Market Liberalism against Democracy

by Henry on June 22, 2010

Charlemagne writes about European Commission officials.

I would not be astonished if a majority of the [British] public assume that EU officials are primarily motivated by pay, perks and privileges. Actually, from Mr Farage’s point of view, I suspect the truth is still more worrying. EU officials, in my experience, want “more Europe” because they want “more Europe”. … EU officials live in a world in which nationalism is the great evil. … They are often highly educated, in a geeky sort of way … The town’s defining ethos of anti-nationalism is often admirable. EU officials are easy to get on with, and a decent bunch in my experience. But it brings problems: I find a lot of people in this town at best naive about how much integration public opinion will accept, and at worst a bit hostile to democracy. Get a Brussels dinner party onto referendums, and hear people rave about the madness of asking ordinary people their opinions of the European project.

I found this pretty interesting because I was thinking about writing a piece last week about how Charlemagne himself represents a political tendency that is “a bit hostile to democracy.” The occasion of this critique was his linking to a piece that he wrote under his own name before he worked for the Economist which is all about how one needs to have restraints on national level democracies for the European project to work.

The internal market was always an overtly political project, which required leaders like Mrs Thatcher to swallow their doubts and sign away great slices of national sovereignty in the hope of prising open other nations’ closed markets. The paradox cannot be escaped easily. A single market is good, perhaps even vital, for Britain’s national interests. But if you want the single market to work, you need a strong Commission, and that means the Commission has to tell national governments what to do. … The Commission is also threatening court action against Poland, for blocking a bank merger, and against Spain, for proposing a shotgun marriage between two Spanish utility giants after one of them was eyed up by a German suitor. The forces at work behind such mergers are hardly pretty — populism, election-year panic and the defence of cosy local cartels.

I think these arguments are defensible – although I certainly don’t agree with the underlying political principles that animate them. But they surely don’t smack of faith in democracy, and carry a distinct hint of skepticism about “asking ordinary people their opinions of the European project” when it comes e.g. to cross-national market regulation. That way lies “populism,” “election-year panic” and all manner of other things that are “hardly pretty.” Far better to delegate this sort of thing to specialized institutions, which can be trusted not to give in to popular pressure.

I’m not particularly holding Charlemagne (or, rather, David Rennie) up for specific and personal criticism here. I find him an unusually – and indeed sometimes admirably – clear minded exponent of a set of views that I disagree with vigorously. Precisely because he is so clear minded (and also sometimes able to entertain facts and ideas that cut against his views), I learn a lot from reading him.

But this also means that he provides a good window on a certain vein of market liberal thinking about the European Union, which I think has some worrying internal contradictions. On the one hand, (here, I sketch a broad, but I think not inaccurate outline) market liberals like Rennie genuinely believe that democracy is a good and wonderful thing. They worry (and for good reason) that many in Brussels and in various national capitals view public approval as at best a hurdle that has to be cleared in order to create a proper European Union, and at worst as a positive menace. But on the other, they also believe that the European Union – properly conceived – should really be a free market, with appropriate institutions (primarily the Commission and ECJ) to keep member states in line on market integration issues, and a Council of member states that can reach agreement on other topics where there is some potential for real agreement.

The problem is twofold. First – there is no evidence whatsoever that the kind of market integration that liberals like Rennie like, and would like to see prevailing against populism and election year pressures, have even a smidgen more democratic legitimacy than the kinds of integration that they worry would go too far. You can plausibly argue that democratic publics might want to delegate some aspects of economic decision making to independent transnational agencies. You can’t reasonably argue that the ‘people’ have been asked whether they want to do this, any more than they have been asked about other aspects of integration. I’ll go further – if national referenda were held tomorrow on e.g. the powers of the European Central Bank, and the Commission’s competition authority, I’d bet a large sum of money that both these would be rejected by thumping majorities across a majority of EU member states.

Second – the part of the European governance system that is most ‘democratic’ (and hence most likely to counterbalance the anti-democratic tendencies of e.g. the Commission and the Council’s permanent staff (which not many people focus on – but which plays a quite important role in policy making) – the European Parliament – is exactly the part of the EU that market liberals most detest. They frequently fulminate about grandstanding, self-regarding, self-serving actions by MEPs. Which is fair enough, insofar as MEPs do indeed tend to be self-regarding, self-serving grandstanders. But perhaps not so fair, insofar as this is a nearly universal tendency among democratically elected politicians, including (as the last couple of years have unhappily demonstrated) those serving at Westminster. That politicians tend to be venal is not in itself an argument against democracy.

As I’ve said before, I’m reasonably sure that the real reason why pro-market liberals don’t like the Parliament is because they would really prefer the European Union to be a technocratic exercise in market governance, with a minimum of actual democratic politics to muck it up. But – and this is the point – you can’t have it both ways. If you want to criticize people who want further integration as being a wee bit insensitive to the need for democratic legitimacy, you can’t simultaneously maintain that we need a tough, powerful Commission to prevent member state governments from yielding to the temptation of listening to what their voters want. At the least, you need some theory of why Commission powers over the market are democratically legitimate (while the other stuff that you don’t like is not) – and this seems to be signally lacking in the market liberal account. There’s no good way that I can see to root such a theory in the actual preferences of democratic publics, and market liberals profoundly dislike the only other plausible source of legitimacy – the European Parliament.1 The best argument that I think market liberals can come up with is that these kinds of arrangements are what the public should want if it were properly informed – but this would be exactly the kind of wishful thinking and projection that Rennie/Charlemagne very rightly disparages in Eurocrats.

1 An alternative might be to argue that market-making powers are unproblematic, since they are delegated within member states all the time. Andrew Moravcsik has made this claim in various places. However, this claim seems to me to be profoundly unconvincing – because within national democracies, these powers can easily be taken back if they are abused. Not so much if they occur in an international context such as the EU, where member state unanimity is required to make Treaty modifications that might be necessary to rein in insubordinate institutions.

{ 25 comments }

1

FreebornJohn 06.22.10 at 9:59 pm

A liberalised single market can be ‘output legimised’, i.e. it has been known since the time of Adam Smith to produce better long-run results than Protectionism or mercantilism. This might legitimate an independent Commission with strictly limited powers to enforce the single market. But the general matters of politics must always be democratically legitimated and are therefore not suitable for a delegagated authority like tue Commision. That is why the original split between the first pillar of EU law and the other intergovernmental areas was so much better than we.have under Lisbon. You can’t have one decision-making method both for the single market and high-saliency political issues that are better decided by the democratic institutions of the nation-state.

2

Antoni Jaume 06.22.10 at 10:26 pm

“[…]against Spain, for proposing a shotgun marriage between two Spanish utility giants after one of them was eyed up by a German suitor. “

That is not what happened. One utility wanted to buy the other, and the guy at the top of the would be adquisition did everything in his power to avoid his eviction, as he was put in this position by the previous government, and called the german company. in the end an italian company did the adquisition.

3

FreebornJohn 06.22.10 at 10:48 pm

As for the European Parliament, it should simply be regarded as a failure. Since 1979 federalists have pointed to it as the answer to the EU democratic deficit, for more than 30 years every change in EU treaties has increased its powers, and the EU crisis of democratic got worse with each such treaty and not better. If a multinational parliament cannot derive a real democrwtic legitimwcy of its own, and if powers granted to it come from national parliaments and governments that do have democratic legitimwcy, then the EU Parliament cannot serve any useful purpose because EU democratic legitimacy would actually be stronger if all EU decicions were taken by heads of government and cabinet ministers in the EU Council and Council of Ministers without any input from the EU Parliament. Better to declare after 30 years that the EU Parliament has been a complete failure in legitimating EU decision making and simply shut it down.

4

Ombrageux 06.22.10 at 10:55 pm

Congressional staff tend to start out bright-eyed and idealistic. After about two weeks, ask them what they think public opinion..

5

Lime 06.23.10 at 7:10 am

FreebornJohn writes “A liberalised single market can be ‘output legimised’, i.e. it has been known since the time of Adam Smith to produce better long-run results than Protectionism or mercantilism. This might legitimate an independent Commission with strictly limited powers to enforce the single market. But the general matters of politics must always be democratically legitimated and are therefore not suitable for a delegagated authority like tue Commision.”

Let me get this straight, an independent commission on market governance need not be democratic. Why? Because anyone who disagreed with their decisions on how to govern markets would clearly be wrong. Is this really your position?

6

Tim Worstall 06.23.10 at 7:41 am

“That politicians tend to be venal is not in itself an argument against democracy.”

But it is an argument in favour of market liberalism. Removing a large chunk of decision making from said venal politicians and leaving it to the interaction of producers and consumers appeals as an idea (well, it does to me at least).

And as to the contradiction: that market liberals end up supporting the Commission’s enforcement of the Single Market rules in that anti-democratic manner. But this market liberal doesn’t. Entirely happy for no one at all to enforce such rules (OK, you need courts to enforce contracts).

Rennie’s error, to my mind, is in this:

“The internal market was always an overtly political project, which required leaders like Mrs Thatcher to swallow their doubts and sign away great slices of national sovereignty in the hope of prising open other nations’ closed markets.”

And it’s an error that all too many people make. We shouldn’t care about “prising open” other markets. We shouldn’t care about exports. “Free” markets are about consumption. About imports. “Imports are going shopping, exports simply the drudgery we must do to pay for them” as someone or other said. If France or wherever doesn’t want our production fine, bully for them. It is they who become poorer, not us.

This is simply an extention of Smith’s “the purpose of all production is consumption” and underlies the claim that the only rational policy is unilateral free trade. You want to ban your citizens from buying our fine products (or make them more expensive through tarrifs etc) well, you just go ahead and make your citizens poorer then. We’ll still not put barriers in hte way of our citizenry getting richer by consuming your fine products. Or, as Joan Robinson said, just because they are throwing rocks in their harbour doesn’t mean that we should throw rocks in ours.

Another way of saying much the same thing: market liberalism doesn’t mean just not letting the people, the populists, decide what happens, ring fencing them from he process by using technocrats. It means not having anyone, not even technocrats, decide what can happen: having no central direction at all.

7

alex 06.23.10 at 7:46 am

Ask yourself, if you really had to choose, which package would you take:

1. Freedom of speech and assembly; a flourishing arena of public debate; political pluralism; a welfare state; AND a lot of grumbling about the arcane and unaccountable means by which it is all preserved; or

2. Elections all over the place, for local mayors, local sheriffs, local judges; elections for national representatives every two years at least, with right of recall, and binding referendums for major policy options; AND the tyranny of a small-minded, philistine, nationalist majority that hates the poor and despises foreigners.

Which one is the ‘democracy’ you want? Which bits of which model would you trade off to gain something of the other?

8

Earnest O'Nest 06.23.10 at 7:57 am

I would vote for 1. without grumbling or for 2. without tyranny. I can’t really make my mind up but will put my vote with whomever seems deservant of my trust as an upright citizen who has – & I repeat – never come into contact with the justice system, at all!

9

Robert 06.23.10 at 9:33 am

My name links to my echo of Philip Mirowski’s definition of neoliberalism as being constituted by 11 principles. The first principle states, “…[the neoliberal] vision of the good society will triumph only if it becomes reconciled to the fact that the conditions for its existence must be constructed and will not come about ‘naturally’ in the absence of concerted political effort and organization…”

Worstall follows the third principle for purposes of sloganeering. That is, Worstall continually talks rot.

10

Martin Wisse 06.23.10 at 9:36 am


“That politicians tend to be venal is not in itself an argument against democracy.”


But it is an argument in favour of market liberalism. Removing a large chunk of decision making from said venal politicians and leaving it to the interaction of producers and consumers appeals as an idea (well, it does to me at least).

Bwahaha!

Every increase in “market liberalism” has only increased the venality of politicians and made the scope for collusion that much bigger.

11

Freeborn John 06.23.10 at 9:43 am

Alex/Earnest: You set up two straw-men and unsurprisingly arrive at a false choice.

We can use ‘democracy’ to legitimate the bulk of political decisions and limited delegation to non-democratic authority (judiciary, central banks, etc.) to provide an institutional bias in favour of particular policies (e.g. low-inflation, etc.) that are known to have good long-term consequences. However we cannot treat ‘ever closer union’ as a known-in-advance good in the same way as low-inflation or free trade within the common market. The current institutional bias towards ‘ever closer union’ has resulted in the remote authority (e.g. EU Commission, ECJ, EP) being given an ever wider scope of policy competence but we have no idea in advance if this will produce better policy outcomes than democratic politics, no means to correct the EU institutions when they do get it wrong, or when they exhibit a ‘bureaucratic drift’ (i.e. do things in their own interest, which those who delegated power to them could not have foreseen at the time powers were delegated), and we have no real means to de-delegate EU powers (as this requires unanimous agreement from 27 governments).

The original EEC was far better than we have now because the Commission only had powers in the area of the common market regulations, and everything else was decided by national democratic politics. Even Maastrict was far better than now (because supranationalism only applied to the first pillar of community regulations, with the rest being decided by intergovernmental methods which could be somewhat democratically legitimated due to the involvement of national governments). But Lisbon made supranationalism the norm in all policy areas despite the community method being a ‘undemocratic by design’ decision-making method only suitable for use in delegated areas of responsibility (e.g. low-saliency market regulations) that cannot generated political tensions between the peoples of Europe.

12

alex 06.23.10 at 10:44 am

I don’t think the EU and the USA are ‘straw men’…. There is no perfect democracy because there is no perfect demos. A very ‘democratic’ polity – such as the State of California – can vote itself into fiscal oblivion if the wrong ideas take root amongst the people.

It is also an open question, to say the least, as to why officials appointed by democratically-elected governments become ‘undemocratic’ when they do things some people don’t like. In these situations words like ‘accountability’ are thrown around which boil down to simple dislike of being excluded from the process. But in every democratic election somebody ends up being excluded from the process – they lose. The nations of the EU are all sufficiently ‘democratic’ that if a majority of citizens really wanted to elect people committed to radically changing the nature of the organisation, they could. As yet, they haven’t. Maybe they’re fools for not so doing. On the other hand, maybe the policies you could get a majority for would turn out to be disastrous.

13

Freeborn John 06.23.10 at 11:32 am

I don’t think it is an open question as to why officials appointed by democratically-elected governments are seen as undemocratic. It is the well-known problem of a long ‘chain of delegation’ where there is so little connection between the choice a voter makes in the polling booth (e.g. for a local MP) and the decisions made by EU Commission that there is in practice no realistic prospect whatsoever of voters being able to influence Commission decisions.

And the long chain of delegation problem is compounded by (i) the legislative proposals that the Commission makes being for law superior to national law, such that there is no way voters can elect a different government at a later date to reverse whatever has been previously enacted at EU level, and (b) de-delegating powers from the Commission requires changes to EU treaties and is therefore not something any national electorate can do without the support of 26 other governments (short of leaving the EU completely).

14

Earnest O'Nest 06.23.10 at 11:33 am

@John: if the size of a democracy is a confident measure of its democratic value, I hope you are living in Iceland or Luxemburg or something. But then you say ‘The peoples of Europe’ and so I need to take that back: maybe you should consider time travel to a time where this concept isn’t sounding as arcane as it does right here, right now.

15

Barry 06.23.10 at 1:30 pm

alex :

” A very ‘democratic’ polity – such as the State of California – can vote itself into fiscal oblivion if the wrong ideas take root amongst the people.”

IIRC, the major problem is that the California system allows a minority (currently, the GOP) to block everything, with no accountability, and a minority of that minority (the GOP base) to determine that minority’s policies, all based on a geographic voting system.

16

alex 06.24.10 at 7:33 am

@15 – and how did that happen? because it was legislated into existence by elected representatives… Meanwhile, the Proposition system…

17

Guano 06.24.10 at 9:04 am

Tim Worstall at no. 6. Are you saying that Rennie is in error because “prising open markets” was not the policy of Mrs. T, or are you saying that it was Mrs T’s policy but that policy was an error?

18

Norwegian Guy 06.25.10 at 12:03 am

Well, this is the whole point with the European Union; the elites want less democracy so that they can get more market liberalism.

19

hix 06.26.10 at 3:33 am

Meanwhile the Norwegian elites rather prefer to not share even a tiny share of their oilwealth and keep hunting wales , so they stay out. Countries with anti EU sentiment are in general known for their resistence to neolbieral thinking, as can be shown by UKs opt out from market liberalication and her enthusiasm about common social standards.

20

hix 06.26.10 at 3:38 am

How can you keep that facade with a straight face. “Neoliberal” resistance against the EU started right with Ludwig Erhard who prefered a broader lousy free trade union instead. Now that we have the EU, the new line is include more and more countries in the and dump down integration till its turned into free trade zone again.

21

Tim Worstall 06.26.10 at 11:13 am

17: Whatever Mrs.T’s policy was, that “prising open export markets” is an error.

22

Kevin Donoghue 06.26.10 at 11:57 am

Tim, it’s only an error if free markets are about consumption as you claim. Maybe they are for you, but the view from Number 10 may be different. Mrs T attached some importance to military might. Sustaining military might requires a strong economy. If your motto is Guns Before Butter it makes a lot of sense to devote diplomatic clout to the prising open of export markets.

23

Norwegian Guy 06.26.10 at 4:51 pm

hix: The Norwegian elites have thrice tried to take Norway into the European Union (early 60’s, 1972 and 1994), and it’s only intensive grass-roots opposition that is preventing them from succeeding.

That the Norwegian oil and gas resources are owned by the Norwegian people and were not given away to Exxon or BP or Ruhrgas is certainly something that most people appreciate, but the neoliberal elites are probably at best indifferent. But check out how much development aid per capita Norway is giving compared to the EU countries. And we gladly share some of our whales, if only the European Union countries would allow importing whale meat!

Many countries where public sentiment are sceptical about the EU are not especially fond of neoliberalism. It’s not just Norway, but the rest of Scandinavia too. And it was the Conservatives that brought the UK into the European Union, while the Labour Party opposed it. Last time I checked Tony Benn wasn’t a neoliberal!

24

Tim Worstall 06.27.10 at 8:38 am

“Maybe they are for you, but the view from Number 10 may be different. “

That my views differ from those of a politician (of any flavour) isn’t all that much of a surprise. Certainly not to me anyway.

25

Kevin Donoghue 06.27.10 at 7:45 pm

So by “an error” you mean a view you don’t share. Fair enough. But you cite Adam Smith as an authority. Didn’t he (erroneously) approve of the Navigation Acts?

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