Principles 3 – Democratisation

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Here is the third edition of the ‘Principles’ series. Now, let’s not dither around.

By now you have probably realised that the titles of each principles post pins down a concept which is decidedly vague. What I’m going to do first is clarify. As vague as they may be, the argument is that these are principles that are priorities in most people’s minds generally, it is just that as of recently they have been ignored or forgotten about. Things have shifted incredibly in favour of other principles that are nevertheless still important, but are often at odds with the ones used in the titles of each of the posts I make. For an example, these include measures such as proposing ever more stringent economic efficiency (as opposed to focussing on welfare) and individual freedom, usually meaning less regulation on those with the most power and responsibility (as opposed to autonomy for communities). What the aim is, is to gradually restore a balance between these two.

What is truly the greatest tragedy of this imbalance as a result, is ultimately that ordinary people are losing their side of the bargain in democratic societies. As huge swathes of the populace self-proclaim to be apolitical, changes to political processes and economic structures are occurring on a constant basis that are made undoubtedly without the consent of the larger populace, against their own personal interests. What is always important to remember however, is that as out of our control as they seem to be, there are steps which can be taken to mitigate these grand problems – democracy can be restored to operate in the interests of ordinary people, and the majority of the populace. These steps are signified in the general sense as the title, and in a nuanced sense hopefully in the content of each ‘Principles’ post.

One of the main problems we have described, appeared in ‘Principles 1 – Decentralisation’ when we outlined the two separate tiers of economy. We castigated the global economy as a “shadow economy”, and categorised it as a “regressive state affairs”. One of the main reasons we did this was because it precisely represents an “economic apartheid” between businesses and individuals that are able and unable to operate at a global level. Although, what we want to expand on for this post is the fact that we did this, and placed the local (real) economy as a higher priority, because as I put it: “businesses in the real economy make their modest profits which are taxed at an appropriate redistributive level which [are] re-invested to help the local economy”.

This is true, mainly because of the occurrence of there being two separate tiers of economy. However, this is only one of many reasons that a prioritisation of the local-level of economies can redeem the issues that ordinary people find themselves in contention with. The fact is, the same prioritisation and boosting of local economies can also be used in conjunction with a series of alternative methods to redeem a myriad of other issues that we encounter in modern, especially western economies. As this is realised, under these new circumstances of a level-playing-field, a process of democratisation can flourish under these new structures of local economy. New layers of democratic accountability should eventually develop which are as horizontal as they are efficient, and can at the same time consolidate that this level-playing-field continues to work in the interests of those that rely on it the most.

What we are going to do to stress this pragmatically, is first deal with a simple imbalance prevalent in most modern economies. Instead of a whole focus on supply-side economics, what we need to focus more on is the demand side of the equation. In broader terms of macroeconomics, instead of focussing on the growth of GDP in relation to the stimulation of the supply-side of the economy, the old Keynesian concept desperately needs a revival; that without disposable income, there are less potential customers in an economy. Something which is especially pertinent in relation to local businesses.

What we see specifically in London with its housing crisis is a lack of supply of housing, and speculation within a cornered market driving up prices; an analysis that is correct. Although, this is exacerbated by the lack of savings and disposable income that potential buyers have in relation to the prices set by this lack of supply. We have two sides of the equation splitting apart, making the situation increasingly worse and in a lot of cases leading to what people are calling gentrificleansing, a form of economic social-cleansing. Surely to at least start to bring one side of the equation closer to the other, the beginning of a solution to this would be focussed in this area of Keynesianism and stimulating aggregate demand. As well as dealing with prices and the issue of supply by building, or allowing more houses to be built – breaking this cornered market apart. Without forgetting to build more social housing, fighting the connotations of housing being primarily a venture of financial investment, we should be dealing with the demand side of the equation and gentrificleansing by giving those at the lower end of the pay scale opportunity to have enough money to rent, live or purchase these properties in the first place.

Well, can’t all economic problems be solved by focussing on a lack of supply such as this also? We can ensure that every market is saturated, this creates competition and drives down prices, right? Not necessarily. What is poignant in regards to this negligence of demand-side economics is how important it is now, even more so when you consider the divide between what we have called the real and shadow economy. These problems are in an incredible amount of instances problems of imbalance, balanced in favour of supply-side economics. Whereby there are many clear studies which emphasise the potential impact and utmost importance to zone-in on opposite methods to those which have been implemented so far, for so long. Studies which show how a raise in the minimum wage can be a step towards revitalising economic activity. Studies which conclude how those on lower incomes are highly more likely to spend their money, contributing to local economies as opposed to shifting it into off-shore bank accounts (for a simple comparison). Studies which emphasise exactly how small-to-medium sized businesses contribute a much larger percentage of their revenues, as a proportion of their net worth to local investment, and also contribute more in proportion to their size to the general picture of employment than larger businesses and corporations that operate in the global economy.

What we need is not saturation of supply but real competition that correlates with essential and innovative notions of demand, an equilibrium between the two. A mutually beneficial relationship between democracy, the public and private sector; and precisely because it has a higher likelihood of being re-invested back into communities – a healthy circulation of capital within real economies derived by policies of progressive taxation. A focus on demand-side economics can restore this imbalance and ensure sustainable growth across the board, instead of the economic picture we have described today, which is typified in the UK housing crisis to nothing much more than small pockets of speculative bubbles.

Another imbalance is the relatively recent trend of financialisation. Finance is obviously a hugely important sector of every economy. However, the over reliance on increasingly abstract financial instruments to create wealth is an extremely worrying trend. One that creates distortions in markets, hides and even obstructs genuine potential for growth, and contains huge elements of risk. When I say financialisation, I also include the shadow banking system within it. Aptly named, as these institutions, including all of these which are involved in the trend of financialisation and shadow banking, exemplify exactly what we are talking about in regards to the “global”, “shadow” economy. The blending together of banking, credit, insurance, securities on a global scale has created a global cacophony. A cacophony whereby capital is accumulated and then used in the stock market and within schemes in ways which are almost impossible to understand for any layman, but which  pose extreme externalities for economies the world over.

The use of capital within these sectors and with these abstract instruments also touches upon another vital topic. The topic of the consequences of money creation when in the control of global unaccountable institutions and sectors, such banks and the shadow banking system. This issue is covered by many campaigns, most notably a campaign called positive money. They show exactly how capital is utilised by invested interests within the financial sectors in ways which exacerbate almost all of the issues that we discuss on this blog. What is most notable to this blog post, is that this problem clearly effects even democracy and the prevention of democratisation within society. The question of what kind of institutions control the money supply is a great indicator of the strength of democracy even at wide as at the global level.

To place the creation of money back into the hands of the publicly owned central bank is step towards democratisation of that society. For the national banking structure to have a clear emphasis on regeneration of real economies through stimulating demand will be another further step (see: the advantages of discretionary public spending as a fiscal tool). To hold regular local elections that will decide the members of those institutions, will be a third, equally important step. Regular elections which will provide an incentive for those members to ensure that those institutions succeed. As democratic accountability regularly is a much more efficient and socially aware incentive in contrast to the pursuit of profit for shareholders and executives. Two clear examples of how the problem of money creation in modern economies can be rectified, and then made sure that those institutions work as they’re supposed to, in favour of the wider public.

So, there we have it. The trilogy is finished with a bit of an epic. Laying out the basics of a regressive global narrative, and how that narrative can be reversed simply into something progressive and democratic.

I will eventually expand, and go into further depth on all of these topics in the principles series. But from on I’m going to start to write some commentary on contemporary issues that are happening before I come back to this again.

So until then,

We will speak again soon.

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