How to Fix the Democratic Deficit

Joseph Pulitzer, a Hungarian immigrant, purchased the New York World newspaper in 1883 and used his newspaper to crusade for the rights of immigrants, the poor and the working class. Until the beginning of the 20th century, inequality left both the middle and the working classes living in miserable poverty. It was democracy that changed that. Democracy was embraced because the working class, in particular, understood democratic activism to be the most effective tool they had to attack extreme inequality and maintain a check on the power of elites. If citizens only play a passive role then the real politics are shaped in private by interaction between elected governments and economic elites – elites who are not interested in the welfare of the classes beneath them. In general, the suggestions put forth by business elites on how to solve the current enormous economic problem today demand so little sacrifice on their part.1

In the 1930s unions grew because of the high unemployment from the effects of the Great Depression. Also, employers were hiring for the lowest possible wage which drove many families into poverty. In the US the Wagner Act (1935) established the right of all workers to organize and to elect representatives for collective bargaining purposes. The role of unions expanded to monitor and report exploitive working conditions. Unions are also important in allowing employees to effectively bargain for their wages and provide a support system for an employee should he or she suffer from any discrimination at work. Unions provide a check against employers who attempt to encroach on the rights of workers. Union accomplishments include higher wages, greater benefits, reduced working hours and improved working conditions. In fact, somethings taken for granted today like the weekend were won by labour union efforts.

Following the Second World War the US experienced phenomenal economic growth along with the appearance of the middle class. The 1950s is considered the decade that eliminated poverty for the great many of Americans. During this time more and more Americans considered themselves as part of the middle class. Fewer workers produce goods; more produce services. By the 1960s 35% of American workers belong to labour unions. Unions, a key driver in the creation of the middle class, are responsible for such things as reduction of work hours, paid vacation and all sorts of benefits that we take for granted. Union drawbacks include bureaucratization of work, economic inefficiencies and corruption. Riding high on postwar prosperity labour leaders paid little attention to their eroding movement. During the 1970s that erosion begins to accelerate and union power entered a decline until today only 10% of workers in the US are unionized.

Over the past 30 years neoliberalism has been institutionalized on the state level in various countries such as Canada, US and the UK. In order for the free market to function properly, it requires a firm set of rules, as well as appropriate institutions to maintain and enforce them. However, these rules and regulatory institutions must exist only on a limited scale, so as not to impede the rights of private property. This is about limiting state power in favour of private rights, as the rights of the individual to influence his or her government via the democratic process is being reduced. These institutions are part of the Washington Consensus. The Washington Consensus refers to a set of broadly free market economic ideas, supported by prominent economists and international organisations, such as the IMF, the World Bank, the EU and the US.

The World Bank and the IMF serve as dissemination platforms. Initially policies were promoted to both developed and developing countries as a way to open up new markets. Neoliberals shifted their focus from the opening of markets to ‘global economic governance’. These efforts endeavour to reshape the state in a manner that would provide a more favourable political environment to private capital. This process codifies neoliberalism on a global scale. This effort is supported by WTO and NAFTA codifying institutions’ decisions into international agreements which prevent specific economic issues from being challenged by broad popular opposition, both within nations and by local authorities and interest groups. This effectively insulates the discussion from public discussion or opposition as it removes them from the public sphere to the technocratic one. Stephen Gill observes, “… public policy has been redefined in such a way that governments seek to prove their credibility” by inspiring investor’s confidence in their respective countries via the consistency of their economic policies to the neoliberal system.2

The WTO (World Trade Organization) which was created in 1995 is a powerful global bureaucracy where unelected trade bureaucrats are empowered to decide the fate of democratically achieved laws. The same applies to the 1994 North American Free Trade Agreement (NAFTA) between US, Canada and Mexico. NAFTA established rights for foreign investors: foreign investors have the right to sue governments directly whenever they feel rights have been violated by a particular government means. In the mid-1990s Canada tried to ban MMT, a gasoline additive long suspected of being a neurotoxin (banned in Europe and California), but the Ethyl Corporation of Virginia sued under a provision of NAFTA. When the tribunal hearings indicated Canada was about to lose the case, the Canadian government settled out of court by paying Ethyl Corporation $20 million, removing the ban and issuing a public apology to Ethyl for implying its product was hazardous. In the same manner, the Trans-Pacific Partnership (TPP) imposes a corporate friendly regulatory structure that has nothing to do with trade.

Promoting free and fair trade has long been a bedrock tenet of American foreign policy. Neoliberals separate freedom from democracy – what you think a market really is seems to determine what your view of what liberty means. The myth continues – the market economy as the single most effective economic system and the greatest antidote to poverty. However, more and more as the neoliberal economic system spreads and entrenches itself in the international system we have seen a contraction in the power of democracy. There is a misconception being built that democracy cannot exist without a free market capitalist economy – despite the fact neoliberal capitalism finds many friends in the least democratic countries. The democratic deficit is disconcerting and has been especially highlighted during the current economic crisis. How has the neoliberal economic system diminished the space of popular democracy? The destruction of freedom occurs with the weakening of the power of trade unions. Parallel to that weakening has been the use and consolidation of the power of financial capital to control the media, political debate, and elections themselves. Neoliberal capitalist democracy has certain limits. It tolerates improvement, but not if the privileges of the powerful are threatened.

Paul Ryan’s new economic plan, A Better Way, promotes neoliberal capitalism that generates and legitimates extreme inequality of wealth and life conditions. These policies include mandatory work requirements and budget cuts in anti-poverty programs which are more likely to increase poverty than reduce it. Deregulation legislation cuts the teeth out of the Dodd-Frank Wall Street reform bill and Clean Power Plan. There are benefits for the very wealthy: under funding of the IRS and abolishing the estate tax paid by the richest 0.2 percent of families and estates, which not only generates significant revenue but also helps keep wealth from concentrating in the hands of a very few. The impact of Ryan’s proposal to cut the corporate tax from 35% to 20% would drop the total corporate tax collection by half. Studies have found that tax cuts under both Presidents Ronald Reagan and George W. Bush didn’t spur economic growth.

Alan Greenspan says that elections don’t much matter because, “thanks to globalization the world is governed by market forces, not elected representatives.” This supports the observation neoliberalism marginalizes the efforts of individuals and civic society groups to influence policy via the political process. In a recent report in the New York Times Thomas Freidman, three-time Pulitzer Prize winner, confirms neoliberals regard inequality of economic resources and political rights not as an unfortunate by-product of capitalism, but a necessary functional characteristic of their ideal market system. Friedman insists Hillary Clinton must inject some capitalism into her plan – more than her proposed infrastructure spending and support for small business.3 Clinton, on the other hand, wants to raise taxes on the wealthy, increase spending on job training and lower taxes on companies that hire more Americans. The vulnerability of democratic growth in the US thus comes not primarily from external threats or from internal subversion from the left or right but rather from oligarchs and their proxies who substantially impact US elections.

Faceless EU bureaucrats enforcing regulations not passed by British legislators were the central argument in the Brexit debate. The flash point was the UK not able to control the number of people coming into the country while remaining in the EU, driving concerns about levels of migration and their impact on society. Post-recession inequality feeds the popularity of Donald Trump and Bernie Sanders – the definition of inequality now includes stagnant incomes in the middle class and runaway gains among a small elite. To jump start the economy Trump takes a page from Ryan’s playbook proposing a moratorium on new regulations and a huge tax cut for corporations. To ensure workers know he understands them he promises a deduction for childcare expenses. Sanders’ message is the need to get big money out of politics and restore democracy. Super PACs enable the wealthiest people and large corporations to spend unlimited amounts of money allowing them to buy elections and elect candidates who represent their interests, not the people. A handful of people now control who gets elected and who doesn’t. An important aspect of the 2016 primaries debate was how to fix the democratic deficit.

1 Reid, Marilyn. Inequality, neoliberalism, and the unmaking of the middle class (27 Feb 2016)

Beaudreau, Joseph, and Patrick Clairzier.(15 July 2009) Neo-Liberal Democracy: A Contradiction in Terms

Friedman, Thomas. How Clinton Could Knock Trump Out (03 Aug 2016)

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