What, me worry?

Terms such as ‘moral panic’ and ‘folk devil’ – taken from the sociology of deviance and ‘labelling theory’ – are increasingly being deployed as catchphrases in debates about risk assessment, product liability and consumer regulation. Who is this rhetoric aimed at and how does it work?

It’s rare enough for an academic phrase to make the leap across inter-disciplinary walls. So the chance is roughly zero that one will wander off the pages of scholarly journals, pass clean through the porter’s lodge and emerge, blinking like a mole, as an everyday watchword, borrowed regularly for legal advocacy and general journalistic usage. To do so, such a favoured trope must possess (as both ‘moral panic’ and ‘folk devil’ do in spades) an uncommon sort of vividness and memorability. It must convey the speaker’s specialized knowledge while being intelligible to all. If it comes from the humanities or social sciences, it will lack the readymade authority and easy glamour commanded by technical terms from the natural sciences. Its hopes for lexical survival rest on its figurative qualities, used for persuasive or rhetorical purposes. But it can’t be functional for just any old end. To thrive in the world of opinion columns and other centralized, commercially-owned, advertising-driven communication platforms, it must serve the purposes of the powerful (whose conscious contrivance is not necessarily involved – though it can’t be ruled out). And when such a term originates, as in this case, from putatively ‘left-wing’ scholarship, its suitability for use in mainstream outlets of political and cultural debate requires the fulfilment of one final condition. The loanword must appeal to native speakers of the donor language from which it is borrowed.

Thus ‘moral panic’ and related terms are used, quite cynically, by the sort of people who blog for the Volokh Conspiracy, work at George Mason University, sideline at Cato or the Manhattan Institute, and who favour a jurisprudential doctrine placing property rights ahead of labour regulations and consumer-protection torts. They seek, by employing such terms, to persuade a particular audience. The latter is made up mostly of left-liberal people, who may have studied a bit of criminology, sociology or cultural studies, or who otherwise have acquired a stock of half-remembered phrases (e.g. ‘moral panic’) from reading group-appropriate opinion columns, bien-pensant editorials, reportage from approved periodicals, think-tank publications, and Serious and Responsible blogs. These familiar phrases are supposed, when heard, to function as cues prompting such audience members to apply the appropriate mental response. Even if he knows nothing else, the ideal listener knows this: A person like me – progressive, tolerant and urbane – doesn’t go in for moral panics! The listener thus preserves his in-group identity, and signals tribal membership to his peers (an important goal in this milieu). The speaker meanwhile gains an ally.

In its original formulation, a ‘moral panic’ was said to occur when some behaviour common to (usually) juvenile ‘deviants’ was ‘presented in a stylized or stereotypical fashion by the mass media’, the latter driven by an ‘institutionalized need to create news’, then defined as a threat to the adult social order by ‘editors, bishops, politicians and other right-thinking people… agents of social control, or law enforcement, lawmakers and politicians, and action groups’. The objects of moral panics, in the concept’s initial guise, included the behaviour of Mods and Rockers, hippies, Hells Angels, paedophiles and Teddy Boys. The latter were then labelled (so the theory went) as folk devils.

Since these categories were not especially analytically rigorous to begin with, they were easily transferable and soon applied, often in absurd fashion, to various types of people and behaviour.

But in the latest twist, moral panic and related terms have been applied to an entirely different class of phenomena. Previously they were used to describe hysteria surrounding a ‘condition, episode, person or group of persons’. But moral panic, in its new sense, may now refer to ‘excessively’ critical treatment (by members of the public, concerned scholars or some figures in the mass media) of a saleable good or service, or to ’disproportionately’ negative discussion of an industry or sector. It may describe a wave of litigation, criminal proceedings or government-imposed regulations. And, rather than the object of a moral panic being (as in the term’s original guise) a threat to a society’s prevailing norms, these new objects may simply be considered hazardous to the health, safety or environment of a population.

Here is Norm Keith, a Canadian OHS lawyer:

It is suggested that corporations, especially large, publicly traded corporations, are easy targets of moral panic, leading to a more stringent punishment. When organisations are blamed for unsafe drinking water, workplace deaths and loss of one’s life savings, strong legislative and enforcement are demanded by the media and the public. Since a corporation, apart from directors and officers, cannot be incarcerated for crimes, the public and media may mischaracterise the corporation as above or beyond the law. This leads to a general distain [sic] for the entity itself, even though the corporation as a separate legal entity has tremendous economic, social and public importance and benefit to modern society. The process of labelling a corporation as powerful, unaccountable and socially irresponsible fuels media, public and political outrage and action to prosecute corporations. When the rhetoric of social panic threatens perceived order in modern society, strong political action often follows.

This is an extreme example of an obviously silly argument unlikely to persuade anyone who doesn’t already possess strong pro-corporate leanings.

But what about when similar arguments are employed to deter criticism of an industry, company or cultural product that itself dons the mantle of rebellion and plucky anti-corporatism? In that case, they may successfully persuade some well-intentioned people with vaguely anti-establishment agendas and ‘progressive’ political leanings.

The following example comes from Robert Corn-Revere, adjunct at the Cato Institute and counsel for the Comic Book Legal Defense Fund. Here he describes a Californian law (struck down on First Amendment grounds by the US Supreme Court) which restricted sales of violent video games to minors:

The California law represents a long tradition of suppressing media popular among the young. These recurring campaigns are typified by exaggerated claims of adverse effects of popular culture on youth based on pseudoscientific assertions of harm that are little more than thinly veiled moral or editorial preferences. Such censorship crusades have been mounted against dime novels, ragtime music, cinema, comic books, television, and, now, video games.

This phenomenon even has a name among social scientists; it is called a “moral panic”…

Here is Steven Pinker, writing in defence of violent video games and other ‘new media’ in a New York Times op-ed piece:

New forms of media have always caused moral panics: the printing press, newspapers, paperbacks and television were all once denounced as threats to their consumers’ brainpower and moral fiber.

So too with electronic technologies. PowerPoint, we’re told, is reducing discourse to bullet points. Search engines lower our intelligence, encouraging us to skim on the surface of knowledge rather than dive to its depths. Twitter is shrinking our attention spans.

But such panics often fail basic reality checks. When comic books were accused of turning juveniles into delinquents in the 1950s, crime was falling to record lows, just as the denunciations of video games in the 1990s coincided with the great American crime decline. The decades of television, transistor radios and rock videos were also decades in which I.Q. scores rose continuously.

And here is another prominent defender of violent video games, assistant professor of psychology at Texas A&M, Christopher J. Ferguson:

We know that new media experience cycles of moral panic during which they are blamed for all manner of social ills. In the 19th century dime novels were imagined harmful for young women who, it was believed, could not distinguish reality from fiction. In the mid-20th century a psychiatrist testified before the US Congress that Batman and Robin were secretly homosexual and would lead youth not only into delinquency but the homosexual lifestyle.

Further panics have surfaced over everything from waltzes, jazz music, Elvis Presley and comic books to Harry Potter, Dungeons and Dragons, rap and now video games. In retrospect those panics appear absurd, but people can always think of reasons why new media is “different”. Movies were visual, television was available every day, Harry Potter made witchcraft fun, Dungeons and Dragons was interactive (in fact more interactive than video games). Nothing came of those panics and nothing is coming of video games. Our kids today are the least violent, most civically involved, least likely to use drugs, least likely to get pregnant, most likely to graduate from secondary education compared to the past several generations. The VVG [violent video game] issue is a crusade in desperate search of a crisis.

There are countless other examples from similarly dubious sources. Frank Furedi is academic guru for a nest of corporate-sponsored contrarians, and erstwhile ‘Marxists’, at Spiked Online. He and his epigones are preocupied by, and relentlessly denounce, the ‘culture of fear’ and ‘moral panics’ incited by mass media outlets and paternalistic authorities. Such panics, they claim, cause unnecessary popular agitation about global warming, obesity, tobacco consumption, video games and the individual’s right to express his lifestyle preferences and consumption tastes in the manner he judges best. Spiked’s message – mysteriously given a platform in the mass-media outlets it constantly bemoans –  is obviously crafted with attention to the needs of its corporate donors, then given a libertarian sheen.

The tern ‘moral panic’ tars its object with the brush of fogeyish wowserism associated with the likes of Allan Bloom (or Fredric Wertham). And it reserves for the defender of ‘new media’ a levelheaded sophistication, a cool immunity to the conservative hysteria and unreason which swirl around him. It is calculated to appeal to a particular bien-pensant milieu: a sizeable bulk of the academic world, the liberal professions (doctors, lawyers, accountants and architects), and the chattering classes (journalists, artists, etc). The ideological dimension on which this group defines itself politically is given by the terms of the Culture Wars. Mention of ‘moral panics’, and to conservative strictures against rock music. etc., refers unmistakably to the New Criterion of Hilton Kramer and Roger Kimball, and to Bloom’s Closing of the American Mind. Presumably, for many who dwell in such circles, talk of the perniciousness of this or that cultural product automatically evokes memories of old battles, and prompts them to apply a familiar schema by which the speaker is mentally coded as a hidebound conservative (and habitual basher of academics) to whom no attention should be paid. This is why nobody needs to go and read the scholarly research on the effects of violent video games. The answers are known in advance for they are determined by one’s tastes, which in turn are a way of signalling group membership. Professional training has taught some the habit of ‘reading ahead’, whereby a piece of evidence or line of argument is immediately searched for the conclusion it is supposed to support. If the latter is deemed uncongenial (or alternatively pleasing) then the premises, and any supporting evidence, are rejected (accepted) accordingly. Prior probabilities and very general, foundational beliefs are arranged such that contradictory evidence is not allowed to impinge. This is understandable, and might in other circumstances be forgiveable: nobody is a perfect Bayesian, and few of us are without character-defining commitments that lead occasionally to intransigence. Except that the purpose behind this resistance to evidence and reason is the signalling of correct thoughts, possession of good taste, and status as a Serious Person.

Displaying one’s openness to risk is a ‘positional good’, a way to signal high status and prestige. Asset-poor people, the vast majority of the population in an advanced capitalist society, are (sensibly) more risk averse than the wealthy. Lacking easy access to credit, the first group prizes security and favours liquid forms of wealth that can readily be converted into stable consumption streams. A risk-neutral or risk-seeking person is distinguished from this pack. Large diversified portfolios (e.g. ownership of stocks and other financial assets) confer a form of insurance that may lead to risk-taking. Whence the legend of the daring, forward-looking entrepreneur. The non-wealthy, on the other hand, show higher rates of time preference (i.e. they discount the flow of future income more heavily with respect to present income). Social position may also affect willingness to seek private information or adopt commonly-held beliefs. In contrast to those whose work involves contracting to provide specific labour services (e.g. lawyers, tradespeople), employees hired by firms surrender decision-making authority and independent direction over their own work process. Within firms, low-level workers are accustomed to submitting diligently to the orders of managers and supervisors, and respond to external rewards and sanctions rather than (as higher-level functionaries must) internalizing the values of the organization and acting out of personal initiative. These workplace experiences have an ongoing effect on individual personality development, and may contribute to varied attitudes towards risk exhibited by members of a society, depending on their class membership.

More on this to follow.

A love letter to Leviathan

Steven Pinker’s new book on violence is unblushingly a work of Whig history. Its purpose, as he describes it, is ‘a rehabilitation of a concept of modernity and progress, and… a sense of gratitude for the institutions of civilization and enlightenment that have made it possible.’ For the long Hobbesian nightmare of seizing and fighting, dominant for tens of thousands of years of human history, has gradually been displaced by ’changes in our cultural and material milieu that have given our peaceable motives the upper hand.’

‘Readers of this book’ are assured they ’no longer have to worry about… the prospect of a nuclear world war that would put an end to civilization or to human life itself’:

You would think that the disappearance of the gravest threat in the history of humanity would bring a sigh of relief among commentators on world affairs… Surely the experts have been acknolwedging the improvements in the world’s fortunes from a few decades ago.

But no – the pundits are glummer than ever! … Why the gloom? Partly it’s the result of market forces in the punditry business, which favor the Cassandras over the Pollyannas. Partly it arises from human temperament…

But, believe it or not, ‘from a global, historical and quantitative perspective, the dream of the 1960s  has come true: the world has (almost) put an end to war.’

Plainly enough, Pinker wants to downplay what others have (approvingly) described as the ‘industrial-scale killing machine’ assembled and deployed by Washington in its recent wave of external aggression. Presumably, it’s with this evaluative purpose in mind that he opts to measure and compare each society’s degree of violence by its rate of violent deaths per head of population, granting no weight to the absolute volume of violent deaths, nor any to the rate of violent deaths per unit of time. Defence of this metric, on which basis the book’s entire argument rests, is perfunctory and uncompelling. Once delivered, in a single paragraph and as if in passing, the ruling is treated as dispositive and the matter as entirely closed.

Chunks of the book’s 800 pages are consequently made up of embarrassingly uncritical and complacent sales talk:

By the 1990s the only politically acceptable American wars were surgical routs achieved with remote-control technology. They could no longer be wars of attrition that ground up soldiers by the tens of thousands, nor aerial holocausts visited on foreign civilians as in Dresden, Hiroshima, and North Vietnam.

The change is palpable within the American military itself. Military leaders at all levels have become aware that gratuitous killing is a public-relations disaster at home and counterproductive abroad, alienating allies and emboldening enemies. The Marine Corps has instituted a martial-arts program in which leathernecks are indoctrinated in a new code of honor, the Ethical Marine Warrior…

The code of the Ethical Warrior, even as an aspiration, shows that the American armed forces have come a long way from a time when its soldiers referred to Vietnamese peasants as gooks, slopes, and slants and when the military was slow to investigate atrocities against civilians…

[The] American-led wars in Afghanistan and Iraq in the first decade of the 21st century…are nothing like the wars of the past. In both conflicts the interstate war phase was quick and (by historical standards) low in battle deaths. Most of the deaths in Iraq were caused by intercommunal violence in the anarchy that followed… In Afghanistan, the US Air Force followed a set of humanitarian protocols during the height of the anti-Taliban bombing campaign in 2008 that Human Rights Watch praised for its “very good record of minimizing harm to civilians.”

Is there anything more to the argument, besides such rank boosterism?

To get more idea both of the book’s content and its ideological flavour, consider the historical episodes included in Pinker’s tale of gradual emancipation, by which the passions became slaves of Reason, and ‘civilization’ supplanted the ‘primitive’. These instalments are called the ‘Pacifying Process’, ‘Civilizing Process’, ‘Gentle Commerce’, the ‘Expanding Circle’, the ‘Humanitarian Revolution’, the ‘Long Peace’, the ‘Rights Revolution’ and the ‘New Peace’. The terms are borrowed from the likes of Norbert Elias, Peter Singer, Albert Hirschman and Kant. They correspond to the emergence of political hierarchy (chiefdoms, Big Men and proto-states), growth of the modern liberal constitutional state (the rule of law), ‘development of the institutions of money and finance’, spread of transport and communication links, mass literacy and secularism.

Such changes, says Pinker, have periodically upset and re-made the ‘rules of the game’ which defined, in a given society, courses of action available to ordinary people (their strategy sets) and specified the outcomes and consequences (payoffs) of those actions. In response to these ‘exogenous triggers’, introduced from outside into the game structure, individuals gradually developed the ‘better angels of their nature’: behavioural norms, ethical prescriptions and psychological preferences allowing them to interact in mutually beneficial ways.

In charting this progress along the path to modernity, Pinker appends himself to a lineage of ‘Enlightenment humanists’ – Hobbes, Locke, Hume and the classical liberals – who ‘placed the autonomy and flourishing of individuals as the ultimate goal of political systems.’ The self-ascription is obviously false: the author’s other political commitments, as we’ve seen, push him in grotesquely illiberal directions. It’s worthwhile seeing why this is so.

Pinker first describes how the emergence of Leviathan suppressed the universal propensity of ungoverned hunter-gatherer and horticultural people to kill and wound each other, in opportunistic struggles over hunting grounds, foraging rights and women. Of course, he says, if humans lacked ‘innate proclivities toward coalitional violence’, they ‘would not need a Leviathan, or any other institution, to keep them away from it.’ But he agrees with Hobbes that in ‘the nature of man we find three principal causes of quarrel: gain (predatory raids), safety (preemptive raids), and reputation (retaliatory raids).’ Here he relies on research suggesting that the populations of pre-state and non-state societies (at least those in the ethnographic and archaeological record) exhibit very high fractions of death from warfare. This discussion, like much else in this new work, will be familiar from Pinker’s earlier book The Blank Slate.

Pinker then invokes – as he goes on to do throughout the book – John Maynard Smith’s ‘hawk-dove’ game, which formalizes the Hobbesian condition of animal contests over territory. This model is used to show that respect for ownership (what Maynard Smith called the ‘Bourgeois’ strategy) can settle conflicts without escalated fighting or a war of attrition. Good fences make good neighbours. Property rights beget personal rights. This will be recognized as a version of the mainstream axiom which holds that there exists, in liberal capitalist societies, a harmonious ‘unity of rights’.  Milton Friedman’s identification of democracy with capitalism is perhaps the strongest version of the claim (empirical, normative or logical) that personal entitlements (e.g. to bodily integrity and freedom from molestation) imply, overlap with, confer, derive from or otherwise support ownership rights over property.

So it seems reasonable to suggest, as Timothy Snyder did in his book review for Foreign Affairs, that this argumentative thrust is ’rooted in Pinker’s commitment to free-market libertarianism.’ But of what stripe? There is no entry in the index for ‘property’, and it’s scarcely mentioned throughout the main text (he prefers to speak of ‘commerce’, ‘gains from trade’ and ‘positive-sum interactions’). Indeed, in Pinker’s presentation the historical emergence of possession-based property rights (with the domestication of plants and animals, along with innovations in storage that allowed people to claim crops and livestock as their own, etc.) is dissolved into an event that occurred 5000 years later: the birth of the state. What accounts for this strange lack of emphasis and distinct analytic role afforded by Pinker to something which, apparently, holds a privileged place in his thinking? In part, it may be explained by a desire for explanatory simplicity, or attributed to a desire, on the author’s part, to avoid showing his ideological hand, the better to persuade unaligned readers. But I think it also provides an accurate sense of where the book’s sympathies dwell.

The hero of the day is not market but government. On its surface, this is a familar version of the nightwatchman state, found in any libertarian catechism. In that ideological tradition (see e.g. Robert Nozick’s ‘minimal state’), the police, courts and similar repressive organs have a crucial but limited role. They delineate property rights and enforce contracts, and thereby prevent contests between parties over rival claims to valued resources (land, food, water, cattle, etc.) degenerating into lawless, wasteful and opportunistic seizure. There is, of course, a branch of libertarianism (associated with the likes of David D. Friedman and Bryan Caplan) which argues that such tasks (formation and enforcement of property rights) should be the responsibility of private actors, coordinating by tacit agreements, with none of them possessing the public authority’s monopoly on legitimate violence (as in the U.S. South West during the nineteenth century. Alternatively, the work of Elinor Ostrom shows that, through customary allocation rules and similar modes of coordination, populations can successfully manage use of open-access or unowned resources without the involvement of states and without formal property rights.) But Pinker distances himself from such views: if people cannot enforce their resource claims by calling in the police, he insists, then they will do so by adopting a violent ‘culture on honour’, as on the Appalachian frontier, in Pashtunistan, or in the turf battles over US inner-city crack cocaine networks during the 1980s.

Indeed, Pinker emphasizes his broadminded tolerance for state violence and his hostility towards ‘anarchy’. The applause is not reserved for the abstract principle of the rule of law, but granted, as well, for its supposed institutional embodiment in the present-day USA and Europe. The book is peppered with anodyne expressions of indifference and, indeed, fondness for ‘actually-existing’ centralized coercion, including when directed inwards at its own citizens: ’Leviathan’, he notes repeatedly, ‘may be the most consistent violence-reducer’ there is. Murder rates in the US fell from the 1990s because ‘the Leviathan got bigger, smarter, and more effective… But in present-day America a “death sentence” is a bit of a fiction, because mandatory legal reviews delay most executions indefinitely, and only a few tenths of a percentage point of the nation’s murderers are ever put to death.’ He defends the views on torture expressed by his Harvard colleague Alan Dershowitz (with whom Pinker teaches a course on Morality and Taboo).

To place this line of thought in ideological context, the libertarians at the Cato Institute can be relied upon to describe Bill Clinton’s Antiterrorism and Effective Death Penalty Act of 1996, which began the rollback of habeas corpus rights, as ‘draconian’ and its precursor ‘one of the most repressive measures ever enacted by the U.S. Congress’. Pinker, on the other hand, does not consider such epochal changes worth mentioning. He appears to cherish the nightwatchman state less than he does the status quo.

Thus the most fitting ideological label for Pinker would seem to be that used by Bernard Harcourt to describe Richard Posner: pragmatic authoritarian libertarian. Indeed, mounting a consistent and effective defence of property rights nowadays compels the honest ideologue to adopt such a position. In today’s Garrison USA, it takes more than one-quarter of the labour force (up from 6% in 1890 and 7% in 1929) to maintain order and to enforce the existing allocation of ownership claims over economic resources. A colossal number of citizen-soldiers now work as supervisors with the authority to discipline, sanction and fire, or as prison guards, private security personnel, employees of the military, etc. At the heart of US society beats a massive disciplinary apparatus, public and private. This is the repressive foundation for what Jonathan Turley recently described as an authoritarian ‘mosaic of powers’ gained by the government in recent decades. In this setting, ’all rights become little more than a discretionary grant subject to executive will’. To fulfil its role as the ultimate global backstop for property rights, the US state must sacrifice, rather than preserve, personal liberty. And it is this Leviathan – rather rather than that of Hobbes, Locke, the classical liberals or even Nozick – to which Pinker’s book is dedicated as one long hosanna.

As my reference to judge Posner was intended to suggest, the theories Pinker assembles to defend his authoritarian sympathies are derived, directly or indirectly, from influential thinkers associated with the University of Chicago Law School (Posner, Ronald Coase, Cass Sunstein, etc.), and specifically with the Law and Economics movement. Yet, curiously, there is no direct trace in the book (either in the main text or bibliography) of Pinker’s having consulted that branch of the social sciences most attentive, as he is, to ‘getting the institutions right’. By this I mean the New Institutional economics, started by Coase at Chicago, and with notable contributions on the topic of property rights by Alchian and Demsetz. It is especially odd, given Pinker’s historical focus, that he does not cite a host of economic historians (Robert Fogel, Kenneth Sokoloff, Stanley Engerman, Daron Acemoglu, James Robinson, etc.) whose research, on the legal and political institutions most propitious for economic growth, is close to his topic of interest.

I suspect this is because the work of those (thoroughly Whiggish and orthodox) scholars leads too obviously to a conclusion Pinker wants to avoid at all costs: that the institution he lauds (the liberal-capitalist state that first emerged in Western Europe) eclipsed its competitors largely because of the former’s superior war-making capacity. This is the unpleasant lesson of the last 500 years: that one type of political entity (and social structure) survives at the expense of other forms of governance, and successfully proliferates, because it can mobilize and dispose of more economic resources for military and coercive use, including populations willing and able to fight for the sovereign, than its opponents can. Douglass North and Barry Weingast famously argued that the reforms initiated by the so-called Glorious Revolution (enabling the monarch to ’credibly commit’ to respecting property rights) better allowed the English Crown to tax and borrow from merchants and property holders the large sums it needed to defeat its foreign opponents in military conflict. As a result of its greater war-making prowess, institutional replicas of capitalism and the British state (and similar west European varieties) were diffused (often at gunpoint) successfully throughout the world, displacing competitors by exterminating or absorbing their populations, attracting emulators, or by exporting their own members. The institutional arrangements which Pinker lauds as bringers of peace thrive because they support the greatest war machine in history.

Reviewers such as Herbert Gintis have praised the broad scholarly scope of Pinker’s book. In truth its pages are filled with the sort of shallow and indulgent excursions that might suggest, in other circumstances, a mocking parody of Thomas Friedman, and of which the following vapidities are representative:

Social dominance is a guy thing… Dominance is an adaptation to anarchy, and it serves no purpose in a society that has undergone a civilizing process or in an international system regulated by agreements and norms… The mid- and late 20th century saw a deconstruction of the concept of dominance… Partly it has come from women’s inroads into professional life. Women have the psychological distance to see contests of dominance as boys making noise, so as they have become more influential, dominance has lost some of its aura.

And:

The appearance of Marxist ideology in particular was a historical tsunami that is breathtaking in its total human impact. It led to the dekamegamurders by Marxist regimes in the Soviet Union and China, and more circuitously, it contributed to the one committed by the Nazi regime in Germany. Hitler read Marx in 1913, and although he detested Marxist socialism, his National Socialism substituted races for classes in its ideology of a dialectical struggle toward utopia, which is why some historians consider the two ideologies “fraternal twins.”

There are many more things that could be said about Pinker’s book, most of them bad (Peter Singer loved it). That isn’t my concern here, and of course this wasn’t meant as a general review. I hoped merely to prepare the post to follow this one, by highlighting Pinker’s shameful defence (is anyone willing to suggest this wasn’t a chief goal?) of the US war machine, and his encouragement of Panglossian attitudes towards ‘modernity’. For Pinker recently has made a habit of repackaging conventional pieties (‘The positive-sum cooperation of commerce flourishes best inside a big tent presided over by a Leviathan’), congenial to the powerful and favourable to their policy objectives, into bracing or scandalous truths, kept inaccessible, embattled or ignored by prevailing opinion. (A publicity interview for the book described Pinker as an enemy of the ‘chattering classes’; Niall Ferguson is tediously promoted, in similar style, as ‘saying the sort of thing that drives liberal England mad’. Pinker’s book catches the mood of the times as expertly as did Ferguson, the Harvard historian whose Empire [2003] and Colossus [2004] sought to rehabilitate the colonial record of the British Empire, criticize the subsequent decades of self-rule, and suggest that the United States would serve everyone’s welfare by formally annexing overseas territory.)

But the promotion of violence and aggression, in the guise of taboo-busting, sometimes takes a form more agreeable to ‘progressive’ tastes. Expressions of facile Whiggishness, may – with a defter hand than Pinker has managed in his book – be elevated to the status of keen insight and daring iconoclasm. They may, as I’ll suggest in the following post, attract the support of people who identify as ‘progressive’ (Pinker’s ‘chattering classes’, spanning from the centre-left to self-described ‘radicals’).

The right stuff

In a Washington Post feature article (‘Under Obama, an emerging global apparatus for drone killing’), Greg Miller writes that ‘no president has ever relied so extensively on the secret killing of individuals to advance the nation’s security goals.’

I’ve discussed this fact before and considered what the drastic expansion of executive power reveals about the policy objectives of the US elite and its allies. There’s more to think about, though.

Use of remotely-piloted aircraft (as well as cruise missiles and manned gunships) for weapons delivery requires the presence, midway along the ‘kill chain‘ between sensor and shooter, of human operators and analysts who must watch, with sustained attention, live video feeds or surveillance imagery of death and destruction as human targets are found, tracked and exterminated with high-explosive anti-armour (blast and fragment) munitions.

In other words, Washington’s global death program entails existence of a workforce that can withstand both prolonged and acute exposure to horribly unpleasant stimuli while maintaining vigilance and task-specific focus and without experiencing the kind of negative emotional states or overwhelming affective responses that lead to performance degradation (e.g. failure to determine whether a target has been successfully ‘neutralized’ or merely incapacitated, inability to discriminate between the remains of targets and those of bystanders or non-humans, unwillingness to detect subsequent targets, etc.). One method people use ordinarily to cope with distress is avoidance: diverting attention from the source of aversion as a way to alleviate anxiety. This is impossible for the drone operator, whose job description requires him never to look away.

Wayne Chappelle and Kent McDonald at the US Air Force School of Aerospace Medicine in Ohio have undertaken studies, using surveys, tests and peer reports, into the personality traits and behavioural dispositions, as well as the cognitive and psychomotor skills, needed by successful operators of unmanned weapons-deploying aircraft and their sensors. Among other things, this has involved rating participants along the Big Five personality dimensions (openness, agreeableness, extraversion, conscientiousness and neuroticism) and comparing results to those from the civilian population and the aircrew of manned gunships. (Other recent papers can be found here, here and here).

UAV crew members unsurprisingly must possess all the usual traits: self-confidence, assertiveness, excitement-seeking, internal locus of control, a high degree of intrinsic motivation, etc. But given their specific combat role, the final attribute in the Big Five domains – emotional stability or composure in the face of induced transient stress – becomes especially important if personnel are to perform successfully and avoid burnout or impaired performance. (Predator/Reaper and AC-130 gunship operators both score lowest, relative to the general population, on neuroticism.) According to McDonald and Chappelle, those who adapted to the ‘operational environment’ displayed ‘emotional stamina’, lack of vulnerability to negative mood states, were ‘tough-minded’ and not prone to distress. They found that ’higher than average levels of  resilience to stress (or other negative emotional states), need for excitement-seeking, and compartmentalization of emotions are required to adapt to the operational demands’:

According to SOs [sensor operators], the deployment of weapons also requires well-developed skills for compartmentalizing their emotions. The rigors of training and operational demands of the RPA [remotely-piloted aircraft] platform (e.g., targeting and destruction of enemy assets, taking the lives of enemy combatants, as well as surveillance of battle damage) can be emotionally taxing. SMEs [subject-matter experts, i.e. superiors] reported the ability to compartmentalize the emotional rigors of one’s job in order to conserve emotional reserves when returning home from work or interacting with others outside the military installation can be an important trait for long term stability. It is well-known that resilience to stress and emotional difficulties (often known has psychological hardiness) is considered a core attribute of those within high risk military occupations.

Furthermore, some airmen may emotionally struggle with their role in the killing of enemy combatants. Interviews with SMEs reported a small number of incidences (i.e., four to five) of SOs voicing their discomfort with their duties and/or requesting to leave the career field after their role in the deployment of weapons. They reported such SOs performed their surveillance and reconnaissance duties well, but emotionally struggled with their role in taking the lives of others, regardless of the threat enemy combatants posed to U.S. and allied forces. SMEs reported such SOs experienced significant internal conflict with their role, and that such a conflict did not become apparent until the SO was faced with a real-life situation or fully educated about the nature of their combat-related duties. It is important to ensure that airmen selected for RPA SO duties are fully aware of, and understand, their role in the targeting and destruction of enemy combatants and assets prior to entry into training. It is likely that some SO candidates will decline the opportunity to pursue such duties once they fully understand their role in precision strike operations.

In other words, remote operators of weapons-deploying aircraft must be unusual people, many of them several standard deviations from the population mean on various personality dimensions, particularly neuroticism and its component susceptibility to sadness, regret and depressed mood. If they feel at all queasy, guilt-ridden or troubled when observing burnt and mangled corpses, they must manage to suppress such feelings and get on with the job without any noticeable decrement in performance or distraction from task engagement.

In seeking to retain incumbents and find suitable recruits to work as happy killers, Washington’s expanding assassination program thus must fish in shallow waters for rare species (certainly including sociopaths) displaying the desired personality traits. One way of achieving sufficient numbers at the extremes (i.e. tails) of a distribution is to shift the population mean for the trait in question. If the average person becomes less prone to a negative affective response upon witnessing scenes of extreme violence and destruction, then the ‘less neurotic’ types will be more stoic still, and their numbers more plentiful than otherwise. Similarly, such a population-wide shift would raise the stress threshold beyond which task demands (such as remote killing) were experienced by operators as unfamiliar, unbearable and exceeding the operator’s capacity to cope. Finally, an increase in the median voter’s ability to withstand the sights and sounds of extreme violence, without lapsing into appalled paralysis or low moods, would presumably increase public tolerance for large-scale killing, by those at the extremes, in pursuit of elite objectives.

How might this be achieved? Applicants with the desirable traits and states obviously self-select for the job. But the above quotation shows that candidate recruitment isn’t perfectly reliable. In such cases, and generally, affective response and emotional disposition can also be modified and reinforced by training. People from the University of Central Florida psychology department (Mustapha Mouloua, Peter Hancock, Eduardo Salas, Deborah Billings, James Szalma, etc.) have explored how stress-exposure or stress-resiliency training can “harden” personnel who must use UAVs in combat, so that their ability to acquire and engage targets is not overwhelmed by emotional and physiological response. The basic technique works via graduated-intensity exposure to battlefield stressors and realistic perceptual cues, including through high-fidelity simulation and games. The trainee is habituated to environmental cues that initially were aversive and debilitating, thus becoming ‘inoculated’ against combat stress.

Similarly, by exposing the general population to an unceasing barrage of (imagery of) extreme violence (e.g. by allowing it to saturate popular entertainment), one may presumably shift in a convenient direction the population distribution of relevant dispositions and attitudes, bestowing an everyday familiarity (sanitized, to be sure) and tolerability on what is pursued in secret. This, too, I’ve discussed in greater detail in another post.

Long march through the institutions

The personal history of Oakland’s Democratic mayor – a former trade-union official and student activist at UC Berkeley – makes for amusing reading, though it’s not at all surprising or unique.

In the 1960s and the 1970s Jean Quan and her future husband, Floyd Yuen, were prominent members of the Asian American Political Alliance (AAPA), formed by the Black Panther Richard Aoki. As part of the Third World Liberation Front (TWLF), this organisation used a campus strike to demand the creation of ‘Third World Colleges’. These would not just revise the existing curriculum and instruction of traditional ‘area studies’, but also give ‘each particular ethnic organization’ control over admissions and hiring patterns of departmental staff and faculty. According to Aoki:

We Asian-Americans believe that heretofore we have been relating to white standards of acceptability, and affirm the right of self-definition and self-determination. We Asian-Americans support all non-white liberation movements and believe that all minorities in order to be truly liberated must have complete control over the political, economic and social institutions within their respective communities.

Yuen described their purpose as ‘fighting racism, reasserting their race and working for self-identity’.

One spark for the campus movement (which also took in San Francisco State University from 1968) was that the ethnic makeup of college faculty, administrators and students did not reflect the Bay Area’s demographic composition. But the AAPA and TWLF were also animated by the plight of field and harvest workers, many of them Filipino Americans, producing grapes, strawberries, cotton and lettuce on California’s Central Coast. As a sophomore Quan reportedly risked losing her scholarship at Berkeley for promoting a cafeteria boycott in support of the Delano grape strike.

The AAPA also opposed the threatened eviction of poor immigrant tenants at San Francisco’s International Hotel in Manilatown. In 1968 the elderly residents, most of them retired farm workers, were told to make way for a parking lot, part of a wave of downtown redevelopment (e.g. construction of the TransAmerica Pyramid) which also removed low-cost housing in adjacent Chinatown, next to the financial district.

In response to these events, student activists in the AAPA and TWLF demanded a more ‘relevant’ education from Third World colleges focused on ‘contemporary problems of urban and rural living of Third World peoples’. In a 1969 pamphlet they issued ‘final proposals’ for the ’scope and structure’ of Ethnic Studies:

Therefore, its primary goals are to produce students having knowledge, expertise, understanding, commitment and desire to identify and present solutions to problems in their respective communities. Thus the mission of the Third World College is to focus on contemporary living and produce scholars to address the problems that accompany it.

Given the nature of the issues described above (working conditions for migrant labourers employed in ‘factories in the field’; encroachment by real-estate and financial interests into affordable housing and public space), scholarly examination of ‘problems of contemporary living’ might have been expected to involve serious attention to political economy. For example, around this time at Berkeley’s economics department, Michael Reich was exploring how racism buttressed a capitalist social order. In segmented labour markets – underpinned by race, gender, age, educational attainment and skill differentials – there were asymmetric barriers to switching between particular jobs, industries and sectors. These barriers to entry and exit allowed some workers (‘insiders’) relatively higher bargaining power (e.g. guilds required professional accreditation and created artificial skill shortages and lower turnover) and others (‘outsiders’, e.g. those engaged in manual work in the garment industry, food production, cleaning or caregiving) relatively less bargaining power with respect to employers. This (along with technical conditions) would subsequently produce a persistent dispersion of wage and salary rates, varying degrees of employee control over their own labour process (routines, effort, intensity) and working conditions, and markedly different conditions of life (from opportunities and tastes to geographic location). This social stratification of workers, in turn, narrowed the basis for collective identification, such that both the relatively privileged and the extremely oppressed could begin to see themselves as members of separate groups (e.g. ‘whites’, men, ‘Americans’), with the partition inherited from birth, rather than sharing the same universal interest as members of the non-propertied classes. As the political exclusivity of each group was maintained their aggregate bargaining power was diminished.

But the students were devotees of nationalism: so-called ‘Yellow Power.’ According to Estella Habal - a participant in the activism and now a professor of Asian American Studies at San Jose State University, alongside other movement veterans like Merle Woo - a more ‘relevant’ education was one in which they would ‘learn the true history of their ancestors’ and ‘Find our roots’. The AAPA insisted that only study of their Volksgeschichte, the ’Yellow Experience’, would teach students ‘about the “yellow-white” relationship at its social and psychological roots and manifestations.’ Thus Berkeley should create a Department of Asian Studies along with a Department of Black Studies and Department of Chicano Studies.

The protests did eventually lead to the formation of Berkeley’s Ethnic Studies Department, and of equivalent schools at universities around the US. San Francisco State created a college with four separate departments and in 2009 held a conference celebrating the 40th anniversary of its birth; Willie Brown and the actor Danny Glover (the latter an alumnus) were listed as ‘honorary hosts’ and ‘community supporters’. As the conference’s program shows, ethnic-studies courses usually offer an interdisciplinary mix of history, anthropological and cultural studies, and their key intellectual current comes from postcolonial theory. (See Vivek Chibber’s article on South Asian Studies for how ‘the erstwhile Marxist intelligentsia transmuted into various species of post-structuralist theory’, with Gramsci as their intellectual-political waystation. With scholarship taking a ‘culturalist bent’ - focused on religion, language and literature - this ‘progressive milieu…while holding on to the mantle of radical critique, has evinced not only a suspicion of class theory and the Marxist tradition, but an outright hostility to it.’) This taste for the obscurantism of postcolonial theory, as well as for (at best) Third-Worldist variants of economic theory (in which class struggle was replaced with a struggle between nations), suggested deliberate avoidance of the ‘problems of contemporary living’, rather than a deep preoccupation with them.

During the 1980s, meanwhile, Quan became a paid official with the Service Employees International Union, a full-time ‘business agent’ in charge of handling contract negotiations and grievances. She later joined the Oakland school board and was appointed by President Clinton to a federal committee overseeing the Improving America’s Schools Act, the first statute to provide federal funds for the establishment and promotion of charter schools. She chaired the Council of Urban Boards of Education. She was the first woman and the first Asian American in several of these positions, a fact much advertised by supporters when she launched a career in municipal electoral politics.

Such a profile is common among Democrats in municipal and state politics. (Quan’s counterpart in San Francisco, Edwin M. Lee, also attended Berkeley and took part in the International Hotel campaign; Willie Brown was unmissably the first African American mayor of San Francisco; in LA Antonio Villaraigosa also used to be a union official. On the federal level, and especially since the birth of the DLC, the ranks of Democrat representatives are usually drawn from more elite and trustworthy layers: former corporate lawyers and political staffers.) It is necessary to emphasise the personal characteristics of such candidates in order to maintain the Democrats’ ‘progressive’ sheen among self-identified liberal voters, to keep up the supply of letterboxing foot soldiers and union dues for their electoral campaigns, and above all to prevent the emergence of social unity between wage- and salary-earners outside the grip of the party and union machine.

Since the 1970s the remoteness of union and party bureaucrats from the interests of working people and their social allies has become increasingly clearer. With the re-entry of China and other large countries to the world market, and the removal of cross-border capital controls during the 1980s, globally labour has become relatively plentiful and capital relatively scarce, increasing the latter’s bargaining power (with managers and owners threatening to close local plants and move production offshore). Trade-union leaders in the US have played a part in consolidating this new balance of forces. They have agreed to sacrifice wages and conditions in return for retaining their own status and privileges, and in demogogic fashion have attributed to foreign workers the four-decade-long failure of  US capitalism to improve their material living standards of those outside the top income decile. (The AFL-CIO opposed China’s entry to the World Trade Organization, and has consistently promoted xenophobia and nationalism among its members, while relentlessly urging support for the congressional and presidential campaigns of the Democrats, the party of NAFTA).

In such circumstances, it has been necessary to link Democrat candidates to some ‘identity’ project, based around a particularist pursuit of concessions, favours and privileges for this or that gender, ethnicity, etc. The prospect of ascending to membership of a newly-diverse ruling elite (by securing a position in public administration or entering the class of propertyholders), or of joining the professional or managerial middle stratum, is dangled alluringly before the ‘talented tenth’ of various minority groups. This is enough to secure their allegiance. To the rest it is advertised that social advancement for the lucky few will redound to the benefit of the group as a whole; leaders who share their demographic characteristics will, once in power, be sympathetic to the plight of their fellows and faithfully overturn entrenched inequality and structural oppression, rather than pursue elite objectives or personal enrichment. This tends to disrupt solidarity within the working population and to encourage allegiances across class lines. It prompts people to align with their ‘race’ or nation as the primary object of collective identification, and confuses them about who benefits from racism. During the twentieth century, the workers’ movement learnt (or at least was taught) to beware political alliances with union bureaucrats and party officials, for they led to the betrayals of Stalinist repression and social-democratic reformism. But today it is the promoters and practitioners of identity politics and nationalism who constitute the chief obstacle.

In repressing Occupy Oakland, therefore, Jean Quan was not ‘betraying her past‘, as some have claimed. Insofar as the AAPA and TWLF promoted nationalist solutions to social problems, and argued for the separate sectional interests and political agenda of ‘Third World’ people, its members were then, as Quan and the Democrats are today, the enemies of a broad political mobilization in support of universal popular interests, a common set of aims and values across sectional boundaries.

Division of the working population, to impede the forming of coalitions, is a ruling-class bargaining strategy that follows almost inevitably from worker task specialization itself, i.e. the division of labour by which a society allocates its total labour resources or available person-hours (homogeneous and undifferentiated when viewed over a long-enough time scale or high-enough level of abstraction) between different concrete activities. Over the course of their early life, individual actors are distinguished by training, family means, background, education and proclivities, and (assuming they must earn income by hiring out their capacity to work) are channelled into specialized occupational roles, with corresponding variance in material rewards, in order to meet the reproductive needs of the economic system. But this division, reinforced with varying degrees of rigidity by cultural/ideological faultlines and institutional barriers, also has the desirable (from an elite perspective) side effect of encouraging workers to suppose there is ‘scarce any resemblance’ between that ‘very different genius which appears to distinguish men of different professions’ (Adam Smith). This notion is still more prevalent wherever labour markets are segmented, such that ‘good’ jobs (high-salary, long-tenure, low-risk, etc.) and ‘bad’ ones (low-wage, high-turnover, messy, unsafe, dirty, etc.) are separated by lateral mobility barriers. In the United States, African Americans, women and Latinos are disproportionately found in the least-skilled and worst-paid sections of the workforce. Collective political projects based around these particular demographic groups have accordingly had progressive worth to the extent that they aim to end segregation and unify the working population and its dependents on a wider basis than before. For this reason, it is recognised that socialists must support direct anti-racist campaigns and specific social measures to eliminate structural inequalities based on e.g. race, such as when some subset of the population is deprived of civil rights and involuntarily denied entry into various jobs and professions.

But this political necessity does not extend to nationalism or to any narrow particularism that seeks to win privileges for an oppressed group, and aims to uphold the latter’s political exclusivity, i.e. that tries to reinforce rather than abolish those categories that give rise to oppression, exploitation, victimization and exclusion.

It’s a small world

Since the Depression-era efforts of Robert Gibrat, much research has been done into the distribution of firm size in capitalist economies. Josef Steindl’s postwar work on industrial concentration, firm growth and oligopoly, influenced as it was by the Polish Marxist Kalecki, was largely ignored by the economics mainstream. Herbert Simon produced a book on the topic during the 1970s, and it’s from that, and the recent trend for detecting power-law distributions in city sizes, etc. that most recent contributions (many of them by physicists and other non-economists, and published in Physica A) spring.

By all accounts, whether based on empirical observation or the behaviour hypothesized in models and simulations, the firm-size distribution conforms to a similar basic shape – skewed to the right (i.e. the mean size of firms is higher than the median), linear or slightly concave when plotted on a log-log scale, etc. Real-world results also show that the probability mass in the top end (the very largest businesses) is fatter, and that of intermediate-sized firms more slender, than would be expected from a log-normal distribution (Gibrat’s conjectured shape). These results are independent of the chosen metric of size: it holds whether firms are ranked by revenue, asset holdings or number of employees. This leads to a large number of small enterprises and a tiny number of huge companies.

Earlier this week New Scientist and other outlets described another paper, on a related topic and using an even trendier tool – graph theory or network analysis – to look at the direct and indirect ownership of equity between transnational corporations (TNCs). The firms making up the global capitalist economy are analysed as a structured population on a graph depicting ownership networks (a given firm being linked directly to its subsidiaries on the one hand and its shareholders on the other). The authors explore the number of connections which each firm (a vertex on the graph) has to its neighbours (other adjacent nodes) and the strength of these connections or edges, measured by the weight of shareholdings and the level of control they bestow (based on e.g. the operating revenue of the company). The relative ‘centrality’ of various companies is then compared by seeing how many vertices are directly reachable from each one and seeing for how many other vertices a given vertex lies indirectly on the shortest path via a chain of links.

The results are very interesting, though scarcely surprising:

The number of outgoing links of a node corresponds to the number of firms in which a shareholder owns shares. It is a rough measure of the portfolio diversification. The in-degree corresponds to the number of shareholders owning shares in a given firm. It can be thought of as a proxy for control fragmentation. In the TNC network, the out-degree can be approximated by a power law distribution with the exponent -2.15. The majority of the economic actors points to few others resulting in a low out-degree. At the same time, there are a few nodes with a very high out-degree (the maximum number of companies owned by a single economic actor exceeds 5000 for some financial companies).

A hub or cluster made up mostly of banks and financial institutions forms its own central sub-network or ‘clique.’ Thanks to cross-ownership of shares almost all the nodes in this core are reachable from all the other nodes, i.e. each pair of vertices is connected by an edge running in each direction:

The interest of this ranking is not that it exposes unsuspected powerful players. Instead, it shows that many of the top actors belong to the core. This means that they do not carry out their business in isolation but, on the contrary, they are tied together in an extremely entangled web of control.

As with the observed distribution of firm sizes and the observed distribution of income flows and wealth stocks between individuals, there is reason to think that this pattern is not alterable, in any meaningful sense, by regulatory reform (e.g. anti-trust law). Together all these arise as structural features of advanced market economies: with maturity, said Steindl, comes stagnation and centralization. Over time the increasing magnitude of fixed capital (buildings and equipment) required by production units sets a ceiling to the rate of firm entry;  it also brings economies of scale and reliance on external borrowing to fund new investment; but exponential growth of the capital stock alongside a stabilising workforce brings a declining rate of return on investment. This in turn leads to an excess of savings flowing into the capital market relative to the amount withdrawn through equity issuance by industrial and commercial firms. Thanks to this, and over time, we would expect to see emerge, at the head of the social order, a small population of large rentiers (banks, pension and mutual funds, private equity and life insurance companies), a large number of small- and medium-sized firms with liquidity problems, etc.

A clap of thunder in the summer sky

Precipitous collapse of the nineteenth-century peace, and of the first era of haute finance, into a mess of squabbling empires and aggressive militarism, as described by Karl Polanyi:

The breakdown of the international gold standard was the invisible link between the disintegration of world economy since the turn of the century and the transformation of a whole civilization in the thirties. Unless the vital importance of this factor is realized, it is not possible to see rightly either the mechanism which railroaded Europe to its doom, or the circumstances which accounted for the astounding fact that the forms and contents of a civilization should rest on so precarious foundations.

The true nature of the international system under which we were living was not realized until it failed. Hardly anyone understood the political function of the international monetary system; the awful suddenness of the transformation thus took the world completely by surprise. And yet the gold standard was the only remaining pillar of the traditional world economy; when it broke, the effect was bound to be instantaneous. To liberal economists the gold standard was a purely economic institution; they refused even to consider it as a part of a social mechanism. Thus it happened that the democratic countries were the last to realize the true nature of the catastrophe and the slowest to counter its effects. Not even when the cataclysm was already upon them did their leaders see that behind the collapse of the international system there stood a long development within the most advanced countries which made that system anachronistic; in other words, the failure of market economy itself still escaped them.

The transformation came on even more abruptly than is usually realized… The conflict of 1914-18 merely precipitated and immeasurably aggravated a crisis that it did not create. But the roots of the dilemma could not be discerned at the time… For suddenly neither the economic nor the political system of the world would function… In reality, the postwar obstacles to peace and stability derived from the same sources from which the Great War itself had sprung. The dissolution of the system of world economy which had been in progress since 1900 was responsible for the political tension that exploded in 1914… The only viable solution of the burning problem of peace… [was] completely out of reach; so much so that the true aim of the most constructive statesmen of the twenties was not even understood by the public, which continued to exist in an almost indescribable state of confusion.

What appeared a sudden and violent collapse had been coming for some time. The booming third quarter of the nineteenth century, with a wave of technical innovations from the 1850s (e.g. the ‘American system’ of production engineering using interchangeable parts, and invention of the Bessemer process allowing cheap production of steel), led swiftly into a crisis of profitability. The Long Depression of the 1870s was followed by a belle époque during the late Victorian and Edwardian eras. In Britain this age of finance saw the former ‘workshop of the world’ submit to the supremacy of the City of London. Britain’s Bank Charter Act of 1844 had constrained the growth of state money and circulating notes, limiting inflation and thus favouring the creditor interest in that country. A generalised switch to the gold standard in the 1870s allowed the integration of the financial systems of Britain, western Europe, the United States and their respective empires.

The industrial capitalist class, which hitherto prided itself on sobriety and delayed gratification, now mimicked the extravagant habits funded by current expenditure of the old landed aristocracy. The appreciation of financial assets during this boom corresponded to a change in the real economy, as a smaller portion of profit was materialized in new equipment, plant and machinery. Instead it was stored as money capital, and labour re-deployed towards construction, restoration and furnishing of stately homes in the countryside, on domestic servants and other luxury consumption, and from the 1890s on armaments as Britain, Germany and France, the industrial powers of Europe, contended for control of African colonies. These territories, seized or merely dominated, served as suppliers of cheap raw materials, keeping wage costs down. They also were outlets for the excess liquidity of rentiers. When the music stopped in 1914, the rival empires faced each other armed to the teeth.

Earlier this year Harvard University Press published a new book by Michael S. Neiberg on the outbreak of the Great War. Dance of the Furies claims that the populations of belligerent Powers, as opposed to their leaders and the power elite, never saw it coming. When troops were mobilized and war was declared (even in the parliamentary states, Neiberg shows, the critical decisions were made by fewer than a dozen men), it came as ’a clap of thunder in the summer sky’. Most people were innocent of their state leadership’s longstanding territorial and economic ambitions. Nor were they swayed necessarily by nationalist bloodlust (an eventual result rather than a pre-existing cause of war, he avers). Rather ‘the people of Europe accepted the necessity of war primarily because they believed their wars to be defensive’ and themselves subject to existential threat:

The “militarism run stark mad” that the American Presidential advisor Edward House saw on his visit to Europe in 1914 was limited to the governing elites… The overwhelming response of the people of Europe was not enthusiasm or joy but sadness and resignation.

The German government, latterly under the liberal Chancellor Bethmann-Hollweg, was scheming to dominate a Mitteleuropa through creation of a continental customs union, seizure of the Belgian coastline, annexation of the ore-rich Longwy-Briey territory, expansion eastwards into the Russian Empire, political-military subordination of France, Italy, Scandinavia and the Netherlands, and creation of a colonial Mittelafrika between the Atlantic and Indian oceans by taking over Portugal, Belgium and France’s African possessions. As much was revealed by Germany’s war aims as stated in the Septemberprogramm.

These expansionist ambitions were more than two decades old. Diplomatic secrecy and an obliging media helped to shield them from popular scrutiny, but were the people of 1914 really so ostrich-like, such that general war between the Powers appeared to arrive with ‘truly dizzying speed’, and so that their own country, alone, seemed engaged in a battle for existential survival? Neiberg has assembled enough letters and diaries to suggest as much.

Imagine that some nosy historian will, one hundred years from now, pore similarly over the private communications of today’s intelligentsia: the liberal professions (civil servants, lawyers, doctors, architects, etc.), academics, journalists and artists. Will this examination reveal minds any more perspicacious? Or is this social layer, like its forebears, so attached to its own epoch that its members delude themselves about the fundamental nature, and likely fate, of the present order?

The organisation of work and property ownership in India

Here’s an interesting article from Deepankar Basu and Amit Basole of the economics department at UMass Amherst. At times it is a little confused (among other things, Basole is plainly influenced by Lohia’s thinking on industrialisation, and Basu not). Past and current debates about Maoism are never far away. But it tends to let facts speak for themselves, not getting bogged down in the usual pro- or anti-Naxalite boilerplate. Thus it contains a great deal of information about the nature of property holding and unpaid surplus labour in India’s agrarian and urban ‘informal’ sectors. These are what reveal ‘the innermost secret, the hidden basis of the entire social structure and with it the political form of the relation of sovereignty and dependence, in short, the corresponding specific form of the state’:

One of the striking features of contemporary Indian capitalism is the predominance, both in agriculture and in industry, of small-scale production. In 2003, 70 percent of all operational holdings in Indian agriculture were less than 2.5 acres in size, with another 16 percent between 2.5 and 5 acres; around half of the produce from these small holdings is kept for family consumption while the other half is sold in the market. Similarly, informal manufacturing is dominated by petty proprietorships, which typically has an owner-employer and an unpaid worker (usually a family member); a large number of such firms neither employ wage labour nor are part of a putting-out system. Thus, while production for subsistence and for sale on small, unviable plots is a key characteristic of the agrarian scene, petty commodity production (or simple commodity production) marked by low productivity and income seems to be a pronounced feature of the non-farm economy. The vast majority of the Indian poor shuttle between these two.

Quotas and sandal queens

Amusing revelations, from a leaked US State Department cable, about the fruits of those measures supposed to ‘uplift’ India’s Dalits, other scheduled castes, women, ‘backward’ tribes and minorities such as Sikhs and Muslims. These measures include the ‘reservation’ system, which allots quotas for parliamentary representation, education and civil-service positions. The cable thus says much, even if  not directly, about many political currents - such as those derived from the social-democratic thought of B.R. Ambedkar and Rammanohar Lohia – which see advancing the oppressed through quotas, and the ’politics of presence’, as the immediate desideratum of political activity.

India’s reservation system is a legacy of reforms made during the latter decades of British colonialism. Successive viceroys and colonial secretaries used divide-and-rule strategy in the guise of assisting ’depressed’ layers of society, and of protecting minorities from majority tyranny. The Indian Councils Act 1909 reserved seats for Muslims in the Imperial Legislative Council. Growth of the All-India Muslim League, a circle of intellectuals which later agitated for partition of the Two Nations, dates from this period. In 1932 Labour Prime Minister Ramsay MacDonald responded to Ambedkar’s statement of claims at the Round Table Conferences with the Communal Award, which reserved separate electorates for Muslims, Sikhs and Dalits. This led to the famous dispute between Ambedkar and Gandhi, in which Gandhi, to protest dilution of the Hindu vote, begun a fast unto death, only averted by the Poona Pact. Subsequently Ambedkar helped to draft India’s federal constitution and reservation was incorporated as a foundation of Indian political life.

According to the 2001 census, Scheduled Castes and Tribes make up around 24 percent of India’s population.  Especially in the states of South West India and Uttar Pradesh, they form a pool of servile manual labourers in the agricultural sector, bonded workers at stone and slate quarries, open mines and brick kilns, and as handloom weavers, fishermen and potters. There is little incentive for employers to mechanise these tasks so long as labour is cheap and plentiful. Dalit workers thus split rocks with hammers and chisels rather than with loaders and excavators made by Caterpillar or Komatsu.

This servile layer is demarcated, and the system of hereditary occupations enforced, by pollution taboos, endogamy, violence and terror, and ‘the dogma of predestination’. The latter, of course, denies a key bourgeois right: the individual’s ability to determine his or her own life course. In Annihilation of Caste, Ambedkar identified the economic imperative behind the emergence of this fundamental Enlightenment tenet, enshrined by Jefferson in the US Declaration of Independence:

Social and individual efficiency requires us to develop the capacity of an individual to the point of competency to choose and to make his own career. This principle is violated in the caste system in so far as it involves an attempt to appoint tasks to individuals in advance - selected not on the basis of trained original capacities, but on that of the social status of the parents.

The repudiation of equality as a ‘natural right’ thus also denied the principle advanced by Adam Smith in his parable of the philosopher and the street porter:

The difference of natural talents in different men is, in reality, much less than we are aware of; and the very different genius which appears to distinguish men of different professions, when grown up to maturity, is not upon many occasions so much the cause as the effect of the division of labour. The difference between the most dissimilar characters, between a philosopher and a common street porter, for example, seems to arise not so much from nature as from habit, custom, and education. When they came into the world, and for the first six or eight years of their existence, they were perhaps very much alike, and neither their parents nor playfellows could perceive any remarkable difference. About that age, or soon after, they come to be employed in very different occupations. The difference of talents comes then to be taken notice of, and widens by degrees, till at last the vanity of the philosopher is willing to acknowledge scarce any resemblance.

Smith’s contention, and that of the Classical political economy he founded, was that people were equal and adaptable. They were trainable or educable for any specialised task or branch of activity that their social superiors could do. Thus, in the long run, each human was a full substitute  for the labouring capacity of any other. Labour for this reason constituted a universal and homogeneous (roughly equivalent) input, distributable to any task, industry or line of production. In commercial society, saw Smith and later Ambedkar, private firms – driven by competition to technical innovation – need to re-allocate labour resources between various concrete tasks and branches of production. This requires horizontal mobility within the labour market. But this shuffling of people between employment, says Ambedkar, is forbidden under the caste system:

Looked at from another point of view, this stratification of occupations which is the result of the Caste System is positively pernicious. Industry is never static. It undergoes rapid and abrupt changes. With such changes an individual must be free to change his occupation. Without such freedom to adjust himself to changing circumstances it would be impossible for him to gain his livelihood. Now the Caste System will not allow Hindus to take to occupations where they are wanted, if they do not belong to them by heredity… By not permitting readjustment of occupations, Caste becomes a direct cause of much of the unemployment we see in this country.

Given this structural degradation, and the ideology that upheld it, Ambedkar further observed that, under a standard parliamentary-electoral system, various depressed minorities would fare badly. The composition of parliaments would see Dalits, and others, systematically underrepresented. In 1947 Ambedkar thus submitted his ideal constitution for a decolonised India, on behalf of the All-India Scheduled Castes Federation, in “States and Minorities”. His plan for the nationalisation of agriculture and other basic industries was rejected. (The only sectors reserved for the state were those that, due to the large fixed-capital outlays required, private firms had no interest in: infrastructure, railways, defence, utilities and nuclear energy.) But ‘safeguards for the Scheduled Castes’ – special representation and affirmative action - designed to ‘uplift’ the Dalits and other ‘depressed’ groups, were included.

What has become of this project today? Like in every other parliamentary system, the composition of India’s federal and state elected assemblies do not reflect the underlying demographic characteristics of the population from which they are selected. The sitting MPs are unrepresentative of those they purport to represent, whichever attribute one chooses to look at: caste, wealth, gender, age, education, previous employment, ethnicity, etc. Ambedkar’s principle of ‘reservation’ would appear purpose-built to address this problem. Thus, thirty years ago, the Indian state elite, following the Mandal Commission, re-affirmed its commitment to affirmative action for scheduled castes and tribes, and extended it to Other Backward Castes (OBCs).

Yet, at the same time, during the late 1980s, the governments of Rajiv Gandhi and V.P. Singh legitimised and cultivated the growth of a noxious communalist movement, the Sangh Parivar (and its chief party wing, the BJP), which appealed to popular grievances and resentment of the preferential benefits enjoyed by minorities, the absence of a Uniform Civil Code, and Muslim ‘personal law’. The Congress leader’s demagogic appeal to Hindu nationalism in the run-up to the 1989 election led to the Bhagalpur pogroms in which 1000 Muslims were killed; the ‘pale Saffron’ premiership of Narasimha Rao presided over the similarly bloody riots of 1992, following the demolition of the Ayodhya mosque. All the while the BJP and its Hindutva project rose to national prominence, and from 1998 took the reins of federal power, staging the Gujarat pogrom of 2002 for a grotesque encore.

Myron Weiner, the late MIT political scientist and no Marxist, explains that India’s reservation measures, by tying personal advancement to the fate of a particular caste or similar group, narrow the basis for social solidarity. By thus coralling the potential constituency of any mass mobilization within communal, caste, regional or linguistic borders, the control of ruling elites over a divided populace is strengthened. Reservation ’created an incentive for political mobilization along the lines of caste, religion and language’. It provides an institutional basis (in schools, lobby organisations, employee federations and political parties) for appeals to caste and religious solidarity, its preferential benefits inducing individuals to identify with their caste or other narrow demographic category as the means to personal betterment. This creates a perceived split in interests between individuals within the employed population and related (i.e. non-propertied) classes. This in turn allows the business elites and political class to mobilise the working poor to further the former’s own interests (either personal enrichment or some broader class project). There exist many fracture planes at which to work away. Salary and wage earners, peasant smallholders, and impoverished urbanites in the ‘informal sector’ make up the vast majority of the population, but they are divided between Brahmins and Dalits, men and women, Hindus and Muslims, etc.:

Indian politics became the arena within which group identities were sharpened, and individuals sought material benefits through group membership. Factions and parties were often based upon these identities, and leaders vied with one another by appealing to these “fissiparious” tendencies.…

The middle classes within the lower castes promoted their own interests and for the rest there was little more than the psychological benefit promised by the Mandal Commission…

[With] the exception of Kerala, the efforts of states to provide material benefits for the Dalits remain marginal; more to the point Dalit politicians and bureaucrats and Dalit associations and political parties have had little impact on public policies.

The OBCs are better placed than the scheduled castes and tribes in the central and state bureaucracies and in political positions where they can have a major influence on policies and their implementation. Moreover, it has become a widespread practice for newly appointed OBC cabinet members in state government to transfers members of their own castes to senior positions within their own departments and ministries… Nonetheless, there is no evidence that either in Uttar Pradesh or Bihar the lower-income members of the backwards castes have materially benefited from the rising political power of their community.

One explanation is that caste leaders of the OBCs do get what they want. Though most members of the backward castes are agricultural labourers, tenants and small landholders, OBC leaders are drawn heavily from among the better-off owner-cultivators… Their leaders seek reservations for their sons to the universities and for employment in the bureaucracy. The material benefits of OBC mobilization in Uttar Pradesh are landowning Yadavs, Kurmis and Koeris whose interests diverge from those of the agricultural labourers from these communities. By emphasising caste solidarity the richer peasants among the OBCs mobilise the poor sections of their castes to further their own caste interests.

Reservation in education and employment… permitted government to pay little attention to primary- and secondary-school education. Because limited financial resources were spent on mass education, the pool of qualified untouchables and tribals who could have entered the universities and obtained employment as a result on an equal basis remained small. The creation of a two-tiered education system – one that is private, but government-funded, with education in English, largely serving the higher castes,  and the other that is entirely government-funded with education in vernacular languages servicing the lower castes – is now so well established that socially mobile members of the lower castes aspire to get into the private system. OBCs and Dalits who can afford it (including OBC politicians and bureaucrats) send their children to private, English-medium schools…

The primary-education system throughout much of northern India serves the Dalits badly, and the rise to power in UP of the Bahujan Samaj Party (BSP), a Dalit-based political party, has thus far done little to raise expenditures on primary schools or to improve their quality… Changes in the caste composition of state governments has not led to increases in public investment in primary education.

Paradoxically, as caste has become somewhat less important in determining individual life chances, caste has become more salient as a political identity, and as an institutionalised element of civil society… Caste is institutionalised politically through reservations for scheduled castes and tribes in elected bodies and for all backward castes in government employment and in admissions to educational institutions. The tendency in India is towards institutional structures  based upon caste that are not open and which therefore nurture distrust and conflict between castes… The competition between the castes has become palpable as the political leaders of each caste take note of who is getting jobs and public offices.

In the urban areas, the struggle will be between the middle classes of the OBCs and scheduled castes on the one hand, and the middle and upper castes on the other over reservations and their extension. The middle classes among the forward castes will resist reservations, for they increasingly view reservations as an affront to the moral order they seek to create, one based on equality of opportunity not equality of outcome; and they will be resentful at he demand for jobs from middle-class members of the lower castes (the “creamy layers”) who want benefits for their children. Each of these middle classes, one drawn from the forward castes, the other from the backward castes, will assert its claims by moral appeals, the one to the principle of merit and equality of opportunity, the other to a history of centuries of victimization and a demand for equality of outcome…

[The] material benefits to the lower castes have largely gone to their more advanced members, such that some castes (Yadavs, for example) have benefited substantially, others hardly at all, and that there are growing class divisions within each of the lower castes as the more successful individuals obtain positions in government while others receive few if any benefits. Those who wield political power among the lower castes have tended to use their positions for self-benefit and to provide symbolic benefits for those who have been left behind. One does not see state government controlled by OBCs and Dalits devote new resources to expand mass education so as to provide  greater opportunities for mobility to the poor, or to commit substantial resources for drinkable water, health services and sanitation… The system of reservations simply provides a window within which a small section of the lower castes can enter into the middle class…

A similar description has been made by Berkeley economist Pranab Bardhan:

[The] issue of group dignity comes up in the case of reservation of public sector jobs for backward groups which, as we have said before, fervently catches the public imagination of such groups, even though objectively the overwhelming majority of the people in these groups have no chance of ever landing those jobs, as they and their children largely drop out of school by the fifth grade. Even when these public job quotas mainly help the tiny elite in backward groups, as a symbol and a possible object of aspiration for their children, they ostensibly serve a valuable function in attempts at group upliftment, even though it is a divisive and inefficient way of achieving that objective.

Particularly in North India there seems to be a preoccupation with symbolic victories among the emerging lower-caste political groups; …these groups seem less concerned about changing the economic-structural constraints under which most people in their community live and toil…  So new political victories of lower castes in North India get celebrated in the form of defiant symbols of social redemption and recognition aimed at solidifying their as yet tentative victories, rather than in committed attempts at changing the economic structure of deprivation.

Most recently, India’s Women’s Reservation Bill is designed to extend, to state legislatures and to the Lok Sabha in New Delhi, the 33 percent of seats currently reserved for women in municipal representative bodies. Despite long being mooted, thus far it has not secured passage. Its main proponents are the Congress and the BJP, with its opponents to be found in the self-styled ‘social justice parties’. The latter are the chief inheritors of Ambedkar and Lohia’s thought, and beneficiaries of the reservation system, and find their electoral base among Muslims, Dalits and the Other Backward Classes. Their MPs have demanded a ‘quota within a quota’ to prevent seats for women accruing to wealthy and privileged urbanites from the forward castes, rather than to representatives of rural ‘minorities’: otherwise the bill ’would perpetuate the dominance of a few political families.’

Obviously enough, the Nehrus-Gandhis, et al., and the mainstream parties, do want to splinter the voting base of the smaller parties. Each party, under the reservation system, tries to secure more privileges (and electoral weight) for that segment of the population with the demographic characteristics of its particular candidates (and voting base). But the ‘quota within the quota’ argument makes clear that no electoral system can readily secure an elected assembly whose composition is representative, in demographic terms, of its underlying population. If a quota for women will benefit merely a female elite, a quota for Scheduled Castes similarly elects only privileged Dalits.

If the aim truly were to select a representative body of political decisionmakers, this could simply be done by sortition: taking a random sample of the population as with jury selection. Or, through referendum, the population as a whole could assume responsibility for major political decisions; by definition, each group would find its views represented in proportion to its relative demographic weight. Yet there is no prospect of either option being taken up as a cause or project by the professional political stratum.

The reality is that the Indian state will remain the plaything of remote elites - from whatever caste or religion - hostile and unhelpful to Dalits and other ‘depressed’ layers, and willing to whip up communal hatred, so long as (1) people who administer the state hold a position that gives them opportunities to wealth, power, plum posts and perquisites through its capacity to levy taxes; (2) the scope of state activity is dependent on its fiscal instruments, i.e. tax revenues from incomes (salaries, profits, rents) in the capitalist sector, and credits (purchase of bonds by rentiers), in order to function; (3) this dependency forces state managers (politicians and bureaucrats) to be concerned about maintaining the levels of economic activity, regardless of their other goals (whether these be Hindutva, delivery of public services, improving welfare and sanitation, uplift of some minority group, or pursuit of aggressive militarism); (4) economic activity is largely dependent on the level of private investment; (5) private firms make investment and rentiers provide loans based on their confidence and the perceived prospects for profitable returns in the current and near-future environment; (6) India’s domestic production of textile garments, granite benchtops, etc. is most profitably undertaken using labour-intensive techniques and a cheap, plentiful, semi-servile, debt-bonded and terrorised workforce, marked out as inferior and denied horizontal mobility within the labour market. Together these factors discipline state managers to formulate and implement policies that favour the continued stable functioning of the capitalist sector, maintenance of the caste system, and reproduction of the existing social order.

The reservation system thus provides no remedy for India’s scheduled castes and tribes. Those elected, from within their ranks, as ’the best’ of them (the aristoi), increase the diversity of society’s upper layers, and do little more. Having taken their place at the High Table, they swiftly acquire the usual appetite. This can be seen from the record of Dalit ‘representatives’ in office.

BAMCEF is an organisation which advertises itself as deriving ‘inspiration from the life and mission’ of Ambedkar and ‘Ambedkarite’ ideology. BAMCEF material states that there must be ’clear identification and distinction between the ruling castes who are beneficiaries and Backward castes who are worst victims of the existing social system and we should channelise our energy to organise the victims of the system under the banner of BAMCEF. Arya-Brahmins are clever and cunning people…’

In 1984 Kanshi Ram, leader of BAMCEF, founded the Bahujan Samaj [Majority People’s] Party. The party describes its chief aim as ‘providing a level playing field to the downtrodden to help move forward in their lives with “self-respect” and at par with the upper castes Hindus’. It advances no programme and describes no methods for achieving the aims of legal equality for Dalits, other than to ‘capture the Master Key of political power, which opens all the avenues for social and economic development’. All economic and social goals are subordinated to this immediate task. The party’s platform thus consists entirely of advice to elect BSP candidates to office. BSP’s leadership was later bequeathed by Kanshi Ram to Mayawati. Mayawati has since become chief minister of Uttar Pradesh. She has been described from within the BSP as ‘the Obama of India.’

In the US diplomatic cable, Mayawati is described as a ‘virtual paranoid dictator’ and ‘first-rate egomaniac’, ‘obsessed with becoming Prime Minister’, positioning herself as a ‘powerbroker and perhaps even a king (or queen) maker.’ She has a ‘penchant for personal corruption and a strong authoritarian streak’, with a ‘security entourage to rival a head of state’, and ‘constructed a private road from her residence to her office, which is cleaned immediately after her multiple vehicle convoy reaches its destination.’ She has ‘centralized corruption in her own hands’, demanding ‘competitive fealty payments’ from rival criminal gangs, receiving ‘payoffs and kickbacks from almost every interaction’ of business with the UP government, taps the phones of journalists and civil servants, and forced one insubordinate journalist to do sit ups in front of her. ‘When she needed new sandals, her private jet flew empty to Mumbai to retrieve her preferred brand.’

The State Department envoy continues: ‘Dalits will remain with Mayawati regardless of poor governance, simply because the fact that one of their own is Chief Minister provides them heretofore unimaginable pride.’ The cable concludes that ‘caste remains the DNA of UP politics, and no one has demonstrated more ability at playing caste politics than Mayawati.’

This venality may be explained away as the behaviour of an idiosyncratic personality, or as the result of local conditions. But it also says something about electoralism, quotas and affirmative action, which in all present-day circumstances and settings  (i.e. where the state provides a stable juridical framework and policy climate for the capitalist sector, and public administration depends on extracting a portion of the social product as tax) produce an aristocracy of the oppressed, who in the name of identity politics style themselves as the representatives of ‘their people’, and thereby attract a faithful constituency for  their own narrow pursuit of privileges and income, and for broader elite projects.

Capital-market inflation (and financial instability) in pictures

The RBA and APRA maintain the line that Australian banks and other financial institutions are not vulnerable - as US and European banks were revealed to be, in spectacular fashion, during recent years - to insolvency when asset prices fall and creditors refuse to refinance loans. But a quick look at the balance sheets and lending data of Australian banks, pension and insurance funds shows that the local financial sector has shared in the same multi-decade trends that issued in the so-called North Atlantic financial crisis.

Of course these are the same trends which have led to the inflation of financial assets, enriching fund managers, investment bankers and others whose primary income comes from financial activities, tying union bureaucrats to this layer through subcontracting the administration of pension funds, replacing state provision as the primary source of retirement income (especially for an upper-salaried layer), serving as collateral for borrowing by this same layer, and re-directing firms away from commercial and industrial activities and towards balance-sheet restructuring as their chief source of profits.

First the banks. Here is the most low-risk liquid asset, the monetary base or high-powered money (central-bank reserves, or ‘exchange-settlement funds’, plus notes and coins) as a proportion of total Australian bank assets:

Another low-risk asset, Commonwealth government securities, as a proportion of total bank assets:

Now to a riskier, relatively illiquid asset, cash flows from which depend on repayment by less creditworthy borrowers. Here are household loans for residential property as a proportion of total bank assets:

Banks and other deposit-taking institutions seek to maintain solvency margins in the form of low-risk liquid assets that can be used to meet liabilities (e.g. withdrawals) when they fall due. Here is the ratio of liabilities to primary assets (high-powered money, the exchange-settlement funds shown in the first chart). This ratio (the inverse of the reserve ratio) is more important for maintaining liquidity, if not bank solvency, than the capital-adequacy requirements set out in the various Basel accords. The probability of default (or of leaning on the central bank’s capacity as lender of last resort) rises with the ratio of bank liabilities to state money:

Bank fragility of this sort, leading to periodic financial crises, is an inherent feature of capitalist development. Economic growth means expanding the circulation of commodities, and thus a growing number of transactions that need to be settled (as well as investment that needs to be financed). Increasing turnover is financed by exponential growth in bank-created credit money (endogenous money). And, because ‘loans create deposits’, by the recirculation of funds this greater mass of loans leads to a growing burden of bank liabilities and inter-firm debt. Over time the ratio of commercial debt to state money will rise. The assets that form the collateral for borrowing will be of successively lower quality (riskier, more illiquid). For a time these can be squirreled away in off-balance sheet special-purpose vehicles. But it gradually will become clear (due to falling prices in some asset class, or rising default rates) to financial institutions that the consolidated balance sheets of other big institutions are similarly impaired to their own. Eventually the interest rates at which banks can borrow on the wholesale interbank market will rise, or creditors will refuse to roll over short-term debt. This leads to a credit crunch, and to demands on the state for emergency liquidity through the discount window, or through bailouts, of the sort that emerged in 2007. Such liquidity problems are at bottom solvency problems.

Yet massive debt is sustainable, for a period, so long as asset prices keep rising. Loans can be refinanced against the expectation that realised capital gains will produce cash flows allowing repayment of debts. To understand why financial assets appreciated so spectacularly for twenty years from the mid-1980s, we need only observe the inflow of money to the financial sector set off by compulsory subscription to pension funds, which channelled worker savings into the stockmarket, and by the growth in insurance-fund premiums.

Total assets of superannuation funds:

Total assets of insurance funds:

When financial assets are appreciating all round, securities without a fixed repayment value (i.e. stocks rather than bonds) provide the best opportunity for investors to realise capital gains.

Commonwealth and State government securities as a proportion of total superannuation fund assets:

Commonwealth and State government securities as a proportion of total insurance fund assets:

Equities as a proportion of total superannuation fund assets:

Equities as a proportion of total insurance fund assets:

Thanks to the growing savings pool of institutional investors, and the latter’s preference for allocating those flows to equity purchases, during recent decades firms could issue shares cheaply. This became the preferred method of long-term financing, ahead of borrowing via bank loans or commercial paper. Meanwhile the loss of their chief customers (commercial lenders) led banks towards real estate, and fee-related activities in derivative markets, brokerage and debt issuance.

Thus the diverging trajectories of commercial loans and household plus fixed and revolving personal loans as a proportion of bank lending:

These banks were obliged by regulation to hold capital in proportion to the risk-weighted size of their balance sheets. Therefore the majority of equity issuance was conducted by financial corporations and was purchased by other financial corporations; purchase of newly-issued stock thus did not take out of the market any excess net inflow of money into the financial sector or alter the net balance sheet of the non-financial sector. In other words, the amount needed to finance commercial and industrial operations was not (when we look at the past three decades) sufficient to absorb the inflow of funds into the financial sector. Lack of demand for funds to finance real investment in fixed capital is, I have argued elsewhere, a stage in the maturation of capitalist economies. The average return on real investment becomes low enough relative to the interest rate that firms withhold their funds from deployment in productive activity; they either cannot service debt or choose to receive higher revenues from loaning money out. It is more advantageous for them to lend out their capital than to invest it productively in plant and equipment. Corporations thus develop bloated balance sheets and greater exposure to risky financial markets. To hedge this risk they must hold liquid assets (short-term deposits, financial paper, etc.). Using these liquid assets (or issuing new stock) to repay debt is an easy way to raise profits.

The upshot was an accelerating inflow of funds to the financial sector, without a compensating outflow. This excess inflow, as it circulated around, bid up prices of stocks, real estate and other financial assets. Yet price appreciation could not of itself absorb savings. Net lending and borrowing must balance. Thus the outflow from the financial sector – balancing the inflow of excess savings from the rentier class – went as bankers’ bonuses and executive salaries, interest and dividend payouts, consumer credit for current expenditure. Thus the flipside to financial instability, fragile banks, sluggish real investment, slow employment growth, and household indebtedness, was the luxury consumption of the financial elite.

Revivalism

With the return of Great-Power imperialism in something like its classic form, ghosts from the not-so-deep past are appearing.

In Libya today we see a revival of the means first used to achieve formal British domination over the energy-rich territory of the former Ottoman Empire. During the First World War intelligence officers – most famously T.E. Lawrence – were used to infiltrate behind enemy lines, conduct reconnaissance, call in air support, liaise with, train, equip, fund (11 million pounds, mostly in gold) and organise Feisal’s irregular local rebel forces in the Hejaz into mobile combat units,  and finally to set up puppet governments following the terms of the Sykes-Picot Agreement. Thus the Arab Bureau in Cairo directed the Arab Revolt for the British Empire. Feisal got the Iraqi throne, the RAF got bases in Basra and Mosul, Anglo-Persian got Abadan, and the Royal Navy controlled all waters between the Red Sea and the Bay of Bengal.

During the Second World War a similar task was entrusted to the Long-Range Patrol/Desert Group and the newly-formed SAS commando regiments. These ranged across North Africa, crossing the border from Egypt to conduct reconnaissance of Italian bases before war was declared, reporting on and interrupting enemy traffic along the Mediterranean coast, assisting with sea landings, and conducting raids on airfields, harbours, railway lines, etc.

This week British and US newspapers have sketchily detailed the role of British SAS and French and Qatari special-operations forces, US intelligence agents and assorted mercenaries, in arming, training and directing the rebels in Libya, providing intelligence for air strikes, and organising the assault on Tripoli.

Of course we have seen something similar before with the KLA and Northern Alliance proxies. But here historical echoes of strategies from the British and French imperial past are uncanny, as when twelve years ago German aircraft flew sorties over the Balkans. In fact, even the propaganda niceties used for public consumption are familiar.

From today’s perspective, the agents of European colonialism and pre-Wilson diplomacy often seem blunt and (almost refreshingly) candid, scarcely bothering to shroud their strategic aims in blandishments like our Responsibility to Protect. But the British imperialists of one century ago were themselves attentive to appearances and PR. In September 1916, they decided that landing a brigade at Rabigh, on the Red Sea near Mecca, would be a bad look, especially around the time of the Hajj. As they hastily trained and armed indigenous troops, and directed Sherifian assaults on Jeddah, Medina and nearby cities, British ships and aircraft supported the irregulars by destroying Turkish artillery, against which the rebels were helpless. The Royal Navy then landed Muslim troops from Egypt to help the locals take Mecca. (The French sent 1000 Algerians.) Two years later, Allenby insisted that British and French forces linger outside Damascus, allowing the Hashemites to enter as liberators and hoist the Hejaz flag.

As described in the previous post, the diplomatic objectives of Great Powers are increasingly being pursued by special forces personnel. These elite non-conventional units are used not just for so-called stability operations (counterinsurgency and ‘peacekeeping’) but also to foment and facilitate the move, where this is desired, from political instability to armed uprising. By militarising a protest movement, regime change in a strategic location can be achieved; through a judiciously applied assassination programme, covert or not so much, a friendly government can be propped up, etc. This dual role is shown most clearly by astonishing growth in the reach of US Joint Special Operations Command.