Democracy at Risk

In 2018/19 I read three books; The End of Work, by Jeremy Rifkin, The Web of Debt, by Ellen Hodgson Brown and The Retreat of Western Liberalism by Edward Luce. The three works have made a profound impression on my understanding of how the world works and how we all ended up where we are in life. I then wrote a paper called Democracy at Risk, drawing on these three books.

I opened the paper referring to Machiavelli and pointing out how his assertions that rulers should please the many, uphold the law (not pardon criminals) and should be judged by the common good from a government that serves the lives, families, liberty and property of its citizens should be observed. Noting how relevant these simple injunctions are to good governance even 500 years after they were made and how they should be used to guide us in a storm.

Brown, in the Web of Debt quotes Thorold Rogers, a nineteenth century historian, who asserted that in the middle ages an English labourer could work for 14 weeks to provide for his family for the rest of the year and how the common people had leisure, education, art and security in those times. I then inserted that in Robert H Frank’s Toil Index which showed that the cost of a median rent in a median US city had escalated from an estimated 11.5 hours per month in 1500, to 45 hours in 1955, to 56 hours in 1975 to 101 hours per month in 2017. It may be said that the middle ages was a time of plenty, of leisure, of education, art and economic security, and today’s age is an age of toil, scarcity and insecurity. I ask the question, how did we get from there to where we are today?

In his book, The End of Work, Jeremy Rifkin points out that we have increased corporate productivity and an increasing population, with less and less work for more and more workers. Writing in 1995 he notes that global unemployment had reached the highest level since the great depression of the 1930s and that more than 800 million human beings were either unemployed or underemployed, while credit and personal bankruptcies were growing with 780 000 in 1994 and 1 281 000 in 1995 (in the USA) and that these were common trends in all western economies.

He warns that if gains and profits from these ‘technological advances’ went only to corporate profits, the growing wealth gap will lead to social and political upheaval and that conventional economic theories and practices were not working, with negative effects on society and growing economic irrelevance for the vast majority of the developed world’s population.

Rifkin suggests that a third sector, or a non-market and non-profit or social economy can serve their growing needs in the face of the impersonal global market and the weak and incompetent central governments, and notes that ‘redefining the role of the individual in a society absent of mass employment is perhaps the seminal issue of the coming age’.

Ellen Hodgson Brown in her book The Web of Debt, seeks to explain the business cycle and how it acts as a wealth pump, sucking up lower and middle class wealth and transferring it to the wealthy. The poor invest when they think it is profitable, overextend themselves and then loose their wealth when the markets turn. Conversely, the wealthy make it seem easy for the poor to invest when times are good and collect the collateral when the times are bad. She points to the great depression of the 1930’s and the housing bubble of 2008 as examples of the pump in action.

She also discusses the role of money creation and interest manipulation amongst a host of other mechanisms the wealthy use to make money, often mechanisms that at best are gambles and at worst fraud. She points out that there is more money to be made gambling in the markets than there is to be had from investing in businesses and the economy and discusses the hows and the whys of many of these mechanisms.

Particularly she points to banks creating money by the stroke of a pen, then lending governments the newly created money, at interest, which must be paid for by the governments and their tax-payers, and the absurdity of this practice when governments could as easily create the same money without the burden of interest.

She also looks at a host of other market mechanisms which are used as market manipulators, including but not limited to the short sale and the naked short sale, hedge funds and derivatives.

Brown also highlights that when money is created as a debt at interest, the interest portion is not created with the debt portion. So the system is in a constant state of monetary scarcity and central banks work to maintain this scarcity. From that scarcity comes profit for the banks and inflation for the people.

She also looks at institutions deemed too big to fail which are bailed out, with taxpayers funds, and suggests they should become the property of the tax payers who bail them out and be run to serve the people rather than be bailed out. Interesting views.

Edward Luce’s book the Retreat of Western Liberalism discusses much the same things as Rifkin but more from a Macro rather than from a Micro perspective.

He notes how the spread of automation, artificial intelligence and remote intelligence, which some call the fourth industrial revolution, is still in its early stages, as is the rise of China and India as economic powerhouses, and says the downward pressure on the incomes of the West’s middle class in the coming years will be relentless. He adds that all at Davos dread the wrath of an alienated Western middle class. He reinforces Rifikin’s opinion that wealth and income disparity will create large scale social and political unrest.

He points out that our economic metrics are wrong, based on misleading averages. And that while the US economy expanded by 2% pa since 2009, the median income only regained 2002 levels in 2015 and the 2007 median income was below 2002’s and that the George W Bush expansion was the first on record where middle class incomes were lower at the end of it than at the start. GDP numbers insist the US is doing well when half the country is suffering from personal recessions.

Luce introduces us to the Elephant Chart, a chart devised by Branko Milanovic, a former World Bank staffer, showing the income distribution of more than two decades between different percentiles of the global economy and highlights the contrast between growth in the emerging markets and the decline in the developed markets, but for the richest of the rich in the latter markets, who enjoyed huge growth over the period. Luce writes “if you want an economic chart that stops you from sleeping you should start with the elephant”.

He points out that between the 1940s and the 1970s that the developed world enjoyed an income growth, enough to double the standard of living every generation or better. Since then, the brakes were put on growth and the most crushing effect is stagnation. Many of the tools of modern life are increasingly beyond most people’s reach.

He also notes that Inflation is another outdated number. It no longer captures what people most value. Without health and education your life chances are badly handicapped. The runaway costs of social capital are why so many are pessimistic about their children’s life prospects. When people lose faith in the future they don’t invest in the present. In ageing societies activities stagnate. Start-ups decline, corporates don’t invest and millennials do not have high expectations for their futures that their parents had. These material and psychological costs are the prices we pay for stagnation.

Then there is rising income inequality. While previous ages gave rise to spectacular new wealth and bore out the theory of declining inequality, over the last 30 years to 2017, the gap between the pay of the average CEO and their employees has risen to 400 times the 1970s gap. Europe and America are seeing the same sorts of inequality. Today, the children of the rich are overwhelmingly likely to stay rich and of the poor are likely to stay poor, and the middle class is eroding.

He also points to how democracy has been curbed and even been rolled back since the fall of the Berlin Wall and how the trust of the wealthy in democracy has been replaced by the fear of the masses and scepticism of democracy, a usual phenomena in times of extreme wealth disparity. Louis XVl lost his head over that issue.

Luce points to the way democracy has been curbed by the fear of the undiluted voice of the people. After all, Adolf Hitler attracted 40% of the vote in the free election of 1932. But the voice of the people are now calling for democracy because of a lack of trust in politicians to deliver for the people. There is ongoing tension between the people and the experts. This is not new. Plato believed democracy was the rule of the mob, Aristotle suggested combining the rule of what we would call the experts with the consent of the many, constant rotation and lottery selection of those who play public roles, things the DDF use in their Senate model.

Mostly Luce is worried that we have not learned from history, that the broad circumstances of pre 1914 Europe resemble our circumstances of today. Be warned that war is a possibility and civilisation is a very thin veneer which can easily crack apart. The similarity between Germany and England of then and China and the US of today is glaring.

He points out that the sense that autocracies are more efficient than democracies is a false sense and that England and the US were by far the most efficient protagonists of the 2nd World War. But there are many powers endeavouring to sow seeds of discontent and chaos in democracies where nothing is true and everything is deniable, and democracy is under serious threat.

He expresses concern that the retreat of the state coincides with the reduction of available work and that more jobs are becoming piece jobs, temporary and low paid and that there is a lack of respect and trust in and out of the work place. He warns that when people lose trust that society is treating them fairly, they view what the elites tell them with toxic suspicion. He warns that democracy cannot survive for long in a swamp of mutual dislike. Luce dismisses the idea of a universal Basic Income (UBI) as destroying the link between effort and reward, even as he admits that the idea is gaining ground.

He believes that protecting society’s weakest from arbitrary misfortune is the ultimate test of our civilisational worth. He calls for universal health care, humane immigration laws, links between public benefits and citizenship, scrapping micro-regulation in favour of broad guidelines, universal free speech, simplified taxes, retraining of the middle classes, a re-imagined representative democracy and divorcing money from the legislative process, if only for self-preservation, and finally he notes that we need a hero to rescue liberal democracy. “Come out, come out, wherever you are”, he implores.

I then turn to the policies of the Direct Democracy Forum and note how they largely correspond to the expressed needs or wants of Machiavelli, Rifkin, Brown and Luce.

You will find the paper Democracy at Risk at http://ddforum.co.za/publications

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