Wednesday, 18 February 2015


The breakdown of the state in Libya and the BBC documentary Inside the Commons remind us of the central role of institutions in politics. There is a lesson here for the Greek "crisis". In Libya, Muammar Gaddafi sought to entrench his position by abolishing the already weak institutions of the post-colonial state and replacing them with tribal theatrics and empty slogans about direct democracy (the colonel was a strange cross between a Mafia don and Prince Charles). Oil revenues allowed Gaddafi to maintain control by buying-off or undermining opposition and by substituting engineering projects for visible government. The Libyan state collapsed after Gaddafi's death because of the institutional vacuum he created. Still smarting from the mess they made trying to airlift democractic institutions into Iraq, and not forgetting Somalia, the NATO powers now seem happy to keep their distance from a failed state and rely on Egypt to stamp out ISIS.

Michael Cockerell's documentary reveals Parliament to be an ornate stage for bumptious egotists, a workplace in which office politics is work, and an anti-democratic farce that fills MPs' time with absurdly arcane and wasteful procedure. Though he wheels out the usual cliché about the finest club in London, the more obvious template is a leading public school, like the one in Lindsay Anderson's If ... but without the Bren gun. To suggest that this milieu is simply reproduced by the disproportionately public school-educated MPs themselves is to ignore the way that the institution enforces it through physical discipline (rushing, queueing, the narrow corridors), class division (pecking orders, uniforms, insignia), and the competition for privilege (a seat, a better office, an early draw in a ballot). This also reminds us that the prime directive of all institutions is self-preservation.

Much of the form and ritual of the Commons records the historic struggle between Crown and Parliament, thus dignifying MPs, but it also serves to distract attention from the modern exercise of state power, which largely happens elsewhere, and to belittle the subsequent advance of democracy. Calling Jacob Rees-Mogg "the member for the eighteenth century" is more than just a joke. The growth of select committees since 1979 is often presented as a reassertion of backbench power against the executive, but it can also be seen as a triumph of neoliberal managerialism (akin to non-executive directors) in its emphasis on episodic and post-hoc inspection and the extension of its remit to the interrogation of society at large. Confronting industry bigwigs and civil servants after a cock-up or institutional scandal makes good TV, but there is little evidence it leads to better laws.

After an initial flurry of excitement over Yanis Varoufakis's costume, the Greek drama has taken on the familiar shape of a contest between national stereotypes. This is misleading. Though European power struggles are still mediated through councils of national ministers, an institutional form that dates back to the Congress of Vienna, this obscures the real actors. As Michael Pettis notes, "European nationalists have successfully convinced us, against all logic, that the European crisis is a conflict among nations, and not among economic sectors ... The financial crisis in Europe, like all financial crises, is ultimately a struggle about how the costs of the adjustment will be allocated, either to workers and middle class savers or to bankers, owners of real and financial assets, and the business elite". The institutions of the EU clearly privilege the latter, which necessitates a narrative of national immorality to justify austerity to the former.

The flattening of borrowing rates occasioned by monetary union led to large flows of capital to the periphery. The scale of this was due to the high rate of corporate and household savings in the core (the product of low wage growth inflating profits and low consumption by savers) and high demand for property investment at the edges. The institutional weakness has often been characterised as a lack of fiscal union to match monetary union, but it would be more accurate to say that what was missing was adequate capital controls, the common feature of all financial crises since the 1980s. To blame this on an individual nation is meaningless. As Pettis notes, "As long as a country has a large number of individuals, households, and business entities, it does not require uniform irresponsibility, or even majority irresponsibility, for the economy to misuse unlimited credit at excessively low interest rates".

Sovereign states that faced a debt crisis after 2009 did so because the public sector bailed out the private sector, i.e. the government nationalised regional and national bank losses, following local property market busts and write-offs due to the global banking crisis of 2008. This applied across the EU (notably the UK) and not just within the Eurozone. Greece was atypical because it had an excessive level of public debt before monetary union, as a result of historic institutional corruption, and because that same institutional failure prevented the scale of the debt being revealed until 2009. Just as the institutional failure of the banks was transformed into an issue of public debt and the need for austerity at the national level, so the institutional failure of Greece became a justification for enforced "structural reforms" across the Eurozone.

Paradoxically, the EU's chief ally for thoroughgoing structural reform in Greece is Syriza. The Greek government are not about to implement a socialist command economy, and have further emphasised their pragmatism by nominating a former New Democracy minister as president. The dispute (and thus the basis of a deal) is over the type and sequence of structural reform. While both sides will be keen to improve tax-collection and root out corruption, the Troika also want to push ahead with measures to open up the Greek economy to international big capital. Syriza's push back against this reform may actually make a lot of sense if the institutional capability isn't in place to support privatisation and deregulation without widespread abuse. This is precisely the lesson learnt from Russia in the 1990s. In other words, the Troika's policy may be contradictory if it seeks to simultaneously reduce the power of oligarchs and advance the transfer of assets from the public to the private sector.

Though the Greek state is notorious for feather-bedding and backhanders, it would be wrong to imagine that it has not improved over the last three decades through exposure to EU norms. Like Spain and Portugal, Greece has been engaged in a gradual evolution of the state since the end of military rule in 1974, an endeavour that advances one coffin at a time (it is worth remembering that it took 40 years to extirpate the institutional remnants of Nazism in Germany). The European goal in respect of Greece should not be the paying-down of its debt (which nobody believes can happen in full, at least not this century), nor the deregulation of its economy (which would happen gradually anyway), but the normalisation of its institutions. In effect, Greece's "institutionalisation" within the EU.

As Thomas Piketty notes, "Institutions do not arise out of harmonious societies populated by representative agents; they arise out of unequal societies and out of conflict." This suggests that now is the ideal time to achieve genuine institutional reform in Greece, not just because of the obvious need but because Syriza is probably best placed to effect reforms given its lack of institutional baggage and its appetite for conflict with Greek elites. The Troika's insistence on premature structural reforms that favour big capital and financial interests, such as privatisation and market deregulation, is probably the biggest threat to achieving that reform.

I don't subscribe to the view that the EU wants to impose a Carthaginian peace on Greece, pour encourager les autres, so I remain optimistic about a deal that would both ease austerity and advance institutional reform, but I also recognise that there will be no admission that austerity was a false prospectus so we can expect the rhetoric about national responsibility to continue. The irony of the years since 2009 is that the institutional bias of the EU towards the interests of bankers, big capital and the asset-rich has, through the instrumentality of fiscal austerity, boosted national identity. This in turn has created political space for the far right and Europhobes more generally, and thereby put the cause of "ever closer union" back a generation. Austerity at least makes the EU's priorities clear.

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