For the people will not readily place itself in danger of personal want (which would not affect the head of state) out of a mere desire for aggrandizement(…) And thus posterity will not be oppressed by any burdens which it has not brought upon itself, and it will be able to make perpetual progress towards a morally superior state. (Kant 1793-1977: 170)

Accordingly, Kant is often celebrated as the inventor of the liberal theory of the so-called ‘democratic peace’ and this was certainly a liberal plea for a separation of power. This separation of power, its rule of law and legal state (‘Rechtsstaat’), he saw as constitutive for a democratic representative form of the people’s sovereignty. To Kant, the state and its separated powers developed according to extremely realist differentiations that imposed their principles and codes on what happened to the political order before a moral will could reconstitute what was already constituted (Harste 2009).

Kant saw that wars are overly costly and involve far more than just taxes. He several times warned against risks involved in credit systems (Kant 1795/1977: 198-199). Developments of credit systems advanced from the Dutch differentiations between Amsterdam’s Wisselbank, its Actien, its Vereeingde Nederlandsche Geoctroyeerde Oostindische Compagnie, and its Beurse (Ferguson 2008: 128-135). The credibility of such internally differentiated subsystems enlarged and conditioned the possibility of creating a functional self-referential system of credits beyond the solidity of the single institution and organization. The differentiation principle seemed to have been decisive, since a non-differentiated and overly integrated system was developed a bit later in France under the ruling concept of an absolutist united idea in the Scottish ‘John Law’s system’: in 1717 John Law was nominated for finance and tax minister, director of the Beurse, the central bank, and main shareholder. Whereas Louis XIV, before his death in 1715, could say ‘L’État c’est moi’ and accordingly embark on a military overstretch that left France with an almost unpayable war debt, John Law could say that ‘La finance c’est moi’. He overtook the French public debt – but his overly unified and integrated system broke, since everyone soon realized that the Mississippi Company, that only possessed the Central USA, had no real value to sustain the assets of the company – at that time (Ferguson 2008: 139-158).

The final form that took place with the so-called financial revolution (Dickson 1967; Brewer 1990) can be reconstructed as a circular form in which finance appeared as a self-referential system, to be distinguished from the French tax system and internal credit system (Dessert 1984; Vauban 1709/1988). Enclosures and colonies were successively used to pay creditors (Marx 1867-1894) whereas the parliament stayed as the guarantee that payments were sustained (Figure 1).

Figure 1. The British external credit system and its financial revolution

In 1988 Paul Kennedy published a widely read book, The Rise and Fall of Great Powers. Therein he at length presented an argument that all superpowers since the early 16th century have developed a so-called ‘military overstretch’. The Habsburgs did it and became insolvent eight times within less than one hundred years. France embarked on an overstretch, not only with the War of Spanish Succession and Louis XIV’s earlier wars, but also with the Seven Years’ War (1756-1763) and the War of Independence (1776-1783). Great Britain after the Napoleonic Wars had to transform itself from an estate society into a class society, which involved a democratization of its parliamentary rule. Germany committed an overstretch, and did so twice, in the World Wars, as did the Czar’s Russia with the First World War. The United States approached overstretch in the Vietnam War, and the Soviet Union could not sustain its campaign in Afghanistan (1979-1988). Hence the United States, yet another superpower, should be careful not to develop the same kind of overstretch. Furthermore, the risk for United States was to believe that it conquered the almighty power invested in the Cold War’s infinite destructive power. The U.S. actually got far less power to impose its will on other countries after the fall of the Berlin Wall and the Soviet Empire.

However, the trap has developed to include several topics that should be distinguished. First, the U.S. as an economic system led the information technology revolution and widely increased its economic and cultural power during the 1990’s. Second, the IT revolution was linked to a so-called Revolution in Military Affairs (RMA) (Owen 2001; Vickers & Martinage 2004). The PC and the internet were invented by DARPA due to military needs for transiting information by multiple information highways in case of general war. Yet paradoxically the military trap developed as a consequence of the risks embedded into the successes of the internet and the RMA: the U.S.’s war strategists became more and more susceptible to ideas of invincibility due to inventions in tactics – not in strategy (Knox & Williamson 2001: 175-194). Along with the strengthening public discourse about globalization, the provocation became still stronger with debates about who ruled The McWorld vs. Jiihad, as Benjamin Barber’s 1995 book was titled (Tibi 2001a; 2001b).

According to U.S. military strategists such as William Lind (1989), Thomas Hammes (1994; 2006), and Arreguin-Toft (2001), the only power strong enough to destroy the almighty powers of U.S. was U.S. itself. However, U.S. forces were already, at that moment, embedded into the trap created by American advices and finances to the Mujahedeen fighters in Afghanistan who also robbed the Soviet Union of its upper hand. The U.S. partook in the financing of the Mujahedeen with the Saudi Arabians and invested three billion dollars (Kolko 2001: 45-85); accordingly, the Mujahedeen and its subgroup al-Qaeda learned to reflect on and use U.S. tactics and strategies. They learned how to involve American forces in a military overstretch. The tactics that were to form the core of the overall strategy for dismantling the U.S. McWorld were to provoke the new neo-conservative to believe in the U.S.’s almightiness and embark on a military overstretch. In fact, the British colonel Thomas Lawrence (Lawrence of Arabia) had already developed that strategy of the trap in order to establish an Ottoman military overstretch (Lawrence 1928/1997: chap. 23).

Then, after 9/11, a U.S.-led coalition embarked on Operation Enduring Freedom, OEF, and Operation Iraqi Freedom, OIF. From this point, it is possible to observe the military quagmire imposed by asymmetric warfare (Mao 1955; Mack 1975; Hammes 2006; Gray 2005; Harste 2011). Such arguments can be developed with analyses well-known to informed military strategists today. If we, however, wish to open the analysis more widely for a deeper understanding of the structural couplings between the war system, the financial system and the political system, we could learn the lesson from classical analyses of modern society and the role of war in it. Here I will first introduce Carl von Clausewitz’s theory of abstract and real warfare and its transformation of the gravity center of war. Then I will outline the main points from the historical sociology of the links between war, state-building and finance. Finally I will shortly describe some of the motivational and moral shadows of wars and describe their costs and conclude about those implications the costs have had for the differentiation of the credit system.

Clausewitz and the second order realities of war

Carl von Clausewitz, better than anyone, in his masterpiece Vom Kriege (1832/1952) elucidated the no-governmentality of war. His famous phrase that ‘‘war is the continuation of politics conducted in another medium’’ (1832/1952: 888) is not a master plan about how the political system could control war. On the contrary, it is a description of a much more complex and tragic relation that concludes from his basic assumptions about the interchanges (‘‘Wechselwirkungen’’) undertaken in war and how they lead from ideal and abstract plans to the transformations that occur in the realities of war. In the course of these transformations, the center of gravity moves and the culmination point in war is when this center (‘‘Schwerpunkt’’) undergoes such a transition.

            The form of the interchanges is a form Clausewitz takes from Immanuel Kant’s Critique of Pure Reason (1781/1787/1966: B 256), probably inspired by his mentor in methodology Johann Kiesewetter, who was Kant’s assistant. With later sociological form analyses developed by Georg Simmel and especially Niklas Luhmann (1986; 1991; 1997), it is possible to discern a far clearer idea about Clausewitz’ conception than military strategists so far have conceived. Clausewitz conceives three forms of interchanges and observes what happens with them at two levels – the abstract and the real war – or, explained with Luhmann’s theory of self-referential communication systems, the first order observation and the second order observation.

AI. The material interchange

A very common view of tactical rules prevails in the eyes of the public, the political system and idealizing military planners such as Napoleon’s chief of staff Antoine-Henri Jomini in Précis de l’art de la guerre (1838/1855/2001). He was literally and intellectually Clausewitz’s adversary and told a suggestive narrative about victorious warfare. The view is that war is that kind of tactical warfare that fights about a material battlefield such as piece of land, borders, or access to sea or resources. According to this view, the number of troops, cars, airplanes, and battleships can be calculated, and the party who has the most of such instrumental means to be used as input into the system of warfare will be sure that the output of fighting leads to guaranteed victory. The outcome of warfare can be calculated (Biddle 2004; Beckerman 1999).

BI. The social interchange

In a battle between opponents there is a clearly identifiable conflict between those who enter the battlefield. Classical warfare is about symmetric troops and armies opposed to each other in a continuation of states in conflict and political systems that are adversaries according to clearly identified goals. Of course, such a state governed conflict scheme has not always been the case, but since the Thirty Years’ War (1618-1648), that scenario has ruled and wars have been identified and planned according to this ruling narrative. Accordingly, this is also what ruling ideas of just war (jus ad bellum and jus in bello) are about, and the narrative corresponds to the basic form of the Westphalian System of sovereign states (Knutsen 1997; Teschke 2003; Tuck 1999).

CI.The temporal interchange

The classical conception observes conflict as the combination of a static interchange with a linear process that describes a transition from a time of peace to a time of war and back to a time of peace. Military campaigns can be planned (in peace) according to goals, and accordingly lead to a decision about battle; successively the battle follows; and afterwards the losses are counted and the winner takes it all. Time is linearly planned, although since Fredrick the Great’s campaigns towards Saxony and Prague (1756), synchronization between separated troops (divisions) has led to a still-increasing speed in warfare. The side that can increase speed and synchronization the most will prevail if the number of troops and resources are equal. This has been the leading tactical idea from Fredrick the Great to Napoleon and Jomini to Helmut von Moltke’s campaigns in 1866 and 1870, to the German Blitzkrieg and to the American RMA.

Yet this first order observation of warfare, according to Clausewitz, leads to a misconception of real war. Only very few wars, if any, have been conducted according to such a simple scheme. Initial warfare, as in the Gulf War (1991), Israel’s Six Day’s War, the U.S. attack on Granada or the Falklands War may have had such a form. In reality, wars transform themselves, and even often become wars about what is conceived and conceptualized as war. Hence, the basic first order form in almost all major wars is transformed into a second order form about what is conceived as war.

AII. The second order transformations in the material dimension

According to Clausewitz, wars lead to a transformation of the center of gravity into a multiplied and still more complex, not to say chaotic, combination of dissipative forms. The conflict about the battlefield becomes, first and rather directly in modern warfare, a fight for supply lines, centers of communication, airports, electricity supplies, bridges, main roads and so on. However, soon problems of finance appear, since wars are extremely costly. Every major war leads to greatly increased taxes; or whenever taxes do not increase, huge financial difficulties soon appear, and secondary solutions such as debt increases have to follow. The public may be resistant, especially, according to Clausewitz, in offensive warfare, since offensive attacks used to be conducted with an idea of surplus or justification. This paradoxical principle of the weakness of the offensive and the strength of the defensive is less about the strength of surprise but about the weakness of finance. For example, neither Nazi Germany nor Japan initially increased their taxes substantially compared to what those two countries did in the later part of the Second World War, whereas the UK and the Soviet Union did (Harrison 1998: 20). In the First World War, the financial costs came as an immense surprise to all parties. After the first few days, the war was conducted according to tactical possibilities, and the strategic idea of the war became the first offer in that extremely fatal war.

Yet when finance turns into a messy affair, the gravity center once again shifts and public acceptance of the immensely increasing financial costs become the focus. The opposing parties fight to break their adversary’s back of supplies, then finance and then the public. But additional supplies follow: the humane costs, including their long-term economic costs. Hugh Rockoff (2012) has demonstrated that more than half of U.S. financial costs of war are caused by the opportunity costs of casualties and war veterans. Disabled veterans who cannot contribute to the nation’s wealth from, say, the ages of 25 to 65 are immensely costly for a country when they are counted in thousands, if not millions; and Rockoff does not even count the costs to the relatives. In sum, wars are not over when the truce comes and the peace is concluded. Wars have no conclusion. Accordingly, we have to account for the financial and humane costs of war much more accurately than is supposed in the first order analysis, and admit that calculations at a first order level are completely misleading. We are led into severe complexities of a second order.

BII. The second order transformations in the social dimension

The social dimension of war does not only concern troops or members of the military organizational system. Victims and collateral damages are all over, including civilians, relatives, traumatized persons, raped women, starving persons, refugees etc. At the second order level, wars involve a wide range of other people far beyond those in the military. This implies a number of transitions in warfare.

Precision strikes are not a very adequate answer to such complexities, since with drones they seem to easily increase the number of strikes, seeing as how the spots of collateral damage concern quite a number of innocent people placed far from anything looking like a war zone. At the same time, precision is demanded by the national and international public, which somehow should accept the legitimacy of offensive strikes against an enemy that is hoped to become a future friend (Rawls 1999), and who rather often is not the cause of conflict but innocent, and even perhaps the cause of a campaign with a responsibility to protect (R2P).

The social dimension of warfare also includes transitions to so-called asymmetric warfare (Thornton 2007). Whereas the rich and strong parties to a conflict easily can afford fortifications, compounds, trucks, tanks and protective uniforms, the weaker have to find other solutions. Hence they look towards sabotage, guerilla tactics and what U.S. Colonel William Lind termed fourth generation warfare. In a somewhat famous article from 1989, he saw warfare as a kind of entropic system that spread the confrontation from a concentrated battlefield (1st GW) to longer lines, as in the Napoleon Wars and especially the First World War (2nd GW), to the synchronized in-depth attacks as with the Blitzkrieg (3rd GW), and to a completely different form with the 4th GW. This form is not as recent as was supposed by Lind, however. It is well known from the Spanish resistance to Napoleon (the Spanish ‘‘guerilla’’ = little war), the Languedoc Camisards in early 18th century and the Danish Snaphaner fighting against the Swedish superpower. Theoretically, Lawrence (1935/1997) explained how the Ottomans, a major regional power, could not conquer and secure the whole Arab peninsula despite its immense number of troops and great financial costs. Hence, simply to attack here, there and everywhere, now or later, stressed the troops as well as the finances and resources meant to supply the troops. Accordingly, the strong had to draw back. The conclusion is that the strong loses and the weak wins. As Henry Kissinger said in 1969 during the Vietnam War, ‘‘the strong will lose, if he does not win, and the weak will win if he does not loose’’ (Mack 1975; Arreguin-Toft 2001; Thornton 2007).

CII. The second order observation of temporalized war

In Vom Kriege, Clausewitz is thoroughly occupied with those realities in war that lead to protracted wars of attrition. Plans are blown to pieces and what Max Weber called the material rationalities obscure every idea of formal rationality, in the realities and complexities of war far more than in courts, in schools, at universities, in normal daily life and in other functionally differentiated systems of modern society. In war ‘‘everything simple becomes complex’’, ‘‘friction’’ and ‘‘fog’’ characterize the normal catastrophic experience and nothing turns into normality or normal procedures and rules. Surprise is everywhere, and rules do not hold for more than a day. This, of course, obfuscates every juridical idea about normal rule-following.

            Time goes on and every matter becomes different. Human actors develop new visions about what they do and why; their judgment dissolves and transforms into abductive reasoning in complex situations. Above all, time changes, plans have to change, and the time horizon of bounded planned time becomes obsolete. With Luhmann, we may describe the war system as a risk system in which the system cannot observe that it cannot observe what it cannot observe (Luhmann 1986: 52, 59; 1991). The orderly relation between the present moment and the future moment becomes obscure, and the vision of the future looks different. Thomas Mann’s 1924 description of time in Der Zauberberg certainly is also a comment on the temporal vision of transitions during the First World War: Time fades away. Days become weeks, weeks become months, months become years, and still more years. This is what protracted warfare is about.

            This means that costs rise explosively. Not only do financial costs accumulate exponentially with the escalation and expansion of all those dimensions that warfare tries to control. The human costs also increase. Warriors turn into war veterans, and some veterans turn into disabled, crumbled, psychically terrorized, and traumatized non-individuals, in the sense that they are no longer coherently unified persons, or human beings not divided into pieces, as we could expect from in-dividuals (=non-divided). Their minds may be blown up; their nightmares and flashbacks destroy their bodily sensation of being themselves. They might cohere into their small units with their buddies, who will become the only people able to understand their experiences. The more often they are sent to the war zone, the more likely they will suffer from PTSD (Post-Traumatic Stress Disorder), and the more they long to unite with their buddies and companions (Harste 2014).

            The huge wars of the early 20th century sent soldiers back in the tens of millions to a society with routine work, conventionally routinized norms, and given ideas of public and private life, including private suffering. During the Vietnam War this changed, and the so-called heroes went back to a post-heroic life. Since the 1970’s people have had to deal with self-development, self-realization, competence innovation and an organizational culture where they have to sell themselves as coherent images of successful people with CVs and life trajectories to be told as decent biographies. Accordingly, the soldiers and their victims are still more traumatized. The fight continues when they come back, and often it becomes still worse when the physically and psychically disabled are squeezed between disconnected welfare systems, turning their lives into protracted suffering. Wars take about three generations to end. The humane and financial costs continue to veterans’ children and close relatives, and if entire regions have suffered from wars, the grandchildren have no way of escaping the traumas and become traumatized themselves. In Eastern Europe that has been the case, especially in Belarus, Ukraine and Russia, the three countries that suffered the most from wars in the 20th century, even more than Cambodia, Vietnam and Rwanda. According to more recent and accurate research, probably about 45 million people died in the Soviet Union due to the Second World War, and about 20 million starved to death since Ukraine, taken by the Nazis, was the breadbasket of the Soviet Union (Sokolov 2009; Collingham 2012).

            To sum up, Clausewitz’s thesis of the structural coupling between war and politics tells a story quite different than one about control and best case scenarios about just decision making, power and the will to power, to say nothing of heroes and rational strategies and strategists.

            First, we observe that wars begin to feed themselves, but successively they run out of supplies. It is at this moment that the societal and political conditions for protracted warfare expose critical limitations for still more extended wars. The public and the creditors do not accept still increased burdens, and demand the political system end the wars. Political systems may control warfare in the very moment of decision to go to war, and have more or less mythological ideas about abstract successful and clean wars without suffering. Such best-case stories almost certainly never become long-term real history. Wars are functional systems and functional systems control themselves. According to Luhmann’s great theory of self-referential social systems, organizational systems cannot control functional systems; churches cannot control religion; theaters and galleries cannot control art; legal administration cannot control law; universities cannot control research; schools cannot control education; and military organizational systems cannot control war (Luhmann 1997). Organizational systems of course have a major impact, together with other actors and their communications. But hierarchy, membership, and decision-making are only one form of inclusion and exclusion that is typical to modern western states and organizations. Elsewhere, in the failed empires that tried to rule the world, all kinds of different segmentary and stratified social orders made arrangements and networks obscure and complex (Luhmann 1997: 618-708; Centano & Enriquez 2010).

In addition to Clausewitz’s analysis, mythologies are all over (Smith 2005), and organizational systems seem to close themselves off from the disasters of war. Clausewitz and his contemporaries were somewhat occupied with this risk and its political and organizational friction. Military organizations reorganize and develop particular bureaucracies and organizational cultures in order to establish at least some form of self-control (Huntington 1957; Vandergriff 1999; Irwin 2012; Grissom 2013). More recently, in the last few decades, hybrid wars seem to result in hybrid states due to the fact that the famous Western wars – OEF and OIF – developed as coalition wars with a polyphonic coalition of goals, interests and strategies that cannot unify into anything like a coherent strategy. Accordingly, the military organization systems become hysterically occupied with a form of self-closure in order to decide upon how to decide. They turn themselves inwards and follow the paths of the RMA and its so-called ‘‘system of systems’’ (Owens 1995; 2001; 2002). Even before the so-called revolution in military affairs, military communication became crowded with massive bombardments of communication codes and acronyms (RMA, OEF, OIF, 4GW, COIN, CIMIC, etc. etc.) in order to synchronize communication still more and still faster; – and thereby win wars that are lost in almost every other kind of dimension (Gray 2006; Record 2006; 2010; Ritter 2007).

The historical sociology of war finances

In historical sociology, some of these short- and long-term costs have been analyzed under the umbrella of the Charles Tilly thesis ‘War makes states, and states make war’ (Tilly 1975). Much of the debate about this thesis has turned around another thesis, namely Michael Robert’s analysis of ‘the military revolution’ from 1560-1660 (Rogers 1995; Downing 1992; Porter 1994). Earlier and later periods have been analyzed, and it has been debated whether they were more important. Yet Robert’s main topic was about the organizational, financial, legal and political conditions for such a revolution, which he mainly referred to using the Swedish reforms under Axel Oxenstierna and Gustavus Adolphus (Roberts 1973). For the present article, the point is to draw attention to the structural coupling between the war system, the military organization system, and the financial system. The Tilly thesis probably exaggerated the focus of war as an independent causal variable, although it was not Tilly’s intention to establish such a causal analysis. Rather he tended towards a traditional functional multiple framework of mutual conditions, including political conditions (Tilly 1984; 1992; 1993; Harste 2013b). This implies that a simple statistical description of the number of troops that so often has been forwarded as the main characteristic of the Tilly thesis does not satisfy a more coherent theoretical analysis of war and crisis. Rather, the very point is in the mutual conditions and structural coupling of different functional systems and their organizational condition.

Thus we have to understand, firstly, the organizational background implied by the Reformation that secularized the formerly Catholic church organization and its corpus spiritus, transforming it into early bureaucracies with a form of esprit de corps and estate which became the porteur parole of a ‘necessary’ ‘reason of state’, even in Catholic countries such as France under Cardinal Richelieu (Thuau 2000; Cornette 1992). The precondition of the revolution was the establishment of an organizational framework that linked authorized legitimacy with law and with a coherent institution of representation, meetings, delegation and power. Power was already constitutionalized when the military revolution had its start (Quillet 1972; Thornhill 2011; Luhmann 1997: 565). But organizational power was not militarized, and the war system did not become a self-referential functional system before the Thirty Years’ War. But in this more or less thirty year-long war, the war began to feed itself in a competitive escalation system (Brücher 2011).

Secondly, we can observe those transformations that took place in the systems of delegation and representation along with the military build-up in the self-referential war system. Wars could be transformed into competitions for still-stronger central administrative delegation systems, and into still-better representative estate and parliamentary systems that could guarantee future contributions in the form of resources, manpower and taxes, as shown above in Figure 1. With the Konstanz edicts from 1183, the church transferred its canonical law of contracts to towns that thereby became independent; and at the same time they accepted the credibility form of churchly networks (from credos = faith). This paved the way for contracts in trade and commercial agreements in towns and between towns. In this way the form of credibility systems emerged, for instance in the fairs of Flanders and in the banks of Florence and other Italian cities, with Lyon as the trading and credit center between northern and southern Europe. Credit also developed among merchants (Braudel 1979; Dessert 1984; Grenier 1996; Germain 1997; Fontaine 2008; Stasavage 2011).

The problem of financing war was about easy money, fast and expedient. Taxes took years to gather, whether in the form of contributions from estates or as money gathered by tax administrations. In any case, also with the later innovation of parliament-guaranteed payments-to-come, a huge range of possible tax developments needed to be proposed. Taxation forms and still more tax reforms were proposed over and over during the 17th and 18th centuries (Bonney 1995a; 1995b; Collins 1995). However, once a war began, huge payments needed to be supplied immediately to those creditors who supplied the resources and, until the conscripted armies of the French Revolution, to the mercenaries, bought or rented from the condottieres. Under such circumstances, taxation soon became a medium for taxation forms and reforms (Braun 1975; Bonney 1995).Still in 1576, Jean Bodin in a classical account could describe that the government money came from five sources; the crown domain and sale of domain, conquest, allies, inflation, and taxes. His list was successively a description of less and less important financial measures; but then things changed.

The mass of the armies grew, especially with the still-increasing number of fortifications and garrisons that could house and train them to keep them available for defense or attack. In addition to the growth in logistics, weaponry, cannons, wagons, horses, uniforms, food, armament industries etc., armies and supplies became still more permanent following the first, the French royal (only 2000-man strong) companies d’ordonnances in 1440. In the early 18th century, Louis XIV disposed of not less than 400,000 permanent troops, many of them in about 200 fortifications and garrisons. Of course, such an army and a somewhat similar navy with more than hundred ships, built and supplied by naval bases, necessitated an immense state organization and tax administration. However, in times of war, the financial burden often was higher, and sometimes, as in the later world wars, far higher, than the tax revenue. The world wars were only financed by about 15-20%, in spite of extremely increased taxes. The Soviet Union is a particular case, since the Soviet state could not make use of a credit system of bankers similar to the French-British-American network (Harrison 1998; Strachan 2004); the Soviets simply used their planned economy to supply the war effort. They could not, in any case, buy supplies in the disrupted world market, but received huge quantities of still quite insufficient materials from the U.S.

In sum, we should describe the burden of wars according to three dimensions: the material dimension of logistics; the social dimension of the number of troops involved; and the temporal dimension of the permanency of wars and their protracted character. Hence, we have a three-dimensional form and figure as demonstrated in Figure 2, in which the financial burden of an imagined army anno 1570 is compared to an imagined army anno 1720.

Yet we also have a similar three-dimensional evolution in the organizational form of the state that is to supply such a military form. The tax bureaucracies, and a number of additional organizations (e.g. transport), also have a material growth in their resources, the personnel employed, and the permanency of their staffs. Whereas the state in the early 16th century was constituted by a nominated estate governing and organizing from their homes, the staff increasingly was permanently employed and placed into official administrative buildings of the state. Hence we see a structural coupling between the war system, the military organization system and the state administration system, including its tax administration.

However, we should also add the more invisible credit system (Mann 1986; 1987; 1993). The idea of an invisible blind balancing of contracts and trade most certainly comes from the mythology of Justitia, who as an innocently dressed young woman was placed on commercial markets many places in Europe during the Renaissance. She carried a scale in one hand, a sword with the other, and had a band over her eyes, ready to cut off the trader who cheated her (Robert 1993). In addition to the three-dimensional figure we can add an increasing war debt that necessitated a still more complex credit system, which according to some interpretations hides future risks behind hedgings in order to establish a trade between present payments and loans in future (invisible) payments.

Figure 2. Growth in military organization and finance from 1500-1780

Size of army/navy x logistics depenses x permanency =
Fo(organisational size x professionalisation x permanency) =
Ftd(Ft taxes + Fd debt) = F(bureaucratization)

Y =
Quantity of servicemen
Quantity of bureaucrats
Taxes & War debt

With Paul Kennedy, we can depict the lesson learned from the historical sociology of war finance. When a strong state, say a superpower, sends a logistically overly supplied big army out far away for a long time, we can look at the classical model depicted in Figure 2 and see what happens. Clausewitz’ warning is that the gravity center of war will be transformed from the battlefield to the fields of finance, humane costs and public support. When France sent an army to Indochina in the early 1950’s and once again to Algeria at the end of the 1950’s, and when the U.S. sent an army for more than eight years to Vietnam and repeated that story with OEF and OIF, it took on too heavy a burden and knocked itself out, as when George Foreman tried to hit Mohammed Ali hard in eight rounds in the ‘battle of the century’, the 1975 boxing match used as a model to explain why the strong will lose and the weak will win (Collins 1978; Arreguin-Toft 2001).

Hence, the strength of the argument is that Figure 2 is not only about past history. It is indeed still a story about burdens of wars. Remember that the burden of war includes the cost of veterans. In fact, second- and even third-generation traumatized veterans protract the end of wars into a future that easily becomes as long as the debt burden. The debt is twofold; it is about long-term repayments of financial war debt and about the burden of disabled soldiers. After the First World War the first generation of disabled soldiers was still a burden into the 1970’s, and their children are still alive today. In Hugh Rockoff’s penetrating account of U.S. war economies, the burden of war veterans is, financially, as costly as the wars themselves (Rockoff 2012).

            Paradoxically, this fact is hidden after major wars, since they also create extreme opportunities for organizational and technological innovations (Rogers 1962/2003; Mazzucato 2011). Wars are destructive as well as innovative, and nothing has been as paradoxically destructive and innovative as the two world wars. Their immense costs were embedded in stories about technological and economic growth, and even in the Soviet Union, the most destructed country with the highest losses of manpower among all warring parties, its propaganda machine demonstrated growth and prosperity. However, the negative savings, i.e. the long-term destructive first, second and third traumatization effects, continued to have their impact and demoralized the populations for generations to come. The paradox is most visible in states like Japan, Germany and Northern Italy: some of the countries who suffered most happened to establish the highest growth rates, known by the German phrase ‘Wirtschaftswunder’, during the 1950’s and 1960’s, including South Korea, which was thoroughly destroyed in the Korean War; in fact, North Korea also had initially high growth rates.

Conclusion: The transformation of the gravity center

With the Vietnam War, the Bretton Woods system, initiated in 1944, almost collapsed. Because the United States received almost all liquid gold as payments during the Second World War and came out of that war far more prosperous than any other country, the dollar was equalized with gold. Hence dollars could be used for payments all over the world and became the currency of reserve, at the same time as the Federal Reserve Bank became the lender of last resort (Kindleberger 1984; Frieden 2006; Eichengreen 2007; 2011). The Korean and Vietnam Wars drained the Fed of gold, and Belgian economist Robert Triffin’s paradox turned into more than a theoretical model: the US trade deficit could be paid with dollars, since every country continued to believe that something useful could be bought for dollars. In 2011, Germany was the biggest exporter in the world (219 billion dollars, followed by Russia with 198 billion dollars and China with 155 billion dollars), whereas U.S. imports stood at 784 billion dollars, about five times as much as the second biggest importer, the U.K. Nevertheless, the dollar remains the reserve currency, although the Euro easily could take that place and sometimes does function as a reserve currency. Yet the peculiar problem to understand is the impact of the Iraq and Afghanistan Wars on the public debt and the financial crisis that began in 2007-8.

            Joseph Stiglitz and Laura Bilmes published their book The Three Trillion War about the Iraq war in March 2008, almost at the very same moment as the financial markets began to break, with the Lehman Brother’s insolvency in September 2008 as the major starting point. Yet the three trillion figure is a very conservative underestimate, in the sense that Stiglitz believed five to six trillion was more probable, in addition to the Afghanistan war, which happened to be almost as expensive, to say nothing of other countries’ expenses. About 10 trillion is closer to the final expenses for the coalition partners, in addition to the Iraqi’s and Afghani’s own expenses. Stiglitz foresaw that the low rents policy established by the Fed in order to keep domestic U.S. investments high in spite of the drain from the combined wars, of course led to over-borrowing among homeowners.

Debtors were guaranteed loans with a new mechanism that was invented after the Smithsonian Agreements that followed the Gold Standard. In the 1980’s and 1990’s international trade and prices could be guaranteed by insurance on future prices for commodities such as oil sold in Rotterdam. These so-called swap contracts were a financial product established by leading bank networks and had the form of insurances. Yet since the Reagan and Thatcher years the financial markets were still more deregulated, and in 2008 there was, unbelievable, only one employee in the U.S. institution for financial regulation. As early as 1988, the leading World Bank economist Eugene Versluysen wrote a report warning that deregulation was so pervasive that a rapid meltdown could take place. The problem was, that deregulation made it possible literally to create money out of nothing, in the sense that credit markets sell credibility. The crucial point is that credibility is trustworthy if a great range of institutions establish guarantees that they will pay for contracts at a given price, at the same time as they take insurances that those prices will hold, and thus earn money even if the price does not hold. Accordingly, the market created a mechanism for success even in the face of failure. And such a mechanism happened to be worth money; it could be sold or used as a guarantee and for borrowing, as if it were a solid commodity. Accordingly, the credit system was decoupled from the production economy. Credits turned into a self-referential system, which sells trust and time (Luhmann 1988; Baecker 1991; Krugman 2009; Esposito 2011). Trust is a form of communication, which tries not to inflate its credibility (Luhmann 1968; Ahamed 2009).

            Of course, some firms and some householders became overly indebted; indeed, they were encouraged to do so by firms that sold loan assurances. But then smaller risk-taking banks became insolvent, only to send the bill from their sub-prime loans, accredited by Fannie Mae (Federal Annual Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) for two trillion dollars, to still bigger banks. At the end, the bill ended up at the Fed, which would not pay and sent it to the U.S. Congress. These costs are added to the war costs of, say, 10 trillion dollars. Yet, beforehand, the Bush administration took some account of the future costs of an Iraq war and asked a commission, led by Carl Kaysen (2002), to write a report about future costs of the Iraq war. The Republican estimate in 2002 was 49 billion dollars, the Democratic estimate 59 billion dollars, and a worst case told about 99 billion dollars. Kaysen and his associates, however, found that the risk for an economic crisis due to rising oil prices and lower stock markets could increase the total cost to 1.9 trillion.

            Altogether, war has a major impact on economy and credit systems. Wars have very immediate effects on the functioning of credit and taxes. When taxes rose so quickly during the world wars it was because of the need to absorb the excess money with which supplies were bought. Nevertheless, George W. Bush and some of his coalition partners, such as Denmark’s Anders Fogh Rasmussen, who became Secretary General of NATO, lowered taxes during the Iraq war. The political narrative seemed to have been a form of securitized risk story, e.g. that a crisis could not come, the warnings were wrong, and the combination of RMA and financial derivatives would assure a combined neo-conservative and neo-liberalist almighty power into the future, eventually backed with a religious faith about the right world order, as when the good should fight the evil (Albright 2007; Smith 2005). Niklas Luhmann warned in 1991, in his book Soziologie des Risikos, that the political system is coded in such a way that it tells stories about best cases and neglects worst cases. In wars, there are no best cases and no good stories, only stories about loses. The truth will be lost, finances will be lost, and human traumatization is the neglected hidden story underneath the invisible hand of history (Coker 2001; 2009).

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Trust vs. Crisis

 

Introduction

This article views crisis in the light of trust. From this perspective, crisis is a natural psychological reaction to a situation in which humans do not feel confident to act because they do not know what to expect from other people in the community. Theoretically, it can be a permanent state of uncertainty (Luhmann 1979: 4); however, a crisis is usually caused by a change, by a sudden realization that the norms and meaning-systems that they expected others to follow are actually not shared by others. In a crisis situation people are confused about the rules of society, do not know whom they can trust and do not dare to act because they cannot foresee the consequences. The complexity is overwhelming. They have gotten a wake-up-call and need time to learn the new rules of the game before they again feel confident to act.

The 2000s have been framed in terms of crisis. A major event in the start of the decade was the terrorist attack in the USA on September 11, 2001, which led to explicit distrust in foreigners around the world, to the war on terror, and to different systems of social control. Other crises followed in that same decade, including the so-called economic crisis, followed by distrust in financial institutions as well as in political leaders (Glassman 2014: 23). The World Economic Forum perceives trust or lack of trust as “a crucial factor in how risks may manifest themselves” in the world (2012: 49).

In this article, trust in bank advisors will be used as an example to illustrate the link among normative expectations, trust and crisis. Banks are important institutions for society. In an article discussing regulations of the banking system, Duffie reminds the readers of the functions of banks, including this:

 

Banks operate the economy’s most important payment and settlement systems. It would be difficult for a market-based economy to carry out its essential functions if buyers of goods and services were unable to settle their transactions by debiting their bank accounts (or borrowing on bank credit lines) in favor of the bank accounts of sellers (2012: 40).

 

When an institution has an important role to play in society, it is also important that it can be trusted. Before the financial crisis, bankers in Western Europe and North America were generally considered trustworthy by the public, but that is far from the case today. According to an OECD/Gallup survey reported in Bloomberg BusinessWeek (Glassman 2014: 23), people in many European countries as well as in the USA have lost confidence in banks from 2007-12. Since the crisis started, many middle-class families have lost savings, and numerous media reports have informed the public about widespread manipulation (e.g., Isidore 2014) and mismanagement by banks. Media coverage no doubt contributed to the negative image that the banking sector as a whole has today. MediaTenor compared the media coverage of the banking sector to that of the tobacco industry and nuclear energy sector in more than one hundred international media and wrote in 2012:

 

Four years ago the media reputation of the banking industry was only worse than the tobacco industry. Since then, the picture for the financial sector hasn’t gotten better, but worse. Now the banking industry is rated even more negatively in the media than the nuclear energy sector (Kolmer, Schatz and Vollbracht 2012: 7).

 

Public polls document the general distrust in the banking sector. As an example, Ipsos MORI learned from telephone interviews with more than a thousand British adults that 77 percent of them would not trust politicians and 75 percent would not trust bankers to tell them the truth (2013). Another survey company, YouGov-Cambridge, found that a large majority agreed with statements like “Bankers are greedy and get paid too much” and approximately half agreed that “Banks are at best unprofessional and at worst dishonest” (2013: 7, 24). Vallentin wrote that the mistrust in banks could be considered a crisis and he added:

 

The suspicion that our banks lie to us, cheat us with interest and fees, or simply go broke in a moment, is a widespread phenomenon that banks have to fight with real improvements behind the words, if they want to win public confidence back (2013, translated from Danish by Google).

 

The 2010s have been characterized by a renewed longing for trust in fellow citizens, foreigners and institutions. In that connection, experts from many fields have discussed how to repair the general image of banks (e.g. Bower, Leonard & Paine 2011; Duffie 2012; Kolmer et al 2012; YouGov-Cambridge 2013).

To illustrate the connection among normative expectations, trust and crisis, I will use a constructed case in which a man called Petersen seeks advice in his bank regarding investment of his pension saving. Bank advisor Miller strongly encourages Petersen to buy stocks in the bank, and Petersen follows the advice. However, shortly after the purchase of the stocks, the bank goes broke, and Petersen loses his savings. The case is constructed on bases of testimonies from many shareholders who said that they had been strongly advised by their bank advisor to buy stocks in the Roskilde Bank, Denmark, in days just before the bank collapsed in 2008 (Ritzau 2013). Some of these people later received compensation from the Danish state due to an extraordinary aggressive marketing campaign combined with lack of relevant, trustworthy information in the communication with customers (Forbrugerombudsmanden 2013).

The Phenomena: Norms, Trust and Crisis

In the following I will first describe three social phenomena, norms, trust/distrust and crisis response in relation to the case, and then combine these three concepts in a theoretical model that shows how they are linked and what their function is in relation to one another.

For this analysis I will refer to Alf Ross’ essay Directive and Norms (1967) and Niklas Luhmann’s essay Trust (1968; 1979). Even though the two essays were written half a century ago, they deal at a very fundamental level with some concepts that seem relevant for our understanding of the present crisis.

As it is evident from the publication dates, the two European professors contributed to the academic debate with these essays at approximately the same time. This was a time when many scholars were interested in topics related to complexity (Knudsen 2010; Luhmann 1979: 5). Ross and Luhmann both had a background in law and were interested in understanding the role of social phenomena such as trust and norms. Both drew in that connection on theories from the field of sociology. Alf Ross analyzed in this essay “the concepts ‘directive’ and ‘norm’ as they function in social science, especially within the legal theory and (…) the study of conventional morality, folkways and related topics” (Ross 1967: 8), while Luhmann analyzed trust and distrust in its many forms, including interpersonal and institutional trust.

Ross (1899-1979) was a professor of international law at Copenhagen University, Denmark, and Luhmann (1927-98) a professor of sociology at University of Bielefeld, Germany. They have had enormous influence on European intellectual thinking throughout half a century, but they belonged to different academic communities, and despite their influence and similarities, their theories are usually not combined.

A third important scholar for this paper is Arthur G. Neal, emeritus distinguished professor in sociology at Bowling Green State University in Ohio, USA. His newest book (2014) analyzes the phenomenon of values, but he has previously analyzed other social psychological phenomena. For this paper I will draw on insights into the phenomenon of crisis reactions from his book National Trauma & Collective Memories (1998).

Ross: Norms

In the constructed case for this paper, Petersen has read about different pension-saving plans on websites belonging to financial institutions. Since each of them sounds appealing, he realizes that he needs advice from an expert. So Petersen makes a visit to bank advisor Miller.

Using terminology from Ross, it follows from an interpretation of the circumstance that Petersen considers Miller “trustworthy in two ways”:

 

1.   He believes that Miller is well-informed about the matter

2.   He expects Miller to say what he believes to be true

 

It would not make sense to ask advice on important matters like pension savings from persons whom we expect to cheat or be uninformed. It is exactly because Petersen “has reason to believe that these two conditions are satisfied he is willing to accept the proposition which [Miller] presents to him” (Ross 1967: 22). According to Ross, advisors such as medical doctors, lawyers and good friends are generally expected to provide directives that will best serve the advisees’ interests (Ross 1967: 44).

However, from the bank advisor’s perspective, other specific commercial norms might trump these general social norms. For example, the advisor may have been trained to sell the bank’s products and thus serve the interests of his employer rather than the interests of the customer. The fact that he has been introduced to customers like Petersen as “adviser” instead of “salesman” is just part of a persuasion logic. In other words, Petersen and Miller have different perceptions of the system of norms involved.

In our case, the interpretation of the situation is obviously very important. We must evaluate if the meeting between Miller and Petersen is a sales event where Miller is expected to try to sell the bank’s financial products or an advisory meeting where Petersen seeks advice from Miller in his capacity as financial expert. It might not help to be explicit about it. Many sales people try to convince customers that they are there to “help” them. Customers are expected to be able to interpret the situation correctly based on their cultural knowledge.

Ross perceives convention as a “social phenomenon” that has “over-individual existence similar to that of the law” (Ross 1967: 52) among people in certain communities and social groups; however, one group may disagree with another group about what is seen as morally acceptable. In our case, Petersen and Miller may not agree on the conventions regarding bank advisors. In general, norms cannot be evaluated as true or false; we can only say that they exist and when they are applied (Ross 1967: 102). Whatever we may think about the norms applied by Miller and Petersen, it will be a moral reasoning based on our own moral standards and they are not universal.

According to Ross, morality depends on a foundation of values and ideas “which one approves immediately and takes as directly binding” (Ross 1967: 58) The individual, not authority, decides whether the norms are valid and implies obligations, even though cultural norms, value, customs and conventions are originally learned through social interaction, including childhood education (Ross 1967: 67). Moral values are often “organized in a hierarchy, so that values and principles at one level may be derived from those at a higher level” (Ross 1967: 67). Such systems have built-in criteria for what norms are justified (Ross 1967: 49). People apply their own moral system when judging the behavior of others as well as their own (Ross 1967: 66). In our context it could mean that Miller with his commercial values perceives Petersen as being easy to persuade, while Petersen – believing that advice is guided by compassionate values – perceive the friendly, smiling Miller as a person who honestly is trying to help him.

In social science, according to Ross, when talking about “existence of a norm it is understood that by this we refer to a social state of affairs – i.e. to conditions which although changing, are of relative permanence” (Ross 1967: 80). A norm is a “directive which corresponds to certain social facts” (Ross 1967: 93), which means that it is “generally followed by members of the society” (Ross 1967: 93) or smaller social groups (Ross 1967:94) and that people feel it “binding (valid)” (Ross 1967: 93). That a norm is binding is, in Ross’ view, a mental and psychological experience. A person who is in a situation where a certain norm is expected will feel “a special prompting or impulse to act according to the pattern. This impulse does not appear as a manifestation of his need and interests; it may indeed conflict with these” (Ross 1967: 85). He feels that he has a duty, that it is the right thing to do, that he ought to do it. People observing him have an expectation that he will follow the norms, and if he does not, they may feel negatively about his behavior. Ross discusses with some other scholars if the negative reaction from society is the strongest reason for conformity; however, as Ross writes: “To some extent the two views lead to the same results” (Ross 1967: 87). The experience of validity of a norm has a lot to do with “psychological phenomena” (Ross 1967: 86) experienced by the people involved.

According to Ross, we generally trust the “veracity of others”:

 

If trust did not exist or were not justified, no communication would be possible. (…)The point is that even lying, the misleading of people through false information, is possible only on the same conditions. Lies exist only as parasites on truth; they are conceivable only as exceptions which depend on the norm they violate (Ross 1967: 23).

 

Clearly, Petersen trusted the veracity of Miller, and Miller should have known that he was expected to be honest. He must have been aware that if he lied and was detected, he would be held responsible. According to social norms, he would “be branded as a liar” (Ross 1967: 26). To be branded as a liar is a social sanction, not an institutional. Other reactions of disapproval include “ridicule and ostracism.”

In our case, it does make a difference if Miller is guided by internal prompting or fear of societal punishment. He may in fact not expect any punishment in case he cheats Petersen in a business negotiation. In a professional discussion with his colleagues he can easily argue that Petersen was too naïve, and he might even earn a bonus for every new customer like Petersen. However, if he experiences Petersen as a vulnerable man trusting him to give honest advice, then he may feel a prompting to act compassionate in accordance with moral norms in the society, even though he may in that case lose a reward from his employer and be ridiculed by his colleagues.

Norms describe how to act in different types of situations, and since they are generally shared by people in a society, they are mirrored in our expectations to other peoples’ behavior in certain situations (Ross 1967: 107). As humans, we expect that other people in our society will behave in accordance with general accepted norms and meanings systems (Poggi 1979: xiii-xiv; Ross 1967: 78-81). We hardly notice people, who on a daily basis behave in accordance with the general norms because they just do as expected, but if they violate the norms – and if no legal instruments are used – then the sanctions are social forms of nonviolent disapproval.

Norms are independent of how any individual reacts as long as it is “generally effective among members of a social group” (Ross 1967: 99). Some norms are universal so that they apply to all of us, while other norms are specific so that they apply to certain people in certain situations only, e.g., during a fire emergency workers are expected to move toward the fire while the rest of us are expected to move away. Norms cannot be determined from behavior alone – the behavior must be analyzed in the light of the meaning the person ascribes to it and the mental evaluation involved.

Luhmann: Trust and distrust

We will now from a trust perspective analyze the situation where Petersen discussed the options with the bank advisor Miller.

According to Luhmann, the world presents itself as overwhelmingly complex, so as humans we look for solutions that can reduce the complexity (1979: 7). Trust can be perceived as such a way to reduce complexity, and at its most basic level it implies a “confidence in one’s expectations” (Luhmann 1979: 4). If we do not know what to expect, we become paralyzed. Luhmann describes the situation for a human without such trust in own expectations:

 

He would be prey to a vague sense of dread, to paralyzing fears. (…) Anything and everything would be possible. Such abrupt confrontation with the complexity of the world at its most extreme is beyond human endurance (1979: 4).

 

Petersen had many expectations when he entered the bank, e.g., he expected that the bank was open and that Miller would talk with him. These and many other expectations were confirmed. However, he also expected Miller to help him, and that expectation was violated, which cost him his pension. In general, it is always risky to trust other people because we never know if other people will behave the way we expect. Luhmann:

 

Since other people have their own firsthand access to the world and can experience things differently, they may consequently be a source of profound insecurity for me (1979: 6).

 

This insecurity about what to expect from other people may be more manageable with increased knowledge about the people involved and their norms (Luhmann 1979: 19, 33), but risk is an existential reality that will never disappear.

Our expectations regarding the world we live in are created on the basis of personal experiences and on experiences shared through personal networks and mass media. News can help us to adjust our expectations and as long as the world is pretty much behaving as expected: we feel confident in our ability to act in the world. Luhmann:

 

The world is therefore constituted as the universal horizon of experience, which must be presupposed in every movement and can never be departed from.

The manner in which experience is led to organized meaning and the world so as to make the complex conditions of existence comprehensible is an operation carried out intersubjectively (1979: 18, referring to Husserl).

 

Our expectations regarding the future are based on our experiences, so in that way our experiences are the link that connects history to the future. This is true both at society level and at a personal level. If Petersen previously had experienced bank advisors as helpful, had heard from others that they received good advice or had read in advertisements that his bank advisor was there to help, then this information has contributed to his expectations regarding the service he would receive from Miller.

Petersen has to stop up and re-evaluate the situation when he realizes that he has lost his pension because he has been fooled to buy stocks in the bank. To continue to trust bank advisors to help him could easily be considered what Luhmann calls “pathological trust” (1979: 33), because he had received plenty of objectives clues that had proved to him that his previous trust was not justified. He would have to adjust his expectations and had different options, including:

 

1.   Specific distrust: Miller is not trustworthy but other bank advisors are, so Petersen changes banks.

2.   General distrust: Bank advisors are not trustworthy, so Petersen will not ask bank advisors for help with his investments in the future.

 

Petersen realized later that Miller had behaved differently from what he expected, and that happens to all of us on a regular basis. If such an incident can be perceived as an isolated case and if it has limited impact on us, then we just change our expectations about the people involved. However, if the violation of our expectations has a huge impact and we do not know what to expect next, then we experience a crisis. During the time that is characterized by crisis reactions we judge whom to trust and what to expect in the future. The crisis creates room for evaluation and new orientation.

I will now turn to the description of how people experience the period where the judgment has not been made and people don’t know what to expect. A crisis is usually perceived as a very unpleasant state of affair, but from my analytical point of view it is a natural reaction to unexpected violation of norms.

Neal: Crisis Response

If a person loses trust in his or her own expectations the consequence is a reaction that can best be termed crises. For example, many people reacted with crisis symptoms when they realized that they had lost their pension savings for reasons related to the financial crisis. In connection with the so-called Enron Scandal, USA, in the 2000s, republican blogger and activist Ron Branson wrote:There is little more upsetting than to discover that you have been scammed for your entire life-savings and for everything you owned” (2007). Unfortunately, Enron was not the only case where pension savers lost money. There have been revealed so many cases of mismanagement of pension funds and investments that it has contributed to a perception of a pension crisis (e.g., Siedle 2013).

When expectations are seriously violated, it creates a trauma that then causes the crisis reaction. Neal describes a trauma experience like this:

 

[A]n ongoing activity has been interrupted by an adverse happening that is unexpected, painful, extraordinary, and shocking (…) Previous feelings of safety and security are replaced by perceptions of danger, chaos, and a crisis of meaning (1998: 3).

 

In most cases we experience traumas as something that only affects us as individuals, as a personal loss, but some traumas are shared simultaneously by large groups of people, as when thousands lost savings in connection with the collapse of the Lehman Brothers in 2008 (Wikipedia 2014), and millions of other citizens instantly realized that they had trusted a huge financial institution which was actually not trustworthy. Such a trauma is experienced as “an assault on social life as it is known and understood” (Neal 1998: 4). Typical reactions include feelings of shock, disbelief, helplessness, numbness, anger, fear, vulnerability, and detachment. According to Neal, “Chaos prevails, and people become uncertain about what they should or ought to believe” (1998: 4). The trauma make them realize that their “own sense of morality and decency is not shared by others.” (Neal 1998: 6).

Some crises are not caused by a sudden event but are caused by growing contradictions in the social system. Neal writes about the reactions to the economic depression in the USA in the 1930s:

 

As banks began to fail with increasing frequency and as levels of unemployment escalated (…) economic hardship took its toll on all major sectors of the economy. Capitalism was in a state of crisis, and the free enterprise system failed to work. Economic hardships translated into fear, vulnerability, and a sense of despair (Neal 1998: 8).

 

During a crisis, most people tend to stop up and take time to seek an understanding of what happens (Neal 1998: 12), and they will therefore tend to limit their decision making to those issues that require immediate action:

 

People see themselves as moving into uncharted territory. The central hopes and aspirations of personal lives are temporarily put on hold and replaced by the darkest of fear and anxieties (Neal 1998: 5).

 

The trauma must be healed. “The integrity of the social order has been called into question, and shared values are threatened” (Neal 1998: 5). A major task “is that of integrating the traumatic event into the fabric of social life in order to make it less threatening” (Neal 1998: 12), because “it is through causal explanations that the dynamics of the social world are constructed into coherent patterns” (Neal 1998: 13). In any case, the “discourse throughout the nation is directed towards the repair work” (Neal 1998: 5). Neal:

 

An extraordinary event becomes a national trauma under circumstances in which the social system is disrupted to such a magnitude that it commands the attention of all major subgroups of the population. Even those who are usually apathetic and indifferent to national affairs are drawn into the public arena to discuss and debate. The social fabric is under attack and people pay attention because the consequences appear to be so great that they cannot be ignored (Neal 1998: 9-10).

 

Because expectations have been violated, people in crisis have lost confidence in their previous evaluations of which people and institutions they can trust. It is a crucial ability for survival in society, and in order to master that skill in the future people are especially interested in understanding how “human intentions, decisions, and actions are linked in shaping the course of events” (Neal 1998: 13-14).

In his 1998 book Neal analyzed nine national traumas that had serious impact on the life in the USA. The global financial crisis in the 2000s fits the criteria for this type of collective trauma because it “had a major impact on the institutional structure of society and fed into overriding forms of collective fear and anxiety” (Neal 1998: x).

Combining the Concepts and Their Functions

I will now combine the three concepts — norms, trust, and crisis — into one theoretical model that illustrates the relationship among the three phenomena. While I claim full authorship for combining the three concepts in the model, the structure of the model is heavily inspired by figures in Morten Knudsen’s article Surprised by Method – Functional Method and System Theory (2010) that discusses Luhmann’s work and methodology.

In his analysis of trust Luhmann used a methodology that he called functional method. Essentially the researcher studies a phenomenon like trust, norms or crisis reactions and tries to understand what problems this phenomenon solves for humans. For example, there are a number of phenomena that help people cope with complexity, including norms, law, formal organization, trust, and power (Knudsen 2010: 11; Luhmann 1979: 8). When we have a list of possible solutions to a problem, we can compare the solutions. For example, we can compare how well norms solve the problem compared to law. Knudsen:

 

The function is the unity of the problem [xxx] and different solutions to this problem (2010: 8)

 

Problems such as complexity cannot be studied directly and is therefore constructed as a theory. For example, norms are studied and the researcher suggests that the reason for the existence of norms is that it is a solution to a problem called complexity. But norms can also be solutions to other problems. So a problem can have any number of solutions, and solutions can be the answer to any number of problems. Luhmann:

 

Given this approach, the process of research in functional analysis is open to all kinds of possibilities (…) The functional compartmentalization of this unity into a problem (increase of complexity) on the one hand, and a solution (reduction of complexity) on the other, serves simply as a means to compare different kinds of solution (1979: 5,7).

 

Trust and distrust are equivalent solutions to the problem of complexity because they allow for quick decision-making. Because Petersen trusts that Miller will be helpful, he seeks his advice without calculating the effect of all types of behavior he might encounter in the bank. Knudsen:

 

Trust compensates for an element of uncertainty related to other people’s behavior. If everything possible should be expected all the time, it would be difficult to do anything (2010: 20).

 

Similarly, if Petersen distrusts Miller, he will not spend a lot of time predicting his behavior in this specific case but will instantly be suspicious and seek advice another place. The following figure illustrates the function between a problem – complexity – and a solution:

 

 Mogensen-Fig1

Figure 1 From Problem to solution (Knudsen 2010: 20)

 

 

There is not a causal relationship between a problem and possible solutions. In principle there can be many different solutions to a problem as we know from comparative studies, for example, of law in different cultures (Michaels 2006). The challenge for a scholar using this methodology is to create theories that can explain how a given phenomenon functions as a solution to a problem.

Since trust is linked to confidence in expectations, we need to have reliable expectations, and there are different solutions to that problem, including laws and norms. Luhmann:

 

The necessity of trust can be regarded as the correct and appropriate starting point for the derivation of rules of proper conduct (1979: 4).

 

As I interpret Luhmann, rules for proper conduct are a desirable foundation for trust. And the existence of such rules in the form of legal directives and (moral) norms is the phenomenon that Alf Ross analyzed in his essay. Ross did not use the term “function,” but he explained how the concept of norms was a solution to a problem:

 

We need the concept “norm” to express the social fact, which is independent of how any individual reacts, that is generally effective among members of a social group (Ross 1967: 99).

 

Our knowledge about the norms of different groups makes it easier to have reliable expectations. If advisors are generally perceived as trustworthy and helpful, Petersen has good reasons to expect Miller to act in accordance with those professional norms. Combining the two essays in one figure could look like this:

 

Mogensen-Fig2

 

Figure 2 Combining Luhmann and Ross

 

Figure 2 illustrates how norms make it easier for a person to decide whether or not to trust because the expectations can be linked to social norms for proper conduct.

In everyday life, most of us are competent citizens. We have confidence in our own expectations regarding the world and other people, and we constantly make minor adjustments to our expectations based on what we experience. However, sometimes we experience events that violate our expectations to such a degree that we don’t know what to expect next. Our usual solutions to dealing with the complexity of the world have failed, and we step into a crisis mood as illustrated in Figure 3:

 Mogensen-Fig3

Figure 3 Problems, possible solutions and crisis

 

As shown in Figure 3, my analysis indicates that crisis is a normal and healthy reaction when one’s own expectations have been seriously violated with negative consequences and time is needed for reorientation. To continue trusting the people and institutions that have created a serious trauma is pathological. While in the crisis mode, people like Petersen can adjust their expectations to the behavior of other people, and when a crisis is shared by a collective, it is also an opportunity to reorganize social life and negotiate new standards for proper behavior. Because a crisis is a very unpleasant state, people are truly motivated to find solutions. Thus, from a functional perspective, we may consider a crisis to be one possible solution to the problem of immutability.

A trauma changes the victim – whether a person or a society – forever (Neal 1998: 4). When the crisis has passed, people have changed their expectations, and this has also been the effect of the scandals related to financial institutions. If we return to our constructed case, Petersen expected Miller to help him when he came for advice. Petersen was not alone in his expectations regarding the norms of bank advisors. The outrage expressed publicly when it became obvious that bank customers had been fooled by their advisors – not only in Roskilde but in financial institutions around the world – is a clear indication of the fact that before the financial crisis many people like Petersen thought that bank advisors were serving their interests in line with general norms for professional advice. They had somehow presumed that the norms guiding relationships between customers and professional advisors, such as physicians and lawyers, also guided the relationship with bank advisors.

That expectation changed. The public debate made people aware that bank advisors are salespersons guided by commercial norms, which means that Miller’s commercial norms have been accepted as the rule of the game. Petersen’s expectations of his bank advisor are now considered naïve. Using Luhmanns concepts we might even talk about pathological trust if people now trust their bank advisors to give them independent and trustworthy advice. Stories about fooled bank customers appear often in the news as part of the coverage of ongoing court cases, and they will no doubt be retold many times in the years to come because a new generation needs to understand the norms.

Since people have formed new expectations regarding bank advisors, they can once again feel confidence in their own expectations. They can trust.

 

References

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Branson, R. 2007, March 21-last update, Victim of Enron Scandal? Court Says – Too Bad! [Homepage of J.A.I.L. News Journal], [Online]. Available: http://www.jail4judges.org/J.A.I.L._News_Journals/2007/2007-03-21.html [2014, April 3].

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Isidore, C. 2014, March 14-last update, FDIC sues big banks for alleged Libor manipulation [Homepage of CNN], [Online]. Available: http://money.cnn.com/2014/03/14/news/companies/fdic-libor-suit/ [2014, March 26].

Knudsen, M. 2010, September 2010-last update, Surprised by Method—Functional Method and Systems Theory [Homepage of Forum Qualitative Sozialforschung], [Online]. Available: http://www.qualitative-research.net/index.php/fqs/article/view/1556/3067 [2014, February 20].

Kolmer, C., Schatz, R. & Vollbracht, M. 2012, , Trust Meltdown IV : Finance sector craves for tobacco’s or nuclear energy’s media image  [Homepage of Kommunikationsforum, media Tenor], [Online]. Available: http://www.kommunikationsforum.dk/log/multimedia/PDF%20og%20andre%20dokumenter/TrustIV_web.pdf [2014, March 26].

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Social Entrepreneurship and Capitalist Crisis

 

 

1. Introduction

This paper discusses how we may understand the relation between social entrepreneurship and capitalism. In ‘classic’ Schumpeterian innovation theory entrepreneurship is a pivotal driving force in capitalist economies. Yet, social entrepreneurship presents itself as an alternative type of entrepreneurship emphasizing social change that creates social rather than economic value. In this sense, it seems to provide an alternative to classic entrepreneurship and its focus on the economic development of society. The question is how we are to understand the relation between social entrepreneurship and capitalism, and how we can understand the increasing interest in social entrepreneurship from academic as well as political quarters in light of the current crisis, erupted in 2008-9. A crisis that many have described as a capitalist crisis. Du Gay and Morgan (2013) describe the crisis as the tipping point for a set of ideas, which have gained significant influence and which go by different names, such as “neo-liberalism”, “the new spirit of capitalism”, “advanced liberalism”, or “turbo capitalism” (Du Gay and Morgan, 2013: 2).

The paper approaches this question on the basis of social entrepreneurship research literature and theory on contemporary capitalism, mainly Boltanski and Chiapello’s The New Spirit of Capitalism ([1999] 2006). Parts of social entrepreneurship literature distinguish between different trends in social entrepreneurship, which relate to capitalism in very different ways. I shall specify how by relating these trends to capitalism and market economic rationales, and also demonstrate how classic entrepreneurship is linked to the different époques of capitalism described by Boltanski and Chiapello. Lastly, I discuss how social entrepreneurship may be understood in relation to the current form of capitalism often denominated in terms of neo-liberalism. 

The idea of social entrepreneurship is relatively new and has gained increasing attention from academia since the turn of the millennium (Hulgård and Andersen, 2009; Steyaert and Hjort, 2006). As a new field of science it is characterized by diversity, vitality and competing agendas, which sometimes overlap and which sometimes pull the concept in very different directions (Andersen and Hulgård, 2008). Thus, social entrepreneurship is a contested concept, about which different actors compete for dominant definitions and strategies (Hulgård og Andersen, 2012). This also makes it a rather difficult phenomenon or concept to discuss and define in the singular, as there is a risk of oversimplifying it.

The reason for taking up the question about the relation between capitalism and social entrepreneurship is that understandings of social entrepreneurship and social enterprise have different implications for the relationship between politics and economy. These conceptions touch upon the role of social enterprise within the overall economy and its interaction with market, civil society and the public sector (cf. Defourny and Nyssens, 2010: 33). These implications are important to discuss as social entrepreneurship has gained increased interest from policymakers in the wake of the current crisis and has become a central concept in social policies in European countries. The paper may be seen as a supplement or elaboration to trends in social entrepreneurship discussed by Hulgård (2010) and Hulgård and Andersen (2012), namely as privatization of welfare or as mobilization of democracy through civil society, and as linked to a non-capitalist social economy (Hulgård, 2011).

 

Social entrepreneurship and the current crisis

It seems that the current crisis has spurred the interest in social entrepreneurship and its sister concept of social innovation, even though these concepts or phenomena have not emerged with the crisis as such. However, as societal problems have aggravated in the wake of the crisis, the political interest in social entrepreneurship has grown. In a report on social innovation in Europe, written by the European Bureau of Policy Advisors in 2011, it is stated that societal problems have been exacerbated by the crisis and that the crisis has made the social dimension of the challenges more obvious. Social innovation is then presented as a possible solution to a number of societal challenges such as climate change, ageing populations and associated health costs, rising unemployment and the many people outside of the labor market (BEPA, 2011: 7-8). Another reason for the growing attention to social entrepreneurship is the pressure and the fiscal constraints that public sectors all over Europe are affected by (BEPA, 2011: 9; Udvalget for Socialøkonomiske Virksomheder, 2013: 5). The argument is that all this calls for new solutions. In a report about social enterprises (enterprises with a social purpose) written for the Danish Government in 2013, for example, the aim is that even more societal challenges are dealt with effectively and considerately by social enterprises (Udvalget for Socialøkonomiske virksomheder, 2013: 9). I shall define social entrepreneurship further below.

That social entrepreneurship becomes the answer to these problems may have to do with a weakened confidence in the state and public sector as the institutional setting to deal with such issues. Public sectors are also often said to have problems with the “inertia of large bureaucracies, the inefficient use of staff and associated waste and low productivity” (BEPA, 2011: 25). This view on the public sector is widespread and has also had an immense influence as legitimizing certain kinds of public sector reforms, which introduce economic rationales into the public sector emphasizing efficiency, flexibility and innovativeness (Langergaard, 2011). By portraying the public sector as inefficient, bureaucratic and undemocratic, welfare state skeptics give legitimacy to other sectors of society to deal with societal problems. And these critiques have historically come from both the left and the right sides of the political spectrum. In this sense, social entrepreneurship sometimes also reflects a critical reaction to certain ideas about the state and a correspondingly larger confidence in private initiatives to deal with social problems. However, I shall argue that social entrepreneurship can also be seen as a critical reaction to capitalist rationales and thus as part of an anti-capitalist movement. And this is interesting in relation to the crisis. The problems arising from the crisis may be seen as results of an unrestrained capitalism and a neo-liberal rationality (Fraser, 2012: Du Gay and Morgan, 2013: 2) – the result of a neo-liberal experiment which let markets and money to find their own way around the world without much political interference (Hart, Laville and Gattani, 2010). The increased interest in social entrepreneurship is a reaction to the crisis, which leaves policy-makers and researchers without any well-known answers or solutions. Social entrepreneurship points toward new and innovative solutions that we may not be able to imagine or know beforehand. Solutions that involve ideas transcending our current ways of thinking and dealing with societal, economic and ecological issues.

 

 

2. Defining social entrepreneurship

Social entrepreneurship is a multifaceted concept and phenomenon. Thus, it is difficult to discuss its relation to capitalism as if this relation was an unambiguous one. There are a number of different ways to define social entrepreneurship and it is impossible to embrace all aspects of the broad concept here. Furthermore, the concept is closely related to concepts of social enterprise, social economy and not least social innovation (see for example Hulgård and Andersen, 2012).

In addition to this, there are geographical differences in the understandings of the concept, in particular between continental European and North American approaches to the concept (see Defourny and Nyssens, 2010 for comparisons between US and Europe). According to Hulgård (2007), Anglo-Saxon approaches define the social entrepreneur as a person who is driven by a motive to do good for poor and marginalized groups of people. An innovative dimension is connected to this: the entrepreneur works with innovative, new solutions to societal problems and in this sense also helps society in areas that may be stuck (Hulgård, 2007: 18). These versions of social entrepreneurship stress the role of the individual entrepreneur as a change agent and ascribe the private sector a central role (Hulgård and Andersen, 2012: 17). Continental European definitions on the other hand often link social entrepreneurship to social economy and social enterprise. From these perspectives social entrepreneurship is not primarily an individual, but rather a collective activity (Hulgård, 2007: 20-21), which includes cooperatives, volunteer initiatives and other collective efforts (Andersen and Hulgård, 2012). In the European version, social entrepreneurship according to Hulgård, is an activity with organizational and structural preconditions as well as consequences. Social entrepreneurship refers to activities in the third sector, side by side with activities in the public and private commercial sector. These activities are united by their aim to work for the common good and not merely private interests (Hulgård, 2007: 20-21). It seems, however, that individualist and private-sector-oriented understandings of social entrepreneurship are also gaining ground in Denmark and other European contexts. This implies that social innovation becomes interpreted in narrow market economic terms (Jessop et al, 2013: 110). This is all the more reason to be clear about the different implications of different conceptions.

I wish to discuss the different facets of the concept in relation to capitalism. I begin with a rather broad definition of social entrepreneurship, which encompasses central elements of the concept:

The creation of social value that is produced in collaboration with people and organizations from the civil society who are engaged in social innovations that usually imply an economic activity” (Hulgård, 2010: 4).

This definition is based on four criteria: Social value, civil society, innovation and economic activity. Social value is common to all definitions, while the other elements are more contested across different definitions. The aim of creating social value is what distinguishes social from commercial entrepreneurship and it is in this sense entrepreneurial activity with an embedded social purpose or with a social mission (Hulgård, 2010; Andersen and Hulgård, 2008; Austin et al, 2006; Dees, 1998). This is the core of the concept, which differentiates it from classic entrepreneurship. There is no consensus on how we are to understand social value more precisely, but it is often defined in terms such as: fight against poverty, strengthening of the capacity of local neighborhoods (Andersen and Hulgård, 2008), social justice, wellbeing, fighting exclusion, quality of life, solidarity (BEPA, 2011).

Civil society as criterion for social entrepreneurship is one of the elements that clearly indicate that the role of state, economy and civil society is at stake in definitions of social entrepreneurship – which then also becomes a concept with very clear political implications. Civil society is a different type of criterion than social, innovation and economic activity, because social entrepreneurship can also take place in other sectors of society. Still, civil society has historically as well as currently been an attractive partner for social entrepreneurs (Andersen and Hulgård, 2009: 8). The role of civil society is an important criterion for distinguishing social entrepreneurship from social activities in the private and commercial sector, such as CSR activities (Hulgård, 2010: 5).

Innovation is the third element of the concept, which means that social entrepreneurship implies that the approaches found to social problems are new. Social entrepreneurship is also closely related to social innovation even if the two concepts may sometimes be used differently. Nonetheless, there are many overlapping elements between the two concepts, such as the focus on social value, bottom-up drivers for innovation, the role of civil society and the attempt to deal with societal problems (see BEPA, 2011). Due to the close familiarity to other concepts, my discussion is not restricted only to social entrepreneurship, but sometimes also includes social innovation and other related concepts such as the social economy.

That social entrepreneurship has en economic element basically means that some kind of economic activity is at stake – i.e. that products or services are being produced, and that the activities are not carried through with voluntary work alone. Social innovation may sometimes have an economic impact, however not always (Hulgård, 2010). This also distinguishes it from economic innovation and entrepreneurship, which are defined by having primarily an economic impact (Drejer, 2004).

 

 

3. Three spirits of capitalism and entrepreneurship

As Eve Chiapello (2013) states, the history of capitalism cannot be separated from the history of its critiques. These critiques are important for understanding the specific ways that capitalism develops and the ways that capitalist societies are organized. Critiques and critical ideas have been particularly strong in times of crisis, where the need for alternatives intensifies and these critiques contribute to transformations in the economic system (Chiapello, 2013: 60). In Boltanski and Chiapello’s The New Spirit of Capitalism (1999/2005) they analyze the role of critique in the dynamic of capitalism (Du Gay and Morgan, 2013: 23). The ‘spirit of capitalism’, a term alluding to Weber’s Protestant Ethics and the Spirit of Capitalism from 1905, is the ideology that justifies people’s commitment to capitalism and which renders this commitment attractive. Their starting point is that capitalism is an absurd system, which only very few seem to benefit from, but which nevertheless enjoys the commitment of almost everybody. Capitalist accumulation and the maintenance of the capitalist system requires commitment from many people “although few have any real chances of making a substantial profit” (Boltanski and Chiapello (2005: 163). As capitalism is amoral the spirit cannot be predicated alone on what capitalism has to offer. Capitalism needs its enemies and critics, who want to wage war against it. These are the people who provide it with the moral foundation that it lacks and who enable it to incorporate justice-enhancing mechanisms whose relevancy it would not otherwise be able to acknowledge. A main point of Boltanski and Chiapello is that capitalism has an amazing ability to survive by endogenising some of the criticisms it faces. In recent times, this has helped it disarming some of the forces of anti-capitalism and given way to a more triumphant version of capitalism (Boltanski and Chiapello, 2005: 163). The spirit is what makes people commit to capitalism and at the same time a catalyst for changes of the spirit itself. It is central here that criticism not only questions the dominant capitalist spirit, but also lays the basis for a new spirit (Carleheden, 2011).

 

3a. The first spirit of capitalism

Boltanki and Chiapello present a development of capitalism through three different stages of capitalist spirit. The spirit has changed and been subject to transformations in definitions of what comprises a fair work situation and a fair treatment of some employees as compared to others. The first spirit is dated to the end of the nineteenth century (Boltanski and Chiapello, 2005). It is present in a classical liberalist époque, characterized by competitive capitalism with small producers organized in patriarchal family units on the basis of a pre-Fordist mode of production. The big man of this époque is the entrepreneur. It is a kind of laissez-faire capitalism with the state confined to protect the negative rights of citizens (Carleheden, 2011). Thus, we may see this as a certain type of entrepreneurial capitalism, with the ‘classic’ Schumpeterian entrepreneur as the heroic figure.

The relation between capitalism and entrepreneurship is explicit in economic theories of innovation and entrepreneurship and is a central point in Schumpeter’s theories. The early Schumpeter introduced the entrepreneur as a driving force of economic development as entrepreneurs produce innovations. And in economic innovation theory (which is the dominant branch of innovation theory), innovation is the driving force of economic development and growth (Sundbo, 1995). To Schumpeter, innovation was a central feature of capitalist development, and innovation was a term describing both discontinuous and revolutionary changes. To Schumpeter, renewal and innovation were the core of capitalism and its functional capacity (Foucault, 2009).

 

3b. The second spirit of capitalism

The second spirit of capitalism, dated around the decades from the 1940s to the 1970s, is the époque of the workers rather than the bourgeois. The welfare state, rather than the market, is here the guarantor of autonomy and security. It is no longer the entrepreneur who is the great man in this époque, but rather the ‘organization man’. Habermas and Polanyi have both described and discussed this capitalist époque. Family capitalism had transformed into monopoly capitalism (Carleheden, 2011) characterized by big companies with mass production. The firms were organized hierarchically as bureaucracies and were geared towards the realization of activities and efficiency (Boltanski and Chiapello, 2005:165-6). Schumpeter’s later works reflects this change in capitalism and connected innovation to large corporations and their R&D departments, rather than to individual entrepreneurial enterprises and initiatives as in his early works. However, the link to capitalism remains clear. In Capitalism, Socialism and Democracy (1942), Schumpeter identified the essential fact of capitalism as ‘the process of creative destruction’:

 

The opening up of new markets, foreign or domestic, and the organisational development from the craft shop and factory to such concerns as U.S. Steel illustrate the same process of industrial mutation – if I may use that biological term – that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one” (Schumpeter, 2008: 83).

 

Looking toward innovation theory we see a shift from the entrepreneurial paradigm to a technology-based economic paradigm where the large corporations act as driving forces of innovation and of economic development (Sundbo, 1995). The quote also illustrates the dynamic understanding of capitalism central to innovation theory in contrast to neo-classical economic theory.

 

Social innovation in this époque took shape as the uprising of initiatives turned against commodification. We can here turn to Polanyi’s presentation in The Great Transformation from 1944, who presents the movement of capitalism as a double movement, in which markets were tamed by institutions that critically set the limits on their extension and application (Du Gay and Morgan, 2013: 5). The movement was characterized by forces seeking to commodify important areas of human life on the one hand, and forces seeking to decommodify and ensure social protection on the other (Fraser, 2012). We can place social innovation and social entrepreneurship as part of this critical movement. These struggles against commodification of land, labor and money involved a rise in cooperatives, trade unions, friendly societies, workers reading circles, working class building societies and so on. In line with Jessop et al (2013), we could see these initiatives as reactions to changes in functional systems that fetishize reified social logics such as competitive market exchange at the expense of human interaction and sociability. This social movement and public sphere could be seen as socially innovative initiatives aiming at human emancipation (Jessop et al, 2013:116).

Moulaert et al (2013b) also refer to social innovation as a common denominator for different types of collective actions and social transformations that fought for a transition from a top-down economy into a more bottom-up, creative and participatory society that would recognize the different individual rights of people in all segments of society (Moulaert et al, 2013b: 15). In this époque we may associate these socially innovative initiatives and movements with the artistic critique and perhaps also the social critique described by Boltanski and Chiapello (2005). They identify two types of critiques, which by being either dismantled or endogenised have had a major impact on the way capitalism transformed into its third spirit: Social critique and artistic critique. Both of these types of criticisms were important in the 1968 critique of capitalism.

Social criticism had its emphasis on inequalities, misery, exploitation and the selfishness of a world that stimulates individualism rather than solidarity. The labour movement was the most important in carrying this type of criticism forward. Artistic critique emerged first in small artistic and intellectual circles and stressed other characteristics of capitalism than did the social critique. It criticized oppression in the forms of market domination and factory discipline, the massification of society, standardization, and pervasive commodification. It vindicated an ideal of liberation and individual autonomy, singularity and authenticity (Boltanski and Chiapello, 2005:176). The artistic critique manifested itself through demands of self-management, for employees’ control of the firms, for enhanced personal autonomy and creativity, and it played a prominent role in giving legitimacy to the third époque of capitalism (Carleheden, 2011: 72). Elements of the artistic critique were incorporated into capitalism in the form of flexible workplaces, an emphasis of the autonomy of workers, a praise of creativity and horizontal organizational structures.

 

3c. The third spirit of capitalism

The analysis conducted by Boltanksi and Chiapello is particularly concerned with the transformation from the second to the third spirit of capitalism. The third spirit is characterized by network firms, which contrasted the earlier époque’s bureaucracies. Innovation and creativity are the excitement of the époque (Boltanski and Chiapello, 2005). Not restricted to corporate innovation or small business entrepreneurs, but turning the entrepreneurial spirit or attitude into a norm for all areas of human life. Foucault describes the homo oeconomicus of neo-liberalism as an entrepreneur, an entrepreneur of the self. He is a producer himself, his own source of revenue and producer of his own pleasure, rather than someone engaged in exchange. This is a displacement of features of the classic homo oeconomicus (Foucault, 2009: 259). In this sense entrepreneurialism imbues subjectivity more fundamentally and innovation becomes ubiquitous in management, policy, education and subjectivity. The new managerial order frames work relations in terms of horizontal networks and a certain form of freedom in terms of self-organization and self-actualization. The ideal-typical figure is a nomadic network-extender who is flexible, mobile and tolerant. The rejection of bureaucracy becomes the epitome of personally uncreative and socially harmful organization, which is inefficient and uncompetitive (Du Gay and Morgan, 2013:24).

 

 

4. Innovation in the third spirit of capitalism

Mainstream innovation theory has answered to the focus on networked society and flexible organizations with concepts such as open innovation (Chesbrough, 2003), democratizing innovation (von Hippel, 2005), and service innovation research has changed towards a co-production paradigm (Howells, 2007; Gustafsson & Johnson, 2003; see Langergaard, 2011). These approaches recognize that innovation takes place in collaboration between different actors and follow the move from the organization to inter-organizational networks as the locus of innovation, which is central to the third spirit. However, this is the answer from mainstream innovation theory in which the commercial and economic aspects of innovation are central. With regards to understandings of innovation, the break with the techno-economic paradigm has meant a growing belief in innovation as embedded in society, rather than in technological processes (BEPA, 2011: 15). This together with a rise in networked forms of governance (Jessop, 2003: 8) has also opened for the idea of social entrepreneurship and civil society as a major driving force of societal changes.

In relation to capitalism, entrepreneurship in some form or the other seems to have been central in the first spirit with the liberal, entrepreneurial form of capitalism, and again in the neo-liberal connectionist form of capitalism. Representations of neo-liberalism also point to entrepreneurship as integral to this ‘new spirit of capitalism’. Du Gay and Morgan (2013) describes how neo-liberalism came to provide a certain kind of rationality that ties the different brands of neo-liberalism together and link diverse developments. Terms like entrepreneurship, empowerment, market, and choice were incorporated in the rationalities which embodied a range of practices for governing economic life, public management, medical care, welfare policy and so on (Du Gay and Morgan, 2013:2). From this perspective it seems that social entrepreneurship shares some of the rationalities of the neo-liberal capitalism. Social entrepreneurship and social innovation in some variants have empowerment as a declared goal, share the presumption and sometimes the normative idea of blurring the boundaries between market, state and civil society (BEPA, 2011) and sometimes share the state-criticizing and anti-bureaucratic ideas which also characterize the neo-liberal critiques of the state and public sector (see Hulgård, 2010). There are strands of social entrepreneurship linked to privatization of the public sector, which focus on work-oriented policies and the privatization of the responsibility of welfare – what Gilbert calls a ‘triumph of capitalism’. In this sense social entrepreneurship may be seem as an element in a movement towards dismantling the welfare state and introducing more privatized and individualized solutions to social issues (Hulgård, 2010: 7: Hulgård and Andersen, 2012: 22; Hulgård, 2011: 202).  

I, however, wish to draw attention to a perspective on the relation between social entrepreneurship and capitalism from which social entrepreneurship is not merely inscribed in and affirming a neo-liberal capitalist logic. I wish to present perspectives, which represent a critique of capitalism and mainstream economic thinking. In the wake of the current crisis critiques of an economistic view on society and human existence have gained ground. The blind belief in the market has been challenged and there is a call for other understandings of value and societal development than just the economic and neo-liberal ones (see also Baruchello, 2009). In this sense, the time seems ripe for finding new ways ahead. Social value is in relation to social entrepreneurship defined as non-economic value and specified in terms like inclusion and wellbeing though collective, social and political empowerment processes and universal rights (Moulaert et al, 2013a:14). This may be seem as an approach to overcome the overly economistic criteria for understanding societal wealth and progress usually attached to innovation. Social innovation explicitly challenges the concept of technological innovation and its hegemonic status in economic, social and political discourse (Jessop et al, 2013:112). However, in the rather new theoretical field of social entrepreneurship there is room for a much more thorough and systematic discussion of the normative, ethical and political aspects of a concept of social value. But giving priority to other values of human life over economic value, like emancipation, political and social empowerment, human rights and improvements in the human condition (Moulaert et al, 2013b) is a starting point.  

Social entrepreneurs can either work within the mainstream market economy or in a non-capitalist social economy consisting of organizations in the third sector that are benefiting from the participatory capacities of citizens (Hulgård, 2011:202). According to Hulgård (2011), social economy is a certain type of social entrepreneurship, which aims to transform and innovate the mainstream economy. It is part of an emerging counter-discourse in the sense of a non-capitalist participatory economy in the areas of social service and social innovation (Hulgård, 2011:202). Social economy, or solidarity economy, organizations give priority to a shared patrimony and can be contrasted with capitalist organizations. A normative definition of social economy sees it as economic activities carried out by enterprises, primarily cooperatives, associations and mutual benefit societies, who prioritize service to its members over profits, and sets people and work over capital (Laville, 2010: 228-9). In particular, the European strand of social economy includes cooperatives and social enterprises and non-capitalist economic initiatives in the third sector (Hulgård, 2011:202). Thus, there is another side to social entrepreneurship than the privatization of welfare, and this is, according to Hulgård (2011), marked with a new type of collective responsibility, where social partners address problems and challenges such as poverty, exclusion, urban disintegration in shared arenas and networks. The social economy, which these entrepreneurs work in, is seen as an alternative to mainstream market economy (Hulgård, 2011), but it stays within the organizational model of networks dominant in the third spirit. Cooperatives, associations and mutual organizations, which are types of organizations of the social economy, are not new and do not say much about the current crisis or new reactions to the current capitalist spirit. As mentioned, these were also central initiatives of social entrepreneurship in the 1960s and 1970s and thus the second spirit of capitalism. We may, however, distinguish between an old and a new social economy. “The new social economy is a multitude of organizations including ‘new social service cooperatives, voluntary organizations and social enterprises filling new social needs’” (Hulgård, 2011:204). The new social economy is partly related to the cooperative tradition and partly to the current changes in welfare policy towards participatory and entrepreneurial approaches. Social enterprise and social entrepreneurship are cornerstones in the new social economy. Social entrepreneurship is definitely part of an alternative view on economy to the capitalist, and with emphasis on social aims, mutuality, participation, citizenship, and limited profit distribution. Social entrepreneurs can work within or on the boundaries of the social economy, and their achievements cannot a priori be said to be part of the social economy in the sense that they are always part of a non-capitalist economy (Hulgård, 2011:208). Whether social entrepreneurship can be understood as part of a capitalist critical movement depends on whether we see it as linked to this social economy, or if we merely see it as attempts to create social value through innovative efforts irrespective of its place in a capitalist economy. Social entrepreneurs in this view become change agents of the social economy (Hulgård 2011:211).

If the social economy is to be perceived as a non-capitalist form of economy and third sector, rooted in local communities and cross-sectoral partnership, how should we then understand the role of the state and citizenship rights? Social entrepreneurship is also part of the transition of the welfare state into more blended forms of social service provision, and the means of community building, citizen engagement and participatory governance. This raises important questions regarding the understanding of democracy related to this view on social entrepreneurship. Traditionally, the state and its public sector have been seen as the democratic alternative to the market – as the societal institutions through which the citizenry has been able to carry out collective decisions and solving collective concerns. The welfare state, in some interpretations, has, for example, emerged to compensate for the downsides of capitalism in terms of unequal distribution of resources and possibilities. When civil society is now granted this role as arena for democratic decision-making, it may have to do with the view of the state as a basically inhumane, bureaucratic representation of a system logic, which alienates and overlooks the real needs of the citizens (see Langergaard. 2011).

Social entrepreneurship is linked to a view of civil society as a new arena for solidarity. It is basically a bottom-up approach to democracy with a belief in the emancipatory potentials of participation from below. The re-orientation of welfare states are also generating a new role for civil society and opening a room for collective and solidary movements. It has opened a platform for new forms of social movements, collective responsibility and solidarity (Hulgård, 2010; Andersen and Hulgård, 2012). Some see this new orientation as a potential for participatory practices and social initiatives for a more inclusive and sustainable society (Hulgård and Andersen, 2012). Some researchers in the field of social innovation still stresses the importance of the public sector and the state as guarantors of rights (Moulaert, 2010), and often social entrepreneurship and civil society are presented as a supplement to and a collaboration with, rather than a replacement of, the public sector. In this sense socially creative strategies are not restricted to certain sectors of society and may also operate at the governmental level (Moulaert et al, 2013b:20).

 

 

5. Concluding remarks

Whereas classic entrepreneurship is theoretically closely connected to capitalism and seen by innovation theory as the major driving force of economic development, social entrepreneurship may be seen as linked to non-capitalist understandings of the economy and as part of a capitalist-critical movement. The ideas about classic innovation and entrepreneurship differ throughout the development of the three spirits of capitalism presented by Boltanski and Chiapello – from an emphasis on the individual entrepreneur, over large corporations’ R&D activities, to networks and horizontal organisational forms with creativity and innovation as normative ideals. 

 

Social entrepreneurship also takes different forms. I have argued for the potentials of defining and understanding social entrepreneurship in the current form of capitalism in a way, which is not underpinned by a neo-liberal understanding of human rationality, and of the roles of the state and market. We may understand social entrepreneurship in different ways, as it is a multifaceted phenomenon. Some interpretations and uses of the term clearly stay within a capitalist framework and a basic neo-liberal logic and seem to adopt the excitement of the third spirit of capitalism. The critical strand of social entrepreneurship relates to the social economy and third-sector organisations, such as cooperatives, mutual interest organizations, as well as collective and solidary movements, in the second and in the third spirit too. The current capitalist crisis has given nourishment to both strands of social entrepreneurship – the former by having exacerbated problems, which result from the contradictions of capitalism, but without looking for solutions outside of the capitalist and neo-liberal logic. Here the need for privatization of solutions to social problems is just seen as even more evident as they seem the cheaper and more efficient ones. The latter by elucidating the limits of the free market and thus the need for solutions, which rely on something else than market solutions and an economic logic that has lost some of its legitimacy. Experts claim that the crisis has paved the way for a further elaboration of the solidarity economy as an alternative to mainstream market economy (Hulgård, 2010:9).

 

This division between different strands of social entrepreneurship may not seem surprising, as it is well known that social innovation is a concept and phenomenon standing between a managerial, markets-based entrepreneurial logic and a more democratic, emancipatory, civil-society based idea of social progress (Hulgård, and Andersen, 2012). It is important to distinguish between different branches or strands of social entrepreneurship and social innovation. When the EU commission and the Danish government promote social innovation, social entrepreneurship and social enterprises as solutions to societal problem, it is fair to assert that it cannot be understood as a concept with any capitalist critical implications. As Jessop et al (2013) point out, various mainstream strategies for social innovation and social entrepreneurship often interpret it in narrowly market-economic and micro-economic terms (Jessop et al, 2013:110). The next move of social entrepreneurship research may be to specify the critical potential and the specificities of the critical edge and aim of social entrepreneurship in the new social economy – should it rely mainly in a de-commodifying logic, for instance, or should it rather aim at emancipation in other terms (cf. Fraser, 2012)?

 

 

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Carleheden, Mikael (2011): “Om den moderna samhällskritikens historiska förändring”. Phronesis, 36-37: 62-78.

Chesbrough, Henry W. (2003): Open Innovation – The New Imperative for Creating and Profiting from Technology. Boston, Massachussetts: Harvard Business School Press.

Chiapello, Eve (2013): “Capitalism and Its Criticisms”. In Paul du Gay and Glenn Morgan (eds): New Spirits of Capitalism – Crisis, Justifications, and Dynamics. Oxford: Oxford University Press: 60-81.

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Aoife Nolan, Rory O’Connell, Colin Harvey (eds.), Human Rights and Public Finance: Budgets and the Promotion of Economic and Social Rights (Oxford and Portland: Hart Publishing, 2013)

The volume offers not only good quality contributions, but also a short biography of the authors, an explanation of the abbreviations, an introduction, and, at the end of the volume, a useful index.

The aim of this collection is to point out the role of governments in monitoring and managing resources addressed to equality. State parties have the power to establish the use of economic and other resources, public servants to distribute them, and civil society to give a feedback. Academics are very important in this respect: they can analyse the percentage and the employment of a government’s budget, and give their professional advice on its use. All the authors of this volume show, with both theoretical foundations and practical evidence, how neoliberal policies are insufficient to fight a severe financial crisis. Different paradigms, based on a Keynesian view, are proposed. Every contribution is well supported with references to international policies and concrete results, making the proposed alternative approaches desirable.

For what concerns human rights, the Article 2 of the International Covenant on Economic, Social and Cultural Rights (ICESCR) states that governments have to use the maximum of their available resources to guarantee these rights (p. 13). However, the concept of ‘maximum available resources’ is subject to interpretation and sometimes is disrespected, as Nolan points out (p. 45). This happens especially in periods of economic crisis, when resources are more limited and governments make cuts to public expenditures.

The authors of this volume criticize, first of all, the necessity of these cuts, arguing that they are due to a neoclassical view of the economy. This view, shared by the International Monetary Fund and other financial institutions, places great emphasis on balanced budgets and low debt policy. According to neoclassical economists, a short period of austerity is necessary to restore a pre-crisis order. A Keynesian approach, on the contrary, suggests a stronger and focused injection of public money, in order to set economy in motion and support the weakest categories of the population (cfr. p. 19).

For what concerns the theoretical aspect, Paul O’Connell’s contribution is very relevant. It contains not only an account of Keynesian thought, but even a radical critique to neoliberal policies. O’Connell states the ideological nature of the push for austerity: governments, agreeing with financial institutions, try to entrench neoliberal capitalism (p. 61). Citizens should make their contribution to the deliberative process, which is not a matter for ‘technicians’. O’Connell also suggests a participatory budgeting policy, in order to protect and implement human rights (pp. 72-73).

Another key point of this collection is the concept of ‘progressive measures’. Even when some cuts on public expenditures are necessary and the tax system becomes heavier, there should be a fair distribution of the charges among the population. A retrogressive measure, on the contrary, has an unbalanced impact on it and affects mainly the disadvantaged. As Ignacio Saiz argues, tax collecting is very important for increasing available resources (pp. 80-81). Countries with a low tax income are the most subject to inequalities, because they have a limited public budget and the few duties collected usually weigh on the poorest, while big companies, entrepreneurs or landowners avail themselves of reliefs. Countries with a balanced and progressive tax income, on the contrary, have a larger public budget, which can be used to guarantee economic and social rights (i.e. a Welfare State). Saiz also suggests a tax on financial transaction, which would generate additional resources in a progressive way (p. 102).

For what concerns the impact of governments on human rights, the authors of this volume show the close relation between financial disputes and political ones. Through a brief account of European and American history in the 17th and 18th century, Rory O’Connell points out how equality issues go all the way through the pursuing of a representative system. In a post-revolutionary era, when democracy is taken for granted and the debates on human rights are put aside, politicians should be re-educated (pp. 120-121). In the wake of Foucault, Rooney and Harvey point out the power of discourse and the insufficiency of mainstream theories in modifying political debates (pp. 130-132). An integrationist approach, trying to accommodate equality within existing paradigms, does not lead to significant changes in human rights issues. Conflicts are necessary to modify the discourse, thus a sharper contribution of civil society on political debate is suggested (pp. 134-135).

A significant section of this collection is dedicated to the application of budget analysis to specific contexts. Enakshi Ganguly Thukral writes about the importance of dedicating a part of a government’s resources to children, especially in poorer countries. They are not a homogenous group (age, gender, socio-economic status, physical and psychical health distinguish them); then an analysis of budget allocation and expenditure should go together with a focused implementation of it (pp. 147-148). Even gender policies are important, as Sheila Quinn shows (p. 164). Her study is focused not only on the analysis of Northern Ireland, but also on the definition of an effective and efficient gender responsive budget.

Methodology plays here a great role. The last part of this collection, called ‘Analysis in action’, shows that budget analysis must be carried out within a good framework. Eoin Rooney and Mira Dutschke point out the problems connected with social housing policy in Northern Ireland. The latter has been progressively subjected to neoliberal measures, such as privatization , making the situation of the people worse (p. 211). Public authorities and private associations need the help of academics, whose expertise is necessary to set up a good methodology. As Harrison and Stephenson write, an EHRIA (equality and human rights impact assessment) must balance rigour with usability, in order to guarantee a real implementation of human and social rights (p. 239).

R. Bohlin, De Osynliga. Det Europas fattiga arbetarklass; M. Linton, De hatade. Om radikalhögerns måltavlor; B. Elmbrant, Europas stålbad. Krisen som slukar välfärden och skakar euron (All titles by Atlas, Stockholm, 2012)

 

The feminist journalist Rebecca Bohlin has looked into the working and living conditions of the least paid workers within the service sector, although reminding to us that many other jobs in different sectors meet similar problems. She has met cleaners, kitchen attendants and cashiers in Stockholm, London, Hamburg and at the same time has interviewed scholars and as well politicians and union representatives about the rise in income inequality and the worsening of working conditions, across Europe and in Sweden.

And to Sweden indeed is devoted the first chapter (Hur mår RUT?). The question of rising inequalities has become hot after 2007, when tax deductions for domestic service (RUT) were introduced, with the argument that the black market was to be stopped. In fact, however, according to the unions and to some research, the outcome has been an increasing in the number of workers (often asylum seekers or anyway migrants, very often women) exploited and with no safeguard: their formal job contract is legal, but their actual working conditions are definitely different, and for the worse. Yet in Sweden, as Bohlin acknowledges, living conditions of the low-paid workers are better that in most other countries.

In the second chapter (Så pressas lönerna neråt) Bohlin analyzes, again through witnesses and interviews, migration policy at the EU level and in some of its member States. She insists on the paradox of a rhetoric stressing the need of labour force from outside Europe, in order to face demographic challenges and to make companies more “globalized”, while at the same time the actual policy is based on a military defence of the “fortress Europe”, at the cost of thousands of human lives every year. And those who succeed in reaching Europe are often exploited both economically and, when women, sexually. And that even in a country that is a world master in workers’ rights and gender equality such as Sweden.

How are trade unions tackling this backward trend to a degree of workers’ exploitation similar to that in the 19th century? Around this unavoidable question the third chapter (Facket famlar efter en ny solidaritet) is built. The answer is not at all self-evident; on the contrary, here one goes on attempt by attempt. However, what comes out from the talks that the author has had with union leaders and members, in Sweden and in the UK, as well as with scholars, is that a trade union like the Swedish one, service-oriented, is not well-equipped to face the challenges that labour movements all over the world have to meet. More interesting it seems the experience of the “Social Movement Unionism”, a strategy that has been tested in South America and is made up of a mix of mobilization, learning, dialogue with local society, negotiations – and protest actions. Exactly what many all over Europe – either workers or unemployed, migrant or local – call for.

 

An even darker side of Europe is the subject of Magnus Linton’s work, that he describes in his Introduction as a book on “majorities and minorities, absolutism and relativism, boarders and lack of them, fantasy and reality”. The author, well-known in Sweden for his reports after the carnage in Utøya, has carried out an inquiry about right-wing radicalism in three European countries: Hungary, the Netherlands and Norway, moving from the awareness that the current economic crisis increases its appeal. Linton has met the main targets of xenophobic and neo-nazi groups, respectively Roma people in Hungary, muslims in the Netherlands and left-wing intellectuals in Norway. The first section (Parasiterna), after reminding shortly the persecution of Roma in history (culminating with their, neglected, massacre during World War II) and the recent deportation of Roma in countries such as France, Italy and Sweden, introduces the reader to the disturbing world of the Hungarian neo-fascist party Jobbik (Movement for a better Hungary), whose programme is openly “roma-centered”, so to say, and that in 2010 established itself as one of the main political forces in the country with 17% of votes. Jobbik’s growing influence resulted in a situation that Linton, with reference to what happened in the municipality of Gyöngyöspata, tells in the following way: “in 2011 in the middle of Europe fascists in uniform marched and families belonging to one of the poorest and most persecuted minorities in the continent were forced to escape what otherwise would have turned into a pogrom”. And Gyöngyöspata was only the beginning. However, the political scientist Zsolt Enyedi, interviewed by Linton, points out that these developments in Hungary were at the same time astonishing and predictable. Their roots can be found in a historical process starting from the fall of the Berlin wall; since then, populism has been a constant presence in Hungarian life and in the end has exploded due to the economic crisis. The fact that in 2010 the nationalist and authoritarian party Fidesz won 2/3 of the votes has made the situation even worse and transformed Hungary into a stronghold of radical Right in Europe.

Another country, another scapegoat: in the Netherlands, as it is well-known, the thesis that “our” problems could be solved if only “we” got rid of Muslims has found one of its most prominent champions, i.e. Geert Wilders, leader of the Freedom Party and major pointer for Dutch politics for years (see the section: Ockupanterna). Though making sure to distinguish himself from people like Anders Berg Breivik (who pointed at Wilders as his ideological source of inspiration) by stressing his own democratic attitude, Wilders has steadily run down Islam, equating it with Fascism. Together with Pim Fortuyn (murdered in 2002 by a left-wing extremist), he has personified the idea that multiculturalism is a luxury only the privileged few can afford and has transformed the Netherlands into the headquarters of islamophobia in Europe.

The Dutch historian Thomas von der Dunk, here quoted, urges to take into account that politics’ highest aim is economic security, as well as the capability for society to accept cultural uncertainty; but when the former decreases, then the need for a strong cultural identity rises.

Roma people and Muslims are easy scapegoats in a continent affected by geopolitical and economic turbulences; but how came that in the rich and enlightened Norway a right-wing extremist killed more than 70 young left-wing activists? What Berg Breivik aims at with his double attack (a bomb in Oslo and the carnage on the Utøya island) was, as Linton explains, to murder at the same time three generations of “betrayers” (hence the title of the section, Förrädarna), i.e. three generations of Social Democrats: the forthcoming (the young activists who met in Utøya), the present (the governmental headquarter in the capital), and the former (Gro Harlem Brudtland, former prime minister, who escaped assassination in the island due to a delay in Breivik Berg’s plan).

What has been betrayed are Norwegian culture and identity, quite obviously. Breivik Berg defines “cultural Marxism” what could otherwise be summarized as “politically correct”, in other words the idea that there are some topics that cannot be questioned, above all feminism and multiculturalism. Linton points out that coinciding with the perhaps unstoppable march of right-wing extremism in Europe is the discontent caused by what has been perceived as the hegemony of political correctedness, which has become more and more centered upon universities. After all, right-wing radicalism is not interested in discussing rationally a question (which is supposed to be the academic approach) but, on the contrary, in imposing its own understanding of reality. And it is succeeding in doing this. Linton recalls our attention to the fact that what is striking in Breivik Berg is not his insanity, but how much he reflects stereotypes and plot-syndromes related to Islam that unfortunately are represented in more or less all the European parliaments (as well as in the EU one).     

 

Not even the book by Elmbrant, one of the most prominent Swedish journalists, is intended to bring comfort to the reader. Here as well the impact of the economic downturn is looked into in a European perspective, yet with a particular attention to countries such as Greece (see chapter 1, Ett land faller sönder) and Ireland (chapter 3, Irland på liv och död). In chapter 2 (Hur hamnade vi här?) the author follows the making of the Euro and then compares the faith of two countries, Ireland and Iceland; both hit by the crisis, but the latter (outside the common currency) recovering better. Italy is not at all forgotten in this account: the doubts about its financial soundness have been recurrent amongst EU – and German in particular – leaders, for many years. However, Elmbrant warns (chapter 4, Skenbilden av krisen) against those, in Brussels as well as Berlin and Paris, who blame upon some countries ? the Southern European ones primarily ? the European financial difficulties, as the problem were simply that if one spends too much, then one has to pay back sooner or later. Elmbrant is well aware that Greece, with all the stereotypes surrounding it, has worked as a perfect scapegoat, but insists on the European dimension of the economic crisis. The trouble indeed is not the Greeks’ unreliability, but the EU powerlessness in the face of much bigger transnational financial powers. In this connection, it needs to be said that left-wing parties have definitely not been united and consistent in their (often late) condemnation of the abuse of power from private banks and finance at large.

It cannot miss, in this critical report about the EU state of health, a chapter on Angela Merkel, significantly entitled She who decides (5, Hon som bestämmer) and on Germany’s hegemonic role. The outcome of financial powers’ and Germany’s supremacy are described in chapter 6 (Europas stålbad), again focusing mostly on Southern Europe, but raising a more general question: the changing role of the Nation-State. Here Elmbrant mentions an article on The New Left Review by the German social scientist Wolfgang Streeck as crucial: the dismantlement of Europe’s social policies has restricted the ability of the State as far as mediating between citizens’ rights and Capital’s diktats is concerned, and by this move increased further the latter’s authoritativeness as well. There have been massive demonstrations against budget-restriction policies, at least in Greece, Spain and Portugal (chapter 7, De unga på marsch), but Elmbrant does not forget that up to now it is the Radical Right the political actor who seems to have taken more advantage from the crisis, and not the Left. Are the European Central Bank and Merkel right when presenting austerity as the only way out of the crisis or can young people protesting in Athens, Madrid and Lisbon point out to an alternative? The last two chapters are built around this question. 

After summarizing the different proposals currently discussed in the EU (in the end all related to the dilemma: more or less unity among member States? See chapter 8, Stopp i Brysseltrafiken), Elmbrant closes his report by handling the question of the future of the common currency (chapter 9, Har euron en framtid?). After looking at expert analysis and people’s mood his answer (well reflecting Swedish attitude to the EU) is: the Euro is doomed to collapse ? after all it has been a mistake from the beginning ? with consequences that in some cases will prove to be devastating.  And thinking at what is going on in many European countries we can easily believe that this apocalyptic scenario is not simply a kind of snobbery from the rich Nordic countries.   

Sustainable Liberalism: A Modest Proposal for Global Recovery

 

Actually the same crisis, apparently caused by a severe drop of investors’ faith, given the huge amount of national public debts, has already devoured the other so-called “Pigs” (Portugal, Ireland, Greece and Spain), and even the iron economy of Germany, as ECB’s Governor Dr. Mario Draghi has recently pointed out, seems to be threatened by this European plague. In turn, global economic growth shows signs of indisputable weakness: along with Europe and the USA, almost all emerging countries – with the notable exception of Brazil, for now – experience a substantial slow-down in their glorious path towards well-being.

 

That’s the story. At least, the story we have been told in the last five years. And it conveys a bunch of sickening, although necessary, consequences: cuts in the public budget, decline of welfare-State policies, shakeups in the labour market, higher taxes etc. Will this strategy carry us out of the crisis, soon or later? Honestly, I’m afraid it won’t. Quite the reverse, we should seize the day and reconsider the most basic patterns of our social and economic model.

 

It is a common belief that market liberalism, whose dictatorship seems to mark the last three decades, led to the complete deregulation of global financial economy, together with a growing emphasis on capital gains as the main source of wealth and the corresponding decrease of labour incomes – not to speak of the continuing depredation of natural resources that caused a long series of catastrophic environmental tragedies. We should question, however, if those achievements be really consistent with core liberal principles.

 

Rather correctly, French economist Valérie Charolles has stated that “we are indeed widely persuaded to live in a liberal world, while the variety of capitalism that governs us has little to do with liberal theory”. In fact, “the liberal model doesn’t serve as the basis of the system. It merely provides a justification for the liberalization of public services, but it is quickly put aside in the face of too rapid a process of concentration undergone by the private sector. These processes blatantly contradict the theoretical corpus of liberalism, which claims competition to act as a tool capable of multiplying the number of actors and limiting any position of power” (Charolles 2006: 13, 52).

 

Furthermore, classical liberals were perfectly aware of the dangers – though social, moral and political – posed by an endless economic growth. And even when they did support development and progress, as in the case of David Hume and Adam Smith, the most negative consequences were never forgotten nor ignored.[1] If Hume strongly encouraged commerce, since “it increases frugality by giving occupation to men, and employing them in the arts of gain, which soon engage their affection, and remove all relish for pleasure and expense”, promoting “the greatness of a state, and the happiness of its subjects”, he soon added that “a too great disproportion among the citizens weakens any state”, so that “every person, if possible, ought to enjoy the fruits of his labour, in a full possession of the necessaries, and many of the conveniencies of life” (Hume 1987: 255, 265, 301). Similarly Benjamin Franklin, trying to preserve Americans from European corruption and depravity, advocated “a general happy mediocrity” by which, obliging people “to follow some business for subsistence, those vices that arise usually from idleness, are in a great measure prevented” (Franklin 1959: 274, 282).

 

Not merely inequalities did Smith fear indeed. True, “no society can be flourishing and happy, of which the far greater part of the members are poor and miserable”; but, although “commerce and manufactures gradually introduced order and good government, and with them the liberty and security of individuals” (Smith 1981: 96, 412), an extensive division of labour could produce serious moral and psychological consequences on “the great body of the people”, preventing a conscious citizenship and their natural search for “happiness [which] consists in tranquility and enjoyment” (Smith 1982: 149).[2] His friend Henry Home, Lord Kames, was far more categorical: “great opulence opens a wide door to indolence, sensuality, corruption, prostitution, perdition” (Kames 2007: 333).

 

We should, then, try to disclose the hidden roots of the present crisis – and I believe that, in so doing, we’d be forced to go back and back in time. We can find many traces of the path taken by the global economic system in the last 40 years: the end of the new gold standard in 1971, the great oil crisis of 1973-74, the emergence of neo-conservative policies along with the election of Margaret Thatcher and Ronald Reagan, the deregulation wave of the 1990s (culminated in 1999, when the Glass-Steagall Act was finally repealed by President Bill Clinton), the growth of international investment banks and the naissance of computer-managed financial dealings. 

 

Therefore, the greatest crisis since 1929 has been prepared by a long series of economic mistakes, as well as by an intentional implementation of misleading public (and private) policies. While most scholars and policymakers silently accepted such a new paradigm, few voices were raised to warn against the likely dangers. Among these, the case of Michel Albert still deserves some consideration: a social economist and former CEO of Assurances Générales de France, in his brilliant book Capitalisme contre capitalisme (1991) he foresaw the aftermaths of an economic regime – notably dubbed “the Anglo-Saxon model” – relying more on financial means and less on production and trade of goods and services, with growing inequalities and a troublesome lessening of social security (Albert 1991: chap. viii, ix).

 

But there is something more – so much more, indeed – he did not foresee: that such a model has reached quite soon the point of no return, becoming no longer sustainable upon a strictly financial, as well as social and ecological, view. How to reconcile economic development, human flourishing and the preservation of natural capital? How to settle a dynamic and free economy with the promotion of labour and a structural safeguard of biodiversity? A contribution to unravel this intricate puzzle might come from an approach that I will call sustainable liberalism: an attempt to revive the ethical, political and economic discourse of classical liberalism in strict dialogue with contemporary sustainable-development theories.

 

It must surely sound quite bizarre, since liberal economists and philosophers mostly look with a skeptical eye at any effort to sketch a theoretical framework capable of merging individual liberty with social equality and a systematic protection of the environment. However a number of scholars, by the middle of the 20th century, had tried to reconsider the feedback of economic growth on social and natural organisms within the wider context of a novel humanistic philosophy, claiming that every measure was to be implemented à la taille de l’homme. Among these ‘neo-liberals’ – as they labeled themselves to avoid any association with Hobhouse, Keynes and Beveridge’s new liberalism – were Walter Lippmann, Wilhelm Röpke, Luigi Einaudi and many more, who had tied up ethics, politics and economics in a comprehensive design of the ‘good society’.[3]

 

Their most cherished aim was, for sure, the reestablishment of political and economic freedom after the tragedy of totalitarianism; even so, they did assume that “we [humankind] represent by no means the dizzy summit of a steady development; that the unique mechanical and quantitative achievements of a technical civilization do not disembarrass us of the eternal problems of an ordered society and an existence compatible with human dignity” (Röpke 1950: 2). In their view, “economic liberalism, true to its rationalist origin, exhibited a supreme disregard for the organic and anthropological conditions which must limit the development of capitalist industrialism unless a wholly unnatural form of existence is to be forced upon men” (Röpke 1950: 52).

 

Hence they advocated an extensive program of social, political and economic reforms aimed at restoring justice, equality of opportunities and social market economy, given that “progress and economic development rely much more on moral values than on mere efficiency” (Einaudi 1987: 48). Such a development, however, should absolutely avoid “the rape of irreplaceable natural reserves [whose] consequences are already making themselves felt in many instances and in an alarming manner», among which they pointed at «the annihilation campaigns against the forests on all continents and against the whales of the oceans”, not to speak of “the inevitable consequences of the excessive use of artificial manure and the progressively more serious problems of every country’s water supplies” (Röpke 1950: 144).

 

 Curiously enough, their intellectual heirs weren’t (and still aren’t) ready to capture the spirit of such an innovative attitude. Quite the reverse, after the pioneering warning launched by the Club of Rome in 1972, sustainable-development theorists (almost) alone have tried to handle – at both levels, normative and practical – the overwhelming burden of forecasting a transition towards a ‘humane economy’, as Röpke called it once. The truth being that “we have, today, reached the end of a template for life and business that, for 200 years, has been extremely successful – one that worked quite magnificently under the old conditions. Those conditions – namely the availability of an entire planet for a small part of humanity and its economic model – however, no longer exist” (Welzer 2011: 33).

 

We need, then, an integrate approach to economics, since “the conventional wisdom is mistaken in seeing priorities in economic, environmental, and social policy as competing. The best solutions are based not on tradeoffs or ‘balance’ between these objectives but on design integration achieving all of them together – at every level, from technical devices to production systems to companies to economic sectors to entire cities and societies” (Hawken – Lovins – Hunter Lovins 1999: xi). Whatever opponents may think of it, there would still be room for economic liberty. Bill McKibben has recently reminded us in his remarkable book Deep Economy, devoted to advocate a large-scale reform centred on a huge process of downsizing, that “shifting our focus to local economies will not mean abandoning Adam Smith or doing away with markets. Markets, obviously, work. Building a local economy will mean, however, ceasing to worship markets as infallible and consciously setting limits on their scope. We will need to downplay efficiency and pay attention to other goals” (McKibben 2008: 2).  

 

Other goals, by the way, require new tools for their own analysis, study and measurement. That’s why, in recent times, the former President of the French Republic, Nicholas Sarkozy, appointed a Commission led by Professors Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi in order “to identify the limits of GDP as an indicator of economic performance and social progress [and] to consider what additional information might be required for the production of more relevant indicators of social progress”.[4] The Commission’s report, lengthy and well-reasoned, is nonetheless crystal clear on the absolute inadequacy of the conceptual background underneath contemporary economics; so that, for instance, “choices between promoting GDP and protecting the environment may be false choices, once environmental degradation is appropriately included in our measurement of economic performance” (Stiglitz – Sen – Fitoussi 2009: 7).  

 

Sustainable liberalism should not pretend to stand as the sole theoretical framework, nor to provide the most useful solutions. It is, rather, an intellectual approach that might help social scientists and policymakers, as well as every citizen on Earth, to imagine new life-styles and eventually put up an alternative scenario, in which individual liberty, equality and preservation of the biosphere could really walk side by side towards the only, valuable end of social and economic life: the well-being of every sentient organism on our planet.

 

References

 

– Albert, M. (1991), Capitalisme contre capitalisme, Paris: Editions du Seuil.

– Audier, S. (2012), Néo-libéralisme(s). Une archéologie intellectuelle, Paris: Bernard Grasset.

– Bruni, L. and Porta, P. L. (eds., 2005),  Economics and Happiness, Oxford: Oxford University Press.

– Charolles, V. (2006), Le libéralisme contre le capitalisme, Paris: Arthème Fayard.

– Einaudi, L. (1987), Le prediche della domenica, with an introduction by G. Carli, Turin: Einaudi.

– Franklin, B. (1959), Autobiography and Selected Writings, edited by D. Wecter and L. Ziff, Toronto: Rinehart and Co.

– Hawken, P., Lovins, A. and Hunter Lovins, L., (1999), Natural Capitalism. Creating the Next Industrial Revolution, Boston: Little Brown and Co.

– Hume, D. (1987), Essays. Moral, Political and Literary, edited by E. F. Miller, Indianapolis: Liberty Fund.

– Kames, H. Home Lord (2007), Sketches of the History of Men, vol. I, edited with an introduction by James A. Harris, Indianapolis: Liberty Fund.   

– McCoy, D. R. (1982), The Elusive Republic: Political Economy in Jeffersonian America, New York and London: W. W. Norton & Co.

– McKibben, B. (2008), Deep Economy. The Wealth of the Communities and the Durable Future, New York: Times Books/Henry Holt & Co.

– Rasmussen, D. C. (2006), “Does ‘Bettering Our Condition’ Really Makes Us Better Off? Adam Smith on Progress and Happiness”, The American Political Science Review, Vol. 100, No. 3.

– Röpke W. (1950), The Social Crisis of Our Time, translated by A. and P. Schiffer Jacobsohn, Chicago: The University of Chicago Press.

– Smith A. (1981), An Inquiry Into the Nature and Causes of the Wealth of Nations, edited by R. H. Campbell and A. S. Skinner, Indianapolis: Liberty Fund.

– Smith A. (1982), The Theory of Moral Sentiments, edited by A. L. Macfie and D. D. Raphael, Indianapolis: Liberty Fund.

– Stiglitz, J., Sen, A. and Fitoussi, J.P. (eds., 2009), Report by the Commission on the Measurement of Economic Performance and Social Progress, www.stiglitz-sen-fitoussi.fr/documents/rapport_anglais

– Welzer H. (2011), Mental Infrastructures. How Growth Entered the World and Our Souls, Berlin: Heinrich Böll Foundation.

 


[1] For a concise yet complete overview of this approach, see especially McCoy 1982, 13-47.

[2] Here I follow the sketch drawn by Rasmussen 2006.

[3] On neo-liberals, their saga and place in American and European culture see Audier 2012.

[4] Individual and common happiness could fit perfectly into the agenda. The theoretical connections between economics and happiness have been largely investigated by economists, psychologists and philosophers alike; a rich collection of essays on these topics may be found in Bruni – Porta (2005).

 

Responsibility and Capitalism. A Phenomenological Way to Approach the Economic Crisis

1. Capitalism as the economic expression of onto-theology

 

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages[2].

 

The words of Adam Smith, originally used to justify liberalist economy, presently sound like an act of accusation. Classic capitalism encourages pure egotism, relying on an ‘invisible hand’[3], which should promote the public interest together with the individual one. However, the hand of the market is not invisible, is pitiless. Capitalism in nothing but a pursuit of money, of more and more money. Then, as time goes by, wealth accrues in the hands of fewer and fewer people[4]. Marx already predicted the concentration of capital as a necessary consequence of free competition. However, he could not predict the birth of financial capitalism. Neo-liberalism spread over Western countries, leading to financialization, that is ‘the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies’[5].

 

 

While classic capitalism links money to production, financial capitalism is based on uncertainty[6]. Money increases or decreases according to the Stock Exchange prices. Since they are unpredictable, people could gain or lose fortunes in a day: a risky investment is nothing but gambling. In this way, the concentration of capital in a few hands comes faster. Those who are not successful go broke and damage other people: bankers and brokers lose the money of whole companies and families, shopkeepers and businessmen close their activities and dismiss people who work for them. There are not only employers and workers who pay the price, but also small capitalists. Unemployment increases and consumes decrease. In this way, even production decreases and the system itself collapses.

 

This is a devastating situation, depending not so much on the structure of the system, as on its moving principle. Capitalism, in its classic definition, should stimulate production and consuming, appealing to individual interest. But the course of egotism is one-way: it aims to individual affluence, regardless of its impact on the others.

 

Capitalist economic systems are characterized by the private ownership of property and the consensual exchange of goods and services in a free market.[7]

 

According to this recent definition, common both to classic and financial capitalism, egotism reveals to be their driving force. The expression ‘private ownership’ refers to individual possession and power, while ‘free market’ indicates liberty of action.

 

Philosophically speaking, capitalism is nothing but the economic expression of onto-theology. Exactly like the Ego of Western philosophy[8], it is regardless of the Other. The theoretical I subjects everything to its structures and the practical I cares only about its freedom. In the economic case, the Ego subdues the Other to the main category of capitalism, that is profit. The practical consequence of this philosophical statement is that an indiscriminate pursuit of money causes the exploitation of environment, animals and people. The Ego prevails on the Other, but would be powerless without Him. Profit has to be made at the expense of somebody, who cannot be too weak, otherwise he will die or become a slave. The free market disappears without a certain balance: money can circulate only among people who produce, work, and consume. This is why, if the Ego takes too much power, then will lose everything.

 

The current economic crisis could be seen as a critical moment when, philosophically speaking, the I is capable of annihilating the Other. The next step would be the following: a few people with a high concentration of money, laying down the law to the majority and spoiling the environment of its resources.

 

There are two solutions to avoid this disaster: the first is destroying capitalism and adopting another economic model, communism for instance; the second is putting limits to capitalism itself. The former corresponds, in philosophy, to the annihilation of both the I and the Other, and to the birth of an anonymous subject; the latter would be the introduction of a different relation between identity and alterity, that is responsibility. If neglecting ethics is destroying capitalism, adopting ethics will save it.

 

 

2. A general lack of ethics

 

The present economic crisis is the symptom of a disease. Capitalism could be seen as a living organism, whose childhood, adolescence and youth were quite healthy. Some temporary illnesses, as the crisis of 1929 and the post-war situation, did not destroy it. Capitalism is, at the moment, in its maturity. After a fast and flourishing growth, it took a definite shape: at the top there are the investors (individuals, private and public institutions), who finance with their money the whole system; they fund producers and providers of services, who distribute their products and services through mediators and sellers; in order to produce, sell and put in operation, a great amount of manpower (workers and employees) is necessary; at the end, there are the consumers, who buy products and services. Every element of capitalism has to work correctly, like the organs in a living system. If one of them has problems, it affects the other elements and the system collapses.

 

Capitalism is presently affected by a disease and is in great danger. The most acute stage passed away, but the organism is not regaining its health. First of all, it is necessary to identify the illness and the affected parts of the organism. Fortunately, the diagnosis is not difficult: the crisis started from financial institutions and companies (Lehman Brothers and Bernard Madoff Investment Securities, for instance). Their collapse created a sudden lack of money and damaged producers, providers and money savers in general. In this way, there were indirectly affected also mediators, sellers, workers and employees, who saw their revenues decreasing or vanishing. And, since every member of the system is a consumer, products and services were bought to a lesser extent. The crisis of consumption caused, on the other hand, a new crisis of production and service-providing[9]. It is a vicious circle generating a gap between the majority of people, who progressively lose their wealth, and a few people, who hold money and power. This gap already exists, but is becoming greater and greater.

 

The crisis is due, primarily, to the heads of financial capitalism, but it would be a mistake to blame only them. There are also other people who are responsible in a similar way, people who hold a great amount of money and power: executives and owners of national and multinational companies, big traders and mediators. In Italy it happened, for instance, that Calisto Tanzi, President of the food company Parmalat, was guilty of bankruptcy fraud and criminal association. His immoral policy, nourished by the connivance of some politicians and bankers, led to the ruin of a great number of investors. The bankruptcy happened in 2003, four years before the collapse of the subprime mortgage market in the United States. Then the current crisis came, as a product of a diffused malpractice. When powerful people do not behave in a responsible way, they create a great damage to society. The crisis is not the disease of capitalism, but a serious symptom of it: the disease is what produced the crisis itself, that is a general lack of ethics.

 

Before giving a definition of what ‘lack of ethics’ means, it is necessary to define ethics itself. Capitalism is seen, in this paper, as the economic expression of the Ego of onto-theology. According to Levinas, the guiding principles of the Western I are intentionality and freedom: the former is a grasp of what is external to the subject; the latter is the ability to act through free will. Levinas takes position against Husserl, the father of phenomenology and of conscience as intentionality[10]. Even if his criticism could be considered exaggerated (Husserl had no intention to theorize a ‘tyrannical subject’[11]), the author of ‘Totality and Infinity’ is extraordinary in delineating ethics.

 

Morality is not added to the preoccupations of the I, so as to order them or to have them judged; it calls in question, and puts at a distance from itself, the I itself […]. The “vision” of the face as face is a certain mode of sojourning in a home, or […] a certain form of economic life. No human or interhuman relationship can be enacted outside of economy; no face can be approached with empty hands and closed home. Recollection in a home open to the Other –hospitality – is the concrete and initial fact of human recollection and separation[12].

 

Levinas points out the ‘separation’ between the Ego and the Other: the latter is not an alter-ego, another subject, but someone radically different. The other person is irreducible to the Ego. Notwithstanding this separation, there is an original relation between them: the subject approaches the other person in a particular ‘economic’ way. Since ‘economy’ means ‘management of a household’ (from the Greek words oikos, ‘house’, and nomos, ‘law’ or ‘rule’), every relation with something or somebody has to do with interiority. While the objects are included in the domestic dimension of the subject (as nourishment, tools or furniture), the other person cannot be grasped. The interhuman relationship is hospitality, is opening one own’s doors to the other.

 

According to Levinas, ethics is not only reception, but also responsibility. The identity of the subject is orientated to the alterity of the other, ‘without a prior commitment’[13]. Responsibility precedes freedom, it is independent from every choice. One is responsible of the other ‘despite oneself’[14], thus nobody can avoid responsibility.

 

From the economic point of view, it is a very important principle: it is not based on what one ‘chooses’ to do, but on what one ‘is’. Applying Levinas’ statements to capitalism, one could say the following: if one ‘is’ richer and more powerful, then one ‘will be’ more responsible, despite one’s choices. It does not mean that freedom is not important, but that responsibility founds freedom. Responsibility is the moving principle of ethics, while freedom is what makes it concrete. Behaviour depends on free will, which acts ‘according to’ or ‘against’ responsibility. This is the reason why a single action or a whole behaviour is responsible or irresponsible. Shortly, if ethics is based on responsibility, then moral activity will be responsible and immoral activity irresponsible.

 

Adapting Levinas’ phenomenology to economic analysis, one could state the following: intentionality and freedom exactly correspond to the ‘private ownership’ and ‘free market’ of capitalism. They are based on egotism and on an instrumental relation to the other. If egotism coincides, in capitalism, with obtaining profit, the other will be seen as a mean to make money. This relation to the other is absolutely unethical. Ethics, instead, is moved by responsibility and sees the other as the main addressee of action.

 

However, Levinas’ thought is too radical to be concretely applied: according to him, the subject should give itself unconditionally, because it is guilty from time immemorial[15]. Levinas’ ethics is oriented to non-reciprocity and, economically speaking, it is inapplicable. In order to move the market, a balance between one’s needs and the others’ needs is necessary. It would be better, in this case, to follow Ricoeur’s reciprocal ethics: one should see ‘oneself as another’, that is an intimate implication of otherness in identity[16]. Ethics requires both an original relation to the other (Levinas) and a practical bi-directional attitude (Ricoeur).  

 

The Golden Rule and the imperative of the respect owed to persons do not simply have the same field of exercise, they also have the same aim: to establish reciprocity wherever there is a lack of reciprocity[17].

 

The keyword is ‘respect’: respect of every person as the aim of morality, respect of oneself and the other in the same amount (it recalls the Christian principle ‘love your neighbour as yourself’[18]). ‘Reciprocal’ does not mean ‘claiming something in exchange’, since the logic of ‘exchange’ is based on egotism. Reciprocity is seen as a bi-directional respect, towards oneself and towards the other.

 

At this point, if ethical behaviour is respectful, unethical behaviour will be disrespectful. Unethical behaviour could be defined as a certain number of actions, fulfilling one’s aims and directly damaging (or putting in danger) the other. ‘Directly’ means that there could also be indirect consequences of one’s own action, not imputable to the agent. Unethical behaviour means betraying one’s responsibility towards the other. Phenomenology usually considers the other as ‘the other person’, but human actions do not effect only people. The other could be a human being, as well as an animal or the environment. They cannot do anything ‘in exchange’, but it does not matter, since reciprocity, in this case, does not involve exchange.

 

A concrete example of what unethical behaviour means is given by various bankers in the United States and United Kingdom. During the economic crisis, they violated ethics in this way: through ‘deception’ and ‘half truths given to authorities’ (lying), ‘violation of securities legislation’ and ‘allegations of fraud’, ‘misleading balance sheets’, promoting an ‘excessive bonus culture’, ‘ignoring internal corporate risk controls’, ‘conflict of interest’, ‘undue short-terminism’, ‘excessive risk-taking’, ‘callousness towards impoverished home owners’, ‘over-concentration of economic power by large banks’[19].

 

These actions are directly imputable to bankers, who violated both ethics and law. In this way, they caused a great damage to society, especially when financial institutions collapsed. Having an over-concentration of economic power gave an enormous amount of responsibility to the bankers, who used it, paradoxically, to escape responsibility itself.

 

Marx thought that the crisis of capitalism depended on over-production and concentration of money in a few hands[20]. The evolution of capitalism through financialization, together with globalization, changed the economic situation. The current crisis is not due to over-production, but to an indiscriminate pursuit of money. Capitalism is in danger not for its dialectical movement, but for a lack of ethics. The moving principle of ethics is responsibility, so ‘lack of ethics’ means ‘violation of responsibility’. Moreover, everyone is responsible of oneself and other people, and more power means more responsibility. For this reason, a lack of ethics is worst in powerful people than in common ones, because the consequences are more serious. An ethical revolution is then necessary and has to involve, primarily, the higher levels of the economic system.

 

 

3. A Phenomenological perspective on ethical revolution

 

An ethical revolution could be considered from several points of view. In this paper, a phenomenological perspective is adopted. ‘Phenomenology’ is here considered as an equivalent of ‘egology’: everything is considered, perceived, and felt ‘in first person’, from the point of view of the subject. On the ethical side, it has some interesting consequences. First of all, phenomenology claims an original responsibility towards the other.

 

The knot tied in subjectivity, which when subjectivity becomes a consciousness of being is still attested to in questioning, signifies an allegiance of the same to the other, imposed before any exhibition of the other, preliminary to all consciousness […]. This allegiance will be described as responsibility of the same for the other, as a response to his proximity before any question[21].

 

Ethics does not ‘proceed’ from consciousness, but ‘precedes’ it. The human subject has a moral character, so that he cannot avoid responsibility. The latter is part of his ontological (Levinas writes ‘pre-ontological’[22]) constitution. The subject is introduced, from its birth, in a relational world. When it lives distant from people, it is related with animals and nature. Loneliness is nothing but an abstraction. Using Sartre’s words, ‘the fact of the other is incontestable and touches me to the heart’[23]. Human beings are then relational (not only social) beings. The way in which they interact is based on responsibility. From the economic point of view, it is very important, because it implies the following: no one can avoid responsibility towards the other. An economic subject is responsible of the strategy chosen, of its application, and of its consequences. Violating responsibility implies paying for one’s own mistakes.

 

A second consequence of a phenomenological perspective is the singularity of both the ego and the other. Every subject has a common core[24], typical of human knowledge, perception, and feeling, but a concrete ego is absolutely unique. Moreover, it relates to an other who is absolutely unique as well.

 

Reason presupposes these singularities or particularities, not as individuals open to conceptualization, or divesting themselves of their particularity so as to find themselves to be identical, but precisely as interlocutors, irreplaceable beings, unique in their genus, faces[25].

 

Ethics refers to singular beings, either subjects and addressees. Every ego is different and relates to a different other. From the ethical point of view, no one can be replaced in assuming responsibility. Every person, here and now, is called to an original relation to the other. This relation does not consist in universal principles, belonging to universal subjects, and applied to universal addressees. Phenomenology does not theorize either norms, or rules. It does not matter ‘what’ the subject does (‘this act’, ‘that act’), but ‘how’ it does it (‘respecting’ or ‘not respecting’ the other). An ethical behaviour is that which follows one’s original responsibility towards one’s concrete neighbour.

 

In capitalism, it means that every single member of the system (executive, trader, worker, employee, customer) is not responsible for what the others do, but for what he or she does. The amount of responsibility is greater according to the amount of money and power one has. If, for instance, an employee behaves in a bad way towards a customer, he or she will have to pay for his or her single action. If an executive adopts an irresponsible strategy, he or she will have to pay not only for the action, but also for all that follows. In the case of people with great power, a single mistake has many consequences and involves many people.

 

Thirdly, phenomenology avoids two kinds of danger: anonymity and alienation. The uniqueness of both the ego and the other preserves them from the tyranny of universality. From the philosophical point of view, the singular avoids a subordination to the Same (or Being, or Spirit)[26]. In economy, it gets away from Hegel’s ethical State and Marx’s socialism. The difference between the former and the latter is that Idealism maintains private property, while communism abolishes it. In both cases, the ‘good’ of individuals is established by State institutions, which manipulate everything, from the economy to private life[27]. Equality is guaranteed, but at the price of making individuals anonymous beings.

 

Phenomenology also helps against alienation. In this case, it is better to adopt Ricoeur’s version: the thought of Husserl is inclined to alienate the other (‘all that which holds for myself holds, as I know, for all other human beings’[28]), while Levinas risks to alienate the subject (‘the-one-for-the-other goes to the extent of the-one-being-hostage-for-the-other[29]). According to Ricoeur, oneself is seen as another, implying respect on both sides.

 

This ethical principle is necessary to heal the plague of capitalism, that is the alienation of a part of the system. Marx thinks that there are only two classes, oppressors and oppressed. The former are capitalists, the latter proletarians. Workers are alienated by owners of companies, who make profit with the exploitation of proletarian labour[30]. However, financial capitalism is characterized by a more complex structure. Alienation usually concerns the parts of the system who own less money: workers, employees and small businessmen, for instance. Phenomenology leads, in its ethical and reciprocal form, to a balance between stronger and weaker members of the system.

 

Ethical capitalism, that is capitalism passing through ethical revolution, is a third way between communism and classic/financial capitalism. The former reduces all subjects to anonymity, the latter is a source of alienation. Phenomenology theorizes uniqueness (Levinas) and reciprocity (Ricoeur) between the ego and the other.

 

Fourthly, a phenomenological perspective warns against a pseudo-ethical behaviour. ‘Being ethical’ does not mean ‘having an ethical coat’. There are companies who put ‘something ethical’ in their product or in their policy, in order to attract investor, partners or customers. For example, an enterprise produces part of its eggs, breeding hens in open air. In this way, it attracts people who are sensitive to the living condition of animals. These customers will pay a higher price to buy this kind of eggs. However, there are also people who are content if hens are not in cages, even if they are bred indoor. And there are customers who do not care about animal conditions, but only about price. The latter will buy eggs produced by hens bred in batteries. This is exactly the case of the Italian company AIA:[31] its executives understood that better conditions for animals attract more customers. But the company is not moved by ethical reasons, otherwise it would limit the whole production to free-range eggs. Companies like AIA purely act for profit.

 

If the purpose of a behaviour is other than ethical, such a behaviour will be not really ethical. However, a moral appearance is useful to make money: being good pays. An ethical film enhances profit, even if the substance is unethical. First of all, not all the people are sensitive to moral behaviour, because most of them rather prefer to avoid an immoral behaviour. Secondly, they pay willingly an higher price up to a certain threshold (30%, 50% of sustainable production, for instance). This threshold is not clearly determinable and is different case by case.[32] This is why companies do something ethical, as much as it does not hinder profit.

 

Phenomenology rejects such a kind of behaviour. ‘Being ethical’ means ‘acting responsibly’. When a company follows a moral conduct, it does not limit itself to some good actions. Ethics is neither charitable, nor instrumental. An ethical producer of eggs, for instance, breeds chicken in open air, provides them with healthy food, leaves them space enough to live comfortably, heals them when they are sick, avoids to raise too many hens if good conditions cannot be guaranteed. This kind of behaviour is ethical because it respects both customers and animals: it provides buyers with eggs of the best quality and, at the same time, allows chicken to have a good life. This kind of behaviour is, philosophically speaking, oriented towards the other.

 

If moral behaviour is, on the contrary, money-oriented, it will not be moral at all. Since current capitalism aims to profit, it meets ethics only by accident. Ethics is usually a limitation to profit: the “obsessive materialism which capitalist economy promote is one of the weaknesses of capitalism when it is considered from an ethical point of view”[33]. An ethical behaviour is not necessarily ascetical and includes material goods and pleasures: in order to avoid alienation, the ego has to preserve itself. Capitalism does not purely promote self-preservation, but an indiscriminate pursuit of materialism. As the economic expression of onto-theology, capitalism is ruled by egotism.

 

Phenomenology goes beyond the tyranny of the Same, of the universal subject, of indiscriminate property and freedom. Stating the importance of ethics, of original responsibility, of uniqueness, phenomenology does not destroy the subject, but makes it ‘singular’. Definitely, it has to renounce to its tyrannical power, but not to itself. What is here suggested is not to alienate the ego in behalf of the other. Building one’s own identity is necessary to self-preservation and, moreover, to have ‘something to give’. If the subject is alienated, it cannot offer anything to the other. Ethics should not imply a fission of one’s identity[34], but an equilibrated inclination to giving.

 

The economic consequence of such a perspective is not the end of capitalism. If capitalism is based on egotism and egotism is ‘partially’ preserved by phenomenology, then capitalism will be ‘partially’ preserved by phenomenology. Phenomenology does not accept capitalism in its current form, because it is ‘wholly’ based on egotism, that is indiscriminate freedom and property. However, it accepts a different form of capitalism, which is only ‘partially’ ruled by egotism. This new kind of system is called ‘ethical capitalism’ and is based on respectful freedom and property.

 

Defining what is and what is not ‘respectful’ is the most difficult task to accomplish, due to the open character of phenomenology. Phenomenology is not a normative system, but a perspective. For this reason, it does not suggest a precise behaviour, but a different way to approach the world. Classic and financial capitalism are based on individual interest; ethical capitalism is based on responsibility. One’s freedom and property are not destroyed or ‘limited’ by the other’s freedom and property. One’s freedom and property is directed both to self-preservation and preservation of the other, that is the environment and its inhabitants. Ethical capitalism is not self-oriented, but other-oriented: it is directed both to the other and to the self as another. Responsibility is opposed to alienation, because it is bi-directional. This is why a responsible behaviour, on large scale, could save capitalism from its gaps and from its ruin.

 


[1] Cf. Hein, E., The Macroeconomics of Finance-dominated Capitalism and its Crisis, Cheltenham: Edward Elgar Publishing, 2012, p. 1.

[2] Smith, A., The Glasgow edition of the Works and Correspondence of Adam Smith, vol. 2a, edited by R.H. Cambell and A.S. Skinner, Oxford: Claredon Press, 1976, pp. 26–7.

[3] Cf. ibid.,  p. 456.

[4] ‘It is concentration of capitals already formed, destruction of their individual independence, expropriation of capitalist by capitalist, transformation of many small into few large capitals’ (Marx, K., Capital [Cap.], Volume 1, London: Lawrence and Wishart, 1954, p. 586).

[5] Epstein, G. A., ‘Introduction: Financialization and the World Economy’, in Epstein, G. A. (ed.), Financialization and the World Economy, Cheltenham: Edward Elgar Publishing, 2005, p. 3.

[6] In 1938, George Edwards already individuated finance as an element of instability: the current form of capitalism converts real equity in financial one. Edwards was even afraid of a conspiracy by financial institutions. See Edwards, G. W., The Evolution of Finance Capitalism, London: Longmans Green, 1938.

[7] Bishop, J. D., ‘Ethics and Capitalism. A Guide to the Issues’, in Bishop, J. D. (ed.), Ethics and Capitalism, University of Toronto Press Incorporated: Toronto-Buffalo-London, 2000, p. 4.

[8] ‘Ontology as first philosophy is a philosophy of power’ (Levinas E., Totality and Infinity: an Essay on Exteriority [TI], Duquesne: Pittsburgh, 1969, p. 9).

[9] For a specific description of this mechanisms, see Hein 2012.

[10] Levinas criticizes the thought of Husserl in several writings. Cf., for example, TI, pp. 109-110, 121-126; Id., Otherwise Than Being or Beyond Essence [OB], Dordrecht: Kluwer, 1981, pp. 8, 33, 63-66; Id., Discovering Essence With Husserl, Evanston: Northwestern University Press, 1998, pp. 74-75, 124-126, 176-177.

[11] Husserl considers the Other as an Ego-subject, but neither identical, nor subject to the Ego. ‘Each has its place from which he sees the physical things present; and, accordingly, each has different physical-things appearances. Also, for each of the fields of actual perception, actual memory, etc., are different, leaving aside the fact that intersubjectively common objects of consciousness in those field are intended to as to having different modes, different manners of apprehension, different degrees of clarity, and so forth’ (Husserl, E., Ideas Pertaining to a Pure Phenomenology and to a Phenomenological Philosophy, First Book  [Ideas I], The Hague: Martinus Nijhoff, 1982, pp. 55-56).

[12] TI, p. 172.

[13] OB, p. 153.

[14] Ibid., pp. 51, 54-56, 74.

[15] Ibid., pp. 26, 51, 87.

[16] Cf. Ricoeur, P., Oneself as Another, University of Chicago Press: Chicago, 1992, p. 3.

[17] Ibid., p. 225.

[18] Matthew 22:39; Mark 12:31; Luke 10:27.

[19] Thomas, R., ‘Ethics – or the Lack of Ethis – in the Global Financial Crisis 2007-2010’, in Rosamund M. Thomas (ed.), Business Ethics, Cambridge: Ethics International Press, 2011, p. 75.

[20] Cf. Cap., p. 587.

[21] OB, pp. 25-26.

[22] Ibid., pp. 43-44, 78.

[23] Sartre, J.-P-, Being and Nothingness. An Essay on Phenomenological Ontology, New York: Philosophical Library, 1956, p. 367. Even if Sartre is better known as an existentialist, Being and Nothingness can be considered as a phenomenological masterwork. Anyway, the constitutive inter-subjectivity of human beings was first stated by Heidegger, according to which ‘being-in-the-world’ (in-der-Welt-sein) is also ‘being-with’ (Mit-sein). Cf. Heidegger, M., Being and Time, State University of New York Press: Albany, 1996, p. 112.

[24] The phenomenological epoché, theorized by Husserl, searches for a pure consciousness, abstracting from the concrete Ego-subjects. ‘It therefore remains as the “phenomenological residuum,” as a region of being which is of essential necessity quite unique and which can indeed become the field of a science of a novel kind: phenomenology’ (Ideas I, pp. 65-66).

[25] TI, p. 252.

[26] Cf. TI, pp. 46-47, 143, 269-271.

[27] Cf. Hegel, G. W. F., Elements of the Philosophy of Right, Cambridge: Cambridge University Press, 1991, §§ 257-258; Marx, K.- Engels, F., The Communist Manifesto [Manifesto], New York: Russell and Russell, 1963, Chap. 2. According to Hegel, the State is the reality of reason and will, which coincides with individual freedom. According to Marx, communism implies centralization of credit, means of communication, production and education in the hands of the State. Both authors theorize, in order to guarantee equality, a strong Statism.

[28] Ideas I, p. 55.

[29] OB, p. 141.

[30] Cf. Manifesto, pp. 25-26; Marx, K., Economic and Philosophic Manuscripts of 1844, New York: International Publishers, 1964, pp. 108-111.

[31] Products numbered B5110, for instance, come from hens farming to barn, while B5114 are free-range eggs. The other products come from hens bred in batteries. This is why, in 2001, AIA was condemned by the Italian Antitrust. The company showed on its egg-packages images of hens eating on lawns and the proposition ‘uova fresche allevate a terra’ (‘fresh eggs bred ashore’). It could led customers to think that they were free-range eggs, while hens were crowded into big barns (intensive livestock farming).

[32] Cf. Trudel, R.- Cotte, J., ‘Does It Pay To Be Good?’, MIT Sloan Management Review, vol. 50, 2, 2009, pp. 66-68.

[33] Groarke, L., ‘Can Capitalism Save Itself? Some Ruminations on the Fate of Capitalism’, in Bishop 2000, p. 204.

[34] Cf. OB, pp. 49, 104, 141, 180, 185. 

 

Outline of Fading Empire

 

It is strange.

 

No-one knows how to present a worldview; where to start, what to say, where to stop.

 

The Big Book of Worldviews is a collection of failures. In each section the writing slips away.

 

They say that when writing slips away it leaves the process stranded on the surface of the sentences like ghosts.

 

When I open the book I find bookmarks and food wrappers, grocery receipts and other bits of paper, elements of the transactional frames that oriented previous readings.

 

Sometimes I use them to block out words. Other times I arrange them across the floor into a path: I imagine my carpet a swamp and jump across it; one, two, three.

 

But I do not go anywhere.  

 

There is nowhere to go.

 

I never lose myself in The Big Book of Worldviews. I’m always of aware of hanging in the air looking at worlds as if I am not in one. The longer I stay there the less I exist.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

There was a time we would find cars stopped in the road. Each was sealed up tight.

 

People gathered to look at the occupants suspended inside, their hair and clothing drifting about like seaweed.

 

I would say: The crisis poured through the radio and drowned them. Someone else would say: There is no crisis.

 

And we would go back to silent looking.

 

Sometimes there were one or two; others an entire neighborhood.

 

We never knew what happened.

 

After a while, we got used to it.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

When people finally rose up, they swapped foreground and background. The security apparatus took control.  They put the former leadership on trial.  They defined enemies and disappeared them.

 

They appointed a nice man to represent them. The nice man came on television and told the people that he loved them.

 

The people wanted to believe him. 

 

The people were wrung out.  

 

The people wanted normal. 

The revolution disappeared into archives, works of art that migrated to galleries and film festivals, reference points for popular songs and a fashion of being photographed in the same clothes and poses as before. 

Everything is as it had been. No-one has what they wanted. Every overlap of realities is thrust and parry. Everyone watches everyone and waits for a mistake.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Leader

 

 

 

 

 

The Leader sits in a chair. The Leader looks out a window.

 

 

That morning The Leader had been summoned to a meeting with the military high command.   He was surprised to see them in dress uniforms.


One said:   Those powers you granted yourself?  We don’t think so.

You can’t talk to me like that.  I am commander-in-chief.

Another: No you aren’t.

 


Later, the speech he gives will be the same speech as every other: democracy; enemies; emergency.

 

The crowd will be an orchestration based on the latest demographic information. Camera men and technicians will have compared angles and breadth of field against the event design. The way the crowd fills the screen will say: You, the nation, are watching: they, the others, are on the streets.

 

While the lighting designers make their final adjustments The Leader will rehearse the choreography of expansiveness and determination above an empty square.

 

A cue card will sit on the podium: Wait for the applause. Stand back. Let it sink in. 

 

 

 

 

 

 

 

 

 

 

 

 

 

Another night, the Leader watched himself on television.

 

Maintaining balance requires the temporary suspension of the pretenses of democracy until we can fashion an adequate framework for their return.

 

We are caught in Amorphousness.

 

Events hurtle forward.

 

We cannot act. We cannot fail to act.

 

As he watched the footage, the Event Choreographer gave him notes.

 

 

 

 

Now the Leader sits in a chair. None of this was supposed to happen

 

 

 

 

The Leader’s mind drifts.

 

Every afternoon, he passed by where she lived and every afternoon she was there. They looked at each other through windows.  

 

He wanted to stop and speak with her. But she made his mind go blank.

 

Rounding the corner he would imagine an alternate possibility.

 

I am here with nothing to say.  

 

That would not be good: at least not at first.

 

He kept walking.

 

 

 

 

 

 

 

 

 

Geography

 

 

 

 

 

 

 

 

The nation watches TV. It says everything is grand but in ways that show something has changed.

 

Legitimacy is a machine that spins: its motion is easy to maintain but difficult to restart.

 

 

 

The Leader is indecisive in a shifting situation. The deep state does not care what the direction is, only that there is one. The military tries to remain invisible. But it is waiting.

 

The perimeters of power are complexes of metal barriers and riot police.

 

 

 

Beyond them, when the people inhale they become one: when they exhale they scatter again. The hive mind that links them is buzzing. What will happen if we do not lose?

 

It is hard to imagine beyond what exists so what exists becomes the horizon.

 

 

 

Once magical workers created revolution in factories and each top-down party claimed to understand that better than anyone else. But no-one believed them.

 

There is always something you cannot see and something you make up to replace it.

 

 

 

 

 

 

 

 

 

 

 

 

The Leader

 

 

 

 

 

The head of the Leader is between her legs when the news begins.

 

He hears his name and constitution then he hesitates: she pushes his head closer and sighs.

 

There is an announcement of a referendum her movements intensify clips edited from his speeches she lifts herself from the sofa.

 

He no longer controls his image.

 

O how he tries to not think about that.

 

She pulls his head up by the hair like John the Baptist.

 

Seriously?  she says, pushing him back.

 

It’s important he says as she is standing up.

 

Wait for sports as she is walking away.

 

 

 

 

 

 

 

 

 

 

Much later, the Leader lay in bed watching Conestogas and other characters from dime store novels move through a series of Los Angeles canyons and justifications of genocide and thinks: Those people played the game correctly.

 

 

 

 

 

 

 

 

Referent

 

 

 

 

 

 

 

 

Then a team killed the referent. The war should be over.  The corpse was moved in hurried secrecy to an air base and flown from there to the capital. The order originated somewhere as if bureaucracy itself was acting on its own. 

 

When it arrives a group of high military officials enters the hum of the cooling system and neon buzz. They gather around a table in the center of the white cube and looked at the puffy bruised face poking out from the top of a strange green plastic bag.  

 

The refrigerated interior feels like the end of an era. 

 

Finally, one of the officials speaks.   There was a time when the head of the enemy on the end of a pike would be paraded through the capital in triumph.  

 

We have already had too much trouble due to breakdowns in packaging.  

 

This will not play well on TV. 

 

Gentlemen, we have reached a pass where achieving an objective is a mistake. A good objective must always race just ahead of us.  This situation can only be seen as an operational failure.   Our activities exceeded their ambit and have put us in an awkward position.

 

 

Later as a television story unfolds of surveillance technology and weapon systems, the strange green bag follows a ship’s anchor down and down through the depths of the ocean.  The order had originated somewhere as if bureaucracy itself was acting on its own.

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

This was our paradox: no course of action could be determined by a rule because any course of action can be made out to accord with the rule.  The answer was: if any action can be made out to accord with the rule, then it can also be made out to conflict with it.  And so there would be neither accord nor conflict here.

 

It can be seen that there is a misunderstanding here from the mere fact that in the course of our argument we give one interpretation after another; as if each one contented us at least for  moment until we thought of yet another standing behind it.  What this shows is that there is a way of grasping a rule which is not an interpretation, but which is exhibited in what we call “obeying a rule” and “going against it” in actual cases.

 

Hence there is an inclination to say: every action according to the rule is an interpretation.  But we ought to restrict the term “interpretation” to the substitution of one expression of the rule for another.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Splice

 

 

 

 

 

 

 

 

 

 

 

 

 

Sometimes the film breaks and the actors and actresses find themselves in the projection booth or wandering the hallway by the popcorn machine.

 

I herd them back toward the booth and tell them that if they stay put, I can get them back to their plotlines.

 

I admit that I may look at an actress and think that I would be just as open to physical expressions of gratitude as the next guy…but they look so bewildered and vulnerable.

 

Even I have limits.  

 

I make the splice and rethread the film. As the projector starts up again, I look away because getting absorbed in a loop is an intimacy not easily shared with a stranger.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balloon

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The television broadcasts game shows for their rules given in advance, commercials because you do not burn down the store if you do not like a dress, programs about the Leader for how it makes him sad to see his children unhappy and brief reports of clashes and casualties.

 

 

 

Beyond TV the streets go pop pop pop.

 

Paramilitaries move through neighborhoods.

 

Everywhere the teetering is palpable.

 

The Leader feels weightless as a balloon.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Do not look be fooled by shiny young things.

 

Do not be taken in by their promises.

 

They are dreamers. 

 

They do not know.

 

The Leader loves you.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Drone Operator

 

 

 

 

 

 

 

 

 

 

 

When I put on the goggles I become a god who watches over people in distant places. I get to know them through their patterns. I feel close. I do not want them to disappoint. My vengeance is implacable when they do.

 

On the way home I stop at the supermarket. The cashier asks me how my day has been. I do not know what to say. This morning I killed some people. So I smile.

 

I am quite apart.

 

When I need to get away I drive up into the mountains to the series of names that mark the edge of the world. Every time I stop I see snipers. They wave at me. I wonder who they are and where they come from.

 

I dream in infra-red.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Infrared

 

 

 

 

 

 

 

 

 

In my dreams I sense my extension.

 

I am subject and object, predator and prey. 

 

I am a meteor that shatters bodies and buildings.

I am the hell from war movies.

 

I am superimposed layers of time.

 

I am an infrared space of blood and spatter.

 

I am an anglerfish in an oscilloscope among maps of waveforms.

 

I am body parts that reassemble and dance.

 

I hear them howling into storms of noise.

 

I hang in the air and look at the world as if I am not in it.

 

The longer I stay the less I exist.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

I see everything there is flickering infrared.

 

I see the incantations of time.

 

I see the capital flows and voices that bounce between the satellites.

 

I see the mass dream, the spaces in which it is open and where it is policed.

 

I see city streets and moving cars, geographies of fracture and pain.

 

I see the transient gardens that teargas makes as it drifts through the air.

 

I see the neighborhood I am from flickering infrared.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Drone Operator

 

 

 

 

I watch barometric pressures form into aerial equations.

 

I adjust the tin foil on the rabbit ears.

Through intermittent squalls I monitor the arrangements of share prices.

 

 

 

 

Everything is lining up.

 

 

 

 

The electricity cuts out so I go walking.

 

The ground beneath my feet is peeling skin.

 

I stop by Asbestos Mountain to watch the wind, filigreed & black.

 

 

 

The sound of every passing tanker is a swirl of devils.

 

I pull my scarf around my face.

 

 

 

 

When Christmas lights repeat my house I go inside.

 

I pour a shot of whiskey and turn on the TV.

 

There is nothing on except game shows and war.

 

 

 

Billboard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Leader loves you from a billboard over a locomotive of cylinders, rods and diamonds with open metal spinning flower wheels that shudders a plane of smoke and indeterminacy through a network of electrical cables, cracking towers and tongues of fire. The Leader’s love is dense with tags. Here I am.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Geography

 

 

 

 

 

 

 

 

 

 

 

The Leader’s actions inadvertently revealed that power is held by the state: appointees control continuity; change is superficial.

 

That was not what the people wanted. It brought them onto the streets.

 

Now the perimeter of power is in the shifting battles among the barriers and tear gas.

 

The police break unauthorized cameras and observers.

 

The Nation watches official footage stream from their TVs.

 

Both People and Nation make themselves within circulations of images. Each image moves through a climate that aligns it with premises. The world is made from derived conclusions. The city intertwines them into accidental arrangements. 

 

Everywhere is the sense that something is slipping away. Everywhere is an image that circulates through particular spaces. Everywhere is ineffable. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Everyday life is walked across a net.  The ground on which the net was laid is dissolving. Everyone continues their routines. The net pulls around them.  They struggle to get out but their thinking is circular. No-one has a plan.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Journal of Failed Institutions

English Abstracts

 

 

 

 

 

 

An analysis of the implosion of traditional (Marxian) revolutionary theory by the withdrawal of consent in the context of overlapping top-down repetition based media environments. A description of how this rendered largely invisible the crumbling Marxist Imaginary. How this enabled such indications as did surface to be contained in the language of loss of faith. The implosion, which had multiple centers and which was spread over a considerable duration, crystallized at certain moments as something that had already happened.  There follows a brief consideration of the implications of a collapse of a sense of horizons that lay beyond the immediate.  The question is posed of beginning again.  The author has no sense of who he is talking to.  The considerations are vague.

 

 

 

This critical piece outlines the problem of analytic writing in a situation of ideological paralysis.  The position of the reader as one hanging outside the world affected by paralysis, reading sentences that assimilate it back into a meta-register that is not affected is discussed, along with the problem of how that register assimilates everything back into a version the same.  The more vexing question of how to proceed in the face of the above is outlined. But awareness of the contradiction between that project and the stated problem of analysis progressively undermines the writing and grinds the paper to a halt. 

 

 

 

A second piece by the same author takes up the problems of writing in a situation of ideological paralysis using less self-undermining premises.  The earlier position regarding analysis is retained as a structuring assumption. The project then moves through a series of spaces shot through with interference.  The results are indeterminate as to genre.  The argument, if there is one, amounts to: this is a mapping of paralysis. But a map is subject to interpretation, and the work of interpretation recapitulates the problem of analysis.  Perhaps the rejection of analysis is self-blinding. No good alternatives present themselves. The paper breaks off.

 

 

 

 

 

 

 

 

 

 

Geography

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In the beginning claims they made were ethical. We will bring the greatest good. We will bring prosperity. We will make you safe. These claims cannot be falsified. They are a tone of voice that invites you to survey a landscape of wreckage and see it as other than it is.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Event Choreographer

 

 

Q. How do you see your role as event choreographer?

 

For a major political event, the multitude that fills the screen is a composition based on the latest demographic information. The Nation sees itself watching. The Leader is a television Charlemagne.

 

In the control booth I conduct a symphony of video feeds and sound. My crew is most responsive. My movements, made continuous and unbroken, become the movement that links the many to the one to their destiny.

 

Of course, the importance of event design cannot be overstated: the set design and positioning of cameras, the hiring of the caterers and the small amounts of tranquilizers that we give spectators so they feel content during the expositions, don’t fidget about or show impatience, while allowing them to still get excited at the appropriate moments.

 

So we are meticulous in our preparations. Then we improvise.

 

It’s all about rhythmic continuity.  We do not impose it. We couldn’t if we wanted to. We find it. We bathe in it. The rhythm comes from the cycling of electricity and the pulses that move liquids through pipelines. These regularities are knit into the cadences of peoples’ speech.

 

People—communities—nations—-are figures spread out in time. These figures are rooted shared rhythms.

 

We merely condense and heighten them.

We do not exercise power. Power exercised is power made fragile.

 

We organize the dance of consent. 

 

 

Q. What do you think of the current unrest?

 

 

I do not watch events.

 

 

Q. Would you care to clarify?

 

 

We are not concerned with details.   We do not provide messages. We leave that to the private sector.

We encourage the multiplicity of positions. We encourage debate. At times that debate spills into the streets. This does not perturb.  

 

 

We do not want to dominate. Domination is inefficient. We simply maintain boundaries.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rumor of Arbitrary Disappearances

 

 

 

He was moving among the exploding snakes of tear gas when they came.

 

He was pushed into the back of a car.

 

A rag was stuffed over his face.

 

When he awoke was blindfolded.

 

He could feel handcuffs and leg irons.

 

When they stood him up, they removed the blindfold.

 

Someone said: The decision taken here will be immediately carried out.

 

Now he has been walked to a gathering by a fire.

 

Standing on a beach watching shadows huddle around a table, he imagines himself feeling his way along the end of this dreamtime until he finds a seam and climbs through it to the space occupied by the story with respect to itself and becomes one with the narrator who sees without himself being seen.

 

He looks toward the edge of a black plastic sea.

 

A call will arrive: they will say “Keep an eye on him” and drive away in their cars. In the confusion he will use the key George Washington gave him to unlock the irons and slip away, running until he hits the edge of continuity like a bird hitting mirrored glass.

 

He stands flanked by two men with another behind him.

 

One of the people by the table turns and addresses him.

 

You have been chosen by lot.

 

It does not matter who you are.  

 

He watches the mouth of the Other move.

 

He can no longer speak their language.

 

Tranquility courses through him.  

 

Perhaps he has already escaped.

 

He cannot move his arms or legs.

 

He looks up into a night full of waver.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Geography

 

 

 

 

 

 

 

 

 

Everywhere you look you see Bartleby blocking traffic, Bartleby obstructing trade, Bartleby violating the prerogatives of private property, Bartleby inconveniencing with his I would prefer not to, Bartleby who does not want anything except to embarrass the regime.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The State of Emergency Show

 

 

 

The set design and reddish-brown lighting gives the theater the feel of a tavern scene from a Pieter Breughel painting.

 

The actors sit around a table, drinking and playing cards.

Soon an actor stands and moves to the foreground. He says:

 

The State of Emergency Show started long ago and there is no end in sight.

 

We have reached the end of one cycle. Here another begins.

 

 

As you can see, we sit around a table playing a game of cards. Who speaks and what they say is determined by the game.

 

We are a map of the world. We restate what everyone knows using an ontology particular to ourselves.

 

Security representations exclude security: we map security back in.

 

The military writes itself into the landscape: we erase the landscapes around them.

 

We are a state of exception: we are coterminous with everyday life.

 

 

Feel free to come and stay as long as you like. Or go do other things and return.

 

We will still be here.

 

If you feel inclined to come up on stage, we will deal you in.

 

That is how we grow and change.

 

 

There are rumors that we drink heavily throughout our performance.

 

I assure you those rumors are greatly overstated.

 

 

The actor smiles and holds up a tankard in a toast.

 

Welcome.

 

The actor sits at the table.

 

The card game continues.

 

 

Soon another stands, obviously drunk. The other wears a general’s hat. He says:

 

 

We are the nervous system of the nation-state.

 

Our activity is the container within which social being unfolds.

 

We are the present that monitors the present.

 

Because the enemy is probabilistic we hold up algorithmic mirrors.

 

We wait for the enemy to appear.

We are continuous war.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Elsewhere

 

 

 

 

 

 

 

 

 

 

 

 

 

Elsewhere is a low-rise facility in which the new invisible proletariat moves metal tubes through work stations, cutting them to spec and bending them a few degrees to the left. Elsewhere is a resort where she lay on a chaise lounge watching walls of water move like solids until the surface tensions fracture and the wave collapses into a clap, each followed by another message to decipher as you reach for your mojito and look the length of her legs, your lingering on an arrangement of moles accompanied by a clap of collapse and she turns to look at you from behind sunglasses that erase her eyes and replace them with holes.

 

Elsewhere is the containers that arrive for famine relief filled with left plastic stiletto heeled shoes and millions of razor blades because you know how easy it is to break a heel in a drought and a gentleman needs to shave. 

Elsewhere is an arrangement of people wearing business suits who sit in lotus position along a low-tide line, eyes closed, jackets and ties adrift in the rising water, waiting for something to occur to them.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Leader

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Before The Leader was The Leader, he looked and looked for something until he forgot what that something might have been.

 

But he continued to search for this thing that he had forgotten and emptied himself out in the doing. He made himself a function. Now situations define him. He becomes what you want to see.

 

But I feel The Leader dissolving. Consent will not be orchestrated.   There was a referendum and no-one voted.   Such stubbornness and ingratitude after all I’ve done.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Geographer

 

 

 

We look for what is hidden in plain sight like those drone operators who find themselves in front of the infrared exoskeletons of the world they are from searching for the points where a bureaucratic reality intersects with the enemy’s horizontal surfaces.

 

There are no secrets. 

 

Consider the national security state.  We know that it is sphere whose center is everywhere and circumference nowhere. We could map its extension, but the map would be endless. We could say what it costs, but the tally would be infinite. So there is no interest in knowing.

 

Concealment is needless expenditure.

 

 

 

 

 

The state allocates funds for our use, so we make the geography of institutions.

 

We gather data from e-book readers and cell phones to construct maps of the ways ideas move around.  

 

At first we said: We know who reads what and where. We have abstracted figures and made them actionable. If X performs the movements that associate him or her with an idea dangerous to the state, X becomes a target.

 

But Ideological Forensics declared that an outmoded approach.

 

 

 

 

 

Now I maintain the database on my own: I chart the dances of activation and forgetting, sedimentation and variation and watch the world being made and remade there.

 

 

 

 

 

 

 

 

Square

 

 

 

 

 

 

 

 

 

 

 

 

 

The presidential palace is a network of barriers, a grove of antennae, a backdrop for broadcasts, a bristle of weapons systems, a knot of transmissions, a skein of referrals.

 

The presidential palace is simultaneous press conferences, gatherings of courtiers, images that were to be sent to mobile editing rooms replaced with the pre-packaged interactions provided by the helpful persons of the Press Office a real time saver, they say, we know how busy you are with all that breaking information and the doorways you must stand near in case the Important walks through.

 

The central square is jammed with people in the swelter and traffic and dust and the messages that transform it from one kind of space to another, from circulation to liberation, continuity to refusal by a reversal of polarities.

 

She is drawn to the swirling energies. A radiant moth she relays slogans. She moves discussion to discussion. She takes it all in. She works her way to the front lines of confrontation with the police. She looks around for informants. She thinks: Half of these people work for the FBI.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Detail View

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Like all of us he finds himself in an environment of video feeds, tracking signals and monitored written communications all packaged as benign concern. It’s for your own good. You’ll never go missing.

 

He is shaped by economic conditions and adaptation toward the elimination of what is unnecessary. The restriction of his movements is accompanied by increasing pressure.  

 

Late at night over a bottle of bourbon he plays a game of Russian roulette.   When he loses, no electronic devices will signal: no-one will be notified; no search parties sent out. He will become details spattered about a room, invisible as the corporate persons who hide among the tax havens.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Secret Lives of Generals

 

 

 

Accompanied by a wave of silence and another of flashbulbs, The Leader enters the press conference.

 

The prepared statement he reads is the same as every other: democracy; enemies; emergency.

 

The networks had preceded the event with grainy photographs by swimming pools and chains of compromising text messages.

 

The reporters want to know about the secret lives of generals.

 

The Leader talks about strides forward how we are all in this together.

 

But the secret lives of generals will not go away.

 

He adheres to the strategic line of not dignifying with a direct response

 

Inwardly, The Leader is pleased.

 

The press conference is being carried live.

 

 

 

 

 

 

 

What offended were not the indiscretions but their banality.

 

Risking everything should be beyond vanilla sex and protestations of undying love with interns who treat their situation like a Cotillion.

 

The Generals should be more something: more imaginative; more intelligent; more ruthless; more amoral.

 

That would justify the arrangements.

 

But The Generals did the same thing The Leader would have done.

 

It ran against his sense of hierarchy.

 

 

 

Advertisement

 

 

 

 

 

 

The Leader in a series of business suits steps down from a series of helicopters. 

 

 

The Leader is a lifestyle. 

 

He is in demand. 

 

The Leader is the guest of honor at parties. 

 

He is the center of attention. 

 

The Leader makes friends and influences people. 

 

He elicits the yes yes response.

 

The Leader reads Machiavelli on the weekend.

 

He drives a little red corvette.

 

The Leader is modest about his accomplishments. 

 

He struggles with golf.

 

 

The Leader is different because he loves you. 

 

The Leader loves you because he is you. 

 

 

 

 

 

 

 

 

 

Tract

 

 

 

 

 

 

 

The Empire talks of freedom but relies on debt peonage to force open markets for agricultural overproduction.  So freedom means freedom from necessity for shareholders in the corporations that benefit from this arrangement.  The Empire is built on weapons sales. When a war breaks out involving those weapons, The Empire dispatches negotiators most attentive to detail and process to broker a slow end to hostilities. These negotiators act as if they know nothing of how the weapons systems used by the combatants came to be in that place.The Empire is a maze of bounded rationalities within which well-intentioned people carry out well-intentioned policies to the exclusion of feedback loops that would connect them to outcomes.  The Empire is spaces made of mirrors.The Empire devotes most of its resources to the elimination of The Enemy.  The Enemy is the consequence of the Empire’s actions.  The Enemy will never be eliminated. The Empire is a war on itself.

 

The Empire does not record its deterioration.  It leaves that to the servants who archive things. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interior Ministry Note:

 

This tract was found on the streets in front of the Presidential Palace.

We have it on reasonable authority that it was written by one of our people.

 

Outline of Fading Empire

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In the waning days the old stories do not hold.   In the waning days language becomes thin and ghostly. In the waning days none of this registers. In the waning days people cling to routines.

 

In the waning days, trapped inside obsolete maps that distinguish up from down and figure from ground people see the world as given in advance as what is slipping away.

 

 

Brian Lucey, Charles Larkin and Constantin Gurdgiev (eds.) What if Ireland defaults? (Dublin: Orpen Press, 2012)

 

 

There is a story to be told about this turn of events; both a general story about crises in the capitalist system, including this particular crisis, and also about how the crises have unfolded in particular countries. When I talk about crisis in this review I am not referring to the Euro crisis but to the banking crisis.

 

It is worth pointing out at the beginning of this review that it is a significant fact that a number of countries have avoided this crisis even though they have been affected by it as, I guess, every country in Europe at least has been. The Scandinavian countries, Norway, Sweden, Denmark and Finland have been able to avoid this crisis and the same applies to Canada. Finland has adopted the Euro and is having problems because of it, but all the four Scandinavian countries had learnt their lesson from their banking crisis in the early 1990s and managed to avoid all the pitfalls in the time leading up to the banking collapse in the autumn 2008. The key issue seems to have been a close monitoring of their banking systems and a tough management of the system by the state. It seems to me that the role of the state is probably the most important issue in this crisis. In the decade leading up to 2008 it seems to have become an accepted orthodoxy that somehow the market system needed only a minimum of regulation and was self-perpetuating. If there is any fairly clear lesson to be learnt from this crisis it is that this orthodoxy is a myth. The state is the most important institution for a well-functioning market, not because the state should regulate every minute detail of the market, but because the state must put in place a good legal framework, close monitoring and the willingness of the institutions to use those powers supplied by the state to control the financial market.

 

The other option is to leave the financial system to its fate in the market, so that the banks and other financial institutions can collapse and become bankrupt like any other business. It is an interesting fact that no government in Europe or North-America was willing to do this. There are various reasons for this but the two most important ones seem to me to be:

 

(a) First, the risk of contagion, meaning that when one financial institution falls the confidence in the others falls sharply, so that a bank that is in no way insolvent can suddenly become so because people do not trust it any longer. This does not happen in other markets: If a building firm collapses other building firms are not in danger of collapsing and the same does seem to apply generally to the manufacturing industry. What is so special about banks? The reason why financial businesses are not in this position is because they rely so heavily on trust in their operations. A bank is not like a library where money is stacked on every shelf, because the money that you put into your account the bank lends to somebody else, who is willing to pay the interest the bank asks for. So at any time there is only a tiny portion in the bank of the money people have put into it. If there is a run on the bank, it cannot pay all the owners of current accounts their money, even if it is in perfect order. That is the basic reason why we need central banks, banks that lend to other banks, when for some reason or other their own money does not suffice.

 

(b) The second one seems to me to be the fact that banks have become so important for the everyday life of ordinary members of the public that no government can leave the bank system alone. The smooth running of the banking system has become a matter of security for the public and government is responsible for public security. If government is found wanting in public security this can easily lead to public unrest. This fact, that is, the centrality of the banking system in the life of the members of the modern public is usually overlooked when examining the financial crisis and its importance. 

 

This book explores what would happen if Ireland defaulted, did not pay any of its debts, only paid some, or paid most of them but not all. It seems to be the case that it will in all probability be impossible for the Irish state to pay all of its debt, because the Irish state decided to underwrite all of the debts of its banking system when it was grinding to a halt. This has had the consequence that public debt in Ireland is so large that it prevents the growth of the economy. Also, since Ireland decided to take up the Euro, it does not have the option of devaluing its own currency. So all roads to renewed profitability are paved with serious difficulties. This does not mean that it is impossible, but it will take a long time. The default of a sovereign state is not the same as the bankruptcy of a large business. It is much more complicated and serious, especially for the citizens of that state. All this is examined in this book.

 

The book is in four parts. The first part is general, where the authors explore research done on crises and contagion and there is a description of the problems facing Ireland and the possibilities the state has in its public finances. The second part consists of four essays on various aspects of the Irish financial crisis. It will probably have to restructure its debt and this will have to be selectively done; the public debt is analysed and it is discussed if the Irish state will be able to finance its public debt on the market when it returns there or whether the interest rate that the market requires will be unsustainable. One essay explores how Ireland´s problems are connected to the problems of the Euro. The third part collects five reflections on financial crises in other countries: Russia, Iceland, Argentina and New York. The fourth part is a collection of essays from various Irish perspectives on the debt and possible default of the Irish state.

 

This is an important book that deserves to be widely read. Every essay adds something to the panorama and at the end the reader is in a better position to evaluate the possibilities. The viewpoints are clearly expressed and well argued and even though acronyms are to be expected in this field of research they are kept to a minimum and should not prevent understanding of the issues. The arguments expressed here have relevance for many states in Europe at present.

 

 

 

 

Jonathan Schlefer, The Assumptions Economists Make (Cambridge, Mass., and London: Belknap Press of Harvard University Press, 2012)

 

Indeed, a culture of superficial self-examination is laid bare in Jonathan Schlefer’s monograph The Assumptions Economists Make. Moreover, he provides evidenced accounts of confirmation bias, forgetfulness, denial, indifference and outright ignorance permeating mainstream economic theory and practice. So extensive and consistent is this across both centuries and organisations that it suggests some form of institutionalised mass delusion. Neither a critic of, nor an apologist for capitalism, Schlefer is really an old fashioned seeker of truth and knowledge. He is more interested in how economists think, than in the ‘causes’ of the crisis. In this sense, he is taking a step back to look at how theoretical arguments are made in economics, and how the discipline functions as a crucible for truth. Schlefer is a political scientist who ‘took several graduate-level courses in economics at MIT and Harvard, multivariate calculus and all’. In this way, the Harvard Business School research associate offers us the penetration of an outsider, who is nonetheless both informed and connected.

 

Economists, he says, form simplified assumptions which they use as the foundations for imaginary worlds. These ‘models’ are used to draw practical lessons: the bedrock of policy. Schlefer intends to explain to us their various structures such that we can more fully understand key disputes in economic theory. Since he does this without mathematics, he is surely translating for a non-economist audience. Instead of equations and graphs, Schlefer describes each model using simplistic metaphors and analogies. It is nonetheless complex material that requires work, so this is unlikely to appeal to the majority of the general public.

 

Schlefer focuses on each model through the lens of its assumptions, so he renders its structure objectively, in its advocates’ own terms. Set in their historic social, political, economic and theoretical contexts, their assumptions also indicate how theorists interpret their world. Schlefer uncovers the mode in which they build from this in order to draw conclusions and make policy. He thus critiques the plausibility of their assumptions, their methods of reasoning and the validity of their conclusions. A largely chronological succession of economic models is scrutinised in this way throughout chapters three to fourteen. However, they do not form a comprehensive history of economic theory. Rather Schlefer deconstructs only a selection. Through these he traces the ancestral line of economic thought leading to those current models most pertinent to the crisis. Schlefer thus shines a light not only on individual theorists’ thinking, but also on distinctive styles of reasoning across time. He peppers this chronology with copious references to economic policy and education.

 

Before commencing his central work, he frames it thematically with two quite explosive opening chapters. An almost always unstated assumption he says, indispensable for dominant mainstream theory and free market policies, is that Adam Smith’s ‘invisible hand’ is an authentic mechanism which, if left alone to function, inevitably leads markets to an optimal equilibrium. For some three decades now, Dynamic Stochastic General Equilibrium (DSGE) models have dominated academic, commercial and government circles throughout the West; notably among central banks, which still use them. This is despite the fact that their ‘invisible hand’ foundation has been proven to be not a mechanism, but a mere metaphor. It was generally concluded in the 1970s, Schlefer says, that ‘no mechanism can be shown to lead decentralized markets to equilibrium’. His opening chapter takes us through a century of failed attempts to model the ‘invisible hand’, examining in depth the canonical 1954 Arrow-Debreu model and its dozen preposterous assumptions, on its own terms. How is it possible, Schlefer asks, that a ‘supposedly scientific theory’ can be ‘founded on pure faith’ in a discredited metaphor?

 

His second chapter turns to education, arguing that while the history of economic thought has ‘all but vanished from graduate programs’, the most successful economics textbooks seem little more than ideological propaganda. He shows them consistently excluding facts, contradictions and complications. Those textbooks which do discuss such inconveniences are ignored or, in one shameful episode, withdrawn by university departments following financial pressure from ideologically motivated external donors. Schlefer also shows how textbooks and courses blur the distinction between two-dimensional abstract models and reality. Some students, he says, ‘feel cheated, as if they were watching a magician put on a stage show, the workings for which are hidden out of sight. Others like the stage show better than the messy everyday world’.

 

As Schlefer works through the models, reality’s ‘messiness’ seems to provoke two styles of theorising. It is acknowledged by classical theorists through Keynes to the structuralists and ecologists: economy is bound up with society and technology. This seems to connect with the emerging interest in complexity theory, briefly covered in the final chapter. Conversely, for the early economist-politicians, neo-classical theorists and monetarists, messiness is avoided: economy is an isolated object. Their exclusion of fuzzy interdependencies underpins today’s DSGE models. These assume that economies are autonomous objects, thwarted from reaching their mythological equilibrium by ‘external’ shocks.

 

Schlefer’s fastidious dismantling of each model’s nuts and bolts locates errors in reasoning across the board. However, most of many implausible assumptions, tautologies and examples of circular logic are shown to be among neo-classical models and their descendants. Despite their claims to scientific veracity, Schlefer exposes an unbroken history of convenient invention. Repeatedly, he shows exemplifies how DSGE models are constructed on an historical pedigree of unexplained workings, misrepresentation, obscurantism, bogus or bizarre claims, arbitrary labels, unexplained magical forces, misleading arguments, false conclusions and illegitimate revisions. Proofs against their invented mechanisms are routinely forgotten or ignored, which Schlefer often finds ‘strange’, ‘weird’ or ‘mind-boggling’. Such practices culminate with the ‘shoehorning’ of Keynesianism into neo-classical models to form a basis for DSGE modelling. This assimilation is largely prompted by rational expectations thinking and constructed on the idea that ‘aggregated’ macroeconomic models can truly represent their microeconomic siblings. Schlefer tears it apart.

 

Teeming with jargon and frequently contested, misappropriated or distorted meanings, a non-economist can soon become lost. This demands exceptionally clear writing and here Schlefer could do better. His historical accounts and anecdotal examples are breezy, but his technical material requires intense concentration. This is not helped when model evaluations are interwoven with complex discussions on policy. Separating them would aid clarity. The exclusion of mathematics does make this wonderfully accessible, but Schlefer’s excellent metaphorical descriptions of models might be easier to absorb with just a few simple, non-mathematical illustrations. In-text cross-referencing would help us to link together the dense tangle of concepts. This also needs clear signposting: chapter headings and sub-headings could avoid poetic summation and simply state the subject matter. There is an excellent 670 entry index, but a glossary or even additional index of differently used meanings would be practically useful. In short, this deserves to be a textbook. We are listening, but please slow down and spell this out more carefully.

 

Because what Schlefer says is surely important: the DSGE models, which require ‘incredible’ assumptions and still determine our economic fate, did not predict the crisis precisely because they cannot admit the possibility of a crisis. Moreover, models which did predict it were ignored (and remain so), the ‘Great Moderation’ was and is a myth (it ignores several crashes), and the past thirty years of mainstream academic research was useless when the crisis struck. All this exposes an academic field which is not fit for purpose. Schlefer’s economics is a rogue discipline of mythology and pure faith; a crucible not for truth, but for ideology masquerading as science. He calls for a tighter scientific approach and recommends four simple criteria for making good assumptions including, astonishingly, stating them. As if to confirm Schlefer’s point, mainstream media reviews of this book omit any mention of these issues, as though he never wrote about them. Perhaps Schlefer’s thinking can only be developed outside of economics.

 

References

 

Colander, D., Föllmer, H., Haas, A., Goldberg, M., Juselius, K., Kirman, A., . . . Sloth, B. (2009, February). The Financial Crisis and the Systemic Failure of Academic Economics. Retrieved February 22, 2013, from Kiel Institute for the World Economy: http://www.ifw-members.ifw-kiel.de/publications/the-financial-crisis-and-the-systemic-failure-of-academic-economics/KWP_1489_ColanderetalFinancial%20Crisis.pdf

ECB. (2012, December). Eurosystem Staff Macroeconomic Projections For The Euro Area. Retrieved February 26, 2013, from European Central Bank: http://www.ecb.int/pub/pdf/other/eurosystemstaffprojections201212en.pdf

Rogoff, K. (2013, February 11). Don’t blame the Federal Reserve for not predicting the financial crisis. Retrieved February 22, 2013, from The Guardian: http://www.guardian.co.uk/business/2013/feb/11/federal-reserve-blame-financial-crisis

University of Pennsylvania. (2009, May 13). Why Economists Failed to Predict the Financial Crisis. Retrieved February 22, 2013, from Knowledge@Wharton>: http://knowledge.wharton.upenn.edu/article.cfm?articleid=2234

 


[1] See for example: Colander, et al., (2009); Rogoff, (2013); and University of Pennsylvania, (2009). Schlefer points out that in fact it was forecast, just not by the mainstream; see main text further down.

[2] For example, the European Central Bank and its national Central Bank affiliates continue to produce macroeconomic projections for the Euro Area using procedures and techniques that were set out in 2001. An ECB report of December 2012 states that: “The Eurosystem staff macroeconomic projections are produced jointly by experts from the ECB and the euro area NCBs. …More information on the procedures and techniques used is given in ‘A guide to Eurosystem staff macroeconomic projection exercises’, ECB, June 2001, which is available on the ECB’s website” (ECB, 2012).

 

Tra utopia e realtà: Olof Palme e il socialismo democratico. Antologia di scritti e discorsi, (ed. and trans.) Monica Quirico (Rome: Editori Riuniti university press, 2009)

Monica Quirico has produced a nicely edited and translated work that collects together into Italian some of the writings and speeches of the assassinated Prime Minister. The volume consists of an introduction by the editor-translator and a division of Palme’s work into four sections: socialism and democracy, Swedish reform, the Neo-Liberal offensive and solidarity without limits. The book also possesses a useful glossary that succinctly explains various acronyms and persons of interest.

As one reads the speeches and writings of Palme, one is struck by their relevance for today. The texts reveal a politician that was formed at a time when social democracy was not only viable and rich with promise, but one also finds an astute awareness of the threat of Neo-Liberalism and the difficulties and challenges posed by globalisation and a globalised economy. With the collapse of the Left and the dominance of a globalised market-place politics, Palme still offers hope, even after his demise. One feels the palpable urgency of his message and his commitment to improving society and the state of the world.

The Introduction, written by Quirico, presents a biographical sketch of Palme, outlining the sources and influences that helped shape him throughout the various periods of his life. Born into a Conservative family, Palme developed a deep concern for injustice and inequality while studying both in Sweden and abroad. Quirico sets the stage for her readers to begin to appreciate the various concerns and programmes of Palme’s politics. Section One focusses on the speeches and writings of Palme that examine the nature and struggles of socialism and democracy. I should note, here, that the writings and speeches contained in the volume are not arranged in a strict chronological order; rather, they are organised around certain themes, which the editor-translator has rightly identified as indicative of Palme’s political vision and legacy. One sees in this section Olaf Palme’s struggles with various forms of socialism and how they represent themselves at the international level. Palme rejects communism as a viable form of socialism, as it undermines individual freedoms. The communism that he has in mind is the Soviet form. He is also critical of capitalism, for it values profit over individual and collective wellbeing. In fact, striking in Palme’s speeches and discourses is his conviction that individual wellbeing is intimately linked with societal or collective wellbeing, including global community. Democracy and active participation in democratic politics requires a just distribution of goods so that all peoples can actively participate in government. Palme identifies work as an important social mechanism that will allow more active participation. Unemployment eats away at the very possibility of a more communal and active sense of political life. He remarks, “The fight against unemployment takes on a crucial value in this respect, if we wish: to avoid wasting our economic resources; alleviate social tensions and personal suffering that stem from unemployment; maintain trust in our democratic form of government and reinforce democracy. Full employment not only creates wellbeing, it also distributes it. There is no greater division than between those who have work and those who do not. Moreover, the person who now suffers runs the greater risk of being unemployed. All that has been said up until now can sound quite obvious, so much so that it may ring as commonplace. But the problem is that such obvious commonplaces are not often spoken. It is good to repeat them, lest we forget them.” (99 Translation mine)

Section Two collects together some of Palme’s work on social reforms in Sweden. Here, the Swedish statesman’s commitment to the welfare state model of politics is very clear. There is an emphasis not only the intimate connection between a just and equal economic distribution of goods—an economic vision oriented toward a more encompassing goal of communal good rather than individual profit—and democracy, but one also finds here his conviction that solidarity is vital if Sweden is to carry out its social welfare values. We read: “The strength of a welfare state for all…is: it is just in and for itself such that all may benefit; it makes possible a redistribution among people in different phases of life and among different social groups; it is balanced because it consists of both rights and obligations for all; it protects the most vulnerable. International comparisons reveal how inefficient selective politics are in trying to lead those who live in conditions below average; it creates liberty, avoiding the enclosure of persons in a state of dependency, which could be difficult to get oneself out of; it offers autonomy. Individuals can live their lives, even when they become ill or old; it guarantees freedom of movement, for rights follow the person wherever he or she may be; it consists of a limited bureaucracy insofar as it does not revolve around the rise and fall of certain economic conditions, which is opposite to systems that only concern themselves with the most marginalised of a society.” (161–61 Translation mine) The section ends also with Palme reminding Swedes of their uniqueness in the world and their global contribution, especially concerning advances in social wellbeing and the environment. He sees Swedish unions as making vital contributions on this score.

Section Three is one of the most poignant and salient sections of the book. Quirico has collected here Palme’s writings and discourses on the Neo-Liberal offensive. Given that, today, we have completely succumbed to the Neo-Liberal model, especially in the West, what Palme criticises and fears have come true. In many ways, reading these speeches from our present point of view makes him seem like a prophet. The late 1970’s and early 1980’s introduced massive economic difficulties on the world stage. One feels in the texts of this section the effects of massive unemployment, an increased cost of living due to inflation and high interest rates and the fleeing of European and North American labour markets by producers of goods in favour of places where labour is cheaper and, therefore, more profitable. The social democratic and welfare state models advanced by Palme are under severe attack as unable to sustain the goals he claims it could promote. He comments on the dissolution of unions in North America and England: “To launch a politics directly aimed at workers, especially when it deals with unemployment, social security, etc., is to attack the union, incriminating its legitimacy as the voice of its members. This is what is happening in country after country. This is why it is necessary that unions react, uniting their respective forces at the international level. The strong unions of Sweden have a particular responsibility in this battle for human rights and the freedom of unions. It is to you, I am convinced, that the future belongs.” (194–95 Translation mine) Today, unions have lost their voice and workers are subject to the whims of the markets—the security of the welfare state is no longer.

Section Four concludes the volumes with a hopeful message and, perhaps, a useful tool to mobilise us against the excesses and faults of a globalised Neo-Liberal economy, with its recent crashes in 2008 and 2011. We find here various addresses that Palme gave against apartheid as well as in former war-torn Vietnam. Ultimately, solidarity, especially at an international level, is invoked as a source of change and reform; it can also prevent us from falling into a politics of fear and oppression. Solidarity is no longer local, but global, and it entails a profound social responsibility—one that Palme lived whole-heartedly, for example, as mediator in the Iran-Iraq war and in his fight against apartheid. “All of us have a role to play in the struggle against apartheid. I have reported to United Nations and to other agencies of the measures of our government. We are actively engaged so that other countries may adopt, in turn, measures similar to ours. One of the reasons why we are concerned that our actions are compatible with those of others at the international level is so that the probability increases that others may follow our example […]” (260 Translation mine)

Unfortunately, Olaf Palme’s life came to an abrupt and unexpected end with his assassination in Stockholm in 1986. With his death, his fight for a more democratic society based on justice, equality and a communal well being rooted in solidarity and responsibility also came to an end. Quirico has given us an important resource for preserving and studying Palme’s legacy and political message of the need for certain values that preserve and promote human life and society as well as create a more just and equitable world. Perhaps Palme’s speeches and writings may help in reinvigorating the left or producing a new social democracy. Only time will tell.

 

Michel Chossudovsky and Andrew Gavin Marshall (eds.), The Global Economic Crisis / The Great Depression of the XXI Century (Montreal: Global Research Publishers, 2010)

Its outstanding advance is in laying bare what analysis of all stripes has avoided for a long time – the unconstitutional control over credit and currency by private financial institutions whose global debt-control centre, Wall Street, is responsible for the 2008 economic meltdown and the ruin of countless people. The main victims are public sectors and workers’ pension plans across the U.S. and Europe, while the Goldman-Sachs empire on top of Wall Street and the U.S. Treasury has become far wealthier and more monopolist by the collapse. Presidents and Congress, “the best that money can buy”, have poured endless public-debt money into the greatest fraud in history. This book provides a wide-lensed explanation of the greatest-ever transfer of wealth to the rich from governments and citizen majorities and the systematic brutalization and impoverishment of the world on other planes at the same time. In this crisis alone, $12.3 trillions of public dollars to fill the black hole in the U.S. have already been committed with the U.S. Federal Reserve – in fact, a private bank system except for the Chairman – selling government bonds at a frantic pace to keep the ultimate looting system afloat and, along with speculators, inflating food prices at the same time. At the system level as a whole, the book  explains, Wall Street-US Treasury is connected to the U.S. military empire is connected to the IMF is connected to collapses of societies which are connected to the mindless equilibrium models of contemporary ‘economics’.

The DNA of this system is turning money into more money for those who have no need of it, which systematically impoverishes the world’s majority while wasting and destroying life capital at every level. This underlying meta pattern and the progressive alternative to it, however, are rather lost in the trees by the distinguished analysts who include Ellen Brown, Michel Chossudovsky,  John Bellamy Foster, Michael Hudson, Fred Magdoff, AG Marshall, James Petras, Peter Phillips, Peter Dale Scott, and Claudia von Werhof.  All provide expert analyses, but while the ruling system’s deranged effects are trenchantly exposed, the life-blind inner logic propelling them is not.  There is no life-value ground to understand the system’s anti-economy in principle, and no life-coherent alternative of capital and production emerges. Karl Marx himself began Capital with a definition of the commodity which explicitly ruled out life value as an issue, and economics left and right, orthodox and critical have stayed within this life-blind frame before and since. No known economics is based on what all economics is meant to be about – non-wasteful provision of life goods otherwise in short supply. Instead analyses are locked into priced commodities for profit with no principle of life-need – organic or ecological – ever involved.

This book’s analyses identify the disastrous social effects, but the exponential private money circuits which have hollowed out the world are still assumed as “capital” although they are the opposite. They produce no new wealth, but only more financial demand on existing wealth to appropriate and cumulatively depredate it. While these political-economic critiques lay bare the disastrous economic consequences which the sleepwalk of orthodoxy blinkers out, they do not penetrate the deranged meta program at its core. So-called “overproduction”, “over-accumulation” and “stagnation” are much discussed but with no life-grounded meaning to them. While such categories dominate contemporary critical economic theory, they are disconnected from the real economy of life-goods security and provision – exactly what the ruling money-sequence system is destroying through generational time. How can there be “over-production” when most people in the world are increasingly without the means they need to live? How can there be “over accumulation of capital” when the world is in ever more ruinous deficit of natural capital? How can system “stagnation” be a problem when the system’s growth is carcinogenic in nature? The cumulatively threatened ground of all production and distribution – ecological bases and the nature of universal human life needs – are essentially abstracted out.

Yet the book bursts with what standard academic texts and corporate media do not discuss: a massively destructive and collapsing world empire, hair-raising growth rates in inequality and poverty, global narcotics trade linked through the banks, systematic plans to integrate Canada and the U.S., the reason Eliot Spitzer was politically assassinated, the HAARP weather destabiliser, the EU Bolkenstein amendment, Ben Franklin on the repressed reason for the American Revolution, terminator-seed forced on all Iraq agriculture, and an ever more brutal war on the poor by an unaccountable global class dictatorship. Much is explained which has been kept under wraps. The pervasive dumb-down propaganda of the transnational money party destroying society’s life support systems at every level is given no comfort here.

Johann P. Arnason & Kurt A. Raaflaub, The Roman Empire in Context: Historical and Comparative Perspectives (Chichester: Wiley & Sons, 2011)

The Editor argues that while much has been written about Rome, relatively less has attempted to analyze Rome comparatively. As a sociologist and not a historian, this reviewer cannot comment on this claim, but I do appreciate the comparative methodology. In fact, Arnason, the primary editor and author of the “Introduction” is a historical sociologist, who discusses the implications of Greco-Roman analyses on sociological and social theory. While the comparative perspective may be useful for drawing out separate variables between civilizations, there is the inverse danger of redefining variables broadly enough to make those comparisons – but at some cost of precision of the terms. There need to be nuances on all sides which weaken the overarching comparisons. It is essentially the qualitative problem of a small “n,” familiar to the social sciences. This methodological problem is noted several times, but does not stifle the writings.

The first section analyzes Rome’s growth through three essays. Raaflaub looks at Rome’s growth from city state to Mediterranean empire, through a thorough discussion of the particular components of the axial age in Rome. Flaig argues that the ruling elite in Rome eventually become powerful and detached enough that traditional forms of accountability and control waned, and with it their legitimacy among the ruled. The sets up the revolutionary crisis Flaig discusses in relation to other Roman scholars. Cohen and Lendon discuss the relationship of communication and authority between the center and the periphery in Rome. Their comparator is medieval kingships and the authors are seeking to understand the strength or weakness of the political structure as evidenced through these communications.

The volume then traces through the transformation and “decline” of Rome. Ziolowski’s chapter discusses the final crisis faced by Rome – the “Total Crisis.” His argument is that the crisis was more a catalyst to longer building internal problems, individually which would be mere nuisances. These internal problems fell under the rubric of an institutional trap created by the specifically Roman interpretation of ruling legitimacy. Stroumsa argues that among the cultural transformations at the end of the Roman era, the very concept of religion changed. Not simply from pagan to Christian or from poly- to monotheism, but also the rise of religious intolerance which melded violence with state power which made imperial tolerance impossible. Fowden draws an illustration of the larger world of late Rome, showing how Islam as well fits into the picture. His argument contextualizes not just the world of late Rome, but also of contemporary academic understandings of the era, not the least of which is the discussion of “transformation” versus “decline.”

The following section focuses on three of Rome’s successor civilizations. Becher discusses the Franks, Haldon the Eastern Empire, and Robinson Islam. The chapter analyzing Islam makes the argument that at least some of Rome’s developments such as urbanization, epistemologies, and philosophical reflection, were adopted by the growing Islamic civilization. An interesting comparison also exists with the role of religion and politics in the growth of civilization.

The Fourth section includes explicit comparisons with Assyria, China, and Iran. Liverani discusses the Assyrian case to contrast the relationship of the urban center to the empire. Lowe looks to China for the role of its internal administration and penal policies, with some focus on the higher prevalence of bureaucracy in the Chinese case. McDonough studies the Sassanid Empire as a comparator despite being a contemporary rival to Rome. Similarities include rule over several centuries and over a disparate variety of geographies. Fibiger-Bang makes the final comparisons to the Ottoman Empire and the Mughals seeks to discuss vast empires underneath a single ruler – but in distinct contrast to the European examples which were all much smaller states. There may have been a ruler in the European cases, but these were all much more local monarchies.

The final section discusses theoretical implications of the volume, trying to sort out the elements of state, empire, and civilization in Rome. Arnason argues that these three elements form a unique constellation in the Roman case, but the singular uniqueness of Rome is exactly what methodologically requires a comparative perspective. Without a comparative perspective, these variables are not going to be adequately isolated. The Wagner essay that closes the volume addresses the question of whether there is sufficient connection between ancient Rome and modern Europe to draw a continuous line of civilization from the former to the latter.

The appeal of the volume for this reviewer lies in the breadth of the chapters included and with the attempt to include sociologically relevant comparative methodologies. These chapters start with Rome’s transition from city state to empire and its expansion, through its decline, and into its successor regimes, with comparative and theoretical discussions finishing the volume. As a work of comparative sociology, it is interesting to see rigorous sociological methodologies applied to a historical case so easily popularized. As a work of sociology, it is refreshing to go beyond the identity politics which comprise so much of the discipline as of late. It may be the case that this comparative methodology will be less interesting to traditional historians, and it is most definitely the case that this volume is too advanced for anything like an introduction to Roman history.

Emergence of a new paradigm: Towards a post-crisis cosmopolitanism

1. Introduction

The current, tense “post-crisis” situation is considered by many intellectuals, politicians and citizens to be a simultaneous aggravation of much older financial, political and environmental crises that have been challenging the international community. At the same time, it has also been described as a perhaps unexpected hope for the emergence of a real cosmopolitanism based on a genuine possibility of emancipation and dialogue about world problems in the international community.

We will begin by discussing briefly the causalities of the recent financial crisis, which can be seen as a crisis of neo-liberal capitalism following the original mortgage crisis in the USA and the following economic depression in many countries. In this context we can also mention political elements of the crisis and further explore its threatening relation to the environment. Finally, the same crisis can be considered as a crisis for cosmopolitanism. Some pundits have interpreted the crisis as a crisis of cosmopolitanism of human rights, where it has not been possible to create a new world order of strong international governance.

On the basis of these causalities the paper will discuss whether we can see a potential “new beginning” or qualitative shift towards a new regime of a social ethics including: (1) the emergence of a community economy, e.g. state intervention and civil society responsibility in connection with corporate citizenship and business ethics; (2) the emergence of a new ethical cosmopolitanism including a paradigm shift towards a renewed conception of justice as concerns the common good in the world community.

2. Crisis causalities

What happened? Why did this world crisis come around and how should we explain the crisis causalities? There have been many arguments or diagnoses trying to explain the worldwide financial crisis. I can mention the following, very different, but mutually dependent explanations:

1. The crisis is due to neo-liberal capitalism.

This explanation focuses on the financial breakdown based on the American mortgage crisis and the following depression in many countries. It was the neo-liberal processes of globalization (e.g. privatizations, liberalizations, financializations) that led to the development of risky financial products and the resulting credit crunch, for they were based upon the dogma of the neo-liberal economic system, whereby the paramount goal is quite simply to increase economic gains in the business at all costs. This model for risky business did not only concern banking and economic investments. The most important factor that played a pivotal part in the economic crisis was the emergence of the use of houses for sales and risky mortgages of houses, so that houses became primary objects of investment. The dominant narrative in this explanation is neo-liberal “greed”, as exemplified by Madoff’s pyramid Ponzi scheme, which resulted in his imprisonment and so well symbolizes the basis for this kind of explanation of the crisis. The narrative of “greed” involves that the crisis is due to a brutish conception of human nature as a kind of profit-maximizing individual, who lives only or mostly according to his or her own narrowest self-interest. This explanation is based upon taking into account the fact that neo-liberalism was the dominant economic ideology after the end of the cold war. With this explanation of the crisis we have an explanation that is conceived exclusively in economic terms, and primarily as a breakdown of the international financial system.

2. The crisis is due to changed relations between major powers in the world.

This explanation focuses on the relation between the US and other countries, notably China. In this context the crisis may be considered as a shift in world powerhouses. We may argue that such a shift is the real reason of the credit crunch and the ensuing economic depression. It can be argued that the Chinese, after the massive economic crises in the east of Asia in the 1990s, realized that they would have to build up a strong financial system. After longer than a decade, the savings of China were so large that the country was able to resist the 2008 financial crisis, which showed instead the real vulnerability of the US and Europe. In addition, the crisis can be explained as a result of the economic problems of the US after the Asian wars in Iraq and Afghanistan since the early 2000s. It can be argued that the result of the wars was the weakening of the US as a superpower and that the credit crunch was just a symptom of this changed situation of the West in relation to the East in economic terms, where China is emerging as the main power in the world. With this explanation of the crisis we move from a purely economic explanation towards an explanation in terms of international politics too.

3. The crisis arises from a clash of civilizations.

Here we can focus on the confrontation between world cultures, in particular the tensions between radical Islam and the West, leading to the wars of Iraq and Afghanistan. How can we interpret the crisis in terms of the “clash of civilizations” described by Samuel Huntington? Since 2001 and 9/11 in particular, the confrontation between civilizations has been very present in international politics. The concept of the clash of civilization was developed as a response to Francis Fukuyama’s idea of the end of history, i.e. the end of the struggle of recognition, when the liberal world order has been victorious. We may say that the clash of civilizations is a response to this situation, where the end of the struggle for recognition is not ending in dialogue, but exactly in a clash between civilizations. In fact we may say that a challenge for a post-crisis situation would be to develop a kind of intercultural philosophy building upon a dialogue between civilizations, as opposed to the clash of civilizations. The clash of civilizations is in particular a challenge to the belief in the universality of the Western values of democracy and human rights. We can argue then that the recent crisis is a crisis of these values, following the events of 9/11 and of the wars in Iraq and Afghanistan.

4. The crisis is a crisis in the policies to respond to an environmental crisis.

We can argue that the recent crisis was a crisis of the realization itself of the climate problem. The question is: have recent agreements led to hope for environmental justice or do we only experience new inequalities between developed and developing countries? In the neo-liberal paradigm before 2008 the climate issue was dealt with as a matter of utility and sustainable use of resources. It can be argued that the recent crisis is a crisis for the utility-based conception of the environment, for it appears that CO2 reduction is more than utility, but something that is fundamental with regard to the possibility of life in the world. We can argue that the crisis is a crisis for a civilization that has no understanding of the climate issue as fundamental for human survival. The Danish environmental sceptic Bjørn Lomborg may be considered as a representative of this view. In fact it can be argued that the opposite view of Al Gore, who stresses that the climate issue is about the continuation of the human species, represents an alternative to the view of Bjørn Lomborg, which emerges out of the crisis of the neo-liberal conception of the environment as utility: rather than admitting defeat in front of overwhelming evidence, blind denial is preferred.

5. The crisis is a crisis for cosmopolitanism.

Some have interpreted the recent crisis as a crisis of cosmopolitanism of human rights, where it has not been possible to create a new world order of strong international governance. In fact, it can be argued that the dream of the neo-liberal position was a world order with universal governance. As described by Michael Walzer, we can say that we need a new world order where we have to find the right balance between world government and total anarchy. It may be argued that the concept of the world order as a universal order with a world government is in crisis with the global crisis. What is needed is a new conception of the global order that is both beyond state sovereignty, but also beyond the idea of a world government. We may argue that we have to look for models of cosmopolitanism that deal with world politics without referring to a concept of a global world government as the basis for international politics.

3. The cultural and social background of the crisis

On the basis of the five causalities described above, the issue may be addressed as follows: how really should we define the recent crisis? What does the crisis imply and what does it relate to?

From a phenomenological point of view, we meet the crisis in our own lives when our family, ourselves or our friends lose their job or have to go from their houses because the mortgage rent is too high. In fact, the pre-crisis atmosphere in the Western world was marked by a strong narrative of greed and of spending, in particular a raise of luxury spending. We can then use the concept of hyper-modernity in experience economy, as proposed by the French sociologist and philosopher Gilles Lipovetsky, to take into account this pre-crisis, but indeed also the crisis atmosphere.

Hyper-modernity or hyper-modern society is conceived as an escalation of modernity, i.e. a kind of creative construction of experience where the creativity of human beings as makers of metaphors and symbols moves in the forefront of capitalist production. We are searching for more than maximization of pleasure preferences in the cultural industry. We want to become new human beings when we eat at restaurants, travel, go to the theatre, read magazines or books, or even when we buy ordinary products in the grocery store or in the supermarket. We want to experience happiness and authenticity in all aspects of our lives as consumers. Consumption shall help us to construct our identities. I shop therefore I am. It is the creativity of the producers and designers of experiences that is needed to fulfil this search for meaning in the experience economy. The conditions of possibility of the experience economy are based on the historic changes of the meaning of creativitiy in human societies. Today, with a hyper-modern society of creativity, creativity means something else than it was the case earlier in history. What is essential is that creativity no longer is based on a higher divine reality, but instead it refers to the entrepreneurial genius of the human creative spirit. With no divine meaning left, it is therefore the job of the creative class to fill the empty space of the loss of meaning in post-modernity or hypermodernity, and because there is no pre-given meaning dependent on a metaphysical reality, also the consumer must be creative and create meaning through experiences. Human beings are now primarily defined as hyper-consumers and their appearance as citizens is derived from this condition of consumption.

Hyper-modernity expresses a metamorphosis of liberal culture. We live in a consumer society that has become global and international. In the hyper-modern society we can talk about a new system of consumption that has become universalized. What characterizes hyper-modern society is the development of a world culture of consumption. We can talk about universalization of the brand market economy: the West, Asia and China, South America and Africa. The global market culture is a culture of global media and of global commercial culture. Hyper-modern society is made possible with the neo-liberal ideology of the free market and private happiness through consumption, and it was accelerated with the global revolution of information technologies.

In his 2006 work on hyper-modernity Le Bonheur paradoxal (Paris: Gallimard), Lipovetsky describes the three phases of the development of hyper-modern consumer society:

1. the period from 1880 to the second world war

2. the period from the 1950s to the 1970s

3. The time starting with the 1970s-80s (where we really see that consumer society fully developed).

We have been facing hyper-modern society since at least the 1980s. This is a society where consumption is democratized and made available to nearly everyone. Whereas the first phase of industrial society is signaled by the the emergence of industrial society for an elite, the second phase is marked by the increased generalization of consumer society as well as by increased individualization of consumption, for example by the generalization of luxury products like perfumes, media appliances, etc. However, it is only with the emergence of hyper-modern society that we really face the individualization of products.

In this individualist society we see how individuals are able to organize their space and time on the basis of their individuality. Accordingly, we can argue that with the individualization of consumption, combined with the focus on individual experience, makes immaterial experience and pleasure the focus of product promotion and product content. This new society of hyper-consumption is marked by a break with the conformities of class society. Although the class differences still exist, there is no specific class culture. In this sense, the consuming individual is utterly liberated from the traditional institutions and from the cultural bonds of society. We can say that the consumer of the experience economy is a “turbo-consumer”, a capitalist consumer who is no longer regulated by strong ethics and who is free to consume as much as he or she wants.

A very good example of this “Turbo-consumer” in hyper-modernity is the consumer of great international brands. The brands are expressing the global logic of hyper-consumption. Through global marketing brands appeal to the dreams of having authentic experiences. Consumers of hyper-society are not particularly loyal to one particular brand, but they are loyal to the promise of happiness in the brand economy that activates their dreams and emotions. The global brand economy expresses the logic of experience as emotional rather than bound to the materiality of the products. Hyper-consumption is a continuing renewal of the sensations. It is travel in experience. The turbo-consumer wants the most intense experience and in order to get this experience the turbo-consumer overcomes traditional limits of time and space that are taken over by the commercial logic. There is a close link between the brand economy and the search for happiness as the ultimate imperative of hyper-consumption society.

Together with Jean Serroy in La culture-monde. Réponse à une société désorienté (Paris: Gallimard, 2008), Lipovetsky discusses globalization of culture in the perspective of hyper-modernity. We can mention fashion, advertisements, tourism, art, the star-system from Hollywood as aspects of a world culture that has become dominating in hyper-modernity and manifests itself as a cultural hyper-modernity aiming at satisfying the search for satisfaction of experiences by consumers in hyper-modern society. But at the same time this globalization of culture in the framework of an experience economy is marked by the paradoxes of increased complexity and increased collective and individual disorientation.

The capitalist market experience economy is supposed to respond to the dark sides of increased individualization and narcissism. Because of individualist mass society with less common references to give a sense of meaning and community, the world culture of brand consumption is supposed to be the compensatory device that can give individuals meaning and fullness in their individual lives, which are increasingly devoid of meaning. World culture promoted through experience economy is the only tool left to give meaning and sense to individual lives, yet it is far from certain that it is succeeding in its task.

4. Towards a new beginning: Emergence of a new cosmopolitanism

With an economic crisis in the middle of hyper-modern consumer society, we can see how the whole foundation of this society is shaken. Therefore it is also interesting to ask the question about what happens after the crisis. Can we see a “new beginning” or qualitative shift towards a new regime of social ethics of responsibility as a kind of new event emerging out of the crisis, or should we just say that the crisis is nothing more than a confirmation of the logic of hyper-modernity, or alternatively is it possible to argue that the crisis opens for new meanings that help us to move beyond hyper-modern society? What does it mean to speak about paradoxes of a post-crisis situation that challenge the pre-crisis relations? We can observe the following aspects of a post-crisis situation that helps to mark qualitative breaks with the pre-crisis situation.

1. The emergence of a community economy

State intervention and civil society responsibility in connection with corporate citizenship and business ethics signal the emergence of a community economy. We can argue that the business ethics movement based on corporate responsibility and corporate social responsibility replaces within this context the confrontation from the cold war between communism and capitalism. Moreover, the end of neo-liberalism shows that we need a better relation to the economy and a better conception of the content of the economy. Business ethics and corporate social responsibility represent a response to the situation of crisis of business organizations in the sense that it is a new way to deal with the capitalist system.

Business ethics deals not only with ethical responsibilities of corporations but also with a responsible way to deal with economic and legal activities. Therefore we can talk about the economic, legal and ethical responsibilities of a corporation. The different responsibilities must be integrated into the strategy of the corporation, according to the new paradigm of corporate social responsibility and in close coherence with the strategy of the corporation. Business ethics can be considered in close interaction with the idea of hyper-modern society because in hyper-modern society ethics and corporate social responsibility are integrated into the experience economy. This means that ethics is considered as a virtue that is closely related to the self-construction of the individual. Accordingly, the individuals in the business corporation want to have a meaningful work and they want to be accountable and trustworthy as a part of their personal identity. Therefore business ethics is not in contrast to hyper-modernity, but rather a consequence of the culture of this kind of society. So the post-crisis scenario of intensified business ethics and corporate social responsibility is not necessarily in contrast to the culture of globalized hyper-modernity.

In this context we can argue for a movement towards an ethical cosmopolitanism within the field of business, as I have argued in my book Responsibility, Ethics and Legitimacy of Corporations (Copenhagen Business School Press, 2009), which the reader can find reviewed in the present issue of Nordicum-Mediterraneum. An important aspect of this movement is the idea of republican business ethics, defined as involvement of corporations in and for the common good, the res publica, which are expressed in the concept of corporate citizenship with integrity and responsibility. Integrity matters as the self-imposed norms of international corporations can ensure accountability and trust. Integrity is analyzed as a function of the business ethics of corporations, especially in the normative guidelines for international business.

With this cosmopolitan approach I have argued that the corporation can contribute qua world citizen to solve the important problems of hyper-modernity. This can be viewed as the application of the important concepts of the virtues of responsibility and cosmopolitanism. As actors at the global level in a time of interstate interdependence with regard to world ecological, economical and political problems, it is a challenge of the corporation to contribute to building up an international community of virtue and protection of basic rights.  We can define this vision of universal corporate citizenship as the World ethos of business ethics. The corporations shall not only protect universal human rights, but they shall also give those rights meaning in relation to the particular cultures in the countries where they operate.

2. Cooperation replaces conflict.

We may ask the question whether the post-crisis scenario is opening for a new era of cooperation that is in contrast with the idea of conflict that was dominating in the cold war times and in the times immediately after the cold war. An argument from globalization is that the financial crisis has been a reminder of how we now really live in “one world” in economic, cultural, social and political terms. In this sense it can be argued that we need scenarios of cooperation with new interactions between major powers in the international community, which is establishing a regime of problem solving rather than confrontation.

With Hannah Arendt, we can argue that we are searching for a political conception of international relations that move beyond the legalistic conception of the international community. Hannah Arendt’s work after the second world war presents a critical discussion of Kantian cosmopolitanism. She offers novel views on human rights and the rights of citizens and she discusses the possibility of an international tribunal to deal with crimes against humanity. Also, her philosophy implies a critical reply to a naive “juridification” of international relations as marked by legal structures alone. Arendt proposes a solution for the reintegration in the political community after the fight with the wrongdoers. The international political community needs a dimension of civil society, as proposed by Arendt, to find a possible mediation of the double edge of cosmopolitanism. We can argue that Hannah Arendt understood the importance of a political foundation of the respect for the naked human being beyond the political relations of the nation state. This is what Arendt argued for when she coined her famous term of the foundation of human rights as the “right to have rights”.

In her 2006 book Another Cosmopolitanism (Oxford: Oxford University Press), Seyla Benhabib seems to propose a new version of Arendt’s older position. According to Benhabib, modern cosmopolitanism is not only about hospitality but also about the political and legal institutions to govern our world in order to deal with circulation of persons, capital, commerce, pollution, information, labor, goods, viruses, etc. Cosmopolitanism is about building political relations at the international level, so that people can enjoy the right to have rights in the international community. In particular, Benhabib defines human rights as universal ethical obligations that go beyond national sovereignty and are formulated within a form of law.

Benhabib argues that the challenge we face today is the construction of a jurisprudential theory that is able to reconcile the universality of human rights with the partiality of positive law. She deals with the problem, as Hannah Arendt also did, by focusing upon the rights of persons who reside within a state but who are excluded from its polity, i.e. legal and illegal aliens. Thus, Benhabib takes up the challenge of the double edge of cosmopolitanism by arguing for the search of a legal foundation of cosmopolitan citizenship beyond positive law alone.

When Benhabib deals with the double edge of cosmopolitanism she answers this question by drawing on Kant’s doctrine of cosmopolitan rights, which she attributes to Kant’s thesis that ”The law of world citizenship shall be limited to conditions of universal hospitality” – hospitality covering the relationship between states and strangers. With Benhabib we can argue that the double edge of cosmopolitanism lies within the confrontation between republican national law and international relations, because the law of hospitality intersects with the positive law of the state. Specifically, Benhabib focuses upon the point of intersection between these two dimensions. On the one hand we have the Republican opening towards the international community in the republican public sphere; on the other hand we have the mediation between the cosmopolitan norms and the republican community.

Benhabib argues that we can propose a solution to the tension of the double edge of cosmopolitanism by means of a cosmopolitan law that emerges from increasingly conscious public debates in democracies, where the norms of cosmopolitanism are accepted as basic human rights into the positive constitutions of republic societies. In this sense universal norms are mediated into the will formation of democratic societies, so that cosmopolitan norms are becoming integrated into the republican framework of democracy.

An illustration of this kind of democratic development of the cosmopolitan norms and of the “democratic iteration” is for example the European Union, where citizenship is expanded in a cosmopolitan direction. However, the contradiction between the universality of ethics and the particularity of law can never fully be overcome and there is always room for national sovereignty where laws are made.

When we talk about a civil justification for the emergence of cosmopolitan norms, we can argue that this justification of cosmopolitan hospitality emerges within the framework of democratic community because people are becoming more and more acquainted with others beyond their national borders and cultures with norms of reciprocity and respect. In this perspective there is a genuine hope that cosmopolitan norms are internalized in local cultures, democracies and populations. However, this is not enough according to legal theorist Seyla Benhabib. Cosmopolitan norms must also be based on a legal framework. In Another Cosmopolitanism, for example, Benhabib discusses the case of European citizenship as a token of the increased movement towards the development of such cosmopolitan norms.

Still, there remains the danger of a cosmopolitan stateless future. Benhabib argues that we should imagine a future where ”civil, social and some political rights” are not related to national belonging. In this context, universal cosmopolitanism is situated between law and ethics, universality and particularism, nation and international community. When we search for a philosophical foundation of these cosmopolitan norms, we can look back at the philosophy of Hannah Arendt who argued, as we have already said, that the most important thing is the right ” to have rights”.

We can say that Hannah Arendt’s book about the Eichmann trial — Eichmann in Jerusalem. Essay on the Banality of Evil (London: Penguin Books 1964/1981) — was fundamentally a book about cosmopolitanism and international law. This is true in particular when Arendt deals with crimes against humanity, where genocide is conceptualized as the crime against humanity, or rather the crime against humanness or the right to be human. The issue of the cosmopolitan double edge, i.e. how to mediate between national legal structures and moral universalism, can be answered by reference to the Eichmann trial. This trial marks the beginning of cosmopolitan norms. It is a trial for crimes against humanity that goes beyond the traditional boundaries of legal positivism.

If we look more closely at Arendt’s book about Eichmann and follow Seyla Benhabib at the same time, we can argue that cosmopolitanism is not only the Kantian horizon that as we may infer from Arendt’s letters to Karl Jaspers — Jaspers being himself a Kantian cosmopolitan — but an ideal of civic republicanism combined with a vision of political self-determination as the foundation of true hospitality in cosmopolitanism. So the emergence of global civil society as the movement from international to cosmopolitan norms of justice can only be accomplished as long as it draws with it principles of civic republicanism.

Concepts such as ”the right to universal hospitality” and ”the right to have rights” are certainly Arendt’s legacy of Kantian cosmopolitanism. Yet she adds a normative force that can emerge only within a republican, democratic framework of legal norms. These concepts, in other words, should have a binding power. The idea is that the ”right to have rights” indicates rights of universal hospitality that triumphs over positive law, but can also be within positive law, because it is founded on republican self-governance and autonomy.

We need more than the formal political construction of the cosmopolitan norms of human rights. The international human rights regime, crimes against humanity, humanitarian interventions and transnational migration norms should all be based on civic republican recognition of the right to have rights. So cosmopolitan justice must be based on a kind of nationally sanctioned international law of peoples, where the tension between sovereignty and hospitality is overcome through the act of self-legislation as an act of self-constitution under a cosmopolitan perspective.

Benhabib says that ”Liberal democracies must learn to negotiate these paradoxes between the spread of cosmopolitan norms and the boundedness of democratic communities”: according to her, the development of cosmopolitan norms is characterized by democratic Iterations between the local, the national and the global.

5. Conclusion

Following Hannah Arendt and Benhabib, we can argue that cosmopolitanism emerges as the power of democratic forces within a global civil society and this helps to a construction of international norms that goes beyond the tension between cosmopolitanism and national sovereignty. What is characteristic of the new cosmopolitanism, at least according to this view, is that citizenship and political membership are no longer based on culture and collective identity. As exemplified by the case of the European Union, the conflict between sovereignty and hospitality is no longer so important. Accordingly, a new discussion of politics implies the search for new forms of political agency in cosmopolitan times, where we recognize what Benhabib calls the “democratic iterations” of the concept of democracy and citizenship. And this recognition will help to develop new foundations of democracy in international politics.

Moreover, by protecting universal rights that are dependent on the charter and declarations of the United Nations, corporations can act for good international relations that go beyond the interests of particular communities of republics and nations. By doing this, corporations, when they really want to appear as good citizens, can help to build a world community that implies the universalization of the procedural virtues of liberal society. Corporations can at the same time be cosmopolitan and situated in particular societies, in the sense that they foster universal principles while making those principles work in concrete practice. In this sense, the post-crisis scenarios can be a development of a new cosmopolitanism in both international politics and in the activities by corporations and other organizations and institutions helping to build up an international civil society.

Francesco Giacomantonio, Introduzione al pensiero politico di Habermas. Il dialogo della ragione dilagante (Milano-Udine: Mimesis, 2010)

Our age of crisis has taken many more forms than just the widespread rejection of Enlightenment ideals. Possibly, its most visible contemporary manifestations are: (a) the devastation of the planet’s “ecological equilibrium” (25); (b) the consistent anthropological impoverishment and individualistic atomisation of human societies (e.g. “social conflicts” read as individual “psychic problems” [26]; “anomie” [31]; “confusion between… [individual] success and… [collective] understanding” [32]); and (c) the undiminished international instability (e.g. religion’s “self-destructive forms” [63]; “Western military interventions in various areas of the planet” [77] ).

Patiently and laboriously, Habermas has addressed in his complex oeuvre all of the aforementioned forms of crisis of our age. It is Giacomantonio’s task to survey Habermas’ accounts in this slender book (99 pages).

Specifically, Giacomantonio praises the erudite, articulate and abstract “theoretical wealth” of leading German sociologist and philosopher Jürgen Habermas (b. 1929) as a rare exception to current scholarly and scientific trends (78). Avoiding academic partisanships and specialist parochialisms, Habermas is said to have scrutinised and engaged with an “ample spectrum of stances” in the attempt to provide a reasoned, synthetic as well as analytical understanding of the enduring age of crisis (77). Swimming against the current, Habermas believes the Enlightenment project—modernity itself—to have to be brought to completion, not discarded.

Habermas’ first major intellectual accomplishments are claimed to be his 1960s and 1970s studies in the economic and administrative structures of late-modern Western industrial societies. Then, Habermas focused primarily upon the legitimisation of such structures via political procedures of mass participation, as well as upon the growing class fluidity, which Giacomantonio describes as the “dissolution” and “fragmentation” of traditional class consciousness and discourses (25).

According to Habermas, the post-war decades had seen capitalist societies benefiting from large-scale entrepreneurial pursuits, under the cooperative scrutiny and sophisticated direction of the State, which allowed these pursuits to serve vastly accepted inclusive social aims (e.g. “urban and regional planning”, “research and development”, “unemployment benefits”, “public welfare”; 25). These aims facilitated the legitimisation of the pursuits themselves, as well as the State’s own authority. Then, this virtuous circularity ended. For Habermas, the 1970s mark the beginning of the age of crisis.

The 1970s “late” or “mature” capitalism (23) continued to display massive State intervention in the economy. Yet, an increasing outgrowth of private interests started to escape from State control, leading to “systemic” failures (24) and to a generalised loss of faith in the State. This reduction of legitimacy was indicated by declining political participation, which was due too to the opacity of class consciousness in now tertiary-dominated economies. A variety of rescue plans were implemented by national governments, often via ever-increasing State intervention and techno-scientific legitimisation thereof. Regularly, these plans proved of little success, at least as the previous inclusive social aims were concerned.

Rather, the recurring reliance upon science and technology as grounds for political action induced considerable “de-politicisation” (28) of collective life and institutional decision-making. Within this novel frame of reference, whereby political issues were turned into “technical problems”(28), the public opinion was morphed into a passive spectator or sheer recipient of the diktats of a self-enclosed—and often self-serving—“expert” bureaucracy. In any case, the vastly accepted inclusive social aims of the post-war decades started to wane, becoming a more and more remote memory of better, foregone times.

It is Habermas’ opinion that the highly educated “expert” bureaucrats of recent decades have failed consistently to perceive the unavoidable connection between factual scientific investigation and value-driven technical application. To counter this phenomenon, Habermas has recommended the establishment of a more open critical exchange amongst experts and between experts and the public at large. In this perspective, communication should serve as an antidote to the former’s intellectual insularity and to the latter’s political disaffection.

Concerned with the de-politicisation of socio-political phenomena and populations of democratic countries, Habermas began to explore the socio-political relevance of “communication and linguistic dimensions” that were to become the hallmark of his later intellectual production (31). Indeed, the 1980s witnessed a vast output of studies by Habermas on the deeper structures of anthropological impoverishment and atomisation in modern nations. In them, Habermas came to conceive of “society” as comprising: (a) the “system” of professional, formal networks of “strategic behaviour”; and (b) the personal, informal “life-world” of existentially meaningful behaviour (“Lebenswelt”; 31). On the one hand, human activity was being described by Habermas as the “success” or “influence” of the competitive individual; whilst on the other stood the truly life-defining, cooperative linguistic (“communicative”) praxes seeking mutual “understanding” and engendering shared “identities” (32).

Initiating the age of crisis, the former dimension had been invading the latter by using communication instrumentally, i.e. the shared linguistic means for genuine self-expression and social cohesion were turned into sheer means of self-maximisation. To respond to this invasion, Habermas has recommended the overcoming of national barriers and the creation of a “cosmopolitan… deliberative democracy” centred upon ethical and normative issues and aims (35). Roughly speaking, more conversation about justice, the common good and the like–as already anticipated in his reflections on science and technology of the 1970s–would mean more democracy; more democracy would mean more legitimacy; more legitimacy more effective laws; and more effective laws more social and socially acceptable results. All of this, however, should be taking place on a global scale.

Habermas’ reflections on democracy became even more relevant in the 1990s. Then, in the face of an even faster-paced post-Cold-War economic and cultural globalisation, it was the very cradle of modern democracy that was to experience its deepest crisis, i.e. the nation State as such. Apart from intensifying the problems that Habermas had already tackled in the 1970s and 1980s, fin-de-siècle globalisation further deprived States of the crucial means of control over the “economic dimension” (40). In particular, free capital trade robbed the State of those vital “fiscal” resources that were needed for its administrative functions (44). Weaker States became even less credible to the populations, whose interests they were still expected to serve. The legitimacy of their power and even their own raison d’être became shakier. In the process, the vastly accepted inclusive social aims of the post-war decadeswere even openly rejected by leading parties and statesmen, who engaged actively in the persistent reduction of the public sphere. Deprived of the State’s support, larger and larger sectors of the population found themselves poorer, marginalised, and more vulnerable.

In the final decade of the 20th century, Habermas stressed further his commitment to a “cosmopolitan” solution of the ongoing crisis (43). In his view, a global economy needs a global deliberative democracy. This is not the same thing as to say that the world needs a world State. Rather, the world needs actual world politics and actual world policies. International organisations are already in place (e.g. the “United Nations”, the “World Trade Organisation”, the “International Monetary Fund” [46]). What is missing is the democratic appropriation of those institutions as positive means for global governance.

Interestingly, the “European Union” has been described by Habermas as an example of existing trans-national coordination and a possible force for progress, which he understands as the generation of a new political community reflecting truly democratic values and substantial ethico-political aims, such as solidarity and social inclusion (45). As an opposite model of global governance, Habermas has often highlighted the “hegemonic unilateralism” of the United States of America, which has accompanied throughout an economic globalisation capable of producing a “more unjust… more insecure” world and a threat to our “survival” as a species (48).

In particular, Habermas has stressed of late the centrality of the rule of law for the proper functioning of any complex social arrangement. As opposed to the brutal force exemplified by military intervention, a binding legal framework springing from democratic deliberation would constitute in his view a powerful means to a noble, desirable end: “to include the other without assimilating him” (50).

As further explained and substantiated in Habermas’ works of the 2000s, democracy should be thought of as much more than just a set of public institutions and formal procedures, for it is also an array of informal social praxes and individual forms of conduct. Within his deliberative and cosmopolitan model of democratic rule, Habermas has ended up combining the “liberty of the ancients” with the “liberty of the moderns” (51). In other words, both republican active participation and liberal individual-rights-protecting public guarantees are embraced as important components of actual democracy. Societies need both enduring compromises amongst rights-endowed self-interested individuals and the formation and expression of collective will via societal “self-clarification” (37).

Habermas resolves in an analogous manner the tension between liberals and communitarians on the much-debated issues of multiculturalism (51-6) and religious tolerance (61-8). Both universal, trans-cultural principles and cultural rights are said to be important for the socially inclusive survival of democratic States in a more and more inter-connected international reality. Disagreements and problems are bound to arise; still, what matters most is to have enough institutional and conceptual resources as to be able to tackle such disagreements and problems without falling into either coercion or social disintegration, which destroy genuine social cohesion and solidarity (54-6).

This, albeit sketchy, is the overview of Habermas’ intellectual production that Francesco Giacomantonio offers in his new book. It is indeed a clear and effective account of Habermas’ nearly unique oeuvre, as the author of the Introduction to the Political Thought of Habermas cites Touraine and Castoriadis as the only other equally daring grand theorists of recent times (80). The book comprises six chapters, an introduction, some final considerations and an appendix by another author. The presentation waves between a thematic subdivision and a chronological organisation of the material. Either way, the book addresses all the essential aspects of Habermas’ vast production. By this feat alone, it deserves much praise.

If any criticism is to be passed on it, then it must be pointed out that the book could be even more slender: the appendix by Angelo Chielli is redundant and unnecessary (83-90); whilst the 6th chapter, which deals with Habermas’ relevance to contemporary academic pursuits (69-75), could have been reduced to, and included with, the author’s final considerations (77-81). Also, the book would benefit from an analytical index of cited topics and authors.

Reflections on the economic crisis one year on: an interview with Huginn Freyr Þorsteinsson

What distinguishes the left from the right? Is the Icelandic government a leftist government, or is it rather a de facto compassionate right-wing government, like Tony Blair’s New Labour or Schroeder’s SPD in the early 2000s?

Rather than trying to give necessary and sufficient conditions of what defines the left and hence distinguishes the left from the right, it is more fruitful to discuss the context and core values of the current government in Iceland (the idea of a true left government is also slippery and dangerous). The Blair and Schroeder governments were formed in the height of the neo-liberal awakening in the West and arduously worked towards feeding the capitalist animal (especially Blair’s). Britain managed to transform London into a serious financial empire by relaxing regulations, embraced the superiority of the market, had no qualms with the unequal distribution of wealth and managed to appease the fat cats (Rupert Murdoch was pro-Blair and Blair was very much post-Thatcherite). The situation is very different in the West now, and hopefully there is room for change, albeit one worries that the ideological lessons that need to be learned will not be. In Iceland the current agenda of the government is defined by the collapse of a neo-liberal experiment that all of the sudden got very sour and went seriously wrong. Iceland went probably further in the wrong direction than Britain during the boom years and in many ways was more akin to Ireland in developing its form of capitalism. To oversimplify, then the task of the current government in Iceland is twofold: 1) resurrect Iceland’s economy and 2) get in line with the Nordic welfare states. Mission 1 is difficult but mission 2 is painstakingly difficult because in order to achieve it one needs to get the economy right. A modern Nordic welfare state is costly and it will take time for Iceland to get there. But already serious steps have been taken that will help towards achieving this aim.

Since at least Marx’s day, left-wing theorists and activists have argued for the nationalisation of credit, i.e. securing for the State and/or public bodies actual sovereign control over the life-blood of the capitalist enterprise. The recent crisis provided a splendid opportunity for moves in this direction, e.g. by acquiring bankrupt private banks and re-establishing (good) public banks fostering development and employment (bad public banks being those that though owned by the State behave like regular for-profit private banks). How far has Iceland progressed in this sense? Has it perhaps merely anticipated the State’s takeover of Amagerbank in Denmark? Can we expect anything more progressive?

As a starting point it is important to recognize that when Icelandic private banks and financial institutions indebted themselves heavily, under the guidance of the finance Vikings, there was a great consensus amongst the Icelandic electorate that the country was going in the right direction. The ideology behind the ventures had general support and the finance Vikings were greatly lauded for their business models (which later turned out to be more akin to pyramid schemes than sound business models). The government at the time did everything to support the ‘finance Viking framework’ and in part enjoyed general support for doing so. When the now failed Icelandic banks were privatized (only a decade ago) the move enjoyed the backing of the major political parties. Those who opposed this venture at the time, such as the Left-green Movement (one of the current two government coalition parties), were usually mocked for being old-fashioned socialists and not in tune with the new wave of successful capitalism and globalization. The aftermath, the apparent success of the Icelandic banks abroad, was then used as a further justification of their privatization and when the huge cracks began to show the financial boom peaked and a blind-eye was turned to the weaknesses of the banks. Nobody wanted to be nor listen to a party pooper, so rather than filling that role the show went on until the cracks were too many and could not be hidden anymore. The Icelandic economy collapsed under the weight of its own banks. So the expansion of private banks and there acquisition of an enormous amount of foreign credit is something that was thought of in Iceland to be clever entrepreneurship. I mean in the space of 5-7 years they managed to increase Icelandic foreign debt by thousand of billions of Icelandic Krona without any really serious questions being asked. Business communities in other countries were even mocked for being sluggish and no match for the great Icelandic finance Vikings. The story today is of course very different. After the financial crisis, State control over financial institutions has increased. When the emergency law was passed in the parliament in October 2008 the Icelandic State gained the majority of stake in the largest of the Icelandic banks, i.e. Landsbanki, large shares in Glitnir and Arion, as well as in several other smaller financial institutions. The external debt situation has also considerably improved because the old banks of the financial Viking era ended in administration. But it is difficult to see into what direction the public wants to see its banks go. Personally, I think it would be economically sensible for the State to hold its stakes in the banks and also limit the risk of any adventurous programmes being undertaken in the future.

Is there any concrete plan for the nationalisation of strategic resources (e.g. gas, fish, etc.) and/or productive structures (e.g. failed enterprises)? If there is one, are the IMF, EFTA and the EU cooperating or are they combating such a plan?

Currently, there is a large review being led by the government on how we ensure that the State of Iceland or the taxpayer receive a fair dividend from many of Iceland’s important natural resources. This work is ongoing and will have an impact on fisheries, geo-thermal heat, water, hydro-power, etc. It is too early to say anything about the outcome out of all this but there is great popular support that the country’s natural resources should remain under State control. The driving force behind that support seems to be: “Ok let’s not do the same mistakes with our resources as we did with our finances. Hence, stay away from privatization.” There has been considerable interest in Iceland’s natural resources but I think the consensus is clear – they are not up for grabs. The government is finding ways to further enhance State control and do it in a sound manner. No international body is combating such a plan and there are several other countries that are greatly protective of their natural resources. Norway is a close example of a country that has been very progressive in these matters and there are lessons we can take from them. But more would be needed to be said here because the matter is multi-layered. One thing is the question of the direct ownership of a certain resource (for example a geo-thermal pool), another is who gets the revenue (state or private parties), and yet another is a question of leasing resources (how long is it sensible, etc.) I mention this because one cannot take it as given that even though natural resources are State controlled they give sufficient revenue to the government/tax-payer. For example, critiques of the development of a large aluminium industry in Iceland have pointed out that even though the electricity sold to the aluminium companies is by State-controlled companies, then the revenue from these electricity deals have been disgracefully low. So State control does not guarantee a satisfying return on the nation’s natural resources. This is a point I find some people on the left in Iceland neglect. Indeed, even people that have fought against the State-controlled companies in selling electricity to the smelters have failed to see this.

The Icelandic government has prided itself for having pursued less austere austerity measures than other European governments: is that what is left of the left? Is there any serious chance that, say, expansionary monetary policy, public investments in schools and hospitals, and public works be utilised to foster development and employment? Or is the government aiming primarily at debt repayment?

After the crisis the Icelandic government has been facing a radical change in State finances. The pre-crisis bubble economy secured a lot of revenue for the treasury. At the time of the collapse of the Icelandic banking system it was estimated to be 10 times larger than the country’s GDP. Of course that meant considerable revenue for the treasury even though the tax on these institutions was low (corporate tax was 10%). After the crises there was a large fall in revenue and a considerable increase in expenditure (due to financing the deficit and measures needed to restore the Icelandic economy), as well as heavy interest rate payments. The expansion of debt and interest rate payments have made it necessary for the government to impose some drastic measures to make the State finance sustainable. That aim is not only pursued because it is sensible to pursue sustainability, but also to minimize the cost of interest falling on the State with the end result of allocating more finances towards the welfare state. It is however important to highlight that the government has minimized the size of cuts in the welfare system. Iceland has followed a different path in austerity measures than many other countries have done in the past, especially countries in IMF programs. This is best seen in how the government has tried to tackle the deficit by trying to reach a balance between revenue and austerity measures. Iceland’s path in this has been noted by emanate economists like Paul Krugman who has always criticized the austerity dogma; that the key to success in a crisis is to forget about the welfare of the populace and focus only on the fiscal side of life. That is why the Icelandic government tried to defend the country’s welfare state and the lowest fiscal cuts have been within the welfare system. So the path of slashing welfare and prioritizing for capital has not been taken. Actually the government can say more than that, because in terms of how much Iceland’s GDP (percentage) is allocated into public spending then there has been an increase since 2007 (the peak of the boom). Several measures have been put in place to tackle unemployment. Some of them are a joint undertakings between the government and the Icelandic pension funds, like for example the building of new National University Hospital in Reykjavík. Others, such as nursing homes and road improvements, have been initiated by the government. If one then looks at the revenue measures, then they have not only been imposed to raise revenue but have also strong and sound egalitarian and environmental principles behind them. The government has for example raised income tax on high income, raised capital gains tax, raised various environmental taxes and raised corporate tax. One of the more interesting outcomes out of this is that the tax burden of the lowest income wage earners has decreased after the crisis. Ireland, for example, has imposed higher taxes on the lowest incomes. In the boom years the tax system in Iceland was framed around the high earners and the rich, but now that it has changed, which in my mind shows the determination of the government not only to turn the State finance around, but also to import again into Iceland’s strong egalitarian principles. One of the more tragic developments in Iceland’s boom years was the huge gulf that developed between the super rich and the poor. As I say, there has been considerable progress in the unwinding of that development. Here is a case whereas missions 1 and 2 mentioned in my reply to your first question go hand-in-hand.

Do the key-members of the Icelandic cabinet believe in the ability of markets to self-regulate and of private enterprise alone to promote prosperity?

It is the dominant view of both government parties that private enterprise does not in and of itself promote prosperity. The pivotal factor in promoting prosperity in the Nordic countries is borne to the fact that the welfare system is robust and the tax system is viewed as a means to redistribute wealth. Equality is also seen as key factor in promoting prosperity. It has been underestimated for a great number of years how costly inequality is for any society. In light of Iceland’s experience I think that it has become a minority view that the markets are self-regulatory and that they are pre-programmed to find the best end result. At least the once seemingly clear boundary between public and private has become murkier. Or maybe it is correct to say that there is a strong demand for the public sphere to have something to say about the private sphere, which is a huge turnaround from the hands-off mantra; that the government should get out of the way because it interferes with the success of private enterprise.

Is there any serious attempt going on to promote endogenous development, i.e. developing the country without peonage to foreign credit, whether labelled as “FDI” or “IMF”?

The aim of the current government is to get Iceland’s debt sustainable and minimize debt, be it fiscal, government or external. Progress has been made in all of these areas and Iceland seems to be one of the first of those countries that has had a large crisis to emerge again.

The Icelandic government seems to consider its “international obligations” only in connection with the IMF, the WTO, EFTA and the EU-related discussions for accession. Yet Iceland is a long-time party to the UN’s ICESCR (International Covenant on Economic Social and Cultural Rights). Hospitals and education, in other words, are not a Christian or social-democratic form of charity, but a duty of the State to its citizens. Is the government aware of this set of obligations?

Iceland takes all its international obligations seriously.

Eight Noble Opinions and the Economic Crisis: Four Literary-philosophical Sketches à la Eduardo Galeano

I.

Until control of the issue of currency and credit is restored to government and recognised as its most conspicuous and sacred responsibility, all talk of the sovereignty of Parliament and of democracy is idle and futile… Once a nation parts with control of its credit, it matters not who makes the nation’s laws… Usury once in control will wreck any nation.

            William Lyon Mackenzie King

Since the real purpose of socialism is precisely to overcome and advance beyond the predatory phase of human development, economic science in its present state can throw little light on the socialist society of the future.

      Albert Einstein

Philosophers are often and rightly accused of dealing too much with the past, pondering endlessly upon origins, reasons and causes, and too little with the future, leaving hardly any room to proposals, solutions, or calls to arms. To prove myself capable of the latter kind of activity, and despite the unavoidably old noble opinions quoted above, I shall keep Minerva’s owl nailed to a perch. Though Pythonesque, this little cruelty should delay any backward-looking blathering of mine, which is to come eventually in the other sketches.

After all, we are facing a dramatic twofold crisis, ecological and economic, which even uninfluential public figures like the current UN Secretary and US President have acknowledged and denounced as deadly. As for the title under which I allow myself to do so, I shall be content with declaring myself a professor of philosophy who has studied value for some time, i.e. what is important and what is not. In this pursuit, which I regard as valuable, I have reached a fairly simple conclusion: that which keeps all of us and our descendants alive and well is very, very important indeed. Those who deny it or claim my claim to be unscientific can do so because they are tacitly doing all that is necessary in order to stay alive and well enough to be able to talk a lot of nonsense.

But let us dwell no further on this simple subject, about which I have written around fifteen complicated essays in the past ten years—I need another nail… Worthy of Epicurus, I can offer a tetrapharmakos to today’s world, confident to be received by no-one in useful time, for that seems to be the fate for all who dare criticise—as I am going to do—large-scale private banking, the profit motive as paramount,  the private ownership of strategic resources, deregulation, and the managerial mind. Some may even call me a “socialist”, as though it were a derogatory and disqualifying term, similar to “criminal”, “pervert” or “rascal”. Probably, given the notoriety of Italians and academics, “old pig” or “bore” would be more fitting insults. Politically, however, I would describe myself as “life-grounded”, not “socialist”. Still, I shall not mind and endure the epitaph with grace, even gratefulness. I shall keep company with Claude Henri de Rouvroy, Comte of Saint-Simon, Albert Einstein, and Bertrand Russell. An aristocrat, a physicist, and a logician…

(1)

First, fundamental medication, upon which all else depends: nations should establish, or in most cases re-establish, good public banks. Why? Well, here is something that should have become obvious to anyone who has eyes to see and a fat wallet. As stated by Russian President Vladimir Putin when speaking last year at the World Economic Forum in Davos, the economic crisis that we are witnessing today has destroyed, in about one year, approximately twenty-five years of pecuniary wealth, i.e. the sort of wealth that our intrepid yet “virtual” capitalists were aimed to produce in the first place. Private banks and financial institutions, left to their own devices by prolonged tidal waves of worldwide deregulation, brought themselves down and, with them, much of the world’s “real” economy. Do you remember the real economy? If it goes down, down go also the starving children of unemployed sub-Saharan family fathers. Down into the earth they go, whilst shareholders moan for lost profits and fire a few more people to ease their pain.

Clearly, many private banks cannot do their job unaided. As they were busy concocting mathematically byzantine derivatives and variously vehicled securisation packages in the deregulated shadow of global finance, they forgot about honest bookkeeping, sound reserves, mutual trust, and other basic old-fashioned principles of chronically anachronistic banking. They even forgot about that primitive slave invention, morality. Alas! Such is the genius of the invisible hand free from State direction or, as Icelandic philosopher Mikael Karlsson dubs it, “the invisible brain.” This is not meant to be an insult to anyone, unlike “socialist” or “pervert”. The so-called “Free Market” promoted by “deregulators” has no visible brain, insofar as State-centred social and public planning is regularly rejected as anathema. Still, who came to the rescue of self- (and other-) destructive private banks? The State.

Turned into the banks’ pork-barrel, the State has thrown trillions at the banks in order to keep them afloat—in the Land of the Free, in Great Britain, in Benelux. Was it necessary? No, for the State could have simply taken over the banks. Was it desirable? No, for public banks, still run in communist countries such as China and North Dakota, can spur development, employment, and take far fewer risks than private ones.

It must be emphasised that it is not enough for the State to own the banks; these must be run like public banks i.e. banks for the public good. Some morality is required in the process. Prudently restricted by various strings, these public banks can respond more easily to the needs and aims of actual populations, rather than to the whims and fancies of absentee owners or of their volatile servants, that is to say their bonus-benefitting managers.

What am I saying? Have public banks and run them as such. They must spur real development, not inflate bubbles that transfer wealth from the bottom to the top. Will it hurt the shareholders and wealthier customers of private banks? Certainly. They have already enjoyed the State’s helping hand; it may be time to repay the State with gratitude. Doesn’t anyone remember how to do it? Read history books, study the European Payments Union of the 1950s, ask retired Italian or French bank managers, use your imagination. A few rules of thumb may assist those who lack enough imagination:

(a)  Ban financial and currency speculation, at least within and via public banks: the casino belongs to “competitive” gamblers. Yes, people who used to claim that they would succeed or fail like Promethean heroes… Before they all asked for help to the Great Nanny, of course, lost as they were on their er-rand. And please, let the State never again salvage these hypocrites from their own myopic greed. They are now trying to wash their guilty conscience by returning one hundredth of what they have received from the public purse, whilst re-filling their pockets at the State’s expense, with fierce bearish appetite

(b)  Lubricate the real economy, if forward-looking, so as to launch much-needed public works, create long-term employment, and generate steady streams of income within the nation. Public banks can do so, at low interest rates: they must be profitable, but not at all costs

(c)  Monitor inbound and outbound capital flows, so as to direct investments to socially beneficial areas, and counter tax evasion as well as tax avoidance: far too much has been denied in the past to the very public purse that has then saved the incompetent affluent from themselves. And remember that a stable currency and genuine economic sovereignty can only be secured by abandoning the disastrous freedom of capital flows that has flooded the world with crisis upon crisis since the 1980s: tequila, vodka, whiskey or brennivín, ouzo, they all taste the same

(d)  Secure reserves by compelling the capitals of public bodies, pension and social security savings, and the revenues of public banks to be invested in the public banks themselves. The State must be as free as possible from the bondage and the blackmail of its current masters i.e. foreign direct investment and international bondholders

(e)  Pay bank managers State salaries comparable to those of other leading promoters of public wellbeing—surgeons, health-&-safety inspectors, judges—and avoid attracting the covetous, self-indulging, big-jet and big-penthouse penis-length-comparing “best and brightest” who plunged the world into a massive crisis. Communities need not such beastly best and brittle brightness. Forget them and their barbaric macho ethos—made of turrets of money, performance-enhancing bonuses (as though they alone were working), fee-demanding buddies-consultants, and PR companies using invariably words like “aggressively” and “targets”.

Finally, do not underestimate the fact that it is difficult to deal with cronyism by voting new governments into office. Yet it is much more difficult to do the same thing by waiting for anonymous and short-lived shareholders to reform their servants, who are so free from supervision as to jot down any number they like in the books without anyone finding out. As Adam Smith forewarned us some time ago, the corporation is amongst the least competitive and the most corruptible of human institutions, hence amongst the most damaging to the proper functioning of capitalism.

And inflation? Don’t worry. Nobody talks about it—a sudden silence. After all, common people are no longer able to buy anything, not even on credit. If anything, the real problem to come will be deflation. Besides, more than 90% of the money circulating around the globe is the result of financial leverage by private institutions. (And that is why, to prevent inflation, common people’s demand must be chocked. Hence stagnant wages, mass unemployment, etc.) Still, old-fashioned, knee-jerk reactions may be reoccurring soon: pensions and salaries must not go up, for the poor must repay the money lost by the rich; States must rein in public expenditures, which they have been doing for thirty years, unless there was a war to be fought; public assets must be privatised, so as to further enrich the incompetent and further weaken their only saviour; cheap money must stop (now), lest we tax the wealthy to give some jobs to the restless youth, etc. By the way, how is it that bonuses for bank managers could always go up? It must be the same people who think that only private firms can be valid multipliers…

It is ironic that, after two decades during which we had been told that the State and, for that matter, its independent Central Banks could not issue money for schools, hospitals, public works and social projects, quite mysteriously they started printing so much money. Sure, they now tell us that we need private banks to keep credit flowing, for credit is the life-blood of the economy. Without it, there shall be no green-spanning across the meadows. And yet, enterprises and households worldwide are still struggling to get the credit that they need. In truth, the selectively generous Central Banks’ cheap money benefits financial speculation, which is where the trouble started in the first place. How could ever a heartless economy pump any actual life-blood?

Indeed, in California, the local government is at risk of being terminated by the refusal of private banks to subscribe local public bonds because they are deemed “unsafe”: the State of California could go bankrupt. “What a cheek!” my mother would say, and she has dealt with banks for most of her life. The banks refusing to purchase these sunny bonds today are the same banks that were saved by public money yesterday, when it was raining. But there is more.

Were even these banks to provide enterprises, households and public authorities with the credit they need, they would not do it for free, for the common good, or for a little interest; they would do it for profit, and for as much of it as they can get. Thus, things would be so arranged and, sadly enough, they are being so arranged, as to have public money given very prodigally to private banks, so that these banks may give it to the public far less prodigally.

What is more, in order to be worthy of the bailed-out banks’ money:

  • Enterprises have been reducing their workforce to be more “competitive”
  • Households have been returning their homes to banks that had sold highly reliable mortgages towards the purchase of… homes
  • The State has been thinning out its already skinny body in order to be attractive to the banks, which the State has just rescued from themselves

After decades of TINA-like reduction of all that is public, public money is being given to glaringly incompetent private banks so that their losses be made public and their profits, which were always private, recover and be still private. In the process, public money is not used to counter dwindling employment, secure houses, and, say, fund hospitals, schools, university research, care for the elderly and the mentally ill, public gardens, public football fields, archaeological preservation programmes, amelioration of penal institutions, better garbage collection, sanitation and, why not, aid to starving children. How many tramps will get trapped in the revolving doors of the wealthy’s tower?

That the State may have money for the bankrupt banks but not for its own social functions, it is something that defies imagination, morality, and even legal obligations. Many of them ratified the International Covenant on Economic, Social and Cultural Rights, didn’t they?

(2)

Second, life-saving medication: if you skip the middle man, operate good public banks, and have money to use for the common good, then launch a vast programme of green public works. More severe and threatening than the economic crisis itself is the ecological crisis. Ask the United Nations about that. The former crisis threatens fat wallets at the top and starving children at the bottom, yet at different degrees of dangerousness. The latter crisis threatens all equally with death. The grim reaper is the great leveller. Since so much private enterprise has caused the ecological crisis in the first place—the smoky days of the Industrial Revolution—and has continued it in the face of scientific alarm calls as old as Britney Spears, then it is advisable that the State be able and willing to step in and, both by regulation and by direct economic action, reverse the tide.

Forget speculative carbon emission quotas and reduce carbon emissions; ban outright or force rapid conversion of the most obvious forms of life-destructive economic activity; tax the remaining polluting activities and de-tax non- or less-polluting ones; have a major public company undertaking proper refitting of houses on a massive scale so as to make them less energy-consuming; create large public recycling facilities so as to counter illegal dumping of waste at large; found and fund new public research centres for the development of green technologies, free from the yoke of short-term corporate desiderata; ration carbon-based power and use it only for vital and life-enhancing activities…

There are so many tokens of environmentally constructive planning, yet so few that have not been resisted as “too costly”, “too rigid”, “too much for us, who have already done so much”, etc. Were only the people uttering such phrases to consider seriously the fact that they can be so garrulous because the environment is still, barely, able to support them, their bodies, their minds, and the natural and social infrastructures that have allowed them to grow, socialise and, limitedly, mature…

In addition to a life-enabling aim and a counter-cyclical alternative to depressing austerity, politics would also regain its dignity by having a green mission. Strangled by powerful yet incompetent lobbies, and fettered by incompetent yet powerful central banks, politics has been reduced for far too long a time to day-to-day management of production costs in the domestic market and salesmanship in the foreign ones.

(3)

Third, important medication: since some neighbours may not like your policies and your currency, then they might respect your resources. States should increase or secure public control of strategic assets: water, oil, gas, the knowledge of its own population—this knowledge having been fostered by public education, healthcare provision, and cultural activities.

Whether by safeguarding the revenues originating in natural resources that would otherwise enrich few and often foreign shareholders, or by reclaiming a knowledge-based industry that would otherwise be outsourced by corporate giants, the State must secure a steady source of income for itself and for the nation’s economy. This income alone should help democratic governments to respond to their constitutional sovereigns, not to rating agencies and “markets” whose lords regularly reside offshore.

As Norway’s long experience in State-run oil extraction and refining illustrates, it is the one and only “trickle-down” strategy that has produced tangible results for an entire nation. States’ assets are not a factor of market distortion, but a factor of production—and one that can help businesses to grow by providing cheap goods and services, as opposed to the endless and costly bloodsucking of postmodern privatised economies. Ideally, it would be good for States to regain control over money-creating central banks, but there are limits even to one’s dreams.

Incidentally, even the many wars paid by the American public purse to secure control over other nations’ oil, or at least force its trade in US dollars, indicate that the public control of strategic assets is not so foolish an idea. And yes, also that getting bombed may be a risk for the nations pursuing the path recommended hereby: when the purse is at stake,  even liberals can stop wearing a tie and put on a black shirt instead. Apart from the landowners, cunning agents and financial moguls, who have charged prices well over any real cost of production, for all others there is no such thing as a free lunch—Miltons have always known the devil very well.

(4)

Fourth, integrative medication: since some powers-that-are may not be pleased with your plans, make sure you can deal with them. Create a just fiscal and regulatory framework, which empowers the population at large and weakens the usual lobbies: close tax loopholes and tax breaks for the usual lobbies; withdraw passports and freeze assets of tax fugitives; tax rents (land, inheritances, capital gains) and de-tax hard work, so as to reward merit and distinguish sharply between earned and unearned income; end subsidies, legal privileges (e.g. limited liability) and tax-breaks to private companies, lest they never compete in a truly free market; nationalise the companies that are too big to fail, as John Kenneth Galbraith advised us to do long ago; reclaim research and development grants and whichever other public credit given to private firms leaving the country; confiscate the assets of companies outsourcing to countries with lower labour and environmental standards; put regulatory agencies and grassroots associations on the boards of private and public companies to fight corruption; inspect constantly and reward those inspectors who discover illicit activities.

Taxes matter. Especially when there is an ever-richer tiny elite of super-rich whose fortune comes as a long free lunch over accumulated wealth, whether in property or capital. They hardly ever pay taxes. They pay fewer than most, since someone else paid taxes before them: those who actually earned that property or capital in the first place. In truth, they may quite simply avoid taxes by shoring their assets off to tiny islands or Alpine valleys. The members of this tiny elite are above and beyond the common citizen, whilst their trusted and highly paid managers rarely go to jail when guilty of fraud or cheating. Above-and-beyondness is a transferrable asset too. If and when hijacked by this elite, States are likely to commit suicide by taxing those who work instead. And if the people sweating and bleeding don’t have enough money, then State activities are to be reduced in the name of, say, the Big Society–of the hopeless and of their hopeless resilience.

In brief, internalise costs that have been externalised regularly and mercilessly at the expense of natural and societal well-being; and effectively re-regulate the disastrously de-regulated playground of the free enterprise–especially but not exclusively of the virtual type–whose only known freedom is that which cages every possible aspect of reality into the life-blind logic of profit-making.

Will anyone undergo this cure? History will tell. The past is known or, at least, it should not be forgotten: by way of poetic license granted by decades of financial deregulation, “2008” rhymes with “1929”. What happened after 1929? As some clever graffiti on a wall near my home in Italy did state crudely but concisely: “The bourgeois bitch makes fascist puppies”; all that she needs are a severe crisis and the stubborn refusal to take the medication outlined in this sketch of mine. Yet history does not have to repeat itself. If anything, it is full of surprises. Who would have ever thought, for example, that little furry animals could outlive giant dinosaurs and become the first species ever capable of destroying the ecological structures that allow them to live!

II.

Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation.

         John Maynard Keynes

There are two ways of conquering a foreign nation. One is to gain control of its people by force of arms. The other is to gain control of its economy by financial means.

       John Foster Dulles

In the year 2003 I published a review of Value Wars, written by Canada’s leading value theorist John McMurtry. In it I provided an account of the stunning whistle-blowing by World Bank Chief Economist Joseph Stiglitz vis-à-vis “deregulation” and “globalisation”, two terms that had been dominating economic and political discourse for some time. Quite unexpectedly, and rather shockingly, a well-connected, mainstream, Nobel-prize-winning economist denounced the World Bank and the International Monetary Fund for implementing over a period of at least twenty years a merciless four-step process of re-colonisation of independent nations by international private capital. This was the sort of suspicion that radicals like pop singer Bono Vox and Polish actor Karol Woitila, better known as Pope John Paul II, had been voicing for a long time. As for John McMurtry, he took due notice, since Stiglitz’s revelation was consistent with his own description of world affairs as directed by the profit-motive of the few versus the vital interests of all others. Preferring truth to originality, I endeavoured to spread this description of world affairs around me. In fact, I had given lectures about it, also in Iceland, before 2003.

Nobody seemed to care, however, at least here in the north. Stiglitz’s views were not widely discussed and even less were they taught at the university level, except by a few—sometimes foreign—eccentrics. McMurtry’s views, hadn’t it been for the same eccentrics, would have been left to gather dust in local libraries. Meanwhile, the policies of deregulation and enthusiastic participation in globalisation were not halted. On the contrary, in the year 2003, the three largest public banks were privatised. Immediately, they started to sail the seas of international speculation, never seen before in Icelandic history. “Carry trades” and “financial leverage” became mantras recited on the first page of all newspapers, whilst the businessmen who were dubbed the “new Vikings” set out to raid foreign banks, enterprises, supermarkets, and football clubs, with money that they did not have. But such is late- (or post-) modern capitalism, or “the Icelandic way of doing business”, as I was told back then. Besides, it would appear that only professional economists are entitled to teach about why they, unlike a mere philosopher like McMurtry, got it so wrong. And there’s so much to learn!

What did Stiglitz’s whistle-blowing describe? And how does it apply to the Icelandic case?

First, the permeability of the nation’s borders to private foreign capital is increased by deregulating capital trade and privatising strategic national assets. Barriers, bottlenecks, and “obsolete” protections are removed, whether material or immaterial. Nobody quite remembers why they were there, and even fewer wonder why. Above all else, money must flow. That’s the consensus, at least in the district of Columbia, which is obviously populated by zealous reformers. Their principles are crystal-clear: “public is bad, private is good.” They believe in “The Free Market”, whatever that may be thought to be; and they believe in it so ardently and unflinchingly that Stiglitz and others refer to them as “market fundamentalists.” They even set complicated rules at roundtables to force dissenting markets to be free. Anyhow, this very first step, which may take some time, is achieved by lubricating slow-moving and slow-thinking local politicians, business leaders, present and future ideologues with adequate amounts of grease. Grease, yes, such as co-opting these people into the international jet- and yacht-set, promising or securing that they will have their own golden toilets, washing their brains at spectacular conferences and exclusive think-tank meetings, baptising their best-and-brightest first-borns in the sacred founts at the sacred shrines, stirring their simmering jingoistic sentiments, or bribing them straightforwardly—indeed Stiglitz talks of this process as “briberization”.

Secondly, money flows into the country. A bubble ensues; in fact, a cyst. Depending on the country’s economic conditions, the cyst can take different forms, but all of them eventually become painful. In the case of a reasonably well-off country, glittering streams of foreign capital inundate the land, turning modest entrepreneurial fields into a glorious harvest of unprecedented projects. Thus refreshed, the local currency and the local shares pupate into surprisingly light-winged and seemingly fertile young fairies, whose well is said to be full of diamonds. Moreover, the nation’s financial institutions become large fountains that can quench the thirst of anyone who is eager to drink from them, including those who do not need it, but have the misfortune to possess a belly. New buildings spring up like mushrooms in the vast new wetlands, luxury and consumer spending—mostly dependent upon credit—fly high like gleaming droplets out of a geyser’s mouth. So mesmerising is this sight, that more permeability is actively sought.

Then, the cyst bursts. As swiftly as it flew in, so does the money flow out. A rumour, a token of gossip, an unfortunate diplomatic incident, a well-paid expert report, or a speculator’s premeditated signal to his colleagues rapidly reverses the tide. The flood ends. A drought follows. Projects—and buildings—remain unfinished, half-mast, like flags at a funeral. The wombs of local currency and local shares reveal themselves sterile; it was all make-up, they now say, even the wings; you should never trust the books. The well in the garden is dry, and full of stones. Moreover, the fountains are dry too. Around them, stunned, jobless, emaciated peons, indebted up to their eyeballs, drown into whirling sand clutching their plasma TV sets. And their TV heroes have not come to save them, be they crusading party leaders or Viking raiders. Who will?

Nobody is without friends, especially after having become part of the international jet- and yacht-set, educating his own children in the best schools, or attending eye-opening conferences and meetings. Not to mention those friends who have already proven so generous in the past. In truth, after having advised on how to render the country prosperous, they now spare no saliva explaining what can be done in order to rescue it from its unfortunate plight. Thus, money is poured back into the nation. High interest rates are, however, de rigueur. One does not give much to drink too easily to a friend who has already drunk too much. What kind of a friend would he be?

The third step is therefore to make up for the mistakes of the past and repay one’s generous friends. Whatever wealth remains must be scrupulously collected so as to honour the debt—or so as to secure further loans. Debt gives salvation from debt, as gamblers understand so well. Certainly, the wealth of the wealthy is better left untouched: they are the producers, the life-givers, blessed fountainheads of the nation’s wellbeing, which needs them so badly under the burning sun of the new sad day. They must be treated kindly, lest they or their wealth be forced to flee by too rapacious and visible a hand—some have already fled, they whisper. The wealth of the poor—or of the poor-to-be—is a better starting point. After all, they may have little, but there are many of them. Besides, since they have little, they cannot flee as easily as the rich, nor can their wealth flee. And whereas the wealthy can go bankrupt and be resurrected cleansed of their debt, like the imperishable Phoenix, ordinary mortals honour their debts, willingly or not. They may protest, but law and order are the last two public sectors whose resources are cut off, unless successful ways are found to privatise them too.

Finally, as the nation struggles in debt and turmoil, groaning so loudly as to disturb its neighbours, the generous friends come back to help. They cannot remain untouched in the face of so much poverty and violence. They have new “plans”, “strategies” and “packages” to sort things out. Yet, to implement them, national borders must be removed completely and an iron framework of conditions for investment and development must be imposed in order for the nation to become a proud participant in fully liberalised, multinational free trade. For example, its tax environment must be suited to foreign investors—may God bless them—and its population as flexible as unthinking reeds in gushing new brooks, to which they contribute sweat and tears.

By the way, where does Iceland stand now? Probably it stands at the threshold of deciding whether to plunge headlong into step three, with signs of the fourth step already lurking behind the waterfalls harnessed for hydropower.

III.

In all normal civilisations the trader existed and must exist. But in all normal civilisations the trader was the exception; certainly he was never the rule; and most certainly he was never the ruler. The predominance which he has gained in the modern world is the cause of all the disasters of the modern world.

  Gilbert Keith Chesterton

The economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable, and we should face up to that.

  Lawrence “Larry” Summers

It has been long known that Europe catches a cold whenever the United States sneezes. Yet things get even worse when the immune system of rules and restrictions to international capital and currency trade has been removed altogether. Iceland and some young, yet already former, free-market miracles on the Baltic Sea did catch pneumonia this time. Ironic indeed, as they are just another group of market miracles turned into meltdowns—Asia had a few of them in the 1990s. Miracles seem short-lived these past few decades… Though if truth be told, even Lazarus died, after having been brought back to life.

Historians of the future, if there shall be any and if they will be honest, are going to wonder and ponder upon how such intelligent and highly educated “knowledge economies”, capable of the finest mathematical-financial wizardry via the fanciest computer technologies, could bestow upon themselves so much avoidable pain, destroying in the process not solely further scores of planetary life support systems, but also man-made social infrastructures that have generated, depending on the country, genuine welfare for up to three or four generations. These future historians will be at pains to conceive of powerful, well-off, democratically elected representatives who listened to foreign bankers, and not to their own citizens, rushing to implement, whenever they could, multilateral agreements on investment robbing their own cabinets of much of their power.

These future historians will probably fail to empathise with and understand such bizarre people, very much like Voltaire, who could not really explain why our forefathers were willing to slaughter one another over the correct interpretation of the Holy Trinity. After all, they had never seen it (or them?) and Jesus himself had never said anything clear, if anything, about it (or them?). Not to mention the centuries that humankind spent warring, raping, disembowelling, burning, maiming, chaining, flogging and excommunicating one another because of errors of interpretation. Obtuseness is incredibly resilient. And we are not so different today. Check the Athenian cradle of our civilisation if you don’t believe it.

Yes, embodied and expressed by the very same conventional people at the helm of the world’s public and private financial affairs, the wisdom arising from the ashes of the current crisis is astoundingly similar to the one that caused the crisis. Are you indebted? Take on another loan. The private banking sector has betrayed you? Restore it with public money and run it as before. The world’s economy is a gilded cage run on behest of under-taxed oligopolists, tax-evading rentiers and idle absentee owners that squeeze money out of the real economy through banking charges, debt repayments, service fees, monopoly and land rents? Keep it going and call it a “free market”. People are suffering, jobless, and with their tax money siphoned to the creditors that inflated the bubble? Show them tough love and deprive them of further healthcare, education, culture, wages, pensions, childcare, subsidised water and power. Austerity measures turn a crisis into a depression? Implement more of the same measures. The environment is running amok in the so-called free-market environment? The market will fix it; in the meantime, profit will keep being extracted from increased prices in oil, gas, polluting consumer goods, and cancer treatments due to the ecological collapse of the planet. Apparently, the only green rules acceptable are those that transfer further money from the public purse into private pockets. All others are resisted as “costly”, “distorting”, “rigidifying”, “liberticidal”, which may be true—and good. The one and only truly binding international environmental regulation that, so far, has saved us from extinction, preventing excessive UV-irradiation, was a top-down imposition from Montreal.

But life, not to mention a happy and healthy life, has never been the paramount goal of the pursuit of profit. War was and still is a major source of profit, towards which public subsidies to private firms are given generously… Well, they call them “research & development” grants or “national security” strategies… Disease-causing pollution has been mostly an externality that had nothing to do with profit, until pharmaceutical conglomerates found a way to exploit that too. Slaves and their children were most profitable for many, many centuries. Wage slaves… Oops! The flexible working poor and their children are very profitable today too.

And for what must all this wisdom be endured? To give money to people who have money. They have enough, one would believe. They should start communicating it to those who have nothing… little… less. Jesus and Aquinas regarded this as obvious. No, it is not obvious. Money is never enough, especially to those who need yet another fancy dress. But why are these people non-satiable? Why do they complain, lobby and shift electoral allegiance whenever taxation on capital gains is vented? Why do they transfer their fiscal residence to tax havens, whilst benefitting from handouts of the State they are deserting? Why do they outsource productive structures to countries squeezing labour out of turnips, if youngsters are not available? Why do they say that “they have already done enough” whenever life-saving regulation is discussed? Why do they care more about the interest rate they can get, than they care about how their money is invested? Why do they oppose healthcare, old-age pensions, education and culture for all, while they enjoy it for themselves?

It is competition, they answer. There isn’t enough around for all of us, only for the really tough ones, who can then live in much-deserved luxury. But why do people compete for having more for themselves, instead of, say, competing for beauty, generosity, selflessness, equal distribution, full employment? There can be so many different and more constructive competitive aims in life: just look around. Nuns, school teachers, barefoot physicians, rocket scientists, marine biologists, old fishermen, young artists… They may not all dislike some cash, but they do not live for it, or at least they try not to. Since Divine Will is out of fashion, and if you press them long enough, the luxury-deserving competitors are going to tell you, eventually, that we are cruel wolves. How naïve was I! I thought that they were cruel wolves… The world is a cruel place—those ferocious nuns… Nobody waits for those left behind—and they don’t. The market forces accept no barrier. As one of their fairest ideologues so frequently stated, there is no alternative; it is human nature. A hidden philosophical anthropology…

And yet, none less than their poorly understood hero Adam Smith taught us long ago something very different in the opening page of his greatest book, The Theory of Moral Sentiments:

How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it. Of this kind is pity or compassion, the emotion which we feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner. That we often derive sorrow from the sorrow of others, is a matter of fact too obvious to require any instances to prove it; for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous and humane, though they perhaps may feel it with the most exquisite sensibility. The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it.

This is certainly not the one and only betrayal of Smith by current capitalism. After all, his market was meant to be free from rentiers, who now run the show. Anyhow, why so much mercilessness, then? Have we become worse human beings? Have we lost our humanity? Have we found ways to outcruel the cruel, underfed, superstitious peasants, who, when not breaking skulls in the name of God or King or Country, killed and maimed animals on a farm? Well, as modern and proud of our science-technology as we can be… Well, yes… Overall, subtly, we have. The thinning of solidarity that embraces the whole humankind, which a German-sounding French warmonger studied in depth, is a weaker barrier to the undergoing evil drives.

Or, at least, we have done our best to train impressionable young minds to being ordinarily callous and participating in the most spectacularly life-destructive economic system ever seen on Earth—a system that, as denounced by the scientific community for the past thirty years, has turned the survival of our species into a big question mark. Much is done in this direction, routinely, thousands of times a day, so that our youth may become more beastly than ruffians and more abrasive than criminals. But how? Simple. We (mis-)educate them, and we have tools for (mis-)education that no emperor or church of old has ever owned or mastered. Only a couple of totalitarian dictators gave it a go or two in the blood-drenched century of Charlie Chaplin and Woody Allen… But how, where? Open your eyes. Watch.

Our TVs and media are replete with commercials. They are meant to accompany you from the cradle to the grave. Selectively and scientifically trained marketing strategists, creative psychologists and advertising gurus are paid to induce desires in the subtlest and most effective manners, starting with our children’s delicate souls. These desires will blossom into poisonous “new needs”, as these “experts” call them. These weed-like flowers being sheer wants perceived as genuine individual needs, the delayed satisfaction of which is to generate a sense of inadequacy, anguish, frustration, isolation, or envy towards those who do satisfy them. And these are the only flowers that must grow; hence they are everywhere. Children no longer need an imagination. Marketing strategists make sure that the only pictures that children can have in their mind are those that sell. They speak already like TVs: why shouldn’t they replicate TVs in their brain? Eventually, as grown-ups, these children will be branded, like slaves of old, or cattle still is today. Perhaps, like the slaves of old, they will enjoy freedom one day a year. Or maybe all the days will have been taken away by marketing strategists, who wish to celebrate the sales of Valentine’s Day, Mother’s day, Father’s Day, Marketing Strategist’s Day…

You don’t believe me? Go to any primary school and you will meet hordes of little creatures dressed according to the latest fashion code, or pestering their parents to be so dressed. Those who are not there, because they are busy sewing the actual fashion items, may well try to rob them from the horde one day. These little brats! They want and want and want scores of items that they do not need, the possession of which, moreover, does not grant happiness at all, despite the glittering promises. Were it so, no new purchase would be “needed”, and that would be bad for business. Certainly, one may learn to control such a powerful impetus, but it takes years of self-re-training. Not even hunger and utter destitution placate it. Not even the full awareness of not being able to afford those consumer goods. Nothing will ever erase the deep-rooted psychological mechanisms implanted into our souls when we were little. Is this enough? No, there is more to it.

Our TVs and media are replete with role models—and the medium is the message. Rich and wanna-be-rich people of all sorts shine even when performing the most ordinary activities, such as shaving or concealing their stench with perfume. From slutty heiresses to pimping rappers, from cosmetically mummified bad actors to ignorant footballers, from divorce-addict hair-died tycoons to soon-to-be-millionaires answering questions or showing their private parts in public—these are the saints and blessed inspirers of the modern secular creed. They may be confessing their own sins to a TV host, confident that their words will be forgotten. What remains, instead, is the scent of money that perspires through their placenta-creamed pores. A powerful aura.

The same aura surrounding the action hero, who fights, kills and kidnaps for the sake of justice, peace and freedom…  There he comes! Dressed in an Armani suit, he jumps out of a Mercedes, talking briefly on his Nokia. He checks his Rolex, then gets into a Ferrari and drives to Chez Maxim’s. There, he meets a beautiful young lady, whose Valentino dress will soon be ripped at the Hilton’s. And there he’ll kick the guts out of the villain, smashing his Patek Philippe and ruining forever his Dolce & Gabbana jacket… Justice is served. Peace is conquered. Freedom triumphs. That’s the message, isn’t it? And if not much of the beautiful young lady is shown, then children can watch too.

Poor people are less frequently shown. They don’t sell as well as our hero. Moreover, they don’t buy. There exist notable exceptions, though. Poor men and poor women are sometimes on display, like animals at the zoo, to be observed, mocked and, on Christmas day, to feel sorry for. Other times, they are actively humiliated on screen by policemen, judges and other masters of entertainment. Crime, ignorance, savagery: what a show! Once again, as long as it sells, keep it up. There, in the spotlight, for less than fifteen minutes and amidst commercial ads, the poor can shine like greasy piglets on spits, or like the tin their most unfortunate children collect in garbage dumps.

What is the result of this Blendungsroman? Go to any secondary school and you will meet cell-phone-talking walking replicas of the rich, parading themselves in the corridors. Give them an opportunity to put down a “loser”, and they will savour it like their own parents, whose SUVs and triple-mortgaged houses are punches into the Joneses’ stomachs. Even poverty is a risk worth taking to cast the rich’s aura.

The silent walking replicas of the poor are usually in other schools, unless they have dropped out of school already to find a job that will secure their poverty. Some are hiding in the toilets. They are poor and they know it. They look poor. It is not only their clothes that say it, but their bodies. They have bad teeth, small tits, big noses. Their parents have wrinkles. They can’t get fixed, like those people on TV, or their replicas and the replicas’ parents. To cope with this obvious inferiority, they breathe in. In Italy, they sniff cocaine to think that they too are rich. In Rumania, they sniff glue to think that they too are sniffing cocaine.

Either way, none of these kids must worry about being politically active. It is too dangerous. Yes, youngsters still remember how to bark: they haven’t been beaten up into silent submission, yet. Some will have to be locked up, so that trade be free. Don’t give them any wrong ideas. That’s socialism—or any bad “ism” of the day. Don’t give them hope. That’s socialism. Politics is best left to corporate employees, who siphon public money to their shareholders and, God be gracious, to their own bank accounts. That’s the free market. These employees alone are capable of understanding why unemployment is natural and inequality good. They’ve got talent. They’ve got the degrees that get you good jobs. Therefore, unless they are corporate employees, not even the kids’ parents have to worry about politics. Like these happy few, the kids’ parents can take happy pills too or, if pills are too expensive, drink themselves out blind.

Drunk, the poor parents can cope better with the trauma of seeing their children die. Each country has its own special way of sending new winged angels to God. In high-tech market-miracle India, they die of cholera in open-air sewers, where they were looking for edible scraps. In coup-idity-ruled Honduras they die poisoned by pesticides in a free-market plantation, so that the bananas people eat in Canada be not too pricy. In revolutionary France they die stabbed by an angry pusher in a dark alley, but they were not really French after all. In peace-loving America, they die fighting for human rights in another country, since their own country denied them a future. How was it possible? They had trained them at killing people since they were three, on a stolen X-box… Maybe they should have trained them at doing something else, but there is no videogame that teaches you how to free a political party from corporate diktats or join a trade union… Is this enough? No, there is more.

Our TVs and media are replete with experts telling us that greed is good. They are the most interviewed and consulted members of the intelligentsia of our community. Sometimes they even become our presidents, ministers, mayors and godfathers. Go to any university. Some of them feed on tenure and enjoy healthcare and pension benefits, whilst arguing that you shouldn’t have them. You will discover that there is an entire discipline built upon that notion.

If truth be told, a few of its adherents do remind their students, on leap years, that the profit-motive of the homunculus œconomicus is just one drive amongst many. This drive becomes one and insatiable for the sake of toying with mathematical formulae, not for the sake of describing reality, which never works quite like the models do. Facts can be so obstinate. Theory is much more flexible. Occasionally, on elective days, these beautiful souls mention even mysterious, metaphysical, unscientific words: “ethics”, “morality”, “duty”, “respect”, “goodness”, “virtue”, “governance”, “responsibility”… They don’t fully grasp them, though, for they slip out of books and balance sheets. Sometimes they even get their students to learn some history, thus half-stuttering what sort of devastation this homunculus and its leit-motive have caused. Still, these are exceptions, divagations, and the students, between the end of their studies and the beginning of their careers, know it very well.

Our MBAs and the many branches of science and engineering dependent upon private sponsors and future corporate employers are the convent-barracks where our crusading novices, more or less geeky and asocial, are told that only numbers really matter. The fate of a paterfamilias and of his family does not. They are told that persons are not persons: they are costs, opportunities, capital, markets… They are all sorts of things that can be converted into monetary units—numbers, in fact—though most definitively they are not persons. In fact, such things, be they free individuals or free communities, can turn into dependent variables. And if some of these things are laid off by a firm that rationalises an otherwise irrational workplace—what a madness it must have been!—then it may be time to invest money in that firm. If the right numbers go up, then things are just as they should be. If they don’t, they can be massaged. If they still don’t, they can be fixed. If they still refuse to go up, then a couple of hospitals plus half a university, as long as they are public, can be sacrificed to a return to growth.

In the streamlined world there can be recoveries without jobs, business opportunities in famines, increased flexibility via insecurity of employment and future bread, full employment at the natural unemployment rate, goods that do a lot of bad things, and market miracles that melt into destitution because of something bad but the pious market. What lesson is learnt? Everything in the world exists in order to maximise the money of investors and/or their managers. Even old, wrinkly countries must be attractive to such people or face their own demise. Make the rich richer. That is the one and paramount commandment. Such merciless homunculi are no fiction; they are science-fiction: they drive around in Dalek machines. Indeed, to those who do not simply rob and run, being merciless is a fiduciary duty. Apart from this, everything else goes.

Yes, everything else, unless you get caught and cannot pay the best lawyers—what a shame. Business words of the business world tell no lies: lack of scruples is “determination”, mercilessness is “having balls”, inhumanity is “being committed”, callousness is “professionalism”, locust-like behaviour is a “hedging”, stealing traditional knowledge is a “patent”, depriving people of knowledge is a “copyright”, poisoning the destitute is “mutually beneficial trade”, taking public-sector resources to guarantee private profits is “hard work”, threatening employees with unemployment is “personnel management”, gambling is “trading futures” and other cabalistic formulae “over the counter”, oligopolies are “economies of scale” and cartels are “free markets”, sending knowingly drivers to die because of a few faulty cars is a “cost-saving measure”, sending knowingly air passengers to die because of reduced safety controls is a “cost-saving measure”, corruption of inspectors is a “cost-saving measure”, corruption of politicians is “lobbying”, and rent-exacting parasites are “the productive class”. The list goes on and on. Read the news and enjoy the game: destroying peoples is “restructuring”, keeping them poor is “preventing inflation”, colonising a nation is “opening markets”, withdrawing rights is “reform”… By the end of it, you almost believe what they say. Such is the catechism of the beast and brightest.

Has any student still doubts or feels uneasy? Then he is told that all is well, for all ends well. Yes, those things that we unscientifically call “people” may seem to be suffering, poor things. And the others, crony criminals who have nothing to do with the free market, are the exception, though the rule just wants to be like them. After all, those exceptional exceptions were on the cover of glossy magazines like Capital, the Cosmopolitan of people who “have balls”… Don’t worry. Everything will be alright. Just wait—that’s what my old priest and the party commissar would say… The invisible hand of the self-regulating market is going to look after all of them. Free from State intervention and from trade unions—for only capitals may associate and go on strike if they don’t like a government—the invisible hand is to generate endless bounty for all—the invisible bounty? Most of the world’s trade is virtual, after all…

Such is orthodoxy today, for which even a Pope’s distribution chests are heresy, utter hilaireous bellocs… If you claim that small is beautiful, the giants get angry: go make your shoes elsewhere! Today, you no longer need to be red to be a danger. It is enough to be as white as a dove. The Market God likes hawks, whose endless preying is the source of all that is good. His transparent hand turns into water all the blood that these hawks spill. As to the tallest shrines, they are no longer erected for the glory of the Sun, Athena or Almighty God, but for the likes of Morgan Stanley. Behind all this, a hidden theology… Maybe Divine Will should be in fashion again.

IV.

The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.

   Franklin Delano Roosevelt

 To avoid glaring inequality or widespread misery I am ready to sacrifice some, or all, of my freedom… I should be guilt-stricken, and rightly so, if I were not.

Isaiah Berlin

 

The child empathises with the dying bird. The adult empathises with the starving child. The nurse attempts to ease the pain of the terminal patient. The teacher smiles patiently at the pupils playing in the courtyard. The schoolmaster hides his unease as the ancient oak is felled. The gardener watches wildlife documentaries on the TV. The mayor goes on holyday to his cottage on the lakeside. None of them likes to be ill. All of them fear death. All of them experienced curiosity or elation as they held a newborn creature in their arms. All of them have been compassionate at some point. All religions have praised divinity as the fountainhead of all that is. Whether physically, emotionally or mentally, all of the above have exemplified the ultimate source of all values.

Years of research about value have led me to conclude that nothing is more valuable than that which allows value itself to emerge: life. Without life—biological, emotional and mental—there can be no value, whether ethical, aesthetic, economic or political. Those that deem life’s value instrumental acknowledge its value nevertheless. Besides, none of them seems likely to prefer beauty or other values to eating every day and being in good health: take away their bread, and they will sell their dearest painting… Of all crazy philosophers ever alive, only a handful rejected life as a value and one alone behaved in a way that denounced actual indifference to life: Pyrrho the sceptic, whom his friends prevented from walking under carts and falling off cliffs. One. As for the few who told us that life is a valley of tears and an endless stream of horrors, none of them ever stopped eating, drinking, and philosophising, i.e. one of the activities that they clearly enjoyed the most. But what can the lives of crazy philosophers teach us about economic matters?

As usual, philosophy can reveal the heart of an issue. If life is so crucial, indeed the source of all values, then it can be inferred that a successful economic system provides universal access to vital goods across generations. Economic efficiency means that the lives of all benefit from it and nothing is spoiled to the point that those who come after us may not benefit too: resources are left for others the way in which we would like to have them left for us, if not better. Improvement is a possibility. An economic system that achieves its vital aims more effectively, thus opening the door to a richer fulfilment of planetary and human potential, is yet a better system. On the contrary, an economic system that does not fulfil its vital aims, either because access is limited to few or some, past or present, or because it delivers goods that are deadly, detrimental to life or irrelevant to life needs, whilst leaving some of these needs unanswered, is a failure.

The current economic system is a failure. As repeatedly denounced by the international scientific community at its highest and most representative levels, human civilisation has become for the first time in its history a threat to the planetary environment that allows for humanity’s own existence. There is no aspect of the Earth’s environment that has not been depleted in the three centuries that have seen the affirmation of capitalism worldwide: the biosphere-protecting Ozone-layer, breathable-air-producing and reproducing pluvial forests and oceanic life-systems, self-regenerating water aquifers, nourishing-food-producing arable spaces, and natural-equilibrium-maintaining and science- and technology-inspiring biodiversity. The continuation of life as we know and enjoy it is at risk.

Much has already been destroyed beyond repair, to the point that bioengineering is being discussed as a tool to cope with the most tragic consequences of “development” awaiting us. Emblematically, one nation of the world is planning already the purchase of land in India in order to transfer its entire population there upon the day when the ocean will have swallowed their ancestral islands. And yet, in the face of current profit losses, all this is treated as secondary. Just read the news and you shall see that the focus of collective action is upon a “return to growth”, as though the sad and deadly harvest of greed were not still vivid before our eyes.

What is more, the mantra of competition goes on unchallenged. But competition for what? To generate profits? And why? Why should rich people become richer? There’s more than enough to go around. Even more ludicrous is the idea that schools, healthcare, free time, old-age security, peace of mind and all those gains for life that people acquired in decades of blood and humanity should be dismantled so that competition be won. By whom? What sort of victory is the augmentation of the money heaps of people who already have it, whilst the quality of life and the living conditions of most are worsened?

F.D. Roosevelt told us seventy years ago that greed is not only bad morals, it is also bad business. When business’ sole purpose is to make as much money as possible as soon as possible, then the somewhat constructive role that business may play in society disappears altogether. It doesn’t matter if any private business actually makes a lot more money, gets bigger internationally or pervades even more diffusely the lives of millions: the standards of evaluation and appreciation for the constructive role of private business belong to the sphere of public wellbeing. And public wellbeing cares about long-term indicators: happy workers retiring in good health, healthy mothers making plans for their children’s education, educated youngsters looking forward to playing on the beach with their grandchildren. If this horizon disappears, then you’d better start to worry. Private business is known to have played far too often a destructive role, as everything, the long-term survival of private business included, can be sacrificed to man-eating Baal.

Short-termism, combined with the relentless pursuit of profit, characterised roaming Goths, wooden-legged pirates and cigar-loving gangsters. The entrepreneur, the glorious creation of modern capitalism, has always been expected to be something different. Restrained by family and personal pride, religious morals, annual dividends, trade unions and other 20th-century legal suasions, his horizon has been defined as a somewhat distant future, his playground the real world of flesh-and-bone persons like him, his reward the admiration of affluent or fully employed fellow citizens that participate in and benefit from his endeavours.

As long as alternative economic systems were either widely discussed or experimented with, the entrepreneur had to justify his existence by creating some tangible, albeit sometimes debatable, token of social worth, such as employment, community networks, or nice new gadgets. Only the speculator, hardly distinguishable from fraudsters, trotted relentlessly upon a different path. But speculators were said to be the exception, not the rule…

Yet the day came when Gordon Gekko and his friends got to control more than three quarters of what is still incautiously dubbed “world trade”. The decades of my life, infested by Maggies, yuppies and wall-less oligarchs, launched “The Financial Revolution”, a pivotal process in contemporary history that no historian has yet so baptised: let this label be my grand legacy to international scholarship.

An equally bombastic historian used this term in the 1960s to describe the emergence of public creditors in 18th-century England… It doesn’t quite compare, I’m sorry. We’ve just witnessed thirty long years of national barriers coming down—and how long it took for both nations and their barriers to come into existence!—so as to allow for a gigantic flood of miraculously leveraged liquidity springing out of… books and vast pools of capital formed by privatising public money in all of its shapes, squeezing profit from de-unionised workforces threatened by—what a coincidence!—unbarred international competition, and such ingenious tokens of financial engineering that only professional mathematicians could make sense of them. All this money travelling much faster than any good or service ever before: computers have replaced the pens and ink of old. The world of Gekko and other reptilian inhabitants of city hedges and wall streets is indeed a very bizarre world.

Originally, these creatures were meant to trade pieces of paper granting a share of the profits made by fairly large private companies. It is something that had begun in Genoa a long time ago and that their trading partners, the Dutch, had brought to the North Sea around the year 1600, sailing thence to the New World, another Genoese discovery… But a share of the profits may be less remunerative than profiting from shares. Gekko’s forefathers started betting on rises and falls in the price of those pieces of paper, sometimes causing them by moving massive amounts of money or dropping a few words into the nearest ear…

In the days of poor old Nixon, in the Big Apple, they traded about 20 million stocks every day. Today they trade 1600 million or so—and there’s more fruit in the basket than just a big apple. Also, as of Nixon’s time, they started playing games with the world’s currencies, namely the money with which common people buy their bread. Again, they started slowly, about 20 billion USD a day, but now, after “freeing” trade worldwide, they are up to 2 trillion. It is by far the largest chunk of trade in the world and it has one severe drawback: it makes the form of trade that normal people think of when they hear the world “trade”—buying and selling bananas, timber, cars, computers, etc.—much more complicated. Not to mention buying bread. But the reptiles don’t worry: they own the future. They buy and sell it.

Actually, they take bets—only a tiny fraction of trade in existing “futures” fulfils the official excuse that these are ways to hedge against risks on purchases of actual goods—on nearly anything that can be grown, mined or brought into existence, influencing the price of all sorts of goods, including the bread that common people wish to buy. Still, since even this casino was not big enough, the reptiles added onto the table the so-called “derivatives”, which are pieces of paper whose value is derived—hence the name—from something else, whether another piece of paper or a price arising from combining a few of them. Anything goes. Also because you can buy or sell these pieces of paper any way you like—over the counter, under the counter, beside the counter… You can actually buy and sell the option to buy or sell them, for short-termism can be so short that, to spare time, it allows certain persons to sell what they don’t have.

Is this too complicated? Too silly? Well, today, around the globe, there’s an ocean of derivatives, for a value of about 500 trillion USD. It is a lot of money… Strangely enough, however, the reptiles that invented them also felt the need to insure themselves against any risk that may ensue from trading in… derivative paper. So they started buying “credit default swaps” from insurance companies and let their friends and colleagues, the bankers, pile them up as assets, claiming that these “swaps” were as sound and good as gold itself. Probably they would have started taking major bets on them as well, had the entire mathematically engineered and economic-science-backed system failed from collapsing under its own virtual weight. Too much genius had been spent for the business world to bear. Under so much talent and foresight, the reptiles’ joints felt suddenly empty of market force. Amazingly, the invisible hand was nowhere to be seen. Fortunately, the State ran to their rescue and gave them a visible, reinvigorating bailout with other people’s money, lest the bank’s own mouthpiece uttered “BBB” or some other silly rating. And that’s where we stand today. The real suffering surrounding us, from the unemployed Spanish worker to the starving Senegalese farmer, is due to a virtual catastrophe. And if the starving Senegalese farmer tries to move to Spain, he shall meet a wall and possibly drown in the sea, while frustrated unemployed Spaniards, trained by modern corporate journalists, will hate guts those that didn’t. Strangely enough, these migrants are to be loathed, not the freely migrating virtual capital that cannibalised both Senegal and Spain.

Like all human endeavours, business can be either good or bad. To know what makes it good or bad, what is nobler than money, means to know how to measure real growth, real development, real utility, real goodness. Who, though, after Pareto’s Protagorean reinvention of economics, is allowed to know what real value is? Certainly not serious economists, who can only acknowledge preferences… The Pope may know, perhaps. He claims to be right like no-one else and that’s maybe why so many people cannot stand him: who likes an old moralising grandpa, in an age in which we are told by our media gurus to give into any juvenile urge of ours that can make them a buck?

Or maybe any living creature knows: they’re all God’s creatures, after all. Yes, even by watching slugs and bugs we can evince something important, which degree-honoured geeks may have neglected while sitting in front of an inanimate computer screen. They are not forgivable, though: no matter how much you masturbate, avatars are not human beings. Here comes the slap; Zen masters should love it: entomology can rescue economics from its value slumber. Vade ad formicam. What a twist! Or maybe not. It all started with Mandeville’s bees, to be honest…

Let me be brief and clear on this. What consistent pattern of behaviour can be observed amongst slugs and bugs? Watch them in your garden, if you have one. Or go and watch them in a public garden, if it hasn’t been sold to developers. As small and allegedly stupid as they are believed to be, all invertebrates try to do their best to survive at all times. And when they take risks, it is because they either look for food, shelter, safety, or attempt to ensure the survival of their species. As economically irrational as animals can be, these small beings can even sacrifice individual utility—one’s safety, food or head—for the sake of keeping, indeed at times just making, their young. Future generations matter, to them. Some seem even to care for their fellows in the anthill, hive or nest in which they live… Life, in truth, matters to living creatures, and yet life can be sacrificed, for more life may thus ensue. The only higher value that life acknowledges is, in fact, life.

And yet, in today’s world, money is still prioritised over life. Listen to our leaders, and with the exception of a pair of Caribbean politicians that corporate media describe regularly as lunatics, what matters most to most who matter most is to keep “growth” going. Capitalism or the “free market”, as they like labelling it despite its dictatorial logic, must keep generating profit, free from State intervention, which does not serve that one paramount end. All this is held, despite the well-known biocide implications of such a process. Yes, capitalism is responsible for the ecological degradation that we are living in with, and leaving to, our children. Has nobody really put together the Industrial Revolution and the collapse of the planet’s life support systems?

I shall help you: the causal link between the pursuit of profit and environmental degradation becomes visible every time environmental regulation is resisted as “too costly” or by-passed by illicit behaviour or by off-sourcing to countries that have actually little such regulation or none at all. Unless business is forced forcefully to comply with existing regulation, which is much more difficult in a barrier-free worldwide market, common praxes show that the primacy of profit persists over, say, not killing other people by dumping toxic waste onto them.

Indeed, in economics, it is methodologically impossible to address the environmental preconditions that make life possible and can secure its long-term flourishing. To the eyes of the economic observer, bread is as much and legitimately a “good” as nuclear waste, as long as a lawful market exists for both of them. It is only through direct State intervention that a bad “good” becomes officially what it is: a bad—and that is just the first step, for enforcement is yet to be secured from lobbying and bribes.

States alone can ban slavery, organ trafficking, child labour, exploitation, air pollution or aquifer poisoning as the bads they are. States alone can make the real economy and earned income primary, and the virtual economy and unearned income secondary. There is nothing intrinsic to market mechanisms leading to that and we have known it for nearly two hundreds of years. Read Charles Dickens’ subversive novels to get a clearly bleak picture. Also, ecosystems are “externalities”, as the language of economics reveals, at least as long as they are not turned into a cost by environmental legislation, into a loss of profit by reduction in reputation and actual sales, or into a market opportunity by persistent spoliation of it—see the oxygen cans sold in the subway in Tokyo.

Protecting life and the environment is something that runs against the logic of profit, even if some business leaders may themselves desire it ardently. Profit can only relate to the value of life instrumentally: as a means to further profit. Money is a fetish, and one that eats living creatures and their dwelling spaces if that generates revenue. Nothing leads profit-driven “rational” agents to doing that which is necessary for planetary survival and, for that matter, for a decent social life on a vast scale. Even public health, the most obvious case of socially beneficial public agency, is opposed as unprofitable hence bad. Not to mention all the money that is made by “growth” via sales of carcinogenic “goods”.

As the world’s money is controlled by gargantuan private institutions and managed to enrich their rich shareholders, even if it means strangling debt-ridden public authorities and diverting resources from public sewers to private coffers, there is little hope that the dominating logic may change. Some used to argue that money should be controlled by public authorities and managed for the public good, as written in certain constitutions… But we have already talked about such a peculiar notion. For the moment, let’s see whether the Philosopher-Kings of Greece will crumble because of the Goths, after being failed by Chelsea-resident haven-seekers and the advice of Goldmen-sackers.

The Economic Crisis Seen from Israel: Cause and Effect

The cost of this war effort, which has been going on constantly for eight years so far, has crippled the US economy. It has also led her onto a collision course with Islamic Revolutionary Iran because those movements that  US forces choose to target, like Al Qaeda and the Taliban, are Iran’s clients.

I believe that in order to extricate herself from this vicious circle of spending more and more money on a war the US cannot win, she must first of all gain a better understanding of Islamic Fundamentalism and its goals.

The ideological mentor of Islamic Fundamentalism is Sayyid Qutb. He was sent by the Egyptian Ministry of Education to Wilson’s Teacher’s College in Washington D.C. where he studied for a Masters Degree in Education from 1948 to 1950. What is interesting to note in his writings, is that although the State of Israel was established at that time in the dar al-Islam and recognized by the Truman Administration, it was not this issue which aroused within Qutb such deep anti-American sentiment, but the social behaviours common amongst Americans. He perceived it to be corrupt and profane, removed from any true feeling of spirituality, respect, and from the sacredness of religion. Upon his return to Egypt, he formed the Muslim Brotherhood that advocates a return to Islamic Fundamentalist ways.  In essence, the idea is that believers in Islam should distance themselves from Western influences and establish an Islamic State predicated upon the implementation of Islamic Law in accordance with the teachings of the Koran.  The cultural struggle between modern, moderate progressive Islam and its conservative traditionalist counterpart continues to permeate Islamic politics. A few days ago, on February 8, 2010, Mahmoud Ezzat, the current deputy leader of the Muslim Brotherhood in Egypt, was arrested.

Unfortunately, the anti-American sentiment expressed in Qutb’s writings has been reinforced by the failure of US diplomatic efforts at resolving the Israeli-Palestinian conflict.  In July 2000, President Clinton made a supreme effort to strike a deal over Jerusalem between Israel’s Prime Minister Ehud Barak and the Palestinian Chairman Yasser Arafat, but to no avail.

The above reflections lead me to the conclusion that unless the US Administration changes dramatically its over-interventionist belligerent  Middle East policy , it will not be able to cut down drastically the federal budget deficit – currently running at over one hundred trillion dollars – a necessary first step towards restoring economic well being.

I suggest the following:

1:  Desist from the resort to war as an instrument of Middle East policy. It is important to recognize that the establishment of American bases in Pakistan in 2002 in preparation for the Afghan campaign, had the same effect as the establishment of US bases in Saudi Arabia back in 1990 in preparation for the Iraq campaign – both times it increased support amongst the Muslim population for an  Islamic Revolution. Osama Ben Laden himself is originally from Saudi Arabia and today finds safe haven in Pakistan.

2. Immediate withdrawal of all US and western allied forces from Afghanistan, Iraq, Yemen and Pakistan.

3. Do not intervene in the Muslim intra-cultural struggle. Let the moderates and the traditionalists sort it out on their own. Along the same vein, allow the Israelis and the Palestinians the right to sort out their conflict in a self-reliant manner. Do not take sides. After all, the battle over the sacred city of Jerusalem has been going on for three thousand years with different voices competing for God’s ear and the USA do not seem to have any special access to it.

4. Recognise the Islamic Fundamentalist Revolution and its regional sphere of influence, but contain it by drawing a clear missile defense line along the borders of Israel and moderate Muslim states such as Egypt and Jordan. Threaten counter force – the application of massive retaliation, should Islamic Fundamentalism try to expand.

5. Deter Iran from her nuclear program by economic sanctions, but back them up by real military power that can be put into effect – for example, the US could threaten Teheran with a missile bombardment.

I believe that the above five suggestions , if carried out faithfully, could stabilize the region and so have a synergetic effect upon world economic recovery.

 

References:

1. Mohsin Hamid. THE  RELUCTANT  FUNDAMENTALIST. Penguin Books. 2007.

2. George Kennan. THE SOURCES OF SOVIET CONFLICT.  Foreign Affairs. Vol.25.   No.4 . 1947.

3. Mao Tse-Tung.  QUOTATIONS FROM CHAIRMAN MAO TSE-TUNG. Foreign Language Press. 1966.

4. Ahmad S. Moussalli. RADICAL ISLAMIC FUNDAMENTALISM: The Ideological and Political Discourse of Sayyid Qutb. American University of Beirut. 1992.

5. Edward W. Said. ORIENTALISM. Western Conceptions of the Orient. Penguin Books .1995.

 

Learning from Bjartur About Today’s Icelandic Economic Crisis

Without ever have been, I never cared much for Iceland. Too much nature and too little density for my tastes. Then, work brought me to Iceland in August 2008. I fell in love—while the Icelandic economy fell apart.

I wanted to learn about Iceland and the Icelandic culture. All the Icelanders I met told me I should read Independent People. So I read about Bjartur’s Winterhouse transformed into Summerhouse as simultaneously I read about the land of ice and fire transformed into the land of bankruptcy and failures.

I was struck by the similarities of the two stories: the basic framework of the plot of Independent People and today’s situation are almost the same. They both start from a status quo. There is an economic boom. There is a delusion that the boom will last forever. The boom includes a real estate boom. There are people buying things that they cannot afford. There is a bad mix of local politicians and local businessmen. There are a lot of bad loans. There is the bust after the boom. There are loans that cannot be repaid. Houses are abandoned, empty, some unfinished. Bjartur’s framework strikes me as the same basic framework as today’s.

But there is a difference, a big difference. After the bust, Bjartur went, on foot, to a destroyed house with no heat, no privacy, with his uneducated young daughter who is killed by a common disease. After today’s bust, people drive to their large high-tech homes and send their healthy kids to college.

This is not a small difference. In a few decades, the country went from having Bjartur’s lifestyles to being able to allow twenty-three year-old men to stay in school without working. To me this is an incredible and marvelous difference!

On Icelandic blogs in English, I read comments about the great figure of Bjartur and the great mistakes of Iceland today. Glory to Bjartur and disgrace to today’s public figures. And I think: hold on! You cannot be serious! The difference between Bjartur’s time and ours is a wonderful achievement and an almost miraculous lesson. Looking back on Bjartur’s time with nostalgia is made possible only because of the wealth that today’s Iceland enjoys. Today, nobody wants to live in a turf house with no electricity, no bathroom, and one bedroom shared by a mother-in-law and three kids, little food, one book, and many diseases.

True, there were mistakes during the recent crisis. Icelanders are human, like everybody else. And mistakes are an unavoidable part of the human condition. But there were also many successes. Iceland did something right, after all. The increase in standards of living from the First World War to the Second seems to me to have been minimal (my knowledge is based again on a novel by Laxness—The Atom Station). By contrast, the growth in the last couple of decades is immense and real.

There was an economic boom and a bust in Bjartur’s time. There was an economic boom and a bust in our time. It is normal to have booms and busts, not just in Iceland but everywhere else in the world. Economies cycle. All of them. There have been cycles in the past, and there will be cycles in the future. They are inevitable. Booms and busts are not the issue. What matters is how well one ends up after the bust. I hope that Iceland keeps doing what it has done recently, rather than trying to go back to what generated misery for centuries.

I believe this economic crisis is an opportunity for Iceland to look at its recent success and to learn what made it possible. This is an opportunity to look back at Bjartur, rejoice at the permanent departure from his lifestyle, and understand what made it possible for very similar events to occur today without Iceland ending up in such a terrible situation.

So let’s go back to Bjartur’s story. Let’s look at the economic boom and bust described there. Booms and busts, with all their differences, are nevertheless similar enough that we can draw parallels. Bjartur’s story and today’s story are similar enough that we can look at one to get a better sense of the other.

In Independent People there was an economic boom. But was there a boom-maker? Was there someone responsible for the boom in that story? Was there a Mr. X at whom we can point our finger and say: “Him—he is the person who made the boom”? No. The beginning of the boom is described roughly as: “and then there was an economic boom.” The boom just happened. It came from abroad, from the presence of the Great War. Bjartur’s Iceland reacted to international economic forces. There was no single politician or political party that was responsible for that boom. Iceland let itself be carried by those external economic forces. Bjartur did not understand what was going on. He just saw that he was making more money by selling wool. He saw the opportunity to improve his lifestyle and build a different house. He got a loan, which was now available. He did build a new house. He was happy and felt fulfilled. The local politicians and “bankers” also did not plan the boom, did not make the boom happen. They, like Bjartur, just saw an opportunity to improve their lifestyle. And they did.

Today’s boom was, in many ways, no different. Icelanders saw their wealth increase, and the opportunity to improve their lifestyle. And so they did. And just like the politicians and bankers in Bjartur’s time, as much as some politicians or bankers of our time may have wished to claim responsibility for the Icelandic boom of the early 2000, they were not responsible for it. Nobody was. The boom was a world-wide phenomenon. Again, there was nobody at whom one could have pointed a finger and said: “Him! He is the cause of our (global) expansion!” Politicians and bankers saw an opportunity to better their conditions and they did—as it was done in the United States and in the rest of the world. One person, no matter how competent, is not able to expand the entire economy of a country and to drag the world economy along in that expansion.

Thinking that there is a boom-maker is a mistake based on human pride and hubris. It is a common claim. But that does not make it true. The economy of a country, even of a small country, is too complex a phenomenon to be controlled by one person or by a small group of people. And when the economy is subject to global forces, that claim becomes even more nonsensical. Politicians like to think of themselves as directing the economy: “See? Look how good I am. I did this!” But claiming to do something is not the same as actually having the power to do it.  An economy is not a machine that can be controlled at will. An economy is not a car. An economy is an order that, in a sense, has a life of its own. It lives off the interactions of many, many people—off their decisions, their knowledge. Even the most consciously-designed of human economies did not follow the intended plans and took on lives of their own. An economy is an order, to repeat an old expression, that emerges from human actions but not from human design. We know it exists. We know it works. But at a deep level, we do not know how.

And the bust? Well, again look at the story in Independent People. The bust, like the boom, happened. No politician was able to stop it. It came from abroad. It came with the end of the war. It came with some warnings, which were not taken seriously. And it was no politician or banker’s fault. No individual politician or banker was directly responsible for it.

Similarly, today, the economy experienced a bust. A big one, but still a bust, like others before it. And as with other busts, the local politicians, whether competent or incompetent, honest or corrupt, are not the direct cause of it, no matter what some are willing to claim. One single politician, or even one political party, does not have that kind of power.

The economy in Bjartur’s time cycled. The economy in our time cycles. All economies cycle. They always have. An economy is not stable. No economy is. They expand and they contract. It is a normal part of economic life. The cycles of economies are like heartbeats in humans. A heart that does not beat is a dead heart. Similarly, an economy that does not cycle is not a functioning economy. The difference is that a heartbeat usually comes at a regular rhythm, while economic “beats” are irregular and unpredictable.

Why do economies cycle? Because they are built upon human beings. Human beings make economic decisions. Some decisions turn out to be correct and some decisions turn out to be incorrect. Why do people make decisions that turn out to be incorrect? Ignorance, incompetence, overconfidence, or, often, just bad luck. Circumstances change. So decisions made under different circumstances are no longer applicable. Cycles are important because often they are ways to make ourselves aware of decisions that are not appropriate under present circumstances and to try to change our behavior accordingly. Busts can therefore be valuable in the life of an economy. Busts allow us to adjust to different circumstances.

Nevertheless, we hear all the time that we should avoid busts, that we should smooth the cycle. The idea of smoothing the cycle is appealing. We do not like changes, especially changes that may hurt us in the present or immediate future. Additionally, the idea of smoothing the cycle implies that someone can control the economy and knows how to do it. This is a very appealing idea indeed. Who does not want to play rain-maker? But no one really possesses the power or knowledge necessary to control the economy. Economists know a lot. But they also know a lot about what they do not know. They know that an economy is not a car to be driven at pleasure. And even if the economy were a car, they know they would not necessarily know how to fix it or drive it. The attempts of the past ended the same way—as wrecks.  Some economists become policy advisers and their salaries come from leaders who want to be, and publicly claim to be, the drivers of the economic machine. What can we expect such economists to say? “Listen, there is not much we can do…just make sure people play by the rules”? Or instead: “Yeah, we can fix this!”

Saying that the economy is an order that has a sort of life of its own and that it cannot be driven like a car does not imply that there is absolutely nothing that politicians can do. What politicians can do is set up institutions and incentives that either let the economy live or strangle it.

In a sense, if one really wants to think about the economy as a car to be driven by some politicians, then I think that the best car to fit this image would be Herbie, the Volkswagen Bug of many Disney movies. Herbie, to the shock of all its drivers, is alive. It moves independently of the will of its drivers. It moves by itself to attract attention when it needs care. It stubbornly refuses to cooperate when something wrong is done to it. It behaves differently with different drivers: with the “good” drivers it goes fast, but with the “evil” drivers it goes very slowly, if it goes at all. “Good” drivers, of an economy, are good institutions. “Evil” drivers are bad institutions.

Today economists know that institutions matters. The institutions that usually matter for allowing an economy to flourish are freedom and open markets, definition and protection of property rights, political stability, immigration, and development of human capital. As I mentioned at the beginning of this essay, I was struck by the similarity between Bjartur’s time and today. But I was also struck by their differences. What happened between Bjartur’s time and today that made Bjartur’s miserable conditions disappear? Iceland developed many good institutions in the past few decades. Ones it lacked in Bjartur’s time.

What matters, then, is not to avoid every fall, which is not possible, but to fall in the least painful way. The fall of Bjartur was painful. The fall of today is painful too, but it takes place on a much softer and warmer surface than Bjartur’s hard and frozen ground. Bjartur, in his quest for self-sufficiency, basically killed everybody around him (with the exception of his mother-in-law!). Bjartur’s is a life of misery and death. And Bjartur’s Iceland was a miserable economy, poor and isolated from the rest of the world. As Independent People shows us, self-sufficiency is a recipe for misery. Iceland started its way to wealth when it allowed itself to be “dependent,” when it opened itself to the rest of the world. I used the word “dependent” in quotation marks because “dependent” seems to be the most obvious opposite of independent. But it is not. The correct word is actually interdependent. Iceland was able to abandon its poverty when it embraced the rest of the world. The more open a country is, the larger the markets in which it trades, the more interdependent it becomes, the more prosperity that country will have.

Good institutions matter. Having well-defined and enforced property rights matters. Having light regulations and taxation matters. Having an open policy for immigration matters. Having good incentives for the development of human capital matters. But for Iceland, this does not necessarily imply joining the EU. Iceland can benefit from the open markets of the union even without joining it, as it has done in the past. By contrast, actually joining the EU can be used as a blame-shifter. In the future if something goes wrong, one can blame the EU, lending undeserved cover to local politicians. Joining the EU can also be used to add economic disruptions to political games. The more regulations and the more bureaucracy, the more power politicians have. Corruption will have an added layer, rather than being eliminated. The more regulations, the more opportunities to bribe or curry favor though offering to close one eye, or both eyes, or to make an exception. Iceland did well in the past few decades by building the right institutions, without joining the EU. It should keep going in that direction even now.

The current crop of politicians seem to worry about how Iceland can meet the standards necessary to join the EU. But they should be worrying about the cost that that would impose on Iceland. On top of the additional laws, regulations, and taxations that will burden the economy as a whole, fishing (the most valuable industry in Iceland) would be particularly hard hit. The replacement of the Krona with the Euro would also be another major cost. Having the choice between more than currency is by all standards better than not being able to choose. If the prospect of joining the EU would indeed bring hope for Iceland, why are so many Icelanders leaving? Why is even McDonald’s leaving—and saying that there are no plans to come back in the near future? Herbie is coughing and spitting; the threat of the return of some bad institutions seems strong. What if Bjartur’s times come back?

If Iceland did so many good things in the recent past, if Iceland was lucky enough to develop good institutions when the global timing was right, why did Iceland tumble? To ask why Iceland? is like asking why Lehman Brothers? We can point to a direct, immediate cause, but in many ways we have to simply say the answer is “bad luck.” It could have happened to someone else. Iceland, like Lehman, was the first to go. Ignorance and uncertainty about what was going on seem to have mattered. Remedies taken later by others were possible in part because both Iceland and Lehman provided examples for the world of how bad things could get.

How bad is it if a developed country asks for emergency loans and those loans, for some unknown reason, are not granted? Now we know. It is very bad. It is a financial meltdown. Other countries, which asked for emergency loans after Iceland collapsed, got their loans. Their fall was not as bad as Iceland’s. How bad is it if a foreign country causes a bank run (as the UK did in the case of Iceland) and simultaneously freezes the assets of that bank (and of the country to which that bank belongs)? Now we know. It is very, very bad. It is a collapse of the banking system. This, actually, we knew even before. Banks work on a fractional reserve principle. This means that a bank assumes that all the people who have deposits in it will not ask for their money back at the same time. So the bank can use part of those deposits to finance loans. But if all the depositors do ask for their money back at the same time, the bank goes belly up since it will not have enough reserve to pay back all the customers.  Maybe the UK forgot? Now, surely, it is reminded, as is the whole world.

So this is what I learned from Bjartur. I hope not to be alone when I look at Bjartur and appreciate how Iceland grew in the past few decades, how much more better off people are today than in Bjartur’s time. I hope that Icelanders will be able to appreciate the miracle they experienced thanks to their successful attempts to build good institutions, and that they will continue on the road to openness and growth.

Relevant references:

Boyes, Roger. 2009. Meltdown Iceland: Lessons on the world financial crisis from a small bankrupt island. New York: Bloomsbury.

Ferguson, Adam. [1767] 2007. An Essay on the History of Civil Society. Cambridge: Cambridge University Press.

Garrison, Roger. 2001.Time and Money: The Macroeconomics of Capital Structure. New York: Routledge

Hayek, Friederich. 1945. “The Use of Knowledge in Society” American Economic Review.

Jonsson, Asgeir. 2009. Why Iceland? How one of the world’s smallest countries became the meltdown’s biggest casualty. New York: McGraw-Hill.

Laxness, Halldor. [1946] 1997. Independent People. New York: Vintage International.

Laxness, Halldor. [1948] 1982. The Atom Station. Sag Harbor, NY: Second Chance Press.

Tullock, Gordon. 2005. The Rent Seeking Society. Indianapolis: Liberty Press.

Smith, Adam [1776] 1981. An Inquiry into the Nature and Causes of the Wealth of Nations. Indianapolis: Liberty Press.

White, Larry. 1999. The Theory of Monetary Institutions. Oxford: Basil Blackwell.

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