Europe, Bailouts & Neo-Liberalism

In colloboration with @GreenLeftie (Michael Bater).

There are many, mainly Euro-sceptics, arguing against the recent bailouts, and expected bailouts, of countries experiencing deficit/debt problems in the EU. Given that most Euro-sceptics are raving Capitalists calling for more cuts, faster and deeper; their critique is high on irony. Essentially, European structures are based upon and framed by Neo-Liberal conditions regarding how much countries can borrow and spend etc. Even Ed Miliband has been criticising Neo-Liberal structures recently; unsurprisingly, his comments went unreported, ignored and forgotten:

Bailouts – can’t complain that bailing countries The Scotsman, 25th May:
A fortnight ago Ed Miliband was in Oslo for the Progressive Governance Summit. […] On the response to the global financial crisis he said: “Our opponents are weak in one key respect – their response to a crisis of neo-liberalism is more neo-liberalism.” As for the UK, he observed that the “new inequality in Britain is not between the rich and the poor, but between the rich and everyone else” on top of which “intergenerational inequality is one of the issues of this century”. His aim for the economy? “More active and interventionist industrial policy can create middle skill, middle wage jobs” – the decent incomes that ordinary families in middle Britain need and expect […]out when supporting neoliberal conditions.

Of course, expecting Ed Miliband to state similar sentiments towards David Cameron during PMQs would be futile. But, it’s important that he is voicing this discourse, regardless of its limited coverage. Neo-Liberalism has been central to constructing Europe’s problems; the current global political economy is based upon unsustainable debt, inequality and harsh conditions, especially when it inevitably fails.

But what is Neo-Liberalism?

Neo-Liberalism describes a market-driven approach to economic and social policy based on neoclassical theories of economics that stresses the efficiency of private enterprise, liberalised trade and open ‘free’ markets (this of course is impossible, as there has to be some type of market control for Capitalism to work), and therefore seeks to maximize the role of the private sector in determining the political and economic priorities of the state; in other words, to roll back the State as much as possible.

Neo-Liberalism is founded on the theory, of self-organising self balanced networks.

Just after WWI, an eminent British biologist, Arthur Townsley, became obsessed with Freudian Psychology, particularly the notion that the brain was an electrical machine in a system of networks. Townsley came up with a radical proposal. He believed that he could take this theory of the brain and apply it to the whole of living biology. Vast interconnected networks that linked every living thing, which he called ‘Eco-Systems’. These ‘Eco-Systems,’ through a series of complex feedback loops, are trying to achieve a sense balance and equilibrium.

The theory became popular, as scientists, like Jay Wright Forrester – an early computer designer/programmer – believed it was possible to ‘map’ Echo-Systems using computer modelling. The leading example of this ‘Cybernetics’ Computer model was created by the biologists, Howard and Eugene Odum. It made Ecology one of the biggest research areas in the C20th, and Townsley’s theory its cornerstone.

Then during the ‘Counter Revolution’ of the late 1960’s, economic and political philosophers, such as Alan Greenspan, decided they could use this model to develop a devolved non-autocratic political-economic system.

The premise was simple.

The State is too controlling and authoritarian so why not minimize it as much as possible by formulating a set of economic-political networks, which can be self-managing, with the aid of computers?

This was rather ironic premise; because it was discovered, that to keep the network as simple as possible (which you can’t); the State becomes more controlling and authoritarian.

Growth wouldn’t be hampered by human interaction, but continuous, governed by computer controlled markets, creating artificial business and credit, to keep it all moving. No more booms and busts, and thus the theory of ‘Neo-Liberalism’ was formed.

By the late 1970’s the closed equilibrioception of Townsley’s theory of Echo-Systems was shown to be wrong. Echo-Systems were actually chaotic set of complex ever evolving competing, but interlinked networks, and it was discovered the key model of the Townsely’s theory, was a fraud, as the only way that the two brothers (Howard and Eugene Odum) could get their network to work was to radically alter their data, by cutting vast portions of it out. Biologists and Ecologists quietly dropped the theory, for the modern evolving Echo-Systems theories, but economists, and practitioners of computer games of logic, have continued, to support it zealously, even though the theory has been established as mistaken.

When the European Community decided it could only stay competitive and stable, by more integration, the Neo-Liberals found good developed economies that were outside the United States, to test their theories. The Neo-Liberal technocrats developed the integration policy, and Political Class jumped in feet first believing it would lead to a better and brighter Europe…

The Maastricht Treaty (1992) and the Stability and Growth Pact (1999) emphasised economic/monetary consensus, setting out specific requirements for the Euro Zone Countries to meet and follow. Essentially, countries have to maintain a deficit below 3% of GDP and a debt below 60% of GDP (all part of keeping the network simple); these conditions are being tightened after a brief suspension in 2003.

Before the economic crisis, countries frequently broke the requirements, with a degree of unfairness regarding the punishments given to certain countries like France who broke the rules – hence the Pact’s suspension and eventual relaxation. However, given the recent crisis, the European Union, through the European Central Bank, want to impose these conditions with more venom. In other words, a disproven model is being used to rectify the same disproven model.

It is obvious that the system doesn’t work.

Like nature, economics is chaotic. No one can predict the human element, which in reality still controls the system. A computer model cannot calculate for greed. Eventually the ‘imaginary’ market cannot be sustained, as the computers cannot predict the erratic, muddled, illogical human and environmental elements of the network, which become more pronounced as the network evolves;  bursting the bubble – which, of course, happened in 2008.

The current goals of Common Currency are therefore based largely on endless unsustainable growth and policed by conditions that pressurise countries like France into making historic cuts to get their deficit below 3% in record time by 2013/4.  The Neo-Liberal European and National policies are requisite, for creating the current set economic problems countries around the world are facing.

However; National Counties’ debts are international concerns, as they are just one aspect of a larger political economic problem. Those wanting the UK to distance themselves from the debts of other countries ignore the interdependence that we have with countries over the world (globalization). To the point of importing more products to reduce our carbon footing, whilst developing countries exempt from carbon quotas take the rap, the global political system, as a whole, needs tackling.

Common currency is a good idea, but currently it is framed by the unsustainable Neo-Liberal philosophy and conditions. The bailouts are just a by-product of an international governance system that is in dire need of a new type of political economic framing. Neo Liberalism isn’t working, and will inevitably create fore-mentioned problems. Even Ed Miliband recognises this. What is needed is for the irony and hypocrisy of arguments to be highlighted alongside a substantial critique of the political system.

So what will happen to European Union?

Three things might happen. First; complete political and economical integration, based on a new type of economic democracy.

There is no question that International/European governance and a Common Currency is essential to aim for. Great theorists, such as Murray Bookchin and Karl Marx, recognised the need for Global Political Systems – this is especially true given the prominence of international inequalities regarding climate, economy, and trade regularities. However, instead of a Neo-Liberal framing (based on a theory, which has been disproven), where debt, excessive capital, profit, risk and competition, are promoted above co-operation, fairness and equality – imagine a primarily non-hierarchical driven, co-operative communal arrangement. Bookchin’s theory of communalism is relevant here; he talked about local assemblies in national political contexts being connected up to National and International Assemblies – to allow real people to have control over their decisions and so that we can “act locally, think globally”.

The second scenario is the most dangerous. Political and economic disintegration; exacerbated by the increase in chaos in the environmental networks, as a result of climate change, as country by country, country area by country area, say enough is enough.

There is nothing wrong with democratic revolution, but the outcome may be worse. Unfortunately, revolutions quite often have a bad conclusion, as the revolutionaries succumb to the same disease of power that the people who they replaced did.

And finally, the IMF/World bank and financial Neo-Keynesian ‘cosmetic,’ changes.

In many ways, the world was lucky. The bailouts, a Neo-Keynesian policy to prop up a Neo-Liberal one, put a break on the free-fall. Without it, the crash would have been catastrophically worse.

However the bailouts are now becoming the alleged problem, with countries political-economic systems using it as an excuse to trim back even more, so that they ‘economically,’ they fit the Townsley based model, as Howard and Eugene Odum did.

However this ‘debt’ problem is only applicable to the Neo-Liberal system, as system has tight logical controls, which of course doesn’t work. The Keynesian and Neo-Keynesian model – which is more dynamic, and allows for human intervention – debt level can be much higher, allowing more room to stimulate growth.

The World Bank and IMF would become more interventionist, stepping in quickly, to rescue failing banks. Money would be lent to the weakened banks to prop them up, then that money would be paid off by the banks and not buy the State. In fact, it has been muted that countries that have ‘bought’ failing banks like the UK; could sell the bank shares, for the same amount of money they bought them, to the World Bank – who would then sell them on later, once they have become profitable, and risk free.

Yet to fall back onto good old Keynes, is not the answer, as it will only paper over the cracks, but as we ‘creak’ along as normal, it may lead to a two tear Europe, with some countries integrating further, while others like the UK cut various ties, and become ‘associates,’ until the big crash undoubtedly happens.

Essentially, the philosophical question is whether we will take advantage of the real political and economic potential we have. To recognise that we don’t need to accept the reality we have, that the present reality isn’t fair, equal or non-oppressive; this would be the really hard admission and decision. To make an ethical pledge to construct governance and political economic structures that counteract the current illogical neoliberal relations would be the hard decision – to work towards recognising that national factors are facets of a wider global political economy would be the difficult but important progressive admission. Yes, there are always utopian ideals within political discourse and theory, but working with an ideal in mind alongside accepting practical realities is important. What the current European crisis shows is that the current Neo-Liberal system is not working, and just promoting more of the same will do nothing but make the problems more engrained than they already are. As Bookchin argues, we can work towards an ethical actualised reality, where political economic and social decisions are fulfilled in line with ethical judgements – currently, the global political system stinks of elitism, inequality and deprivation. This has to change.

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7 thoughts on “Europe, Bailouts & Neo-Liberalism

  1. Good arguments, needing of a thinking cap firmly on! Getting those neurons buzzing…

    Speaking of the brain, it’s interesting how much Freud has to answer for! In my book I mention how his nephew Edward Bernays embraced Freudian ideas and – in retrospect, very dangerously – applied them onto the political sphere, using herd mentality as the basis for campaigns he provided inspiration for, such as the infamous “Torches of Freedom” co-opting, pseudo-feminist pro-tobacco propaganda, and the Creel Commission’s attempts to reverse Americans’ opposition to war involvement by blatantly making up stories about Germans hoisting babies on bayonets.

    I knew a Psychology grad who constantly made excuses for global capitalism through remarks clearly inspired by Social Darwinism. Attempts to apply “laws of nature” onto politics must absolutely always raise alarm bells for people, and that’s what struck me about the insightful and solid historical context written here in this piece.

    To this day, the idea that things are the way they are, and just are, keeps people in their place, and has them accepting this current insane system where public debt is being exchanged for personal debt. The fact the neoliberalists are penalising the poor for a crisis caused by deregulation they wanted even more of, is as absurd as me running up a credit card bill then getting a homeless guy to repay it.

  2. Freud has got a lot to answer for, but this isn’t one of them.

    In fact that part of Freudian theory is write in a more complex way, the brain does work through a series of multifaceted electrical networks.

    Townsley base premise is also correct, as nature also works in an intricate set of interlinking systems. It was his idea that it reached equilibrium in a logical fashion that is wrong.

    Eco-systems reach an equilibrium, everything does, if not it would break the Laws of Thermo-Dynamics, but it achieves this chaotically, again like everything else.

    When Greenspan, and the other technocratic Randian zealots, created Neo-Liberalism, they couldn’t get past their blinkered view that you can manage political-economic systems, in a logical computer like way, it’s quite ironic that it is the selfish anti – Egalitarianism philosophy of Ayn Rand, that they all ‘pray’ to is a big factor why their political-economic systems don’t work!

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  4. Not sure I agree with you Michael. I think Freud does have an effect here (whether indirect or direct), especially in relation to control by the state. Reich’s critique of Freud, and Freud’s justification of the state repressing sexuality is a good example here. Freud’s views have been co-opted for unfeminist, homophobic aims, and can be used in a way to attempt to say things have a ‘natural’ way of being – which is damaging, politically and economically.

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