Opinion

Felix Salmon

The global crisis of institutional legitimacy

By Felix Salmon
August 22, 2011

While watching another Arab government get toppled on Sunday evening — this time that of Muammar Gaddafi, in Libya — I was also reading George Magnus’s excellent note for UBS, entitled “The Convulsions of Political Economy”; you can find it chez Zero Hedge.

Convulsions is right — not only in the Arab world, of course, but also in Europe and the US. And the result is arguably the most uncertain outlook, in terms of the global political economy, since World War II ended and the era of the welfare state began.

As Magnus says:

It seems that we are having sometimes esoteric tiffs between Keynesians and Austrians about if and how governments should sustain jobs and growth. But, deep down, we are having a much more significant debate as we are being forced to redefine what we think about the rights and obligations of citizens and the State.

Most fundamentally, what I’m seeing as I look around the world is a massive decrease of trust in the institutions of government. Where those institutions are oppressive and totalitarian, the ability of popular uprisings to bring them down is a joyous and welcome sight. But on the other side of the coin, when I look at rioters in England, I see a huge middle finger being waved at basic norms of lawfulness and civilized society, and an enthusiastic embrace of “going on the rob” as some kind of hugely enjoyable participation sport. The glue holding society together is dissolving, whether it’s made of fear or whether it’s made of enlightened self-interest.

In Europe, the speed with which the transmission has been thrown violently into reverse is nothing short of astonishing. The whole second half of the 20th Century was devoted to building strong European institutions which would maximize cooperation and minimize mistrust and finger-pointing between member states. Great statesmen put European unity on a par with narrow national self-interest, and the resulting institutions — the euro, of course, but also things like the Schengen Agreement and the European Convention on Human Rights — transformed the blood-soaked continent of the 1940s into a peaceful and prosperous model for how disparate countries could successfully work together to the benefit of them all.

And the US, of course, the global hegemon, a continent unto itself, stood as a beacon for the rest of the world: 300 million disparate people coming together to create something unprecedented — an economic, political, and military colossus built on solidly democratic principles. E pluribus unum.

But countries and institutions can ultimately survive only with the will and consent of those they govern — and that consent is evaporating around the world. Europeans have no love for Europe’s institutions, be they the euro or the ECB or the EFSF. Unemployment, in much of Europe, has reached the point of no return — the point at which it becomes endemic, stubbornly immune to attempts to tackle it. In turn, that results in broad-based cynicism and disillusionment when it comes to politics and politicians generally.

And then on this side of the pond we have Rick Perry — harbinger and prime example of the way in which mistrust in federal institutions has moved from the fringe to the mainstream. Indeed, what we see with Perry is far more than mistrust — he actually denies most federal institutions their existential legitimacy, and has written a book explaining at length how everything from Social Security to federal bank regulation is in fact unconstitutional.

When Perry accuses Ben Bernanke of treachery and treason, his violent rhetoric (“we would treat him pretty ugly down in Texas”) is scary in itself. But we shouldn’t let that obscure Perry’s substantive message — that neither Bernanke nor the Fed really deserve to exist, to control the US money supply, and to work towards a dual mandate of price stability and full employment.

For the first time in living memory, someone with a non-negligible chance of winning the US presidency is arguing not over who should head the Fed, but whether the Fed should even exist in the first place.

Looked at against this backdrop, the recent volatility in the stock market, not to mention the downgrade of the US from triple-A status, makes perfect sense. Global corporations are actually weirdly absent from the list of institutions in which the public has lost its trust, but the way in which they’ve quietly grown their earnings back above pre-crisis levels has definitely not been ratified by broad-based economic recovery, and therefore feels rather unsustainable. Meanwhile, the USA itself has undoubtedly been weakened by a shrinking tax base, a soaring national debt, a stretched military, and a legislature which has consistently demonstrated an inability to tackle the great tasks asked of it.

It looks increasingly as though we’re entering Phase 2 of the global crisis, with 2008-9 merely acting as the appetizer. In Phase 1, national and super-national treasuries and central banks managed to come to the rescue and stave off catastrophe. But in doing so, they weakened themselves to the point at which they’re unable to rise to the occasion this time round. Our hearts want government to come through and save the economy. But our heads know that it’s not going to happen. And that failure, in turn, is only going to further weaken institutional legitimacy across the US and the world. It’s a vicious cycle, and I can’t see how we’re going to break out of it.

Update: emptywheel responds.

Update 2: as does Ezra.

Comments
20 comments so far | RSS Comments RSS

Barack Obama had my vote because he spoke of national unity and bipartisanship, of open government and of reduced international milaritarism. For anyone who is counting, that is oh-for-four.

More that anything, his presidency has been marked by ugly partisan rhetoric at every stage, demonizing broad swathes of America and taking on the most divisive projects possible.

Perhaps this is what we have in our two party system. Here it seems like we have two very angry men and the promise of a severely divided country for many more years to come.

I for one am rooting for Romney because Obama and Perry are both fairly angry and divisive.

Posted by DanHess | Report as abusive
 

Great post. As I was reading your list of institutions in which people have lost trust I kept waiting for you to work corporations in, and was therefore shocked by your claim that they don’t belong in the same list as Arab governments, the European Union, or the US government.

One possible explanation for this discrepancy is that corporations, for the most part, are not trusted by most people to do anything but maximize their profits. People on the right see this as a virtue, while people on the left see it as a vice, but this is all that people as a whole expect from them.

In expecting to see corporations on your list I was thinking mostly of the TBTF banks throughout Europe and the US. Other corporations have taken reputational hits lately (BP, NewsCorp) while others have continued to shine (Apple, Google) but I had thought that the literal and figurative failure of the Banks, the stewards of capital in capitalism, had been sufficient to lower the average opinion of global corporations.

Posted by Poqit | Report as abusive
 

I think government legitimacy is collapsing precisely because governments have, to be blunt, refused to meet the needs of their citizens. National economies throughout most of the world are much larger than they were 10, 20 or even 30 years ago, but most people in the anglosphere and many people elsewhere find themselves working longer hours for less truly disposable income (after housing, health, debt interest and education) and far less economic security than their parents’ generation. There is no fundamental physical, social, or economic reason for this to be the case. Economic dysfunction persists only due to the complete refusal of governments to deal fairly with their citizens rather than colluding with those who would exploit the public for private gain.

Governmental legitimacy is collapsing because governments have stopped serving the interests of their citizens. If and when governments again care about the declining labor share of national income and the reality that much of the population lives paycheck to paycheck and is one job loss away from homelessness, we the people might again respect government.

Posted by etherealEntity | Report as abusive
 

“when I look at rioters in England, I see a huge middle finger being waved at basic norms of lawfulness and civilized society” — yes, but IF it’s correct that these riots are a symptom of the age-old exclusion of non-European immigrants from mainstream English life, then this is about the ongoing legacy of European colonialism, not the more recent failure of post WWII European institutions. Emphasis on the “IF”.

Re Perry, “someone with a non-negligible chance of winning the US presidency” — why the complete dismissal of the unnamed Ron Paul, whose critique of the Fed is far more substantive, and well-established ? Whatever the importance of the Iowa Straw Poll, it is telling that you and the rest of the MSM have made such an effort to overlook this candidate without a name, who happened to receive virtually the same number of “votes” as Bachman, and whose social views are arguably no less problematic than those of Bachman.

Posted by aka_ces | Report as abusive
 

I do think Americans retain more trust in institutions of society per se (as opposed to government) than is the case in Europe, but I think we’ve been moving toward less trust; I hope we don’t catch up entirely.

Posted by dWj | Report as abusive
 

correction to last sentence: “… and whose social views are arguably no *more* problematic than those of Bachman

Posted by aka_ces | Report as abusive
 

I’m not sure if Pew has done recent polling but back in in April 2010, people had highest distrust/discontent for banks and financial institutions with corporations and media not far behind. I can only imagine that public distrust of corporations/banking is even higher now. Interestingly, most of the media at that time mainly focused on people’s distrust for govts…

http://pewresearch.org/pubs/1569/trust-i n-government-distrust-discontent-anger-p artisan-rancor)

Public negative view of institutions (effect on way things are going in the country):
Banks & financial institutions: 69% Negative
Congress: 65% negative
Federal Govt: 65% negative
Large corporations: 64% negative
National news media: 57% negative

Posted by petra1836 | Report as abusive
 

“what I’m seeing as I look around the world” I’d say it’s a bit early in your career for this far reaching post. Just have a look at your tag cloud.

Posted by hansrudolf | Report as abusive
 

Brutal. Maybe not inaccurate but brutal.

J

Posted by John_Hempton | Report as abusive
 

“when I look at rioters in England, I see a huge middle finger being waved at basic norms of lawfulness and civilized society, and an enthusiastic embrace of “going on the rob” as some kind of hugely enjoyable participation sport. The glue holding society together is dissolving, whether it’s made of fear or whether it’s made of enlightened self-interest.”

I think two issues intertwined resulted in the British rioting. One is the progressive evaporation over the past 40 years of parental and societal mentoring of, and control over, the activities of youth, who accordingly follow human nature when unconstrained in this way, and behave as a pack, leading each other on.

The other issue is that probably unconsciously, many who lack formal qualifications and a foot in the door to the white collar world know that they are being written out of the story, economically and politically. As Marx predicted, we are witnessing an inexorable long term shift of wealth-creation capacity in capitalist societies away from labour and more towards capital itself. That coupled with the progression towards a knowledge-based economy means those not employable in the white collar world are merely superfluous. And since they don’t constitute a numerical majority (unlike in Marx’s era) they are politically powerless too. So what have they, the Excluded, got to lose? What reason have they got to behave themselves at all times, purely for the convenience of the successful and upwardly mobile they see all around them, and whose ranks they will never join anyway ? Every so often words like inclusivity get bandied about by left-leaning political leaders, but in cold reality all governments of all political persuasions have been just so much flotsam, passively swept round in circles towards the plug-hole of wealth and capital concentration.

Posted by tanetahi | Report as abusive
 

Well said. Though I think there are a few nations that would dispute the description of the US as “a continent unto itself”.

Posted by MaxUtil | Report as abusive
 

When I read your posts I get the impression that you are a fan boy for BAU. Our economic system has already collapsed only zombies are still standing. Its time to move on.

Posted by frobn | Report as abusive
 

I don’t agree with all the details but I agree with the general theme of a decline in confidence in institutions. I think there is an alternative strategy for those of us who do not believe the continuing rule of the current oligarchy is sustainable or desirable, and do not believe the Austerians have the solution (or have a cure worse than the disease). That is to create new institutions, along a more cooperative model, to provide some economic security, social cohesion and perhaps political influence. Credit unions are the most obvious example but the potential and the need is much greater.

Posted by wpw | Report as abusive
 

with so many ppl @ the bottom for so long and the natural recycling of wealth being artificially held off for so long it’s no wonder the cracks in western society are so large now.. When I say recycling of wealth I don’t mean redistributed, I mean that when the crashes happen if they were allowed to happen the ppl @ the top who made mistakes would have fallen & they would have opened opportunities for ppl on the bottom to rise up, this hasn’t been allowed to happen so ppl @ the top are infected with moral hazard to the 10th power and ppl @ the bottom see no way up for the most part, so what you see is only nature taking it’s long overdue course. If your @ the top not by your wit & hard work but by federal prop, nepotism or social favor then you are coming down. If your @ the bottom by no fault of your own and prepared & still preparing the you will rise when the opportunity presents itself…. It’s the ultimate paradigm shift..

Posted by soolebop | Report as abusive
 

Some of the critiques above are cogent, but the fact is that this article is mostly correct.

My take on the situation is the that elites on both sides of the political spectrum, and in the business community have failed. They have gamed things in their favor, and the citizenry (again, on both sides of the spectrum) is reacting to these failures.

We know that capitalism works, and we know that it produces enough wealth to create workable “safety nets.” What no system can do, is pay for both a corrupt and greedy set of elites (Big Union, Big Biz, Big Gov) AND a safety net.

It’s time to toss failed institutions like political parties, ruling elites, worthless education and banking bureaucracies, and the “controlled chaos” of the bureaucratic regulatory state.

These institutions DESERVE to have lost the trust of the people. What is needed now is NOT a new trust in newer, better institutions, but a renewed trust in our ability to govern ourselves.

If you can’t govern yourself, you WILL be governed by someone, and probably very poorly.

Posted by BrunoBehrend | Report as abusive
 

This was really good. There’s just one problem – you haven’t convinced me that our view of institutional legitimacy hasn’t been the same or worse at times in the last 50 years (not, of course, that you’re required to convince me of anything). In that time, we’ve experienced race riots in the US in the 1960s, war protests leading up to the killing of college students by the national guard in the 1970s, extreme labor violence in the UK in the 70s, and the fall of communism in the Soviet Union in the 1990s, just to name a few. There are many more equally dramatic examples of people running up against established institutions.

It’s not clear to me that this is any worse than any of that. It may simply be a part of civilization figuring out what it wants to be when it grows up.

Posted by Curmudgeon | Report as abusive
 

Wait until the poor Libyans discover they have only exchanged a relatively easy medieval lord for a much harder to remove much more efficient corporate lordship…. your thesis implies they have gone from the pot into the fire.

Posted by Eastvillagechic | Report as abusive
 

This was a great post.

I blame the net for most of it. The more we know about government, the less we trust it. That makes perfect sense.

Electronic connectivity has brought about a change in human society easily as great as the telegraph and railway of the 19th century combined.

The veil that shielded our elites, even in western democracies, has been lifted.

That is bound to lead to massive upheaval. The more you look at it, the more is looks like the 1930s.

Posted by Dafydd | Report as abusive
 

As others have pointed out many times, our focus is off, our understanding is off, our trust is misplaced, etc. Magnus was just on Benzinga Radio discussing his piece (The Convulsions of Political Economy). There is a link to the audio here: http://www.benzinga.com/content/1878091/ george-magnus-of-ubs-on-the-great-de-lev eraging

Posted by selectricity | Report as abusive
 

It is true that our overall attempt to ‘better” the economy has left us into debt. I do agree with you that this is a cycle in which we are just leading ourselves into bigger debt. I read an article on Europe in which Europe’s government is trying to make a central financial authority sort of like the United States’. It boggles my mind to think that they would want to create something similar to our government even though our government is pretty much ‘failing’ us right now. But it also leads me to question that maybe our overall idea of government isn’t bad, just our leaders making bad decisions.The New York Times

Posted by ah89 | Report as abusive
 

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