Yves here. I’ve reframed this recap of a talk by Yanis Varoufakis at NYU as a challenge to neoliberalism, not a challenge to economics, since its theme is the tension between modern economics (and indeed many forms of capitalism) and democracy.
There are some points he made that he made that I quibble with. He says he was shocked when he learned, early in his negotiations with the Wolfgang Schauble, that his counterparts took the position that the will of the Greek people counted for very little. I know some readers may take umbrage, but this was a fundamental failure on behalf of the Syriza side, not just Varoufakis, of what they were up against. In fact, the Eurozone treaties that Greece has signed had the government explicitly ceding certain aspects of national sovereignity to the Eurozone. In addition, as we pointed out at the time, the ECB had the power to bring the Greek economy to its knees by cutting off liquidity support to the Greek banks, and if anything, was predisposed to do so. From the ECB’s perspective, it had already stretched the rules of its supposedly temporary liquidity facilities to the breaking point.
Mind you, I’m not saying the Trokia position was right or sound. Varoufakis clearly had the better economic argument. But he didn’t begin to have the runway to persuade his opponents, and he thought the threat of a Grexit gave him far more bargaining leverage than he had. But Varoufakis’ past writings showed he was firmly convinced that this path would do Greece great harm, and Syriza didn’t have public support for that course of action either. Greece did have some bargaining chips, in that the Eurocrats were keen to have Greece improve tax collections and the operations of government generally, but it was clear given how the negotiations were framed that the two sides would remain at loggerheads, eventually giving the Troika what it though was an adequate excuse to use brute force.
A second point Varoufakis made where I beg to differ is, as reported by Lynn Parramore, “It is the brute force of the state that ensures compliance with the rules of capitalism.” In fact, it is the hidden coercion of the market that forces compliance, which is why neoliberals fetishize markets. A major focus of the Robert Heilbroner book, Behind the Veil of Economics, is the contrast between the source of discipline under feudalism versus under capitalism. Heilbroner argues it was the bailiff and the lash, that lord would incarcerate and beat serf who didn’t pull their weight. But the lord had obligations to his serfs too, so this relationship was not as one-sided as it might seem. By contrast, Heilbroner argues that the power structure under capitalism is far less obvious:
This negative form of power contrasts sharply with with that of the privileged elites in precapitalist social formations. In these imperial kingdoms or feudal holdings, disciplinary power is exercised by the direct use or display of coercive power. The social power of capital is of a different kind….The capitalist may deny others access to his resources, but he may not force them to work with him. Clearly, such power requires circumstances that make the withholding of access of critical consequence. These circumstances can only arise if the general populace is unable to secure a living unless it can gain access to privately owned resources or wealth…
The organization of production is generally regarded as a wholly “economic” activity, ignoring the political function served by the wage-labor relationships in lieu of baliffs and senechals. In a like fashion, the discharge of political authority is regarded as essentially separable from the operation of the economic realm, ignoring the provision of the legal, military, and material contributions without which the private sphere could not function properly or even exist. In this way, the presence of the two realms, each responsible for part of the activities necessary for the maintenance of the social formation, not only gives capitalism a structure entirely different from that of any precapitalist society, but also establishes the basis for a problem that uniquely preoccupies capitalism, namely, the appropriate role of the state vis-a-vis the sphere of production and distribution.
Shorter Heilbroner: capitalism requires that non-capitalists sell their labor as a condition of survival. The capitalist can exert power by denying access to work, hence income, hence survival. The state has “brute force” when capitalists control resources (recall that a lot of what is now private, such as common pasturelands, were once communal property) and in modern times, when social safety nets are weak. This is not a given under capitalism, but it is certainly the preferred order among Western elites.
By Lynn Parramore. Originally published at the Institute for New Economic Thinking website
Yanis Varoufakis’ first meeting with the Troika of Greece’s creditors revealed what he believes is a perilous disdain among top economic decision-makers for the democratic process. The then-Finance Minister arrived armed with tables and graphs to make what he believed was a self-evident case that the austerity program imposed on Athens was untenable and unsustainable, and would therefore not produce desirable results for Greece or for its creditors. As the representative of a leftist government elected on a promise to restructure the austerity program, Varoufakis was aware of the need for a moderate tone to alleviate fears that he was a wild-eyed radical, and he readily acknowledged the need for continuity with terms agreed by the previous Greek administration. But he hoped to persuade the Troika to balance those obligations with the desire of the Greek electorate for a sustainable plan that offered them more than permanent penury.
According to Varoufakis, Wolfgang Schäuble, the formidable German finance minister, abruptly interrupted his presentation, declaring, “Elections cannot be allowed to change the economic policies applied to Greece.”
For Varoufakis, the encounter with Schäuble signaled that neoliberal economic managers no longer even pretended to support the principle of democracy. As a result, he argued, Greece was facing dogmatic enforcement of an austerity program whose effects would likely preclude it recovering sufficiently to repay its debts. And more broadly, the future of European capitalism was in growing jeopardy amid rising electoral discontent.
Speaking Monday at New York City’s New School on the future of capitalism and democracy, Varoufakis distinguished between ancient Athenian democracy — which gave equal weight to the views expressed by (admittedly only male) citizens regardless of the wealth they possessed — and its modern form. The latter, he said, had historically been shaped by systems of economic inequality. The Magna Carta, he noted, negotiated the rights of the barons to prevent the king from poaching their serfs — “a social contract between lords and the monarch.”
Eventually, those lords were replaced by merchants and industrialists, and later still, organized labor demanded its own say. “The modern state emerged as a mechanism for regulation class conflict,” he said. “That is liberal democracy.”
The assumption that capitalism is innately linked to liberal democracy is of recent vintage, Varoufakis contended. He noted that classical economic thinkers — Smith, Ricardo, Marx, and Schumpeter — all focused on the process of the commoditization of everything, including human beings, a notion that he suggested did not bode well for democratic practices. The ideological cover for this concept, today, was “the illusion of apolitical, ahistorical, mathematized economics.”
Economists see themselves as scientists who have no need for history — after all, aren’t past scientific models full of errors? But economics is not a science, Varoufakis explained. Unlike in physics, where the latest textbook offers knowledge more advanced than its predecessors did, economists seem to have a knack for ignoring past truths, a phenomenon particularly apparent in treatments of capitalism.
Today’s economic models not only can’t deal with democracy, but they have become embedded in economic behavior, influencing economic actors, policy makers, and elected officials. He warned that policies derived from the impulse of orthodox economics to reduce human beings into elastic, mechanized inputs threatened capitalism’s future: It destroys human creativity and freedom, which (among other things) generates new ideas and technologies that drive productivity and creates profits for capital.
Paradoxes abound: the more capitalism succeeds in commodifying human beings, the worse things become for capitalism — powerless and poor, their buying power is degraded, and with it, aggregate demand.
And the failure to respond to human need expressed through democratic politics — as he experienced in his dealings with the Troika — threatens to spur citizen rebellions against the system.
Varoufakis cited economist Kenneth Arrow — whose impossibility theorem (also known as social-choice theory) shows the impossibility of fully determining a common will while using a set of fair and democratic procedures— to argue that democracy, messy it may be, remains the best path. Edicts from technocrats, no matter how smart and well-meaning, will not reflect the interests of the people. “Democracy is dialectic,” explained Varoufakis, “a system for people who are not sure about what they think. They are not sure about what is good for society.” They argue, debate, and take from each other’s positions to modify their own.
But capitalism hasn’t always worked well with democracy. Just as the notion of hell was essential to achieving obedience to the tenets of Christianity in the middle ages, quipped Varoufakis, so it is the brute force of the state that ensures compliance with the rules of capitalism.
The United States Constitution, he argued, was designed to keep the poor away from the levers of power, while legitimizing the system through their participation. “Democracy was to be used in name in order to be breached in substance,” he said, and served to keep capitalism out of crisis without having to really give the poor much power.
Crises came anyway. The Great Depression sufficiently shocked elites into creating the Bretton Woods system, an international financial system predicated on an imperial American role that, together with the Marshall Plan, laid the foundation of postwar capitalist expansion. But the golden era of capitalism didn’t last. As U.S. hegemony declined, cracks in the system appeared and widened. Global financial markets became imbalanced and storms of mounting amplitude followed. Eventually, deregulation and financialization turned corporations like GM into “financial companies that produce a few cars on the side.” The Great Recession, as Varoufakis saw it, has signaled citizens that their economies are not functioning, and neither are their political systems.
“The world we live in is rudderless, in a slow-burning recession,” he said, referring what some have called ‘secular stagnation.’ Varoufakis rejected further lending to Greece if the current austerity program cannot be modified or reversed. Continued austerity makes it impossible for Greece to grow, which means that paying off new debts would only be possible through further austerity and cuts in public budgets, which will drive the economy deeper into recession. For Varoufakis, this counterproductive policy ignores lessons from Europe’s recovery after World War II, including forgiving German debt in 1953.
The Eurozone remains dominated by policies that make debt repayment, rather than growth, the central focus of policy makers. For Varoufakis, this underscores the bankrupt nature of much current economic thinking, ignoring alternative analyses of the crisis and alternative ideas for addressing it, including both debt relief and fiscal stimulus rather than austerity.
Varoufakis argued that blocking of sensible economic policy feeds the electoral success of new, left parties in Greece and Spain, but also the rise of authoritarian right-wing movements in a worrisome echo of the 1930s. This polarization also can be seen in the United States, with the electoral success of Bernie Sanders but also Donald Trump. And if decision-making power continues to moves into “democracy-free zones” such as the European Union or private corporations, the more polarized the political future appears, with attendant opportunities and risks.
In a burst of pop culture flair, Varoufakis predicted that when machines have passed the Turing Test, when you can no longer tell if the person on the phone is a human or a computer, and when 3-D printers can spit out whatever object you need, the logic of capitalism will break down. “At this stage,” he warned, “humanity will face a juncture.” Either we end up with a Star Trek-like utopia where we harness technology and use its wealth-producing capacity for the common good, or we get The Matrix, a dystopia in which the miserable masses have their energy sucked out of them by unseen forces and are fed illusions to keep them quiet. Eventually even the elites will become servants to the machine.
The antidote to that outcome, Varoufakis argued, is a robust democracy in the Athenian vein, one that reflects the voices of and serves all the people, whether they have money or not.
*Varoufakis’s new book, “And the Weak Suffer What They Must? Europe’s Crisis and America’s Future” was released on April 12.