Reclaiming the State

On June 3, 1951, the Socialist International association was formed in London. It is still going. It is “a worldwide association of political parties, most of which seek to establish democratic socialism”. Its roots date back to the C19th (to the First International formed in 1864) when it was considered beneficial to unite national working class movements into a global force to overthrow Capitalism. Internal bickering among various factions led to various dissolutions and reformations over the last 150 odd years. In 2013, the membership split when the German SPD decided to set up an competing group, the Progressive Alliance, which saw a host of so-called social democratic parties (including the Australian Labor Party) join and desert the SI. Both bodies are dogged by internecine conflict and members who have fallen for the neo-liberal macroeconomic myths. More recently, DIEM25 has emerged to pursue a Pan-European vision of Left-wing politics. The more recent dynamics of these movements deny power of the nation state in a globalised economy and global financial flows. They are all failing because of this denial.

There was an interesting article in the Financial Times (July 4, 2017) – Sovereignty still makes sense, even in a globalised world – by Robert Tombs, who is a British academic specialising in French history, which bears on this topic.

The claim that the nation state is dead is also a major theme of my upcoming book (with Thomas Fazi) – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World – which will be released by Pluto Press (UK) on September 20, 2017.

We will be launching the book in London on September 26, 2017 and then doing a 10-day lecture and promotional tour throughout Europe following that. All the details of where and when events will occur will be published soon but at the end of this blog is an indicative guide.

At the same time, I will be launching a new project we are going to call The Reclaim the State Project (RTS) which will focus on expanding awareness of the capacity of currency-issuing government to advance general well-being and counter the self-interested power of global capital. More details on that will emerge soon from its home page – http://www.reclaimthestate.org

As further background, Thomas and I recently published an article – Make the Left Great Again – which appeared in the Fall 2017 edition (Vol 1, Number 3) of a new US journal American Affairs. The journal covers “public policy and political thought”.

That article summarises our argument that the nation state never went away, as many on the progressive Left-side of politics seem to believe.

The creation of these pan-European movements etc. are all in response to the misplaced belief that the state has become subjugated to global capital and cannot pursue policies which contradict the aims of the global financial interests.

Accordingly, supra- or pan-national movements are required.

We clearly consider that type of reasoning to be false.

And so does Robert Tombs as outlined in his Financial Times article cited above.

He begins with:

National sovereignty was long ago consigned to the dustbin of history. “The days are for great empires, and not for little states,” proclaimed Joseph Chamberlain, Britain’s colonial secretary, in 1902. Today, every one of those great empires has gone, and the little states remain. Yet Chamberlain’s belief has proved tenacious. Some of Chamberlain’s young imperialist acolytes continued to preach the message, in old age supporting European federalism.

The whole disaster that is the Eurozone (and the European Union) is predicated on Chamberlain’s flawed reasoning.

He notes that the exercise of national “Sovereignty was blamed for world war” whereas “Supranational systems … would maintain peace.”

The Post World War 2, ‘European Project’ was an ambitious plan for European integration to ensure that there were no more large-scale military conflicts fought on continental European soil, exactly because there was a view the pursuit by individual nation states of their own objectives would bias continents to war.

At the outset, the ‘European Project’ began at a time when the advanced nations had embraced a broad Keynesian economic policy consensus with governments committed to sustaining full employment.

As a result, what we now identify as the failings of neo-liberalism were absent and the loss of sovereignty, which was the consequence of the early integration was minimal and unproblematic.

Robert Tombs also reminds us that these moves to political integration in Europe:

… is the result, not the cause, of a peace created by the democratic nation-states that crushed Nazi Germany and set up Nato.

It was the determination of France to create institutional structures that would stop Germany from ever invading it again that began the journey towards a European Union.

France saw an integrated Europe as a way of consolidating a dominant role in European affairs but, at the same time, was determined to cede as little national sovereignty as possible to achieve these aims.

France was also resentful of the influence that the US was exerting in Europe, particularly through the Marshall Plan, which intrinsically tied West Germany to the US.

There was never an intention by France to cede its currency status to a supra-national authority in Brussels. That came much later and only once the Monetarist ideas had infested aspiring French politicians, bureaucrats and central bankers.

The historian Tombs reminds us of things we continually forget, that:

Imperialist and federalist schemes have all run up against national sovereignty and democracy, the two sides of the same political coin.

That is, we ultimately reject schemes that take away our voice and render power beyond those who we elect as our agents.

Richard Tombs notes in this regard that while the “British empire was the creator of the ‘modern world'”, it members left it “as soon as they could” to assert national sovereignty over colonial or post-colonial arrangements.

Even the poorest nations struggle to free themselves from colonial or historical ties with other nations.

Which is why the EU is in Tomb’s words a “remarkable political achievement”, which:

… was to persuade most Europeans — who in some cases had fought for their national sovereignty — that this sovereignty no longer mattered, that it was an illusion, that it could safely be “pooled” within the EU, and that anyway trying to exercise it would bring disaster.

I would qualify that assessment (quite significantly).

The early moves to integration were based around the steel plan and the Common Agricultural Policy. The CAP, in particular, clearly did compromise national sovereignty but the French considered it a crafty plan to get hold of German industrial surpluses to subsidise, relatively unproductive French farmers, noting that the rural lobby in France was very powerful politically.

France wanted to protect French farmers and Germany wanted to expand its industrial export market. To achieve their goals, the Germans agreed to provide subsidies through the CAP to French farmers: a gnawing tension that remains today.

But the administrative viability of the CAP required a very stable exchange rate environment because a multitude of agricultural prices had to be supported across the Community.

Once the Member States locked in the CAP they were also trapped into pursuing the impossible task of maintaining fixed exchange rates.

The German mark became the strongest currency in the 1960s as it export strength grew, which put France and Italy under constant pressure of devaluation and domestic stagnation and undermined the CAP.

The various agreements to maintain fixed parities between the European currencies all largely failed because of the different export strengths of the Member States.

But instead of taking the sensible option and abandoning the desire for fixed exchange rates, the European political leaders accelerated the move to a common currency when the Bretton Woods system collapsed in 1971. The lessons from the Bretton Wood’s fiasco were not learned.

That acceleration in political push for a common currency can hardly be said to have been accomplished by the EU “persuading most Europeans” to surrender national sovereignty.

As I document in my my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – the monetary union was rammed down the throats of the citizens who were not only lied to by pro-EU politicians and their hangers on, but also denied the right to vote directly for the shift.

When the amended Treaty of Rome was signed on February 7, 1992, which made the European Monetary Union law, the popular opinion was shifting away from the Maastricht concept.

Andre Szász, the former Dutch central bank chief, wrote in his 1999 book The Road to European Monetary Union that the final push to secure the EMU agreement by the European political elite had “failed to carry their constituents along with them”

The general public had a sense that great change was coming but were almost totally ignorant as to what the implications of that would be.

The hubris by the political elites was so great that they thought the ratification process, which varied across the nations, would be a relatively quick matter and the Treaty could become operational on January 1, 1993.

Hubris usually leads to wrong conclusions.

Denmark was the first nation to go through the ratification process via a national referendum, which unfortunately for the political elites meant the people would have their say directly on the EMU, vote by vote.

The result was a disaster for the EMU proponents. There was a turnout of 82.9 per cent of eligible voters but only 49.3 per cent were in favour.

Andre Szász commented on the Danish government decision to distribute half a million copies of the Treaty (“a large number”, to the population of 5 million, as only serving “to convince voters they were being asked to enter into obligations of an impenetrable character”.

In response, the EU offered Denmark various ‘op-outs’ which meant they did not have to surrender their currency sovereignty.

On June 3, 1992, the day after the Danish rejected the first vote, President Mitterrand announced that France would hold a referendum on September 20, 1992 to ratify the Treaty.

Mitterrand achieved the barest victory with 51.1 per cent in favour on a 69.7 per cent turnout – the so-called ‘petit oui’.

I could detail more about this and do in my 2015 book.

The upshot is that the ratification process did not provide positive reinforcement for the political manoeuvres that had ensued since the Delors Plan was released in 1989. There was uncertainty, dissent and, in retrospect, a sense of foreboding of what was to come.

Richard Tombs notes that “Last year, the people of Britain decided, by a small majority, to … risk … their newly asserted sovereignty”, which he considers to be a rather “misty and intangible” concept at heart.

However, it has some clear components.

He considers that “Brexit voters regard a direct popular vote as the ultimate expression of sovereignty … but most of us would probably accept that popular consent is its core.”

The question he poses is whether this:

… misty sovereignty simply an outdated political myth? We are often told that in “today’s global world” national sovereignty is meaningless as borders become irrelevant and powers shift towards international and non-state bodies. This is surely an ideological dogma more than a dispassionate observation. The amount of power states can exercise over even major economic forces is considerable, and certainly far greater than in the past.

He documents the way in which states retain power:

1. “In most countries the state accounts for nearly half of gross domestic product” – so public spending is crucial for on-going prosperity.

Investment spending is a relatively small (though volatile) component of total expenditure. The state can always offset fluctuations in non-government spending should it choose, but the reverse is not true.

2. “quantitative easing has demonstrated the importance of monetary sovereignty” – it has, in fact, demonstrated that central banks can control yields on public debt at whatever level they choose.

And the logical inference is that Central banks can fund any size fiscal deficits if they choose.

And, governments, in fact, do not even need to issue debt in order to run deficits. That is what the GFC demonstrated to anyone who wanted to keep their eyes open.

It is what Modern Monetary Theory (MMT) proponents have been arguing since day dot!

3. “Small states are flourishing: it is the big players that face fundamental problems. Even at the lowest estimate, the residual powers of sovereign states are of huge importance.”

In this regard, Richard Tombs discusses the crisis in the EU where it was claimed that the EMU would solve “the problems of national sovereignty and power by pooling the former to augment the latter.”

As Tombs concludes:

But the solution is evidently not working. For many member countries, most obviously Greece, Spain, and Italy, the pooling of national sovereignty has meant devastating social, economic and political consequences. Like a political black hole, the EU sucks sovereignty from its member states, but the pool of sovereignty drains away. If sovereignty confers the recognised right to take a final decision, who in the EU has that right?

The EU is dysfunctional because in taking essential monetary sovereignty from the Member States, the neo-liberal architects refused to create a matching function at the federal level.

No monetary economy can sustain itself into prosperity without a powerful fiscal function at the level of the currency issuer. That is a basic insight of MMT and the evidence has demonstrated that over again.

By refusing to create such a function, the EU is largely rudderless.

Tombs concludes by saying:

Perhaps in a few years Europe’s elites will recognise that federalism has proved a blind alley, and that Europe’s best hope is as an association of democratic sovereign nations held together not by “directives” but by neighbourly solidarity. But don’t hold your breath.

No-one should hold their breath on that score.

The EU political elites have demonstrated they are prepared to devastate the well-being of weaker nations and their citizens in preference to admitting failure and dissolving the whole ridiculous show.

More generally, neo-liberalism has deliberately sought to promote the view that the nation state is now powerless.

The proponents of neo-liberalism have pursued a process of depoliticisation, as an essential aspect of their desire to gain greater control for global capital.

This has led to policies that have constrained existing national sovereignty and curtailed popular-democratic mechanisms.

The aim – insulating macroeconomic policies from popular contestation and removing any obstacles put in the way of economic exchanges and financial flows.

But the idea that globalization had rendered the state increasingly powerless vis-à-vis the forces of the market, consistently promoted by the neo-liberals and swallowed, ‘hook-line-and-sinker’ by the Left, should be seen as a component of the ideological indoctrination program the Right instituted.

The process — which was generally (and erroneously) framed as a shift from the state to the market — was accompanied by a ferocious attack on the very idea of national sovereignty, increasingly vilified as a relic of the past.

Sooner rather than later, the Left was captured by this myth.

But closer scrutiny reveals that the state has not been overpowered by the market.

Neo-liberalism has not entailed a retreat of the state but rather a reconfiguration of the state, aimed at placing the commanding heights of economic policy under the control of finance capital.

Think about how the neo-liberal agenda has been introduced.

It is self-evident, after all, that the process of neoliberalisation would not have been possible if governments — and in particular social democratic governments — had not resorted to a wide array of tools to promote it: the liberalisation of goods and capital markets; the privatisation of resources and social services; the deregulation of business, and financial markets in particular; the reduction of workers’ rights (first and foremost, the right to collective bargaining) and more generally, the repression of labor activism; the lowering of taxes on wealth and capital, at the expense of the middle and working classes; the slashing of social programs, and so on.

These policies were systemically pursued throughout the West (and imposed on developing countries) with unprecedented determination, and with the support of all the major international institutions and political parties.

Even the loss of national sovereignty which has been invoked in the past, and which continues to be invoked today, to justify neoliberal policies is largely the result of a willing and conscious limitation of state sovereign rights by national elites. The various policies adopted by Western governments to this end include:

(1) reducing the power of parliaments vis-à-vis that of executive bureaucracies;

(2) making central banks formally independent of governments, with the explicit aim of subjugating the latter to ‘market-based discipline’;

(3) adopting inflation targeting as the dominant approach to central bank policymaking — an approach which stresses low inflation as the primary objective of monetary policy, to the exclusion of other policy objectives, such as full employment;

(4) adopting rules-bound policies—on public spending, debt as a proportion of GDP, competition, etc.—thereby limiting what politicians can do at the behest of their electorates;

(5) subordinating spending departments to the control of treasuries;

(6) readopting fixed exchange rate systems, which severely limit the ability of governments to exercise control over economic policy; and, perhaps most important,

(7) surrendering national prerogatives to supranational institutions and super-state bureaucracies such as the European Union.

The reason why governments chose to willingly ‘tie their hands’ is all too clear: as the European case epitomises, the creation of self-imposed ‘external constraints’ allowed national politicians to reduce the political costs of the neoliberal transition—which clearly involved unpopular policies — by ‘scapegoating’ institutionalized rules and ‘independent’ or international institutions, which in turn were presented as an inevitable outcome of the new, harsh realities of globalisation.

Conclusion

Next time you hear someone rehearse the standard Left line that the state is dead long live international or pan-European or pan-Something movements think about these points:

1. Why do corporations and investment bankers spend so much time and money lobbying legislators?

2. Why is there so much pressure in so-called ‘Free Trade’ agreements for the notorious ‘Investor Dispute Mechanisms’.

3. Why do corporations make noise when government contracts are in jeopardy?

4. Why do financial corporations scream blue murder when public bond markets get thin as governments repay maturing debt and do not issue new debt (when running surpluses)?

And we could go on with a myriad of such questions.

The Left were lured into thinking the nation state is powerless. The Right were smarter. They knew it has to co-opt the power of the state for its own ends and systematically have been working towards that end, fearing that if the citizens ever find out what is really going on, the power of the state will be recaptured by all of us.

That is what The Reclaim the State Project is all about.

Reclaiming the State Lecture Tour

Here is the schedule for our book promotion and lecture tour in Late September and early October.

Specific times and details to come soon.

  • Thursday September 21: : Kansas City (MMT conference)
  • Friday, September 22: Kansas City (MMT conference)
  • Monday September 25: Brighton, Bill Mitchell speech at the British Labour Party Annual Conference
  • Tuesday September 26: London – Formal Book Launch – Pluto organising.
  • Wednesday September 27: Berlin.
  • Thursday September 28: Madrid
  • Friday September 29: Madrid
  • Saturday: September 30 Rome
  • Sunday October 1: Ferrara – Presentation at International Writers Festival
  • Monday October 2: Milan – Presentation at Milan Culture Festival
  • Tuesday October 3-5: Helsinki
  • Friday October 6: Paris

That is enough for today!

(c) Copyright 2017 William Mitchell. All Rights Reserved.

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    11 Responses to Reclaiming the State

    1. slorter says:

      good article Bill Let’s reclaim our state for our communities!

    2. Adam K says:

      Dear Bill,

      We won’t see much about it in Western media but in Russia the 8th largest commercial bank Открытие (Otkritie) has just been taken over by the Central Bank. Obviously someone must have helped himself with the assets… as usual, at least everyone knows that Russia is corrupt unlike the … oops. Anyway they have suddenly rediscovered the power of the sovereign state’s monetary system. There will be no bank run and in fact the bank is continuing normal operation. As one commentator put it on Radio Vesti, “people should not panic because their deposits are guaranteed by the central bank which can print money”. It looks that the Russians simply cannot afford descending to the same level of stupidity as some Western European countries in 2008 where a banking crisis morphed onto a persistent sovereign debt crisis …
      The CBR website says that “As part of these measures, the Bank of Russia will act as a key investor, with the funding coming from the Banking Sector Consolidation Fund.” and “No moratorium on payments under creditors’ claims is introduced. No bail-in option will be applied.”

    3. During the Spanish Civil War a multilateral organization called the Society of Nations proved to be totally ineffective in stopping the Fascist aggression to the Republic and its democratically elected government. Furthermore, the Conservative British Government of the time promoted the so-called Non-Intervention Convention which effectively hampered the ability of the Republic to purchase weapons and defend its people against the criminal aggression of Fascism while Franco’s criminal army had full access to a generous flow of weapons from Nazi Germany and Fascist Italy (https://en.wikipedia.org/wiki/Non-intervention_in_the_Spanish_Civil_War). I am sceptical of multilateral organizations.

    4. Gogs says:

      “the creation of self-imposed ‘external constraints’ allowed national politicians to reduce the political costs of the neoliberal transition—which clearly involved unpopular policies”

      Also, one of the “benefits” of having a predominantly market-driven economy is that the responsibility for many of its flaws can be avoided at the political level – especially where those markets have by way of mitigation directly created dynamic advances in living standards, as in the last century.

      Where politics does become enmeshed in large (nationalized) concerns they tend to sink into a morass of productive and/or humanitarian problems; examples being coal, steel and railways. If governments side for example, with a humanitarian solution they are accused of not having the bottle to impose a market-winning policy on an antagonized workforce; alternatively, a more aggressive approach leaves politicians accused of a ruthlessness typical of an (often) right wing party.

      Inertia is often the policy of choice, so that in the end the problems concern massive dual problems of both a human and productive nature. That is why it is application at the practical level that determines the success or failure of these challenges.

    5. Jon Phillips says:

      Hi Bill

      How can I get you to add UMass Amherst to your book tour? We’ve got one of the oldist marxist economic departments in the country, with deep ties to the history department. What do you need to get you here?

      Jon

    6. Dan Lynch says:

      I just finished reading Lawrence Goodwyn’s “The Populist Moment,” which covers the same ground that Bill Mitchell is re-inventing.

      The 19th century Populists advocated what we would now call MMT, along with the idea that the monetary system should be democratically controlled for the “public purpose,” as MMT likes to put it. That was a revolutionary proposal at the time.

      Of course the Populists were ridiculed and demonized by both mainstream parties, and by the press. Corporate money backed the gold standard, and later the Federal Reserve system. The Populists never had a chance.

      Goodwyn’s book is a must read because nothing has changed.

      It will take a major war or a revolution to force major changes. The current system serves the powers that be, and they’re not going to roll over and play dead.

    7. Gogs says:

      Those who consider markets to be the correct arbiter of resource allocation are naturally inclined to consider improved worker benefits, if they at the expense of competing resources, as some form of corruption. Just as those with a strong social conscience consider resource allocation at the expense of workers well-being to be a form moral deficiency.

      How this conflict is to be resolved has been the subject of considerable debate throughout the era of industrial revolution and development. Workers are only slightly more aware of the issues than they were generations ago, but their bottom line is still the same; the maintenance and improvement of living standards – whichever political grouping can address that problem successfully will receive their support.

    8. Steven Hummel says:

      The problem with politics/the state is the focus is so on attaining and maintaining power (which indeed exists) that its pursuers become habituated to it instead of freedom. The politics and economics of grace/graciousness which is the root concept of freedom is what is required both nationally and internationally. Self actualize that, and if you can’t or won’t, at least align policy with it, and the worst that will occur will be an unconscious stumbling toward freedom until its obvious benefits awaken even the dumb if not the internally dead.

    9. Andy says:

      Integrating MMT into a socialist movement would be a good idea. It would distinguish it from the Labour party and highlight its neoliberal tendencies.

    10. Andy says:

      “And, governments, in fact, do not even need to issue debt in order to run deficits. That is what the GFC demonstrated to anyone who wanted to keep their eyes open.”

      That is a crucial point snd reminds me I must update myself on how the Bank of England’s subsidiary has been getting on with those quantitively eased bonds. I know the government stopped paying interest to itself a while back but presume they are still sitting there on the books against another meaningless state liability.

    11. Andy says:

      I just had a quick look at the Bank of England Asset Purchases Facilty Ltd’s last accounts.
      The gilts held as assets have gone up from 413bn to 480bn due to further purchases in the year but interestingly there were 2 redemptions also during the year and I can’t see how these were accounted. Presumably the asset value and the liabilty to the government just disappeared as they should have done when the original QE took place.

      There is also something new. The Term Funding Scheme set up in August 16, a facility for lending reserves to banks designed specifically to help banks lend to the real economy at interest rates close to the bank rate. This is normal BOE monetary policy isn’t it ? Anyway that is now being ‘accounted’ through this subsidiary. The total on those loans in 42bn. Along with 7bn in corporate bonds the whole 530bn listed as assets is matched by liabiltes to the government.

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