potlatch

the Barclays scandal: made in Chicago

The scandal of Barclays' manipulation of interest rates, which some suspect may end up spreading to other banks, looks set to provide us with this summer's drip-drip expose of British power elites. 2009 was the Summer of Duck Ponds, and 2011 was the Summer of Milly Dowler's Mobile Phone. And now we enter the Summer of Libor.

This one could be equally significant. It's not that the banks possess very much moral authority right now anyway, but then nor did The News of the World or MPs. As Zizek argued about wikileaks, what's distinctive about contemporary scandal is in making tacitly-assumed truths impossible to ignore. It matters greatly whether the banks were acting within the rules, but brought down by excessive exuberance, complexity and inadequate regulation, or whether they were attempting to rig the entire game in secret.

Or at least, we assume it matters, hence the moral outcry about interest-rate rigging. But what if the distinction is actually non-existent? What if rigging the game is the game? On one level, this is the end game of neoliberalism, in which the refusal to accept any notion of political-normative authority external to economic efficiency ends up undermining its very conditions of possibility. But a careful reading of Chicago School economics might suggest that this has been an integral feature of neoliberalism all along.

It's worth standing back, and remembering that there were always (roughly) two traditions of neoliberalism. From the 1930s onwards, there was a European one, which sought to inject strong legal norms into the free market system, to defend it from monopoly and the state; this was manifest in ordo-liberalism, the German 'social market' economy, Henry Simons in Chicago and the pre-Chicago Hayek. This elevated the price system to a quasi-sovereign authority, backed by law. Then,  from the 1950s onwards, there was the Chicago School one, which sought to use price theory to explain all forms of economic, social and political behaviour; Aaron Director and Ronald Coase play a key role in this tradition. This is what influenced US regulation from the 1970s onwards, and European regulation from the 1990s onwards.

As I argue in this paper (and to simplify somewhat) where the former privileged the price mechanism of the market, the latter privileged price theory of neo-classical economics. The former assumed that the state's job was to reinforce market institutions using law; the latter assumed that the state's job was to analyse existing institutions as they happen to exist, and analyse their behaviour on the psychological premise that each actor is behaving 'as if' in a market. The problem with this latter approach is that, if every individual in a highly complex institution is acting rationally in their own interest, and that this is most likely efficient given available information, there is scarcely any basis on which policy-making can insist on one institutional design over another. Efficiency is likely to emerge organically from the aggregate of individual decision-making, both in the marketplace and in the murkier world of firms (such as banks) and networks (such as elite relations and lobbying networks).

From a Chicago School perspective, faith is not being placed in the market (a position which would warrant the enforcement of market norms) but in individuals to act in a reasonable, market-like fashion. Foucault explains the transition to Chicago-style neoliberalism nicely:

it is no longer the analysis of the historical logic of processes; it is the analysis of the internal rationality, the strategic programming of individuals' activity.

A particular idiosyncratic psychology is presupposed (NB as a methodology, not an empirical anthropology!) in which individuals act in a calculated, self-interested fashion. But law and morality possess no distinctive quality within this worldview; they are simply additional forms of psychological incentive and disincentive. Hence, the very notion of 'cheating' becomes virtually meaningless. If behaviour can be proved as inefficient, then incentives need introducing to dissuade people from doing it. But constructing such proof is fiendishly difficult, especially in highly complex institutional environments. How is the regulator to demonstrate that their view on efficiency is superior to the banker's own view on what is going on? Falling into this trap is what Alan Greenspan recognised as his key mistake.

In his famous essay, The Methodology of Positive Economics, Milton Friedman introduced a neat metaphor, to defend economics from the charge of unrealism. He suggested that if capitalism were a game of billiards, that economists were like geometricians: the players could be expert at the game, without understanding anything about geometry, while economists could understand why the balls travelled at the angles they did, without being any good at the game. The key issue is that the 'outsider' and the 'insider' have radically different views on what is going on, and (what Friedman didn't say) radically different concepts of authority. As an observer, you have no right to tell me how the game 'should' be played; equally, I have no interest in how the game appears in the aggregate.

Staffed by economists, neoliberal regulators end up being like silent geometricians, watching in amazement as bankers move balls with great precision around the table towards the pockets. As long as the players are both trying to win the game and not (as per a cartel) seeking to co-operate on the outcome, then all must automatically be well. The geometrician has no view on the 'right' or 'wrong' way to hit the ball, and couldn't possibly insist that the billiard-player's hand might be in the wrong place or doing something suspicious.

This is very different from the early European neoliberal epistemology, in which the great virtue of prices was that they have an explicit, public quality that nobody can misunderstand, be they 'billiard players' or 'geometricians'. The competitor and the observer inhabit the same shared world. There is necessarily a limit to how much prices can be manipulated, if they are to sustain this political and epistemological role of social consensus-formation (it's often struck me that Ryanair's "£5 flights" which cost £85 are another example of the triumph of Chicago neoliberalism over European neoliberalism). Upholding the market requires not only a minimal level of transparency, but also of simplicity. By contrast, if 'price' is simply understood as a psychological metaphor, rather than a visible unambiguous public institution, then manipulation of actual prices becomes entirely legitimate within the overall game of wealth accumulation. And this is precisely what Barclays have been doing.

against the cashless Olympics

Having already initiated the process that led to the Leveson enquiry, The Guardian continues to cling nobly to some notion of the British public interest by shining a torch on many of the worst corporate fantasies, back-room deals and brand-led corruptions of the 2012 Olympics. This latest story about how Visa will have a monopoly on the supply of money at the Olympics site represents a new level of crassly autarchic mega-managerialism. The promise of a 'cashless Olympics' is eery and sinister, given the £11bn that the project is costing, and the desperate attempts to claw some of this back through forcing ticket-holders into shopping malls and accepting sponsorship from any corporation willing to pay.

When even money itself becomes an object of branding and privatisation, you get the feeling that an entire model of political economy is in the process of devouring itself. Money has always been a central problem for neoliberalism, which neoliberals have sought to deal with through limiting its supply (monetarism), returning it to the gold standard or (for those at the more wacky libertarian end) privatising through the abolition of central banks. Money has a relational and public quality that presents a paradox for those seeking to make everything for sale. Should money itself be for sale? The dismantling of Bretton Woods in 1971, and the rise of credit securitisation show how this might be done. The problem is that, as a result, we have lost any stable, 'priceless' barometer through which to asses value. As I argued in this New Statesman piece, "The current crisis is not simply a "market failure", in which prices are not functioning properly, but a profound loss of faith in money's capacity to tell the truth." What I haven't heard of before is the notion that the money supply be simultaneously privatised and monopolised, as will occur in a small god-forsaken corner of East London for 2 weeks this August. It's like a gross, corporate version of the Brixton Pound.

We need to rediscover the emancipatory and subversive potential of dirty, anonymous, paper cash. The cash that transfixed Georg Simmel. The fungibility that attracted Hayek. The bank notes kept in large bundles in the back of dodgy-looking BMWs. The dollar bills that pile up on New York bars as tips. Cash has a liquidity that defies corporate management, and irritates the marketing industry, to the point where they try to ban cash-payers from certain entertainment venues or services. I've written more about this 'liberal defence of money' here.

what do banks and prisons have in common?

I've published an article at openDemocracy, as part of the Uneconomics debate, in which I attempt to stand back and take a wide-ranging look at the policy dilemmas posed by the banking system. There is, I suggest, a serious problem in that the state has become an under-writer for a wasteful and ineffective risk management system, on which it cannot now easily turn its back. In that respect, the financial system has become like the prison system: a poorly calculated strategy for reducing risk, which may have the exact opposite effect, but which the taxpayer has become entangled with. As I argue:

Nearly five years after the dawning of the financial crisis, we can now identify one of its possible long-term legacies: the implicit association between the modern state and large financial institutions has become an explicit one. It is no longer possible to specify exactly where the state ends and the banking system begins...

We are living with a situation in which billions of pounds of public money is still being effectively siphoned into the pockets of private individuals, via quantitative easing and other forms of support for the banking sector. The on-going hand-wringing over the 'fairness' of bankers' pay tends to ignore the graver public insult, that billions of pounds are being removed from the banking system in the form of bonuses, which the taxpayer will have to provide if the system collapses again. Gordon Brown cites figures ^↑ showing that if bankers had reduced their pay by a mere 10 per cent between 2000-2007, the banks would have had £50bn more of capital available to them when the crisis struck, which is the same amount that the government injected into RBS and Lloyds-TSB in October 2008.

There is a structural problem here that has still not been dealt with. If this situation is to change, the government will need to take risks with its modus operandi of risk management. While regulators and policy-makers view the future via traditional risk management techniques, they will effectively endorse traditional risk management institutions of the City of London. Only with an ethos of experimentation can anything genuinely new be anticipated and valued.

You can read the rest of the article here. Comments might be better placed underneath the article itself, rather than on this blog.

calm between the storms

I heartily recommend this piece in today's FT, though not on this occasion because it involves a sociologist putting the boot into neo-classical economics. Strangely, I was having a very similar thought only yesterday: whatever happened to the imminent collapse of the Euro, the inevitable Greek default and the doomed obstinacy of the European political classes? Has history been put on hold? Or have Newsnight researchers simply stopped paying attention? The talking heads from the financial world who explained where everything was inevitably heading - betraying a strange, crypto-Marxian historical materialism - have suddenly disappeared from our screens. At least for the time being. No doubt they'll be back.

And this is the strange condition of the present. There is an ongoing Marxist debate regarding neoliberalism's state of existential health, to which David Harvey replies "it depends what you mean by neoliberalism" and Neil Smith that "neoliberalism is dead but dominant". I have posted here previously to the effect that, judged according to its precise political ambitions, neoliberalism is already dead. But this is too simplistic.

The condition of the present, which could last for many years to come, is one of normality interspersed by emergency. The normality persists inspite of the emergency, a sort of pig-headed determination not to be de-railed by events. Under these circumstances, neoliberalism becomes a beligerent form of denial, a pretence that the same policies, regulators and ideas can continue as if everything were OK. An emergency briefly interrupts the calm, before passing once more.

At the same time, one can only be impressed by the emergency-management skills of European politicians, who seem to have put disaster on hold once more. Perhaps so much apocalyptic rhetoric regarding the Euro played into their hands, by increasing their room for political manoeuvre and raising the stakes. With Merkel's task represented as virtually impossible, the political capital at her disposal grew rapidly on the basis that it simply had to.

One way of interpreting this condition is melancholia, in the Freudian sense. The melancholic individual, for Freud, suffers from "constitutional ambivalence" regarding the past, enraged that it has gone, and so clinging on to the memory obstinately so as to avoid confronting the loss. It becomes a form of destructive narcissism, that ties the individual to the past, as an alternative to mourning. Paul Gilroy has applied this theory to Britain's relationship to empire. I wondered if you could adapt it to financial speculation and its aftermath.

Or there is the theory of exception, in the sense meant by Carl Schmitt and Giorgio Agamben, whereby the dependence of rules upon executive decision becomes plain, and the legal constitution or republic becomes subject to emergency political measures for its own benefit. Exception is also a form of ambivalence, in the sense that preservation of the status quo becomes so critical as to demand extraordinary and unprecedented measures.

I have a paper, that I'll hopefully be able to post in the coming weeks, analysing Europe's present economic situation as a state of neoliberal exception. Under such circumstances, political actors are neither inside nor outside the standard economic rules of government, but rescuing them by whatever means necessary. Persisting with 'business as usual' is feasible but only on the condition that entirely unusual measures can periodically be introduced. Hence, neoliberalism is 'alive' to the extent that various elites are still willing to vivify it, but 'dead' to the extent that they remain constantly on guard in order to take action to save it.

Five years after the dawning of the financial crisis, our situation is both critical and stable at the same time. It is stable, but only to the extent that various elites are occasionally willing to take critical action. Once actions are taken, then we return to a form of melancholic attachment to a world that, at some point or other, we will have to agree has disappeared. But in the meantime, I find myself marvelling at the capacity for things to calm down and return to normality, just as much as their capacity to heat up and create emergency.

For and against uncertainty

I listened to an excellent paper from Amos Witztum as part of this conference at Copenhagen Business School in January (where I also gave a paper), in which he described modern liberalism as a form of anti-tragedy. Greek tragedy, as any fan of The Wire also knows, involves characters straining in vain to resist their fate. They face dilemmas and choices, but ultimately these all result in the same outcome. Modern liberalism, especially in the form of Enlightenment, abandons this fatalism. But I think the point Witztum was making was that liberalism doesn't replace tragic fatalism with some form of heroic rationalism, as if we become masters of our own destiny. It replaces fatalism with uncertainty.

This interpretation of liberalism-as-uncertainty is shared by Friedrich Hayek, for whom freedom was found in ignorance regarding the future. Hayek's ambition for neoliberalism was to restore a form of government that made no predictions or guarantees regarding future economic outcomes. His opponent, of course, was not the Greek God but the socialist planner, who insisted that things turn out according to his bureaucratic dictat. Though as countless anecdotes about Soviet productivity rising by "20%" in a year or crops being planted only alongside the railway lines which Mao was due to travel down, socialism was less beset by the fatalism of tragedy, and more by the raised eyebrow of comedy. The person who is certain what's going to happen, and is almost certainly wrong, is another important figure when considering the politics of uncertainty.

There's a bastardised (aka Policy Exchange) version of Austrian economics, which says that the UK government can restore growth by getting out of the way. But Hayek's lesson is not that small government will 'deliver' better outcomes; it's that government should abandon any scientific concern with outcomes altogether. That is scarcely an option available to a modern politician. As I argued here, George Osborne's policies have a comedic air about them, resting on bold claims about the future that nobody seriously believes, possibly not even him. The Office for Budgetary Responsibility is being dragged into this comedy, performing its 'independent objectivity' with a smirk forming around its lips. Martin Amis could write a sequel to his critique of socialist irony, subtitled Laughter and the 2011 Growth Forecast.

Whether or not anybody today is really a whole-hearted Hayekian, this nevertheless poses an interesting question: how much uncertainty do we want in our economy and society? The term 'uncertainty' is sometimes misunderstood, thanks to mis-readings of Frank Knight. Many people, including economists, are prone to say that there are two types of situation, those which involve risk (and can be subject to probabilistic calculation) and those which involve uncertainty (and can not be subject to such calculation). This is entirely wrong. Knight's argument was that all situations involve uncertainty, as an existential fact of human life. But we have various pragmatic responses to it, including the construction of risk models, which succeed to varying degrees. Other pragmatic responses to uncertainty involve seeking to actively reduce it, through forms of concerted action and co-operation. For instance, the nudgers have discovered that if you get an offender or truant to sign a piece of paper promising to improve their behaviour, they are more likely to do so; uncertainty has been reduced.

'Actually existing' neoliberalism of 1979-2008 was organised around two contradictory positions on uncertainty. On the one hand, competition was to be unleashed and manufactured, for the sound Hayekian reason that this would produce uncertain outcomes. This treated uncertainty as something that was valuable in and of itself. On the other hand, risk modelling, audit and managerial expertise was honed in order to reduce uncertainty, in the interests of corporations, finance and other elites. In between these two, at the conflicted heart of the neoliberal project, lay the problem of corporate governance elicited by the separation of ownership and control of firms. It is no surprise that the project eventually combusted thanks to 'agency' problems.

Social democrats, communitarians and Keynesians have often criticised neoliberalism for valorising uncertainty, making stable families and communities harder to sustain. The privatisation of pensions, for example, means that we have no confident knowledge of our retirement income. But it is surely wrong to argue that ordinary people necessarily want uncertainty to be reduced. Our obsession with sport, gambling, talent shows - admittedly all riffs on a Hayekian vision of competition - demonstrate how much we thirst for the unknown outcome. This is despite the fact that rapid and unexpected changes of income/status can be as disruptive on the way up as on the way down. I, for one, refuse to accept that we automatically want a society in which uncertainty is kept to a minimum. It seems sociologically and politically naive. It misses the significance of 1968. Worst of all, it shows scant understanding of cricket as a source of romanticism and politics.

What is far more significant to the current moral crisis of neoliberalism is not that ordinary lives are mired in uncertainty, but that elite lives and institutions are not. While elites and managers spoke of innovation, competitiveness and constant 'ever-faster change', it seems that they were partly doing so in order to exempt themselves from so much uncertainty. The rhetoric was Austrian and liberal, but the behaviour was quasi-socialist in its extreme effort to dictate outcomes. The significance of so many recent books about inequality in the West is not simply in the levels of inequality that they identify (though that clearly matters) but in the patterns, repetitions and rationales that they identify in how inequality comes about. The dice are loaded. It's not that life is unfair, which is something that most adults should be able to handle; it's that it's unfair in unfair ways. Liberalism, whether of a Rawlsian or a Hayekian variety, is something we might be able to stomach, if things really were left to chance (be it via the veil of ignorance or market spontaneity) but the dominant view, post-2008, is that they're not.

In considering a future and better economic policy paradigm, we need to consider the political status of uncertainty. Possibly we need to find appropriate spheres for liberal, tragic and comic perspectives on the future, and not confuse the three. Uncertainty won't disappear, but it will be distributed in certain ways. The ability to calculate the future is unevenly distributed, as Koray Caliskan's Market Threads illuminates. And the ability to control the future is also unevenly distributed. Some people would dearly love more uncertainty in their lives; others would dearly love less. Maybe a good life is one in which the individual takes some responsibility for the outcome, but not complete responsibility. Equally, an honest politician is one who claims some responsibility for policy successes and failures, but not all.

Olympics as political bottleneck

Whatever the rights and wrongs of trade unions "targetting the Olympics", as suggested by Len McLuskey, it's possible to spot some rationality in what he suggests. Compare this suggestion to an observation in Timothy Mitchell's paper (aka the best piece of social science I've read in about two years) 'Carbon Democracy' (now developed into a book I've not yet read). Remarking on the rise of coal as a source of industrial power in the 19th century, Mitchell writes:

Great quantities of energy now flowed along very narrow channels. Large numbers of workers had to be concentrated at the main junctions of these channels. Their position and concentration gave them, at certain moments, a new kind of political power. The power derived not just from the organizations they formed, the ideas they began to share or the political alliances they built, but from the extraordinary concentrations of carbon energy whose flow they could now slow, disrupt or cut off. Coal-miners played a leading role in contesting labour regimes and the powers of employers in the labour activism and political mobilization of the 1880s onwards. Between 1881 and 1905, coal-miners in the United States went on strike at a rate about three times the average for workers in all major industries, and double the rate of the next highest industry, tobacco manufacturing... The militancy of the miners can be attributed in part to the fact that moving carbon stores from the coal seam to the surface created unusually autonomous places and methods of work.

By contrast, Mitchell sees oil as transforming labour relations in the post-1945 era:

The material qualities and physical locations of oil made things different from with coal. Since it comes to the surface driven by underground pressure, either from the water trapped beneath it or the gas above it, oil required a smaller workforce than coal in relation to the quantity of energy produced. Workers remained above ground, under the continuous supervision of managers. Since the carbon occurs in liquid form, pumping stations and pipelines could replace railways as a means of transporting energy from the site of production to the places where it was used or shipped abroad. Pipelines were vulnerable, as we will see, but not as easy to incapacitate through strike actions as were the railways that carried coal.

This politics of bottlenecks recurs in what McLuskey is proposing for the Olympics. 

Applied neoliberalism, in contrast to Hayek's imagined form, involves particular notions of national space and national public spheres. As David Harvey argues, and various critical geographers have explored, neoliberalism needs a form of nationalism and shared purpose in order to operate. It cannot only operate around logics of privatisation. And nowhere is this clearer than in its valorisation of competitive rituals and financial waste such as the Olympics. The Olympics, in Bataillian style, is the pressure valve for an otherwise entirely calculable, privatised worldview (needless to say, it is a carefully regulated, expertly governed pressure valve, and not a complete potlatch, although the money being wasted is akin to a form of wanton destruction). 

The Olympics requires high level political organisation and co-operation in order to be 'delivered'. It is a staged demonstration of who 'the British' collectively are, and how successfully we 'as a people' can manage projects. There is a crypto-socialism at work here, that is rather more explicit and popular than the crypto-socialism at work in (say) the public involvement in finance. While banks depend on the Treasury for bailouts and The Bank of England for occasional free money, they are relatively independent of the public sector for their day-to-day operation: Canary Wharf has private security, private drivers (or taxis) and quasi-private spaces. Finance depends on public support, but - like oil - it flows freely, liquidly between institutions, without there being bottlenecks that any of the rest of us can influence or disrupt (other than switching bank accounts). This makes it such an antidemocratic force in public life.

This is obviously not true of the Olympics, which as a form of public-economic good has properties closer to that of coal, in Mitchell's analysis. There is political and democratic risk attached, which creates some exotic forms of paranoia such as banning certain authors from libraries. Whether McLuskey is smart to be picking this fight is another matter; but opportunities to control a bottleneck in the modus operandi of neoliberalism do not come around every day, and it would be strange if unions didn't at least consider using that power, in the same as the coal-miners considered using their's in the 1880s and 90s.

the HSBC Gates

While we're in the collective mood to withdraw bankers' knighthoods and express outrage at their bonus payments, how about we also send a JCB down to the St Pauls side of the Millennium Bridge and dispose of some unwanted steel litter lumps? I speak, of course, of the 'HSBC Gates', that provide a sub-ironic guard of honour to anyone approaching Tate Modern from the north side of the river.

Long before the refrain of 'it's unfaayerrrrrrrr' rang out around Westminster in response to the monetary gluttons of the Square Mile and Canary Wharf, these ominously permanent monuments always offended me. The Millennium Bridge always had a self-conscious air of civic pride about it, that New Labour and (the bridge's architect) Lord Foster would scarcely allow to go unnoticed, back in the heady days of Tony Blair's pre-Iraq creativity love-in. The bridge would link the old and new of this great 'World City',  the religious and the secular, allowing the opposing towers of Bankside and St Pauls to stare each other down. But this civic esplanade would also force people to dodge six metallic obstacles, dumped inexplicably and unapologetically by HSBC bank.

Arguably there was a certain honesty about the HSBC gates, which reminded people what this 'World City' status was really all about. But the audacity of HSBC in colonising this space is quite unlike any other forms of corporate sponsorship or public private partnership which characterised post-1989 neoliberalism. Where Shell and BP provide sponsorship for exhibitions curated by curators, for the benefit of the public, the HSBC Gates exist only to be the HSBC Gates. They are not only called the HSBC gates, they have the words 'HSBC GATES' engraved into them (in the top left corner in the photo above). Signifier and signified are fused. Imagine if Daniel Liebeskind had been invited to erect a memorial to Western capitalism, but while it was still experiencing its final vibrant flush.

By no conceivable standard can they constitute 'art', when their inspiration, funding, design and purpose all share a single source. There is no plaque to explain them, credit an artist, provide their year or thank HSBC for funding them. They are simply the HSBC Gates. Nor do they serve any utilitarian economic purpose, of the sort that can usually be squeezed out of any form of capitalism, no matter how deranged. They have no beneficiary other than themselves, making them a form of what should best be described as 'philanthronanism'. All of which poses the question: why on earth is a bank allowed to leave their rubbish lying around like this?

What has always troubled me the most about them - though also offered their one plausible justification - is that they will outlive all of us, and probably also our civilisation. They look as if they are built for eternity. I wonder how much a bank has to pay to be associated with a public monument or space forever. How did the Department of Culture Media and Sport build the business case for such an investment? Did they use the same techniques that environmental economists use, when modelling the risk of a nuclear reactor leaking in 1,000 years time? Should HSBC have also written the word 'GATES' in a form of meta-historical code, like nuclear safety experts have to, for the benefit of future civilisations?

Archaeologists from the year 3,000 will dig through the rubble of what once was London, discover signs of what was probably a place of worship to the north of the river, a power station (maybe an art gallery) to the south, then in between, the best-preserved late-second-millennium artefacts ever found. Magnificent steel structures, with scarcely a scratch upon them, will be lifted from the mud and taken away for cleaning. Over the following years, archaeologists will debate the meaning of 'HSBC GATES', who 'HSBC' might have been and how anyone could have attained the power to plant such robust structures, with his name carved into them, in such a location. Speculations on the culture and rituals of the early 2000s will be developed on this basis, and thanks to the HSBC Gates, some of them will be spot on. Perhaps this was their justification.

capitalism as a policy problem

The current British policy and media vogue for debating 'capitalism' may well be unprecedented. There have long been rolling public debates about specific institutions and practices, such as banks, markets, debt, financial markets and trade. But to focus on capitalism implies a more political-economic perspective, which is alert to questions of hierachy, ownership, power and institutional evolution. At least it should do. Historically, the question of 'capitalism' has been more often debated by its critics (from Marx onwards), or else by those such as Milton Friedman who have used it to attack socialism. Even then, neoliberals have preferred to refer to 'markets', 'enterprise' and 'entrepreneurship' when providing the gloss to their economic argument.

The new debate is to be welcomed, but it is inevitably throwing up misunderstandings and strange representations. The Financial Times has been running a sophisticated series of op-eds on the crisis of capitalism, which only really hit the intellectual rocks with a piece published yesterday, entitled 'It's a crisis of confidence, not of capitalism' (the stupidity of the article's headline turned out to be well-matched to the identity of its author, the Chancellor of the Exchequer).

The first thing to note, as if it needed saying, is that of course capitalism is in crisis. The denial of this fact seems to go hand in hand with two intellectual errors. Firstly, it misunderstands the meaning of the word 'crisis', which it hears as equivalent to 'end' or 'death'. Nobody has yet plausibly suggested that capitalism is coming to an end. But quite clearly there is a crisis, in the literal sense of a judgement, turning point or critique. Capitalism is in a critical condition, which will determine what sort of future it has. This is what 'crisis' refers to. For evidence that it is in crisis, one need only point to the fact that policies which once alleviated its shortcomings, now appear only to exacerbate them. To his credit, Gordon Brown appears in this piece to grasp the historic importance of the current period that we're living through, and the vast scale of any potentially adequate political response.

Second, the crisis deniers get lost in is/ought distinctions. They seem to believe that announcing a 'crisis of capitalism' means advocating socialism. They then very swiftly fall into making abstract and irrelevant moral-psychological claims about how competition and self-interest are 'still' the only plausible bases for organising the economy. Take this Newsnight debate from last week for example. The inevitability of capitalism, in roughly its current form, is asserted on the back of a philosophical anthropology, which is derived from... well, the think tanks and ideologues whose job it is to defend the freedom of capital. Typically this freedom is also erroneously dressed up as the freedom of markets, with endless mis-readings (and more likely, non-readings) of Adam Smith to buttress it.

Yet the ideologues are partly responding to the way in which the question of 'capitalism' has been posed by politicians and pundits alike, which is in heavily moralistic terms. Nick Clegg, David Cameron and Ed Miliband are competing to find ways to attack the morally noxious bits of capitalism, and not merely the useless bits, though Miliband's notion of 'predatory capitalism' suggested that the two go hand in hand. I've heard it suggested that politicians' sudden obsession with the 'c' word may be a strategy to avoid talking about immoral 'business', which swiftly invites questions of which businesses in particular, the same questions which floored the entire shadow cabinet after Miliband's conference speech.

It seems that the main reason 'capitalism' has been put on the table as a policy problem is that this distinguishes the problem as a moral one of principles, not a utilitarian one of economics. British politics is suddenly experiencing a classically ordo-liberal moment, in the sense that economic 'right' and 'wrong' no longer map cleanly on to 'efficient' and 'inefficient'. This partly explains why the collapse of economic growth is having so little impact on the Conservative Party's poll-ratings: for the time being, debates have shifted on to liberal questions of form and structure, away from utilitarian questions of output. Other bizarrely non-utilitarian behaviours abound, such as governments and firms seeking to pay off debt at a time of negative real interest rates, producing a 'balance sheet recession'.

To this, some nuance could be added, by recognising that all capitalist crises are also moral crises, but in a very particular sense. From the 18th century onwards, liberalism has functioned on the basis of an illusory split (famously criticised by in Polanyi's Great Transformation) between the amoral realm of the 'economic' and the moral realm of the 'social', also represented as a dichotomy between the sphere of value and the sphere of values. This illusion is propped up by an associated split between economics (the study of rational choice) and sociology (the study of association and rules).

Ultimately this split is a useful fabrication or fantasy that serves policy-making, rather than one emanating from institutions or agents themselves. 'Economic' institutions (such as banks) are awash with moral judgements, rituals and norms; 'social' institutions (such as families) are equally awash with rational and monetary calculation. But the split does some work, in preventing us from subjecting everything to constant moral judgement, which would be hugely time-consuming and inefficient. Neoliberalism has frequently committed the opposite error of seeking to subject everything to rationalist audit, which turns out to be equally time-consuming and inefficient, though when the target is lefty professions and academics, that may be its underlying purpose.

Every stable era of capitalist development rests on its own distinctive way of separating economics from moral judgement (or 'efficiency' from 'equity', as welfare economists like to put it). The critique of capitalism involves challenging this split (for example, through arguing that labour markets are unjust regardless of their efficiency, or that GDP measures bad things) but these critics can typically be rebuffed for decades at a time. However, a crisis of capitalism, like the one we're living through, brings about a collapse in the liberal divide, from both sides at once, as it becomes unclear what is worth measuring and valuing in the first place. Once economics and economic institutions cease to work in a utilitarian sense, their supposed insulation from sociology, moral judgement and political economy fails too.

This is why crises are so exciting and frightening at the same time. They involve a fundamental uncertainty as to what is going on, how long it will take and what types of technologies, institutions and policies will bring it to an end. As I argued in this New Statesman piece, one feature of our current predicament is that we don't yet know what we've come to the end of precisely. A new fluidity opens up, between moral problems of values and economic ones of value, and we confront the strange truth that the entire realm of 'the economy' as a separate thing is really a fiction. This uncomfortable realism only be suppressed again once a new settlement is established, in which a new form of socio-economic division is established, which is both economically effective and morally acceptable.

If current questions of 'responsible' and 'popular' capitalism are to be posed seriously, then we need to be clear about how far moral critique can (and must) currently penetrate. During times of stability, businesses and politicians raise moral questions of values, almost as matters of consumer preference.* This is the function of corporate social responsibility, which is a form of self-regulation at best, and green-washing at worst. During times of crisis, things are far more profound. It is no long a question of what moral values are to be added to utilitarian economic structures, but what moral values are to constitute a future definition of economic value.

This is what I was trying to communicate in my recent paper on employee ownership. In arguing that 'wellbeing' and 'patience' must be central business 'values' of any post-crisis capitalism, I was not intending that these are somehow nice things, which we really ought to think about a bit more. More fundamentally, the fact that the previous model had failed to account adequately for human psychology on the one hand, and for long-term outcomes on the other, was actually at the heart of how and why the crisis occurred. It follows that any resolution of the crisis will necessarily rest on a new notion of economic value, which somehow factors in these moral values.

If the new public debates about capitalism are to be more than rhetorical, they will need to move beyond obviously moral issues, such as inequality and who 'deserves' what. The term 'fairness', like 'equity', keeps morality safely confined to certain classically moral issues, from where it is unlikely to interfere in the distribution of political power (as I argued in this openDemocracy piece. I was delighted to discover amongst The Browser's quotations yesterday Scott Adams' "fairness is a concept so dumb people could participate in arguments"). Instead, it needs to take on economic institutions of ownership, governance, democracy, valuation, audit and performance measurement. There are some encouraging signs that this might be beginning to happen.

 

* I once worked at a research consultancy which was in the process of re-branding itself, and wanted to engage its staff in identifying its core 'values'. This resulted in a hilarious, Python-esque all-staff meeting in which one individual would opine "I think 'trust' should be one of them", which would then be met with a response from elsewhere "'trust' is rubbish! 'Integrity' is far better!", which in turn would be shot down by "nonsense! 'Leadership' is clearly the best". And so on, depressingly confirming Milton Friedman's famous dictum that "over values, men can only fight".

the demise of football

Thomas Friedman famously offered the 'Golden Arches Theory of Conflict Prevention', on the basis that no two nations with a McDonalds within their borders had ever gone to war. Allow me to offer its successor: the 'White Goalposts Theory of Crisis Resolution'. This theory states that we will know that our present economic crisis is being resolved (rather than deepened), once a front-bench politician comes out and publicly attacks football, in terms of its business models, culture and economic norms, and not only for its sporadic eruptions of racism or corruption. My prediction, for what it's worth, is that this event will occur in October 2013, and that the politician in question will be Yvette Cooper, Leader of the Labour Party.

Football was once such worthless political currency that Margaret Thatcher publicly questioned whether England should be allowed to compete in the 1990 world cup, due to the threat of hooliganism. Euro96 was the turning point, although English hooliganism was still rife at the Euro 2000 championships. Since Euro96, no politician has had the guts to question any aspect of the game or its status within our media, public sphere or national self-image. The 'old' aspects of the game - racism and FIFA corruption - are routinely attacked, but the 'modern' game cannot be questioned.

But look how grizzly things are getting. I read last week that Carlos Tevez may be prepared to take a pay cut from his £250,000 a week job at Manchester City, on the one condition that his new club has it written into his contract that he remain the highest paid player in the squad. Wayne Rooney's behaviour regarding his Manchester Utd contract was criticised by many, but politicians repeatedly duck these issues, despite viewing consumerism, (some) advertising and (recently) X Factor as fair game. Energy oligarchs have removed whatever sense of 'level playing field' may have remained in the English Premier League, turning the top of the football labour market into a far less dignified version of what goes on in boardrooms, as players shamelessly strategise towards remuneration increases (hilariously still termed 'wages') through any means possible.

What precisely are we celebrating when we enthuse about football? Increasingly it is referred to as 'athleticism', in which case lets all start following Usain Bolt. If we have to turn our backs on the tediously-adored Barcelona at the same time, then so be it. It's a price worth paying. The football-obsessed sports shops in British high streets have nothing to do with athleticism or even physical exercise any longer. Just try buying some new laces, socks or functional trainers in JD Sports. You could come out dressed from head to toe as Michael Jordan, but there are much cheaper ways to get a fancy dress outfit.

Football is more interesting as a bellwether of contemporary capitalism, and should be criticised accordingly. Not long ago it was PLC ownership structures that looked like they were stripping the heart out of clubs, seeing them run 'for profit'. Now the problem is the opposite: they are owned by private billionaires, run 'for power', but at a vast loss. Roman Abramovich's takeover at Chelsea in 2003 thefore anticipated the broader trends that I've argued the present crisis will unleash.

Regulation School Marxists define a capitalist crisis as a situation where neither 'more of the same' nor 'less of the same' will resolve the situation. Our present debt crisis is a case in point. More debt makes it worse; paying off debt also makes it worse. Resolving such situations requires a fundamental revaluation - innovation not only in policy measures and mechanisms, but in the culture and values that underpin how government and business institutions operate.

The challenge of resolving a serious crisis is that it involves a degree of truth and reconciliation regarding the past. One often has to accept that critics (sometimes quite eccentric ones) are right, and even that they have been right for a long time. The demise of Keynesianism was as slow as it was because it involved coming to terms with the fact that full employment was no longer a useful goal of policy. This was a severe moral revaluation, not simply a technical paradigm shift. The enemies of Keynesianism (the monetarists) had to be welcomed in to the fold. This takes time and much pride swallowing. There is also some first mover advantage on these occasions, just as Britain seemed to benefit from giving up on the ERM, before its terms were loosened anyway.

To accept that football - or should we say 'Football' as an idea - may actually be part of the disease, and not a harmless supplement to our economy would take some pride-swallowing. The idea that 'talent' has its 'desert' in very large amounts of money is so ingrained, we so want it to be true, that we carry on adhering to it no matter how grotesque the spectacle it generates. The media maintains the pretence of separating Ashley Cole the 'talented' footballer from Ashley Cole the unruly working class 'yob' (as if the latter is just his unfortunate inheritance), ignoring the obvious liklihood that football is far more responsible for his noxious personality than his upbringing.

Those on the liberal-left are able to see through the rhetoric of bankers, when they demand that London remain a 'level playing field' so as to ensure that their industry's 'David Beckhams' are still attracted to work here. The liberal-left is able to debunk football as a metaphor. But why not go a stage further, and attack the whole sorry charade that's been making fools of so many people (me included) for the past 15 years?

Why must Jonathan Freedland write a sensible argument about extreme inequality in pay, but in the same article offer a justification for Wayne Rooney's £250k a week? Once you give in to the neo-classical vision of a labour market, that wages are simply a reflection of 'demand', then the door has been left ajar for the likes of Fred Goodwin. Why not just take the bull by the horns, and accept that the whole thing should just be shipped off to a vast in-door Nike sports complex in Dubai where it belongs? Is it not possible that the constant news reports of footballers attacking women, of fans being charged £50 a ticket and replica shirts being 'outdated' every 9 months, of Manchester Utd's Nani having a life-size marble sculpture of himself in his house do not happen inspite of the vast sums of money that are now at stake in this game, but because of it?

At some point in the future this will appear obvious. Soon after that, we will find it difficult to ever believe we tolerated, even celebrated, this circus in the first place - just as, by the 1990s, it seemed extraordinary to think that governments once targeted full employment. For the time being, any politician would shudder at the thought of criticising the game, as opposed to its undesirable 'externalities' or its metaphorical distortions. Which, according to the White Goal Posts Theory of Crisis Resolution, only goes to show how far into our current crisis we are: not even half way.

1991 revisited

The post-socialist moment of the early 1990s throws some interesting light on our current predicament. Was there anything that could be recovered from the socialist scrapheap? I recently discovered Robin Blackburn's long 1991 essay in the New Left Review, Fin de Siecle: Socialism After the Crash. It's a fascinating read, not only for how it picks apart the successes and failures of 20th century socialism, but also for how he envisages a future for socialism, that learns from its 1989 demise. Many of his proposals and ideas for a liberal, 'market socialism' seem eerily relevant to our current predicament, twenty years later. This sounds like a sound recipe for a post-Fred Goodwin age:

Why could not publicly owned banks hire investment specialists or managers, just as banks or pension funds do in today’s capitalism? The successful socialist entrepreneur, whether investment banker or manager, would not, of course, be able to claim the hypothetical ‘full fruit’ of the results of his or her expertise, but neither does the professional today. They would be able to derive intrinsic satisfactions from their job, and they could easily be offered well above the average rate of pay if this was found necessary to their motivation. In a generally egalitarian socialist society quite small differences of pay could be quite highly valued by certain individuals. And it might even be discovered that there were potential entrepreneurs who had been deterred by the morally obnoxious consequences of successful management under capitalism, such as depriving others of a livelihood by closing down a plant. And even in a pattern of socialist economy that encouraged worker-participation and enterprise democracy there would still be ‘positional goods’; the elected manager, indeed, might obtain satisfaction from the discharge of his or her responsibilities rather more legitimately than the owner-appointed manager. If the more acceptable motives failed to work, would not the recourse to differential economic rewards re-create class division? A principled realism might allow that if incomes vary only modestly, and are prevented from being invested in ownership of productive property, then this could permit some incentive element without allowing social differentiation to acquire class-like self-reproducing dimensions and forms.

The banks or holding companies could be encouraged to make a proportion of their funds available for more risky investments or for socially desirable investments, by tax breaks. They could be encouraged to display responsibility as well as initiative by linking them to corporate entities based on pension funds or municipal development boards. The ‘social’ in social ownership should not be derived from one privileged economic agent—the nation-state—but from a plethora of differently constituted but accountable public bodies.

For most of the past 20 years, this would have all read like far-fetched socialism. But in the context of our current, deepening crisis, it highlights a very relevant question: at what point will a frontline politician dare to suggest that UKFI (the organisation which owns and directs part-nationalised UK banks) pursue objectives other than a narrow definition of 'value' to the taxpayer?

Many figures in the employee-ownership movement, including Charlie Mayfield Chair of John Lewis Partnership, have suggested that the government could support the creation of new types of ownership, by virtue of our semi-nationalised banking system. Could UKFI take a view on what types of businesses RBS and Lloyds-TSB should be supporting? Of course it could. But we'd then be heading back to the 'socialist accounting' debates of the 1920s. As of December 2011, I suspect that this turn towards active, 'social value banking' is unlikely to happen any time soon. But it will be interesting to see if and how UKFI becomes a live political issue over the course of 2012. There: my little tip for the New Year (the other one is 'Travel Chaos').