Confronted by crises

The world is faced with a confluence of crises – geopolitical, economic and ecological – that threatens the very future of peoples, nations and even humanity itself. At the root of this existential danger, contend Lim Mah-Hui and Michael Heng Siam-Heng in the following excerpt from their new book, lies a society in which market forces run rampant. How we respond to this troubling conjuncture may well determine the course, and fate, of human civilisation.

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THE COVID-19 pandemic has laid bare some of the fundamental flaws and fractures in our globalised society. These range from environmental degradation and climate crisis and broken healthcare systems to increasing political polarisation, and historic levels of economic and social inequality. In addition, we can see a highly concentrated economy that enriches big corporations to the disadvantage of smaller businesses. This discourages innovation and bolsters a financial system dissociated from the real economy, one that values the extractive over the productive, with all the attendant ecological degradation that implies. In short, we are faced with multiple crises, the cumulative effect of which is that human existence, and the civilisations it depends on, are under threat.

These crises present an opportunity for public debate, with a reassessment of the role of the market and a re-examination of how the economy became a market economy and how society became a market society. We need to question the personal, social and environmental consequences that are intrinsic in a market economy and a market society, and, while we’re at it, reformulate the goals of what they ideally should achieve.

Concepts of the market, the market economy and the market society

The concept of the market has different meanings to different people, partly because the term is employed loosely and contains several nuanced definitions. For our purposes, the market can be best understood on three distinct levels:

1 –  the market as an economic tool

2 –  the market as a social institution

3 –  the market economy, which leads to a market society.

The market as an economic tool

The economic historian Karl Polanyi argued that markets, as economic tools and social institutions, have existed for thousands of years. Markets are mechanisms for organising production, exchange and distribution. Societies have had different ways of accomplishing these goals. Prior to the birth of industrial capitalism in 18th-19th century Europe, the major forms of markets were reciprocal, redistributive, barter and exchange.

The market as a social institution

While economists view the market primarily as an economic tool for facilitating exchange, sociologists embrace a wider conception of the market. Social institutions play a role in the maintenance of social order, with culturally constructed values, norms and rules that govern behaviour. The market as a social institution evolved as a system where individuals came together for the common purpose of exchanging goods and services. Two other examples of social institutions are families, where children are raised and family members provide mutual support to each other, and religious organisations, where members share spiritual practices and goals, as well as social ties.

Social institutions are not ahistorical and universally uniform constructs. They are historically grounded and culturally shaped. They are organised or controlled by particular groups or classes and connected with other institutions, including legal and ideological entities, that they interact with, in either supportive or conflictual ways.

Markets as social institutions have become woven into the broader social structure and embedded in society. Polanyi wrote, ‘…never before our time were markets more than accessories of economic life. As a rule, the economic system was absorbed in the social system’ (Polanyi, 1957:68). To truly understand markets, we cannot look at them in isolation, but see them rather as elements or components of a larger social context.

The market economy, leading to a market society

Polanyi was interested in exploring how markets, as historically specific economic tools and social institutions, embedded in and subordinate to the higher values and priorities of society, were overturned to create a market economy that dominates society, rather than playing the initial role of serving society and the wellbeing of the people who make up that society. ‘Instead of economy being embedded in social relations, social relations are embedded in the economic system,’ he wrote in his book The Great Transformation (ibid.:57). ‘A market economy is an economic system controlled, regulated and directed by markets alone’ (ibid.:68).

Markets within the economy took over the economy to become a market economy. A market economy is one where production and exchange is based on the process of competition between individual agents motivated by the single aim of achieving maximum profit. It implies all production is for sale on the market, and all goods and services exchanged have a price determined purely by supply and demand. Additionally, the transformed economy becomes an entity separate from the political sphere. Any attempts by governments to regulate the economy are perceived as interference.

A market economy cannot function unless society is subordinate to its requirements. Not only are produced goods and essential services exchanged and traded, but natural elements of life, like human beings and land, are also turned into commodities and traded. Man becomes labour, land becomes real estate, each with its own market price. This transformation of land, labour and money (an essential element in trade and industry) creates what Polanyi calls fictitious commodities. Left to its own logic and devices, the unregulated or self-regulating market must inevitably wreak havoc on people, nature and economy.

In modern-day society, the commodification or marketisation process has reached extremes. Market values penetrate all spheres of life, transforming society into a market society (Sandel, 2013). These values seep into personal relations, communal life, law, education, health, culture, politics, prison systems and the environment. Sandel highlights, as examples, the purchasing of Ivy League eggs and sperm, paying to jump queues, paying for prison cell upgrades, buying pollution permits through carbon trading, monetary rewards for reading and good grades, money exchanged for immigration status, etc. As he says, ‘the logic of buying and selling no longer applies to material goods alone, but increasingly governs the whole of life.’ Education becomes a tool to train people to be cogs in the wheels of business and industry, and much less about forming well-rounded citizens capable of critical thought. People are reduced to digits in the market, rather than citizens who function with democratic responsibilities. Sandel laments the cultural, social and moral costs of marketisation. He points out that marketisation sharpens the sting of inequality, as more and more people are increasingly shut out from accessing basic needs and public goods.

Furthermore, marketisation corrupts the fundamental values of life. Putting a price on everything corrupts good social practices and transforms the nature of the goods transacted. Market values crowd out non-market values, as in the traffic of human organs, whether legal or otherwise, or the purchase and sale of blood and plasma ‘donations’, which crowd out the altruistic values of compassion and sharing, while encouraging the unethical behaviour of selling infected blood, or even the sale of organs from ‘donors’ whose organs are harvested without their consent (Titmuss, 1970; McLean and Poulton, 1986).

Under a self-regulating market, everything in life is reduced to and measured in terms of price. Price is equated with value. A thing that has no price has no value. By extension, housework and the vital task of raising children, mostly done by women, is unpaid and thus deemed to have no intrinsic value in the view of the market. The gender imbalance in the market economy is deeply embedded in social customs and norms.

Re-embedding the market into society

As discussed above, markets as an economic tool and social institution play an essential function in societies. In a modern economy, the market’s price mechanism aids in deciding what to produce or exchange. The market is an efficient tool for discovering price and allocating resources. Price signals to producers and traders what and how much is demanded, and, based on that information, how much to supply. This is particularly true for consumer goods and services.

In microeconomics, the lower the price of a good or service, the greater the demand, and higher the supply, until an equilibrium is reached. However, there are some types of consumer goods where price does not follow this ‘law’ of supply and demand. One example is luxury goods. Subject to socially driven conspicuous consumption, a higher price signifies exclusivity and bestows prestige on consumers who bask in the glow of jealousy and admiration of those who cannot afford these goods. This type of compensatory materialism is rooted in deep-seated psychological insecurities that the market is only too happy to exploit and exaggerate. Buy this product because you’re worth it, goes the unspoken message; if you don’t buy this product, you are worthless. Again, the consumer’s worth and value as a human being can be cleanly measured in monetary terms. But this preying on affluent consumers is just a means to an end. The market cannot resist an economic sector where a higher price produces a greater demand, with a subsequent higher profit margin.

Another example where the normal ‘rules’ of supply and demand don’t always apply is in the financial markets with products such as stocks and bonds. Here a rising price often spurs demand, driven by greed and expectations of an even higher price or greater returns. This in turn sends the price higher yet, and the cycle continues until a bubble forms, which inevitably bursts with a corrective and often catastrophic pop, as in the historic subprime mortgage crisis of the first decade of the 21st century. Such behaviours are driven more by speculation and future expectations, than by the rational satisfaction of essential human needs. In sum, financial speculation and crashes are inevitable in an unfettered market and it can be argued that if the market is to be truly free then these market failures are unavoidable.

Leaving aside these exceptions, even as a pricing and allocative mechanism, the limitations of the market should be recognised. There can be failures in planning, but not too infrequently the failures of the market are even larger and more consequential. Markets fail for a number of reasons. Unregulated markets generate what are known as externalities. Externalities are costs generated by private parties that are passed on to the public. They are not priced into the overheads, because businesses do not pay for them. For example, Amazon doesn’t pay for the upkeep of roads, the public pays for roads through taxation. Yet these roads are essential for the shipping and delivery of the products the company sells. It could be argued that a business indirectly finances these things by paying taxes as well, but that argument quickly collapses when a business is allowed to function without being obliged to contribute much or even anything in taxes.

Externalities impose huge costs on society and the environment, as in the case of industries failing to curb pollution in the course of production. Externalities are one of the most significant factors in accounting for pollution and climate change. Banking is another sector that generates enormous externalities. This will be further discussed below.

Another failure of unregulated markets stems from informational and power asymmetry. Often market participants do not meet on equal footing, with one party possessing more information and hence more power. This asymmetry encourages morally hazardous behaviour, adverse selections of outcomes, and generates excess benefit or rent to the party with more power. In short, markets should either be stringently regulated or not be permitted to operate in industries with high external and social costs, such as in finance, and industries that have an adverse impact on the environment.

Another area where the market should not operate as the organising principle is in the realm of public goods and services that should be made freely available to all members of society on the basis of human rights, rather than on the ability to pay. Examples of these goods and services range from the mundane, like street lighting and public roads, to the more fundamental, like safety, basic shelter, clean air, health, education and national security. A decent society guarantees not only freedom of thought, speech and association; it should include freedom from hunger, from ignorance and from unwanted exposure to bad weather, as well as bolstering values of equality and fraternity. These are fundamental values in a fair society.

Human society cannot simply be run on the principle of efficiency. Market mechanisms as an economic tool should not dictate the values or goals of a society. A society whose success is measured in market terms alone would be a fascist society. Those who are not deemed productive or not aligned with the impulses of a market-driven society are discarded, imprisoned or even culled.

The foundational values of human society – dignity, integrity, kindness, liberty, social justice, equality and compassion – all serve towards the goal of human development to the fullest. That these values are clearly an anathema to the market society should be reason enough to question the logic of such a society. The market and the principle of efficiency should only ever be means to serve the ultimate good in society. What is good for society clearly cannot and should not be determined by or in a market. These are things that can only be established in non-economic spheres and should be subject to public debate, reason and empathetic thought. When means, such as efficiency, come into conflict with ends, the former should make concessions to the latter. Markets and efficiency cannot determine or dictate the fundamental values of society.

Re-embedding finance into the economy and society

Finance plays a vital role in the real economy, and should serve its needs. However, finance has become an oversized sector in and of itself, more engaged in extracting value from rather than creating value in the economy.

Here we argue that for finance to serve society and the real economy, large conventional banks and financial institutions should be downsized. Additionally, their disproportionate influence should be trimmed back and better regulated, with the state promoting and providing more support to alternative banking and financial institutions that can better serve the needs of the economy and society in general.

Not all banks are predatory and disembedded from the real economy and society. Community banks, savings banks, social banks, cooperative banks and state-owned public banks all serve the real economy while embracing the broader objectives of society. The share ownership structure and the mission of these banks are different from those of profit-oriented private banks. While maintaining financial viability, they are also committed to fulfilling social objectives. We will examine these different types of banks in turn.

Community banks

Far from the competitive capitalism envisaged by classical economists and touted by neoliberals, we live in an age of monopoly capitalism, where large corporations control the economy. Even mainstream economists lament this excessive concentration of power and capital. The financial sector is highly concentrated. The US has a dualist banking structure. Of the 5,000 banks in the US banking industry, just 3%, or 148 large banks – defined as those with assets of over $10 billion – account for 85% of total assets. The remaining 97% of banks are smaller community banks and control just $3.2 trillion, or 15% of total assets, in the US banking system. Typically, the individual assets of these community banks are between $100 million and $500 million, with only a few with assets over $1 billion. In 2020, the US had 4,918 community banks, down from about 7,000 in 2003 (Bankingstrategist.com; Federal Reserve Bank of Kansas City, 2003).

Unlike conventional large banks, whose activities are widespread, community banks are more focused on their local neighbourhoods, where their depositors live and work. They play a vital role in supporting small businesses in rural communities, and help keep local communities vibrant and growing. Community bankers are typically deeply involved in local community affairs.

A study by the Federal Reserve Bank of Dallas revealed that community banks in the US held up much better during the 2008 global financial crisis compared with the big banks (DallasFed, 2012). They were more customer-focused and better supported their communities during the crisis. They were an oasis of stability, despite the challenges they face to maintain a market share and the disadvantages they face in shouldering the burden of regulations meant to police big banks.

The Dallas study concluded: ‘For a prosperous future, the nation must find lasting financial stability ... but where? Not in the big financial institutions at the center of the recent crisis …  America’s numerous community banks demonstrated stability during the crisis and its aftermath. Imparting their virtues to the financial system as a whole will require the end of financial institutions that are too big to fail’ (ibid., italics added).

Social banks

While community banks are still profit-oriented, social banks are less so. Social banks are a subset of social enterprise concerned with making positive social and environmental impacts through lending and investments. The idea of social banking was pioneered by Rudolf Steiner and Silvia Gesell, who lived in the late 19th and early 20th centuries. They also promoted alternative ideas of associative and free economies.

How do social banks work? What makes them distinct? Unlike normal commercial banks glued to a single bottom line of maximising profit and shareholders’ value, social banks are guided by a triple bottom line philosophy of serving people, planet and profit. In other words, their mission encompasses social, environmental and financial objectives. Investment decisions are guided by three criteria:

1 – Providing finance to those who need, rather than those who have

2 – Funding projects that must have positive social, economic and environmental value

3 – Financial viability.

Money and monetary profit are not ends, but rather the means to achieve the other two objectives. A study by Weber (2013) of 25 social banks in six continents found that, despite embracing non-pecuniary objectives, social banks were able to follow their mission of social finance and the prioritisation of social impacts over financial returns, without neglecting financial sustainability.

Presently, the number and size of social banks globally are minuscule compared with conventional banks. There is no comprehensive data on social banks. The closest is a list of members of the Global Alliance for Banking on Values (GABV). As of September 2020, it has 63 financial institutions and 16 strategic partners operating in countries across all six continents. Collectively they serve more than 70 million customers, supported by more than 77,000 co-workers, and hold over $210 billion of combined assets under management.

Triodos, one of the largest social banks, has $18 billion in total assets and funds under its management. Its commitment to objectives other than profit making is reflected in its lending and financial statistics. The bank is financially sustainable, with an average annual net income of $45 million, and an average return on equity (ROE) of 4% over five years from 2014 to 2018. In contrast, JP Morgan had $2.6 trillion in assets, $32 billion in net income, and an ROE of 13% (JP Morgan, 2018).

A case can be made that banks serving the real economy and society should behave like public utilities, with stable, financially sustainable and socially acceptable rates of return. The constant over-reach for high rates of return for shareholders pushes banks to engage in activities that are speculative and risky, leading to crises with high costs to society.

Social banks are focused on investing in and serving the community, supporting ethical and environmentally friendly projects. Triodos, a Dutch social bank, has 715,000 customers supported by 1,427 co-workers. Triodos’s loans fund projects in education, organic agriculture, recycling, renewable energy, health food stores, affordable housing and poverty alleviation.

Social banks are concerned not only with their external impact, but also with the internal structure of their organisation. There are two basic ownership structures – a cooperative structure where the bank is collectively owned by members, and a more traditional share ownership structure. Interest rates on loans in social banks are typically lower than those charged by normal private banks. Dividends paid to shareholders are also lower than those expected in normal private banks. Social banks limit the salary differential between senior management and ordinary staff to reasonable levels. In Triodos, the ratio of highest to median salary is 5.5 times (Triodos Bank, 2018). By comparison, the ratio of CEO to average employee pay for S&P 500 companies today is 278 times. If counting the number of working days in a year, that equates with a CEO earning more than the equivalent of an average employee’s annual salary in a single day.

The philosophy of social banking is based on an anthropomorphic concept of money and capital, meaning that the value of money is not intrinsic but socially constructed. Money is not a material thing but a social relationship of mutual trust and cooperation between people. Paper or digital money is exchanged for real goods and services based on trust. Money is not to be accumulated but to be circulated, to be used productively, to be shared (loaned or donated). Like blood, money is healthiest when it circulates. Social banks eschew speculation in favour of financing the real economy.

Public banks

Another category of banks that are clear candidates for serving society’s interests is public banks or state-owned banks. Public banks operate at national, regional and international levels. Examples of national public banks include the Brazilian Development Bank and the Korean Development Bank. Regional public banks include the Asian Development Bank (ADB) and the African Development Bank. On an international level, the World Bank is a public bank. National public banks are owned by the government of that country, whereas regional and international public banks are owned by member-state countries. Some national development banks, like the Brazilian Development Bank, are bigger in size than regional banks like the ADB. Historically, state-owned development banks played a vital role in the economic development of countries like Japan, Germany and South Korea, providing long-term financing for projects and industries that were critical for economic development. According to a World Bank report, public banks account for a quarter of global banking assets in 2012, rising to 30% in the European Union, and even higher in some developing countries.

Public banks, being state-owned, have a clear mandate to support national development plans and international sustainable development goals, to prioritise the public good over private profit, to hold long-term perspectives, and to deliver the type of patient capital needed for massive structural and infrastructural transformation required to transition to a greener and more balanced economy. Public banks also have reliable and sufficient financial resources from governments. They can work closely with central banks, supported by capital account management, trade, industrial, environmental and income policies of governments.

Central banks should reclaim the role they played during the period between the 1930s and the 1970s, which included not only safeguarding financial and price stability, but also promoting development objectives, such as full employment, credit guidance and government debt management. Central banks were important agents of national development. More recently, the Prime Minister of New Zealand asked its central bank to broaden its functions to include introducing monetary policies that address the housing crisis and a potential housing bubble in the country.

Since the late 1970s, with the growing influence of the free market and monetarism, the role of central banks has narrowed to maintaining price stability and targeting inflation. Central banks can reclaim some of their historical role as agents of development. One area in dire need is creating and directing capital in favour of projects with high impacts on reducing or slowing the rate of climate change.

A more recent public financial institution is the phenomenon of the sovereign wealth fund (SWF). Most SWFs were set up by countries that enjoyed windfall revenue from natural resources like oil and gas. Examples include Norway’s SWF, those of most Middle East countries, and the SWFs of Malaysia and Singapore (though Singapore is exceptional in that its wealth is not derived from natural resources). SWFs are publicly owned assets that could play the kind of patient capital role envisaged for catalytic state investment. They have considerable firepower, with assets estimated at $8 trillion, of which $7 trillion is owned by funds of developing countries. However, most of these funds see their role as being one of maximising returns, rather than boosting national development. For the most part, they do not play any kind of transformational role, of the kind needed to redirect the economy to a more sustainable pattern of production, consumption and trade. Some notable exceptions are the Norwegian SWF, which has blacklisted at least five companies engaged in coal mining. Another is the New Zealand Superannuation Fund, which has long been following green investment principles. In Turkey, the SWF used its sizeable public assets to help recapitalise national development banks. More SWFs should walk this road rather than the path of maximising returns.

There are two major obstacles, mainly political in nature, to putting the financial genie back into the bottle. Both result from state capture by big corporations and wealthy elites. The first is the influence and power of financial lobbies over politicians, particularly in the US where it is sometimes euphemistically referred to as ‘pay to play’. Removing corporate infiltration requires huge domestic reforms that can only succeed if there are stronger political and civil society movements. The second influence comes from global regulatory coordination and governance. Finance has become so internationalised, and capital so footloose, that any regulation and change undertaken by or in one country can easily be subverted by corporations moving the same financial activities to other countries. This regulatory arbitrage is the biggest challenge facing countries attempting to close down illegal financial activities or plug tax loopholes.

Defanging the market in politics

Western neoliberals equate capitalism with democracy. In essence, however, capitalism and democracy are incompatible. They operate along different principles. Capitalism is market-economy-driven and controlled by private owners for profit. Democracy is a political system where citizens are supposed to have equal rights in making policies and laws. There are two levels of democracy – participatory democracy and representative democracy. Capitalism fails them both.

The essence of democracy is to have people make public decisions that affect their lives, empowering citizens as agents of history. This is the objective of democracy. It is best practised at the local level, where communities can gather to deliberate and decide on local issues. Even at a national level, citizens enjoy equal rights to decide on important national issues through referendums.

Because modern society is large and complex, the idea of electoral or representative democracy emerged. Citizens choose representatives to sit in legislatures to make political decisions on their behalf. The principle of equality – one person, one vote – works when selecting representatives. But it fails miserably where laws and policies are made. At this level, where real power resides, the principle of ‘one dollar, one vote’ operates. Money politics is particularly blatant in the US, where corporations spend an annual average of $3 billion to fund political campaigns so that politicians make decisions in their interests. These financially influenced decisions range from lax financial and environmental regulations and restrictive intellectual property rights, to the reduction of corporate and capital gains tax, etc. In the words of lobbyist Lauren Maddox, ‘the policy process is an extension of the market battlefield’ (cited in Reich, 2007:146).

Another method of state capture is through the practice of revolving doors, where leaders in the corporate sector become cabinet members, and high-ranking government officials move into the corporate sector whose interests they have served upon leaving office. State capture by corporate interests is more pronounced in the US and in the UK compared with European countries.

Democracy fails when social protection is unmet and the state is captured by the corporate sector. The marketisation of politics, and the economic polarisation of society, leave ordinary citizens feeling excluded, alienated and angry. They respond in one of two ways. The first is a movement towards populist politics that can easily cascade into fascism. The second path is where citizens seek to articulate their interests through the civil and public sphere.

In the 21st century, instead of a clear counter-movement for social protection against marketisation that Polanyi painted for the 20th century, there is a vast array of social struggles that are not necessarily class-based or focused. These movements range from anti-racism, feminism, gender liberation and climate movements to anti-war, anti-globalisation, etc. Fraser (2013) terms these projects as the triple movement, which seeks redress beyond social protection from marketisation, to include emancipation from domination. Examples are Occupy Wall Street, Extinction Rebellion, feminist and Black Lives Matter movements.

Civil society is a sphere that is neither economic nor political. The concept of civil society grew out of what Habermas (1989) termed the ‘bourgeois public sphere’, where marginal groups in mid-19th-century European society gathered, outside of the influence of market and state and church relations, to engage in critical debate on issues of public concern and common interest. The public sphere is an arena for discursive relations, not market relations – a theatre for deliberation, not for buying and selling. One of the main functions of the public sphere was to subject the state to critical scrutiny and the forces of public opinion.

Today, civil society is much more diverse and broader than the original public sphere. The European Union defines civil society as ‘all forms of social action carried out by individuals or groups who are neither connected to, nor managed by, the State’. The African Development Bank regards civil society as the ‘voluntary expression of the interests and aspirations of citizens organised and united by common interests, goals, values or traditions and mobilised into collective action’.

Civil societies play critical roles in society, offering avenues for ordinary citizens, shut out from state and market, to organise and articulate their interests, and in the process empower communities. They encourage citizen engagement and promote participatory democracy; they give voice to the marginalised; they provide platforms for alternative policies and visions to establishment ideas; they act as watchdogs, monitoring state actions and promoting accountability and good governance.

The need for global governance

There has never been a greater need for stronger global governance, yet centrifugal forces are formidable.

For years there have been voices arguing for the need for governments all over the world to establish a new set of modus operandi to deal with global problems. COVID-19 is the most recent problem of this nature. Other examples are pollution, organised crime, climate change, money laundering, tax havens and terrorism. As the world becomes more integrated through economy and technologies, these problems have a deeper and wider global reach. Global problems require global solutions. They cannot be dealt with by a single country, or even by a group of cooperating countries. Global solutions in turn require global solidarity and cooperation, which requires a kind of global governance where all countries cooperate. The refusal of a few rogue countries to comply can ruin the entire project, as can be seen in the persistence of tax havens that facilitate tax evasion.

Theoretically, sovereignty allows a country to carry out policies with negative spillover effects on other countries. Yet such spillover is common in global problems. If we are serious about tackling global problems, it makes sense to rethink the concept of sovereignty. Ceding some degree of sovereignty to appropriate international bodies with the authority and responsibility to pull together collective financial, technological, logistic and human resources to solve the problem assigned to them is necessary. It is easy for parochial nationalists to criticise these bodies as remote and elitist. Instead of echoing such views, it is more constructive to monitor their performance, to demand that they produce results, and to ensure that their members or delegates are not paid excessive salaries.

One concrete experience of downsized global governance is the European Union. The EU is supposed to represent the most advanced form of ‘miniature global governance’. It was even awarded the Nobel Peace Prize in 2012 for its contributions to peace, reconciliation, democracy and human rights. Yet in the same year, it did a disappointing job in helping Greece during the eurozone crisis. Since then, it has lost much of the admiration the world had for it as a body capable of effectively solving collective problems. The progress, failures and difficulties experienced by the EU in its endeavours to manage shared problems offer useful insights for global governance. Given that there is a gap between the EU as a regional body and the world as a whole, its problems and solutions need not be the same. But there are certainly some useful lessons, for example, on how to manage the degree of sovereignty that needs to be ceded in the interests of tackling shared problems. Brexit hinges on the perception that EU member states are asked to surrender too much sovereignty. But leaving the EU seems likely to be less beneficial to the United Kingdom and its citizens than remaining within the EU.

Other examples of forms of global governance or oversight are the United Nations, the World Health Organization, the World Trade Organization, and international agencies that regulate air traffic, marine traffic and even sports.

The worsening of global problems shows that there is a mismatch between the damage humans can cause and the capability of global governance. It is easy to blame governments. It is fair to some extent, and it is more valid in autocratic and authoritarian states, where citizens have little or no influence on their governments. But in the case of actual functioning democracies, the responsibility is diffused. Citizens in democracies can exert decisive influence on the behaviour of their leaders, most vividly demonstrated in Scandinavian countries. In the case of global governance, voters must acquire an international consciousness, so that they can reject the parochial nationalist agendas of their governments. They can and should pressure their governments to sign on to global projects to protect the environment, to slow down and then reverse global warming, to combat epidemics and pandemics, among other global problems. Straddling between government and citizenry are non-governmental organisations (NGOs), religious organisations, mass media and businesses, which at the atomic level essentially consist of ordinary citizens. These organisations act as conduits to influence state policies on a continuing basis, while voters mainly exercise decisive influence during elections.

Prospects for change

We are experiencing the most severe health and economic crisis since the Spanish flu of 1918 and the Great Depression of 1929. But every crisis offers opportunities for change.

Referring to the 2008 global financial crisis, Rahm Emanuel, former Mayor of Chicago and one-time chief of staff to Barack Obama, is often quoted as saying, ‘Never let a good crisis go to waste.’ But will the COVID-19 crisis elicit radical changes, and if so, in which direction? On this there is less agreement, not only from people with different political leanings, but even from people with similar political views. Yanis Varoufakis, economist and former Finance Minister of Greece, said, ‘We are sitting on a saddle point, prepared to tip in either direction. It is utterly indeterminate which of the two directions we travel’ (McWilliams, 2020).

Rutger Bregman, a Dutch historian and commentator, thinks the time is ripe for a move away from the neoliberal ideology that has dominated the world for the last four decades. But a move away to what? That depends on the ideas that are lying around. He cites the example of the US economist Milton Friedman and fellow members of the Mont Pelerin Society (MPS), who laid the intellectual groundwork of the free market. When the economic crisis of the 1970s erupted, they pounced on the opportunity to replace Keynesian ideas and policies with neoliberal ideas. Their ideas, once marginal and seen as radical, were put into practice by politicians like Thatcher and Reagan and became mainstream. The influence of the doctrines of the MPS was so pervasive that these ideas were later adopted by their political opponents like Tony Blair and Bill Clinton. Neoliberalism became the zeitgeist of an era that has endured for four decades.

Bregman (2020) thinks a similar opportunity may be present in today’s crisis, where ideas that once seemed radical and on the fringe can become mainstream. He refers to an editorial in the Financial Times, known for its staunch conservatism, that advocated for the need for radical reforms that would reverse the policy directions of the last four decades. These reforms include accepting that governments play a more active role in the economy, seeing public services as investments rather than liabilities, making labour markets less insecure, and redistributing wealth and income through a wealth tax and basic income. Bergman goes on to point out that the ideas of non-mainstream economists like Milanovic, Piketty, Mazzucato and Kelton have gained more prominence.

Inequality, long ignored by mainstream economists as a side issue unworthy of study or, even worse, labelled by Robert Lucas, a Nobel Prize recipient, as poisonous to sound economics, has now taken centrestage. Not only economists but policymakers like US Treasury Secretary Janet Yellen and International Monetary Fund (IMF) Managing Director Kristalina Georgieva, Li Ka-shing, once the richest man in Asia, and world elites at the World Economic Forum are now forced to pay attention to this problem.

Contrary to political scientist Francis Fukuyama’s hubristic and premature claim of the ‘end of history’ 30 years ago with the apparent dominance of Western liberal democracy and the market economy, the contest for leadership and for hegemony between different structures of political and economic organisation is very much alive. What political and economic regime will the world choose? Will it be one capable of addressing the cumulative global existential threats we face, whether as individuals, nations or even as a species? These are the defining questions of our time.                                         

Lim Mah-Hui has been a university professor and banker, in the private sector and with the Asian Development Bank. He is Chair of the Board of the Third World Network. Michael Heng Siam-Heng is a retired professor of management studies and was associate editor of the business weekly Asia360˚.

       The above is excerpted from Chapter 6 (‘What Next?’, pp. 140-162) of their book COVID-19 and the Structural Crises of Our Time (2022). It is reproduced here with the kind permission of the publisher, ISEAS – Yusof Ishak Institute, https://bookshop.iseas.edu.sg.

References

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*Third World Resurgence No. 352/353, 2022, pp 10-17