Reports in all newspapers this morning suggest that the Irish bail out has not worked: the markets have reacted without enthusiasm and the talk is, inevitably, of contagion, It’s almost assumed now that Portugal and Spain will follow suit. Belgium is next on the list. And I doubt that will be the end of it. Others will join in due course including, at the very least, the failed tax haven states with massive funding deficits, such as Jersey, Guernsey, the Isle of Man, Bermuda, Cayman and more.
So let’s not pretend any more that this was caused by a rogue bank — as people like to claim of Anglo Irish. It was bad, but it did not pull the system down. And let’s not mistake the fact that the system is going down. The pretence otherwise is simply a time buying exercise, and one that looks like it may not work for long. The truth is that world banking is tottering. The underpinning of money was, in far too many cases, property, and property prices are falling and that means that bankers’ confidence money in the money they created (because 97% of all money is made by bankers) is failing with it.
Bailing out state after state won’t solve this issue. The problem does not belong to one state: the problem is global. As TJN has shown with regard to the Greek crisis — the issue is one of inter-connectivity, at the core of which are tax havens. The pretence is that a state may be bailed out — and its people held responsible for the fecklessness of their banks under the lax regulation that people’s reckless elected politicians permitted - but this is as much a lie as they claim that all this was the fault of Anglo Irish.
No one country, no one politician, no one bank, no one regulator created this mess. This mess came about because we believed three things.
The first was that corporations could be stateless. In the age of globalisation corporations said they floated above the state, its petty constraints and the obligations it imposed on them to comply with regulation and to pay tax. And they persuaded politicians they were right. Indeed they still are. Alistair Darling still subscribes to this view — and it is fundamentally wrong.
Second, we believed that we’d solved boom and bust — and inflation. Actually, all we did was outsource jobs to China to beat wage inflation and suppress the wages of most ordinary people, and then sustained growth through credit based on supposedly rising property values whilst denying many access to the homes they needed. It was and is a ludicrous economic model.
Third, we believed business knew more than politicians about how to run anything. Morality disappeared under the illusion that the market was the ultimate arbiter of right and wrong. Faith in democracy declined as the belief that the ultimate vote was that through the till. And the confidence of most of those with moral conviction drained away with the onslaught of this idea that poured through all media. For the few who still cried out in the wilderness there was almost universal derision.
Each of those ideas are wrong. The corporation is rooted in the state. There is no such thing as a free flow of capital: it always has a cost, and we’re now paying it. The reality is that prosperity is based on work — not finance or asset inflation. And there is a very real need for democracy and moral leadership, especially now in a time of crisis.
Each of these issues is important, vital even. But of the three the biggest issue is the last. The vacuum there is potentially crippling. It is the absence of vision against which the young are protesting. It is leadership they are demanding. And it is leadership they must have — or we move to extremes.
Corporations have to be tamed.
Finance has to be tamed.
The state must re-emerge.
But so too must the politics of social conviction: the politics that says there is a right and a wrong, the politics that says we can by individual effort change the world for the better — not for ourselves, necessarily — but for the sake of humanity at large.
That’s the politics of social democracy — but I mean radical social democracy — not the sop to watered down neo-liberalism that has been a pale excuse for social democracy for far too long.
This blog is a small contribution to that debate — and the need for change: change of the only type that can deal with the systemic failure that’s emerging, rapidly.