May 1, 2009

Naomi Klein on Wall Street Cronyism and “Free Market” Fundamentalism

There is a really great, long interview of Naomi Klein at by Joan Juliet Buck:
JOAN: And can Obama provide the real deal?

NAOMI: What gave me hope was that when the economic crisis hit, Obama got serious and his analysis became more concrete. It’s really worth remembering that he started winning the election when Lehman collapsed and he started putting the ideology of Reaganism on trial. He started saying, “This economic crisis is the result of the policies of deregulation and trickle-down economics that have dominated this country.” But he said, “for the last eight years.” That was wrong. And that was part of the problem.

JOAN: Because it’s the last 30.

NAOMI: It’s the last 30 and, you know, that was a piece of intellectual dishonesty that I think has cost us dearly. That was a good electoral line because we all wanted to be able to blame it all on Republicans, because that was a much more sellable election slogan. “Everything was fine in the ‘90s when you had Clinton and we just need to get back to that.” And what that did was gloss over the absolutely central role that Robert Rubin and Larry Summers played in creating this crisis. And lo and behold, they’re back with their protégés in tow. There’s really a shared responsibility, and it’s an argument for more intellectual honesty, more principled stands and fewer strategic calculations. What worries me so much is that it’s fine for politicians to be strategic. But social movements should be principled. They shouldn’t always be thinking about what’s the right strategy, what’s the sellable message, what’s the talking point, because then you end up in a situation like this. Larry Summers is back. Larry Summers was given a pass during the entire election.
Ms. Klein makes some very deep observations on the dynamics of politicized mass movements:
JOAN: Just start with the Icelandic protests. Why are there no protests in the streets in America?

NAOMI: This comes back to the problems of hero worship. It’s hard to protest your hero. But it’s more than that. It’s also that the virulence of the Right in the United States is so frightening and the problem is that it is the merger of the extreme far right and large corporations, in the form of media conglomerates. So Glenn Beck on Fox or Lou Dobbs on CNN have these unbelievable megaphones to attack Obama, and to spread fear, which makes reasonable people feel that their main political role is to defend the Obama administration against this very frightening right-wing onslaught. It’s understandable but it’s also hard to do that while being in the streets protesting that administration’s bailout – which is what’s happening in Britain, which is what’s happening in France, what’s happening in Italy. I think the problem in the U.S. is that many people who were part of the campaign to get Obama into power now see their role as being kind of an unofficial arm of the administration, with some groups even taking talking points from the White House. It’s a recipe for political failure, because what actually makes space for Obama to do more of what we want him to do is to make him look less radical, by being more radical ourselves.
This is a very acute problem in two-party systems like the one in the US. It’s very hard to critique one party without the fear of playing into the hands of the other one.

I am totally dumbfounded at the lack of campaigning for a true multi-party political system in the US. What makes the idea such a non-starter? Are Americans just so used to the system that they have that they don’t even consider any alternatives?

It is natural that neither of the two power parties are going to embrace a multi-party system. Maybe this crisis could act as a lightning rod for a new multi-party revolution, as it becomes ever more clear that both parties are in the pockets of moneyed interests: employers for Republicans and Wall Street for Democrats.

Naomi presents some of the issues as a gender bias.
NAOMI: Brooksley Born [chairwoman of the Commodity Futures Trading Commission], who, during the Clinton administration, blew the whistle on the unregulated derivative industry and wanted to regulate it like any other banking sector. For her prescience she was bullied by Rubin and Greenspan and Summers, who’s actually the enforcer of the three. He was the one who called her. They argued that just by talking about the need to regulate derivatives, she was going to create market panic. So not only wouldn’t they consider it, they wouldn’t even let her talk about it. She saw this whole crisis coming. You often hear this: “Well, no one saw this coming.” And that is such a reflection on who these men believe is someone. But there are so many people who saw this coming, and they’re considered nobodies. The only way you get to be a somebody is if you agree with them. Brooksley Born saw it coming. Elizabeth Warren has been an incredible watchdog. Sheila Bair, chair of the FDIC, also had a much more principled and ethical vision of what the bailout should be, in arguing that they should be offering direct aid to homeowners, as opposed to this top-down bailout. I feel like this gender split is not coincidental. There’s a need for more of a feminist analysis in understanding how we got here.
I think Ms. Klein exaggerates the issue a bit. There were a lot of men who saw this coming. But in some cases the men were not tossed aside as easily as the women.

I do think that it is a lot easier for men to leverage their positions. It is not as easy for women to get the benefit of the doubt. It is usually men who are treated with “for his position, he has to know what he’s talking about”. Just look at the deification of Alan Greenspan. If he had been a woman, his speeches would have received a whole lot more criticism.

Somehow, I also think that women are more readily accepted as having rigidly ideological views, even when they make great and reasonable analysis based on facts and research. It is also a lot more easy to brush aside pessimistic analysis from a woman as just instinctive worrying, which is seen as a feminine trait and a weakness of mind in the irrational macho culture that is still dominant, especially in the financial world.

The dominance of macho culture and euphoric over-optimism is quite understandable in modern finance. People with normal attitudes to risk simply can not function in an industry so clearly based on an unsustainable bubble. It’s pretty much a case of self-enhancing adverse selection. At the start of an irrational boom, people who see it as such are pushed aside or drop out voluntarily, which just makes the boom stronger.

Ms. Klein presents some unfounded opposition to market-based solutions to climate change:
And at this point, I think there’s a lot of rightful cynicism about the Kyoto protocol because the whole question of "How are we going to respond to climate change?" was entirely infected by market fundamentalism. Bringing it back full circle to where we started, the ideas that have dominated for the past 30 years have utterly shaped the environmental debate during the Kyoto era. So the idea was to always find “market-based solutions” to climate change, which meant that we couldn’t really legislate, and everything had to be creating market incentives for the private sector to solve the problem for us. And I think that’s a much harder sell today in the context of people rightfully losing faith in the ability of the market to solve our most pressing problems. So I think you’re going to see a lot of very different, non-market-based solutions being proposed ahead of the Copenhagen Summit, which is in December 2009.
There is nothing wrong in principle in market-based solutions, but markets have to have clear, fair and binding rules to work properly. Solutions that would be based on unregulated markets obviously don’t work, but a well-thought-out, competitive, non-oligopolistic market solution would not be against the goals of social development.

It is truly unfortunate that people are losing their faith in the market. What they really should be losing their faith in, is the concept of “free market” as practised on Wall Street. Really free markets have strong and fair rules in effect that everybody is bound to. The modern “free market” is a mix of the law of the jungle, with a firm and unfair control from above by a semi-private block of financial interests, represented by central banks.

Principled opposition to markets is like opposition to the rule of law, because of bad laws. Anarchy is not a solution. The progressive movement is badly hurt by people who propose price controls as a way to social goals. There is really no alternative to the market in some aspects of human behaviour. We should instead be focused on the rules that govern the market.

The “free market” fundamentalism as teached by the Chicago school of economics is a perversion of the ideas of Adam Smith. David Korten wrote in his book When Corporations Rule the World:
These practices were strongly condemned by Adam Smith in The Weath of Nations. Smith saw corporations, much as he saw governments, as instruments for suppressing the beneficial competitive forces of the market. His condemnation of corporations was uncompromising. He specifically mentioned them twelve times in his classic thesis, and not once did he attribute any favorable quality to them. Typical is his observation that: “It is to prevent this reduction of price, and consequently of wages and profit, by restraingin that free competition which would most certainly occcasion it, that all corporations, and the greater part of corporation law, have been established.”
It is easy to forget, that the world of Adam Smith was very much different from ours. Back then, it was the government that had actively granted very profitable monopolies to favored corporations. Now, corporations mostly gain monopoly positions by utilizing the lack of willingness to enforce regulations that would limit their growth in size.

Smith was against monopolization, not all government action. He was not an anarchist. He was all for sensible regulation of finance, for example. In the current business atmosphere, Adam Smith would have strongly supported anti-trust legislation, which has not been properly enforced in a long time.

Economist Dean Baker recently made a good point about incorporation being a privilege:
Finally, the article asserts that: "certain very large companies must organize as separate entities that are taxed twice -- on profits and shareholder dividends." Actually, it is not true that any business "must" organize as a separate entity. Certain very large businesses choose to incorporate because they find that the benefits that the government gives them by granting corporate status are so great as to make it worthwhile to pay the corporate income tax.
Market regulation is not inherently antithetical to freedom, as long as the same rules apply equally to everybody, and no special favous are provided. The rules of the markets should be arranged so that there is a price to be paid for all actions that have adverse effects on others. Incorporation is itself an act by the government, extracting a cost from other market participants in the form of reduced competition.

But markets are ultimately made of people. Markets do not have a soul of their own, even if it sometimes seems like that. And people can not be truly free without a fair set of rules to protect their freedom. The modern “free market” fundamentalists are actually nothing but market anarchists.

No comments: