Free
market economics has taken such a battering of late that
one might almost begin to feel sorry for it. In 2008, a
cataclysmic meltdown in the barely regulated financial
industry plunged the world into an economic crisis from
which it has yet to emerge. For Nobel laureate economist
Joseph Stiglitz, "market fundamentalism" was
as discredited by this experience as communism was
by the fall of the Berlin Wall. Recent scandals at
Barclays and HSBC
have merely served to underline the point.
Meanwhile
the Conservative party, which derives half
its funding from big finance, has set about making
the public pay for the bankers' crisis, with disastrous
results. "Market fundamentalism" told George Osborne that,
as the dead weight of the public sector was cut away, the
thrusting dynamism of private enterprise, hitherto crowded
out by the state, would be unleashed to create jobs and
propel growth. Instead, austerity destroyed demand, wiped
out the recovery and plunged Britain into a new recession.
"Expansionary fiscal contraction" proved
to be exactly as oxymoronic as it sounds, breaking
the reputation of the chancellor barely two years
after he entered Downing Street.
So all in all, there's never been a better time to quote
Adam Smith, especially if you're a socialist.
Counterintuitive perhaps, but true nonetheless.
Smith, the 18th century Scottish philosopher, is of
course best known for advocating the liberalisation of
markets (arguably necessary at a time when the punishment
for illegal livestock export was to have one's hand cut
off and nailed up in the local marketplace, for a first
offence, and the penalty for a second offence was death).
However, what is less well known is that Smith shared some
of the key concerns of today's critics of neoliberalism.
His most famous work, The Wealth of Nations, offered a
powerful political critique of the "one per cent" of his
day, to borrow the terminology of the Occupy movement. In
what he himself described as a "very violent attack" on an
unjust status quo, Smith repeatedly emphasised the role of
power, influence and class in distorting economic policy
to serve the interests of a narrow elite.
Smith
noted that the "English legislature has been peculiarly
attentive to the interests of commerce" because
policymakers were continually "imposed upon by the
sophistry of merchants". The vested interests "like an
overgrown standing army … have become formidable to the
government, and upon many occasions intimidate the
legislature". They argue their case "with all the
passionate confidence of interested falsehood", predicting
national ruin if their demands are not met. Of course, all
this has a very
familiar ring.
The
politician who serves the one per cent, Smith noted, "is
sure to acquire not only the reputation of understanding
trade, but great popularity and influence with an order of
men whose numbers and wealth render them of great
importance. If he opposes them [he is subjected to] the
most infamous abuse and detraction". One thinks here of
the hysteria
elicited by Ed Miliband's mild suggestion in his last
party conference speech that some parts of the capitalist
system were working a little less well than others.
Smith observed that "all for ourselves and nothing for
other people, seems, in every age of the world, to have
been the vile maxim of the masters of mankind". The class
power of wealth and big business makes the elite the
"principal architects" of policy, "an order of men, whose
interest is never exactly the same with that of the
public, who have generally an interest to deceive and even
to oppress the public, and who accordingly have, upon many
occasions, both deceived and oppressed it". Smith
repeatedly stresses that while the mercantile system does
not serve the public interest, it does benefit the
"principal architects" of policy, which is no less true of
today's hyper-financialised, neoliberal capitalism.
This is not to argue that Smith should be automatically
deferred to simply because he is a renowned intellectual
figure, but rather that it can be useful to return to his
writings in light of historical experience. We have
learned that it is possible for deregulated markets to
fail the public disastrously. But the larger point is that
when power and influence over policymaking is heavily
concentrated within an economic elite, policy will be
designed to serve that elite, often at the public's
expense. What Smith can teach us today is that the
question of who decides, and in whose interest, is crucial
to our understanding of how economic policy is made.
