The rude power of the vote: Brexit

morning-after-brexit

A popular vote to decide the UK’s place in the world: In retrospect, David Cameron’s idea of putting the question to the people appears more and more extraordinary.  This is not how countries (at least representative democracies) are normally led.  Normally, populations delegate power to political leaders, trusting in their competence and relying on their superior agency and expertise.

The US has never held a national referendum.  Here, referenda are technical measures.  They are used at the state and local level, to amend constitutions or see if a policy innovation is agreeable to the people.  Our national votes are reserved solely for filling the presidency.  The Brexit vote represents a high-water mark of democracy that one hopes the US will never reach.

Presidential elections are often described as referenda, but this is usually hyperbole.  The motives that determine the citizens’ choice between two candidates can seldom be reduced to a vote for or against a single policy.  One exception is the election of 1860, when the ensuing breakdown of the Union justifies our concluding that voters saw Abraham Lincoln’s victory as determining the future of slavery.  They were so sure his election spelled the end of it that they didn’t even wait for him to take power: secession conventions formed and slave-holding states began to leave.  Then, as with Brexit, the losers doubted the outcome’s legitimacy.  A minority with a lot to lose discovered a majority it couldn’t bear.

Inspiration in a deep-dish pizza

Writing in Slate, Osita Nwanevu argues convincingly that Cameron came up with the idea of the EU referendum while eating a Chicago deep-dish pizza at O’Hare.  He was heading back to London from the 2012 NATO summit, which Chicago hosted that year.  While waiting for his flight, he and British foreign secretary William Hague reportedly went into a classic Chicago eatery and came up with the idea of the EU referendum while eating local food and rubbing elbows with a bunch of ‘nobodies.’

The summit itself crystallized globalism’s discontents.  Its massing of elite power drew thousands of ‘pro-democracy’ protesters to Chicago, along with a few would-be terrorist bombers.  While the leaders of the western world met to chart the future of democracy, massive crowds clogged the streets, charging NATO leaders with betrayal and insisting that their governance ignored the people’s urgent needs.  Did Cameron metaphorically ingest some of the democratic forces assailing him from all sides?  Certainly, his belief that the UK’s internal divisions could be reconciled through a popular vote represented a conversion to democratic faith.  He expected, however, that the people would ultimately strengthen the leading class’s hand.

The transcendent power of a multi-national economy

In the 1990s, I attended a forward-looking talk given by the late Harold Perkin, a historian who studied long-term class developments in England society.  His subject was the powerlessness of nation-states relative to multinational corporations.  Already, he argued, capital flows and the far-flung operations of such businesses were eroding and transcending the bonds that had previously constrained and united inhabitants of geographically defined countries.  Whereas previously the upper, middle, and lower classes in a country like Britain had been bound together legally and economically, those interdependent ties were weakening.  Increasingly, the economic elite were creating a world with rules that they, as capitalists and corporate titans, were entitled to define.  Since then, the trend that Perkins so presciently defined has grown more pronounced.  Now the professional classes are used to this world, and they don’t think the lower classes should be allowed to curb it, certainly not with the rude club that the right to vote furnishes.

The problem afflicts the US as much as the UK.  In the States, growing economic inequality has gone hand-in-hand with geographic and social changes whose tendency is to limit ordinary connections between Americans of different classes.  Increasingly, well-educated and well-off Americans raise their children within ‘bubble-worlds’ populated with others of their type.  This is very different from the earlier hierarchical class structure of American communities, where the right of an elite to exercise leadership was still connected to their position within a locality.  This vanishing social structure promoted empathy and upward mobility, while rooting elite influence in something like popular sanction.  Whether in religion, neighborhoods, or the economy, there are few traces of these old face-to-face relationships, which fed a spirit of interdependence and reciprocal obligation.

Meanwhile political leaders cede their power to ‘the people.’

Paradoxically, American politics has at the same time become increasingly democratized, with leaders instigating changes designed to give ‘the people’ more sway.   It’s a trend that’s been underway for at least a century, since the Constitution was amended to allow for the direct election of US Senators, giving citizens a power previously seated in state legislatures.   Candidates for national office make their appeals directly to the people, for, with enough popular support, they can thumb their noses at the other pols whose help they once needed.  Likewise, the nominating conventions, where delegates were empowered to attain consensus authentically, are increasingly lifeless affairs, determined solely by rules and by votes the people cast in the primaries.

As the people’s rage rattles the laissez-faire globalism that an elite indifferent to their sufferings universally favors, the elite may well begin to ask, Too much democracy?

The European Muddle

Like many great issues of the day, the euro mess is difficult to conceptualize.  Why not take a stab at it, though, since it’s something that could cause the US economy to collapse?

Here are links to a few graphics encapsulating different aspects of the European problem.  A few insights can be gained by interpreting them with our own 2008 financial crisis as a point of comparison.

The European Union faces at least two complex interrelated problems.  The first has to do with the condition of banks; the second has to do with the indebtedness of member countries.  There is also a third problem, which is more political.  It has to do with the structure of the EU itself and the poor tools it has for redressing “state-level” problems (critical weaknesses within member-nations like Greece and Spain) that threaten the euro’s value and stability.

Credit imbalances within the euro zone
The integration of nations within the eurozone encouraged capital flows within the community, while creating imbalances that threaten it, should the banks within one of the weaker countries fail.

This wonderful set of graphs published by the New York Times shows the interrelation among creditors and borrowers by country.  Done in late 2011, the graphs offer a general idea of how the stronger European economies—France’s in particular—would be affected if the banks of Greece and Italy were to go down.  French banks have many loans outstanding there and would incur grave losses, possibly fatal ones, were their weaker counterparts to fold.

Unlike in the US, the euro-zone lacks a mechanism like the Federal Reserve, which capably intervenes to stabilize and close or sell ailing US banks if necessary.  In 2008, the Treasury and Federal Reserve averted a general financial meltdown in the US this way.  They intervened directly in the affairs of troubled banks in the interest of keeping the whole banking system operating.  The panic of failing banks was mitigated;  otherwise, it would have spread like a contagion.  Our banking system was supported, and the problem was treated as a matter quite separate from that of the federal government’s own indebtedness or patterns of borrowing.

Until recently, the European Union could not behave similarly: it could not act to help banks, it could only give money to sovereignties.  On June 28th, however, the EU’s member-nations agreed to begin lending money to banks directly, a measure that untethers these two problems and allows a more flexible approach aimed specifically helping banks that might fail.  Nonetheless, it remains to be seen whether this will be much help, as the level of capital needed to stabilize the banks is very large.

Rising sovereign debt
Which leaves the other big problem: the rampant government spending in many EU countries, illustrated in this set of maps, also published by the New York Times.  The maps indicate the significant variation in the spending habits of the governments that make up the European Union.  In many of the EU countries, however, including some of the strongest—such as France and Germany—sovereign debt as a portion of GDP has been growing dramatically.  The difficulty of reining in spending and bringing the most profligate governments in line has led to popular unrest as well as political conflict over austerity measures and proposals for stringent fiscal reform.

It’s not clear, though, whether these disproportionately high debt burdens pose a threat to the long-term health of many of the stronger EU countries.  The more that the elements of the crisis can be differentiated and handled pragmatically on a case-by-case basis, the better the prospects for amelioration will be.  This is definitely a case where what’s good for the goose is NOT good for the gander–or in this case, more fitly, for the PIIGS (the acronym for Portugal, Italy, Ireland, Greece, and Spain).  Helping the most distressed banks may at least buy the EU time to address the more politically fractious issue of how to restore fiscal balance—a very different proposition in Greece than it is in France or Germany, and a more sensitive issue still for the euro zone as a whole.

RELATED:
The Sovereign Debt Exposure of the EU’s 10 Strongest Banks
, Forbes.
Paul Taylor, Euro Zone Fragmenting Faster Than the EU Can Act, The Independent (Dublin).