Politics against markets - again

With the imposition of technocracy in the Southern periphery of the Eurozone and the challenge from extreme right parties in France and Holland, commentators are starting to notice that there is a legitimacy problem in European politics (for instance, Tony Barber Europe must confront crisis of legitimacy - FT.com). Political parties were accepted by mass publics in the postwar period because they guaranteed economic progress and security through the welfare state; the turn to austerity breaks this pact and throws the party system into disarray.

To which I might add - welcome to the real world. The crisis of legitimacy in mainstream party politics is not a novelty, but represents trends that have been present for quite a while (even a quarter of a century in some cases). Parties are challenged because of two parallel and inter-related trends: the decline of mass participation through political parties, and the success of an economic theory that was inimical to the idea of popular intervention in economic policy. Markets would provide individuals with choices, but collective action to shape markets should be minimized, and where possible, eliminated.

In response to the depoliticization of economic policy through institutions like independent central banks, fiscal rules and European-level regulation, demands for popular participation in the management of the economy could no longer be articulated through the mainstream parties which had, almost without exception, bought into the new model. Not surprisingly, voters that were unhappy with the new arrangements turned to 'outsider' parties, and outsider parties, again unsurprisingly, tended to be populist and often extremist. A common theme in the populist turn, above and beyond the ignorant racism to which they often appeal, is the demand for an end to the 'cosy cartel' of the mainstream parties, and protection against markets (usually in the form of opposition to globalization and immigration).

So the trend towards populism has old roots, although the crisis and the absurd reliance on austerity to respond to it has thrown fuel on the fire. In dire economic times, governments tend to be thrown out. If oppositions offer no alternative to incumbents, then populist success is to be expected. If anything, it's surprising that Marine Le Pen won only 2-3% more votes than her father had in much happier economic times a decade ago.

All this points, at least for me, to one conclusion: that the attempt to take the politics out of economic policy has failed. It has failed economically, that much is obvious, but it has also failed politically, by alienating people from a political process that they sense is designed to ignore their views. The crisis is not just the result of reckless greedy private bankers, it is also a failure of the central bankers who were protected from democratic pressures because that was supposed to allow for better policy.

We need new economic institutions, and we need to build popular support for these new institutions. Politics and markets have got to be made to coexist.