Economic Power and Democracy

Giampiero Bordino

In the era of non-governed globalization we live in, and in the context of the cultural hegemony of the free-market ideology that is its typical trait, the risks for political democracy to be depleted are becoming ever more serious and evident. The power of the big actors of finance and economy (banks, financial institutions, multinational companies) and of the leading classes which manage and represent them, is increasingly gaining advantage over the power of States and political classes. The latter, in fact, in the last 30-40 years, have in most cases been conditioned by the free-market doctrine and by market-driven interests, and have contributed in a decisive way with their choices and policies (in particular the deregulation of capital movements and capital handling) to the preeminence of the economy and most of all of finance. Not surprisingly, today in the people's most widespread perception, both in industrialized and emerging countries, the competitive market-logic is dominating social relations and political decisions. In other words, both those who favor or   share that logic, and those who fight against it or reject it, live at least to some extent within the same collective narrative, whereby States and politicians de facto “answer to the markets”, that is, to powers which are anonymous, global and distant, but at the same time local and pervasive. Such a vision has taken an anthropological, so to say, dimension, that affects life in its entirety and “imbues” the world of the 21st century.

Many empirical data seem to confirm that interpretation of the relations between finance, the economy and politics. It is not an ideological distortion of reality. First of all, a global network of trans-national actors of a mostly financial nature is indeed predominating over the global economy. According to a Swiss survey, (“The network of global corporate control”, 2011), which investigated the interconnections among 43 thousand multi-national actors, a group of 1318 companies and, nested inside it, a smaller group of 147 companies, most of them of a financial nature, is predominating over the global economy, and more precisely controls 40% of the entire network. To make an example, the American Black Rock, established in 1988, the greatest asset-management company in the world, is managing alone investments $4100 billions worth on behalf of 170 pension funds, sovereign funds, banks, insurance companies, etc., and more generally it monitors daily for its customers $15000 billion dollars, i.e. 7% of the global financial assets, that are estimated to amount to $225 trillions. Black Rock is de facto the greatest shareholder in the world's biggest companies on behalf of its customers: it owns 5.1% of Apple, 5.5% of Microsoft, 5.5% of General Electric, 5.4% of ExxonMobil, 6.4% of JP Morgan Chase, 3.7% of Nestlé, 4.9% of Shell, etc. Moreover, it is the second greatest shareholder in Google, with 5.8%, and in PetroChina Company, with 7,62%.

Secondly, as shown by the Bank for International Settlements reports, the value of financial derivative securities circulating in the world corresponds to about ten times the value of the entire world domestic product (about 600 thousand billion dollars, 2010 data). An enormous trans-national amount of “paper” and simultaneously “power” that permeates the world, runs through societies and States, and conditions through its dealings the real economy and the decision-making processes of politics. The great majority of exchanges in derivative securities take place outside of official marketplaces, thus eluding controls of the supervising bodies. Five great American or British banks - JP Morgan, Citibank, Bank of America, Goldman Sachs and HSBC – are the protagonists of a great part of such transactions. In sum, the global networks of finance, together with its enormous and growing dimensions, give rise to an invasive and non transparent “power architecture”, like was never seen before in human history.

The role of that “architecture” was quite visible in the recent global crisis, which originated in the USA as a crisis of private finance and later spread to Europe, turned into a crisis of public debts of enormous proportions, due to the rescue operations put in place by the States; after that, it turned, because of the austerity policies, into a great recession from which, in Europe at least, we have not exited yet. Between 2008 and 2010, in particular, the aggregate debt of the EU countries has grown by about 20 points, passing from 60 to 80% of GDP (while social expenditure remained stable around 25% of GDP, and has not contributed at all to the increase of debt, contrary to a widespread opinion). According to a EU Commission report of the end of 2010, between October 2008 and October 2010 the Commission has approved State aids to the banking and financial system for 4600 billion euros worth, corresponding to 37% of the Union GDP (600 billions to Germany, 850 billions to the UK, 350 billions to France, etc.). Despite that, at the end of 2011, according to IMF data, the debts, only the ones officially accounted for, of the European banks were still very high: 98% of GDP the ones of German banks, 150% of GDP the ones of French banks, 250% of GDP the ones of Portuguese banks, up to the maximum of 547% of GDP the ones of the UK banks. These data have to be considered in a more general context, that makes them even more meaningful. The assets of the banks of the euro-zone countries correspond to 300% of the zone's GDP, and, if “shadow-finance” is also taken into account, to 600% of GDP. In the USA the bank assets are estimated to be 100% of GDP. One can better understand, then, why people often say that there are “banks too big to fail”. In reality, the weight of finance overwhelms by now in a prospectively unmanageable way the resources and powers that the States and national democracies, even the ones of greater dimensions, can make available.

In such a general framework dominated by finance and characterized by an ever more evident weakness of States and democracies, social inequality is growing, with its economic (crisis of demand and recession, as the American economist Galbraith had already denounced analyzing the reasons of the great crisis of the 1930s) and political consequences (power asymmetries incompatible with democracy).

According to Credit Suisse's 2012 Global Wealth Databook, 0.6% of the world population (29 million people) own 39% of the world wealth (about 88 thousand billion dollars). A growing trend of inequality, in particular in the United States and in Europe starting from the 1970s, is acknowledged by all the main international sources. The crisis which started in 2007-2008 has worsened and accelerated that trend, with the rise of unemployment and of temporary jobs, and the lowering of social protection levels provided by public powers. The case of Europe is in this regard particularly meaningful, because the Welfare State, the so-called “European social model” was, and still is to some extent, one of its identity marks; and because it is in Europe that austerity policies and measures reducing social expenditure have been implemented with harsh recessive effects. Moreover, the growth of inequalities and the widespread feeling of injustice that follows are contributing in a significant way to a dangerous reduction of the so-called “social capital” (the trustful relations among people) that represents instead the essential factor of cohesion on which depend the very survival of States and societies, and more specifically the satisfactory functioning of the systems of political democracy.

How to give back to the citizens, according to the rules of democracy, the power to decide on their own life? In Europe in particular, but also in other places, an ever more widespread answer in the years of crisis consists in reclaiming one's lost national sovereignty, in going back to the logic of boundaries, seen as the only possible salvation in the face of the threats of globalization, and in defending boundaries in the face of the “invasion” of capitals and goods (protectionist policies), of people (anti-immigration policies), of cultures (policies against cultural hybridization and crossbreeding). Ever more frightened and ill at ease societies adopt, at least in certain sectors, identity-protecting projects, often beyond the traditional differences between right and left. A return to exclusive (i.e. that does not recognize nothing else above and outside of itself) absolute sovereignties is a reclaiming that gives birth to neo-nationalist, xenophobic and racist movements. If the world is threatening us, we will fence in, build walls, protect in that way our interests and values. In such a perspective, the EU too, which represents the still partial result of the political unification process begun after the WWII, comes into question and under attack. But the very empirical data we spoke about, the analysis of the role and weight of finance, the dimension of the global and multi-national economic powers (among which we should also mention the trans-national networks of organized crime controlling drugs, human and arms trafficking, etc.) clearly show how illusory that perspective is. The return to one's lost national sovereignty, a memento of the 1800s, is incompatible with an efficient strategy to bring under control finance and the economy (which are global and reticulated, hence “uncatchable” by national powers), and with the preservation and development of open and inclusive democratic institutions. Authoritarian political regimes, closed in, resentful, fearful, impotent and at the same time inclined to conflict and war: this is the expectable result, confirmed by the entire historical experience of the 20th century, and by the protectionist and neo-nationalist perspective. To such a perspective, there is to oppose, in Europe and elsewhere, the project of a shared democratic sovereignty, a federal, multilevel, cosmopolitan and inclusive democracy. Popular sovereignty can be regained only through shared and common goals at the supra-national, macro-regional and world levels. Of course, there is to answer to this question, unavoidable if we want to be credible and persuasive: a shared, federal, multilevel sovereignty “to do what?”, and “with what horizon?”. Without covering here in detail the specific possible policies, the fundamental answer, at least as far as the issues we spoke about in this article are concerned, is: to bring back finance and the economy under the control of political democracy, to reduce power asymmetries, to promote and assure social inclusion and decent levels of equality. No doubt this is the only perspective that allows us to cope with the mortal risks of the global era and to continue, also in the 21st century, in the attempt to civilize the world.

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