The Magic Mountain

The World Economic Forum at Davos, which starts this week, is probably best thought of as an "exercise in corporate speed-dating", but its delusions of significance mean that it is routinely used as an emblem of the global order both by participants and critics. The choice of Davos in Switzerland, the basis for the fictional location of Thomas Mann's The Magic Mountain, feeds this idea of omniscient Olympians above the fray. In Mann's novel, the contrast is between the high idealism of the nineteenth century and the imminent barbarism of World War One in the flatlands below. The irony is that these bourgeois mountaineers are consumptives in a sanatorium, not masters of the universe. The sickness is everywhere.

In today's Observer, Will Hutton fingers Davos man as a symbol of the widening inequality of the neoliberal era. He quotes an IMF working paper that shows how weak wage growth and financial liberalisation have led to increased current account deficits (more imports than exports), as workers buying power in the West has been propped up by debt, ultimately funded by surpluses in developing nations such as China. The paper proposes corrective measures that include more progressive income tax (i.e. higher rates for the rich) and taxes on rents (i.e. land, natural resources and financial investments), but Hutton focuses on their vaguer nostrums around increasing the bargaining power of labour. This is not to say that he has suddenly become an advocate for stronger trades unions. He quickly resorts to the old carthorse stereotype, noting their "stupidity" in resisting co-determination (workers on company boards) in the 1970s (the report of the Bullock Committee). "We need wage bargainers with more clout, but ones who behave rationally – pushing for more when it is genuinely there, but cutting deals and giving ground when the firms they work for have their backs to the wall." In effect, he continues to advocate the ordoliberal model of Germany.

Hutton also ignores the caveat of the IMF team, who correctly note the difficulty of strengthening unions due to international competition. In other words, globalisation and the dismantling of capital controls means that capital operates increasingly at a supra-national level while unions are obliged to continue operating at a national level. One of the chief reasons why unions rejected board membership in the 1970s was that this would undermine free collective bargaining, i.e. unions negotiating a common deal with employers across an entire industry. In other words, unions were reluctant to move from exercising power at a national level to a company level. It should be obvious that such a move, at a time when capital was about to spread its wings, would have severely restricted the bargaining power of unions. To call this "stupid" is to see the 70s through the prism of old prejudices.

Co-determination, despite the advocacy of liberals like Hutton, does not lead to less inequality and greater union bargaining power. The workers of Germany have seen their wages stagnate due to the same global forces that have affected other developed economies. Their system gives workers representation on a supervisory board that has a majority of shareholders. This board then elects the management board, which actually runs the business. Having members on a supervisory board has probably helped preserve jobs and avoid strikes, but it has not prevented the growth of low-paid and part-time jobs, in no small part because the law only applies to companies with more than 2000 employees (there's a lesser version for companies with over 500). It's worth remembering that the industrialists on the Bullock Committee put forward a minority proposal advocating this same two-board model, though even that was rejected by the CBI.

There are those who believe that Davos man has had his day, and that a combination of 9-11 and the crash of 2008 has sounded the death-knell for "libertarian globalisation". One of the ideological triumphs of neoliberliasm has been its ability to yoke those two words together in what should be an unstable mix. The change over the last decade has actually been the migration of the libertarian ideal from big to small capital, from a focus on deregulation and the primacy of shareholder value to protectionism and a distaste for government. Culturally, it has shifted from the positive and revolutionary to the negative and reactionary. The libertarian idea was basically co-opted by big capital (i.e. Davos man in his day job) in the 70s, on the back of the intellectual spadework of the neoclassical economists and postwar liberal philosophers, who helped shift the concept from the left of the political spectrum (where it peaked in the 60s) to the right, without losing its progressive tone.

Libertarianism has served its purpose. Davos man now adopts more traditional and conservative colours: from the sound money of austerity to the new discretion over personal wealth. The theme of this year's conference is resilient dynamism. This might sound like management drivel, or perhaps a nod to the bleedin-obvious concept of antifragility being pushed by Nassim Nicholas Taleb (in some ways an archetypal Davos man), but the important ideological freight is the idea of preservation incorporated in resilience allied to the promise of a return to the ceaseless progress contained in dynamism. Davos man does not think the party is over, just having a break in the chillout room.

Samuel Huntington, who coined the phrase "Davos man", said that they "have little need for national loyalty, view national boundaries as obstacles that are thankfully vanishing, and see national governments as residues from the past whose only useful function is to facilitate the elite’s global operations." The point is that they see government as a tool, a means to an end, not as the intrinsic evil of Tea Party fantasy. They have an instrumental view of the nation state, unpolluted by sentimental loyalty. Davos man wants government to adopt a hands-off approach to international trade, capital flows and the financial sector, but he remains a strong supporter of the nation state as the fundamental boundary of public life. After all, if everything operates at a national level and only big capital operates at a global level, it's not hard to see where the advantage lies.

It is for this reason that Will Hutton is naive, though he is in good company. The historical period of globalisation has been littered with predictions of the demise of the nation state, while the post-2008 period has been notable for predictions of its resurgence at the expense of globalisation (the current EU debate in the UK includes elements of this). In reality, globalisation is utterly dependent on the existence of the nation state. Globalisation is an elite network, much as the treaties of nation states were agreements between elites, but those elites are in government as well as in business (and there's a revolving door between the two). Horses for courses: plead "global realities" to challenge national opponents, and "national sovereignty" to challenge global opponents.

Globalisation will not be undone, despite the doom-mongering about rising protectionism and xenophobia, simply because it has already gone too far. The bargaining power of labour cannot be restored to the levels it enjoyed in the 1970s short of the creation of global trades unions, and that isn't going to happen until wages in Manchester are on a par with Mumbai. Hutton's advocacy of co-determination is an argument for greater collaboration between labour and capital, but without a shred of evidence that this will lessen inequality.