Money Against Democracy

AP Photo, File

Friedrich Hayek was the first president of the Mont Pelerin Society, a group of neoliberal intellectuals. 

Globalists: The End of Empire and the Birth of Neoliberalism
Quinn Slobodian
Harvard University Press

State Capture: How Conservative Activists, Big Businesses, and Wealthy Donors Reshaped the American States—and the Nation
Alexander Hertel-Fernandez
Oxford University Press

This article appears in the Summer 2019 issue of The American Prospect magazine. Subscribe here

Are democracy and capitalism compatible? For much of the postwar era, mainstream economists, foreign-policy decision-makers, and the political commentariat believed not only in the intrinsic compatibility of a market economy and a liberal democratic polity, but in the idea that each strengthened the other. But that faith has been shattered in the years since 2008, by the rise of far-right political parties in many liberal democracies and the anti-democratic abuse of political power by elites in North America and Europe. Rather than capitalism and democracy being soulmates, political life seems a three-way battle among moneyed interests, nationalist populists, and pro-democracy progressives.

For many progressives, writing in the tradition of Karl Polanyi or echoing concerns as old as Jean-Jacques Rousseau’s social-contract theory, the recent rise of the market to pre-eminence in political life has had familiar negative effects on democracy. The decline of union membership, the shareholder revolution, tax cuts for the wealthy, and wage stagnation for the working and middle classes are injustices not only because of the dramatic economic inequality they produce, but because of the unequal distribution of political power and the loss of democratic legitimacy that results. On this telling, the assault on unions has hollowed out working-class political power, while rising wealth inequality and the deregulation of campaign finance beneath the banner of “money is speech” has created a plutocracy where money, and not the people, speaks and rules.

On the right, the inverse has long been the worry. There, the fear is that democracy may grow too strong and intrude on the market. This is the story line of theorists such as James Buchanan and Mancur Olson, and the rational choice revolution that resulted. Democracy, supposedly, is incapable of giving the people what is really in their interest (if that was knowable at all), and instead ineluctably degenerates into special-interest “rent-seeking.” In 2009, Peter Thiel said the quiet part out loud: “I no longer believe that freedom and democracy are compatible.”

One of the invaluable services provided by Quinn Slobodian’s Globalists: The End of Empire and the Birth of Neoliberalism is to trace this anti-democratic tendency’s theoretical origins, and demonstrate how for generations, ultra-market intellectuals have viewed democracy as a potential threat to the market. For some commentators—Jonathan Chait made the case two years ago in New York magazine—“neoliberalism” is an empty epithet, just a word angry leftists use to lump the Clinton wing of the Democratic Party in with conservative free-marketeers. 

Hopefully, Slobodian has forever put this line of thought to bed. Beginning in post–World War I Austria, Slobodian shows how an internally consistent body of thought reproduced itself through the 20th century, eventually providing the intellectual inspiration for institutions like the World Trade Organization.

The protagonists of Slobodian’s story are the Austrians Friedrich Hayek and Ludwig von Mises, and German Wilhelm Röpke. Hayek and Mises are famous today in the U.S. as the intellectual forefathers of Milton Friedman, the Chicago school of economics, and the Goldwater presidential campaign, but Slobodian frames his story around the problem of international organization that Austrians faced after the dissolution of the Austro-Hungarian Empire. Beginning with the meetings held in Mises’s office at the Chamber of Commerce in Vienna, these Austrians quickly concluded two things: First, Austria, isolated from its empire, was dependent on international trade for economic growth. Second, stimulating international trade would mean sharply reducing domestic wages. A series of strikes and violent worker unrest in Austria demonstrated the unpopularity of these measures. It also reinforced what would become a central plank of neoliberal thought: that unions and the democracy that gave them power could not be trusted; and that for the market to function, it had to be put beyond the reach of democracy.

After the rise of Nazism in Germany, Slobodian follows his cast of intellectuals to the 1938 Walter Lippmann Colloquium in Paris, an initial gathering of intellectuals who would go on to become key figures in the Mont Pelerin Society. The Mont Pelerin Society, named for the Swiss mountain resort where they met annually, was a collection of intellectuals who self-styled themselves as neoliberals or classical liberals, and would go on to be enormously influential: Eight of their members, including thinkers of worldwide repute like Milton Friedman, George Stigler, and James Buchanan, along with the aforementioned Friedrich Hayek, would win Nobel Prizes in economics.

As the international order spiraled into global war and the Great Depression was fought partly with tariff walls, the neoliberals of the Mont Pelerin Society became increasingly skeptical of the ability of economists to ever understand, well, economics. The global flow of economic trade, the accumulated variables expressed in each object’s discrete price, was simply too complex, they argued, to ever be captured by a macroeconomic model.

Neoliberals believed that the state was likewise incapable of comprehending, much less managing, the economy. All the state could do, under neoliberal tutelage, was to “encase” the market—ensure that the flows of goods and services are safe from the interference of states’ political whims and sovereignty. The neoliberals imagined an international order that safeguarded the rights of capital to travel across boundaries, what Slobodian dubs “xenos rights,” namely, the rights of foreign capital to supersede state sovereignty.

Protecting those xenos rights became key to the political practice of the inheritors of neoliberalism. Little-known figures who were faithful students and readers of Hayek and other first-generation neoliberals worked at institutions like the General Agreement on Tariffs and Trade and its successor the World Trade Organization, and the European Economic Community and its successor, the European Union. There, they secured the right of capital to move across state boundaries, and sue sovereign states when they engaged in “anti-trade” activity. After World War II, the United Nations attempted to make human rights universal, guaranteed without any reference to a nation-state; so too, now, were the rights of capital.

As with any historical story about the development of a global institution, the precise causal role played by neoliberal thought in the development of GATT and the WTO is difficult to pin down. Slobodian’s book is at its strongest and most provocative where it demonstrates the clear symmetries between neoliberal thought and the anti-democratic, pro-capital tendencies of international organizations. It is at its weakest where it sees the latter as sufficiently caused by the theories of the former.

Neoliberals then, value democracy for only instrumental reasons. The goal of good governance is to encase the market; at times, democracy threatens to intrude upon the market for principled reasons, and in those cases it must be reined back. Slobodian’s book is at its most engaging when he shows in detail the practically metaphysical dignity the neoliberals bestow upon the market: Rather than just a way of distributing goods and services, the market is a spontaneously self-organizing decentralized system of information that always knows more about the world than the humans that inhabit it can hope to. Read through this lens, Hayek’s Road to Serfdom or Constitution of Liberty is less a paean to individual liberty than it is an argument about the limits of economic knowledge and a veneration of the market.

Slobodian’s book concludes with a tour de force reading of this Hayek, for whom the economy is sublime, operating beyond the scope of human reason and revealing its dazzling knowledge in elliptical signals humans can respond to but not understand. Each price is a sum of the value of a good to society. Attempting to understand how a good came to be priced is always hubristic; humans cannot understand the signals they respond to, only the basis upon which the signals function—that is, the free market. A democratic government robustly committed to making collective judgments about how the world ought to work is, in Hayek’s view, always worse than a market system that can spontaneously allocate resources according to a larger pool of information. The market is a gargantuan information-processing system, explicitly analogized by Hayek to the human brain or the process of biological evolution, which no human mind can rival. To preserve its smooth functioning, it must be protected against the meddling of governments.

Slobodian’s book focuses on politics at the international level. There, elite agreement is sufficient to curb national sovereignty, moments of intense opposition like the 1999 Seattle WTO Protests or anti-EU populisms aside. The question that it does not answer is how at the domestic level of a liberal democratic state, policies that curb democracy and encase the market can be implemented.

Enter Alexander Hertel-Fernandez’s new book State Capture: How Conservative Activists, Big Businesses, and Wealthy Donors Reshaped the American States—and the Nation. In this book, Hertel-Fernandez sets out to explain how American states rapidly enacted policies, from Wisconsin’s anti-union Act 10 of 2011, to stand-your-ground legislation, that have little to no popular support.

Slobodian’s protagonists were the intellectuals who theorized the market’s right against democracy—Hertel-Fernandez’s protagonists are the interest groups funded by dark money that enact those rights at the level of state policy in the U.S.: the State Policy Network (SPN), the American Legislative Exchange Council (ALEC), and the Koch-funded Americans for Prosperity (AFP). Together, these three groups form what Hertel-Fernandez calls the conservative troika. The SPN networks various conservative think tanks across the nation that otherwise would be siloed in their state context. ALEC drafts legislation for its corporate stakeholders that is then copied and proposed in various state legislatures. It also holds annual trainingsfor state legislatorsand enlists them as members, forwarding copies of corporate-sponsored legislation to each. AFP, in concert with the SPN and ALEC, provides the foot soldiers and cash. AFP is a multibillion-dollar operation with claimed connections to millions of activists around the country.

American political scientists have searched for years for hard quantitative proof that big-money donors to politics are rational actors, getting bang for their buck. Hertel-Fernandez provides us with evidence they are just that. Wherever the troika is more active and better funded, states are more likely to pass right-to-work legislation that cripples unions; more likely to spur on pro-corporate deregulation; and more likely to resist the expansion of Medicaid since the passage of the Affordable Care Act. Hertel-Fernandez persuasively shows that in all these cases, there was practically never a robust majority in favor of the troika’s line. Instead, the troika hijacked democracy.

The 2011 passage of Act 10 in Wisconsin, which effectively gutted public-sector collective bargaining rightsand shifted the burden of public pension plans onto workers, is one site of this hijacking. As Hertel-Fernandez notes, Governor Scott Walker himself was a member of ALEC, and several of his early legislative initiatives as governor were ALEC model bills. ALEC could also claim members among GOP leadership in both chambers in the statehouse. As Walker began pushing Act 10, AFP bused in hundreds of supporters for the legislation from around the state, and bought hundreds of thousands of dollars in TV ads to prop up the anti-union legislation. A local SPN affiliate, the MacIver Institute, promoted editorials in state papers arguing in favor of the legislation. And, after massive resistance from the teachers union, including a last-ditch effort to recall Governor Walker, Act 10 passed.

And Act 10, like much of the legislation pushed by the troika, had its intended effect. In 2011, about half of Wisconsin public-sector workers were union; that number was below 20 percent in 2017. The value of teachers’ pensions and health care fell by a fifth during the same period, and their pay has stagnated or fallen. And, crucially, the political power of the Wisconsin teachers union has fallen precipitously, too: In 2012, during the Walker recall election, one out of every 20 dollars spent in the race was union. In 2016, less than 1 percent of every dollar spent was union. The troika succeeded in crippling the political power of unions, a political power that had so profoundly disturbed the early neoliberals in early-20th-century Austria.

Proving that neoliberalism is suspicious of democracy does not require trips to the dusty archive and the turning up of smoking guns. In her controversial Democracy in Chains, Nancy MacLean believed she had done just that, produced archival evidence that James Buchanan and Charles Koch had conspired to uphold segregation and resist the power of democracy. Her book has been criticized by writers on the right and left, and it is unlikely that Buchanan personally was a segregationist. But it is absolutely the case that Buchanan belongs to an intellectual movement suspicious of democracy. Public choice theory’s axiomatic denigration of the possibility of there being anything like a public interest distinct from the aggregation of private interests is evidence of this inheritance. And it is overwhelmingly evident that the Koch brothers’ AFP wants to reduce worker participation in democracy wherever it can, and hijack democracy with dollars. The disaggregated conservative interests represented in the troika, from the gun lobby to big business, to oil interests, to evangelical social conservatives, are united by one common interest: a belief that left alone, democracy will decide against them.

The fight is money against democracy. For neoliberals, the market knows best. Even when what the market knows is that workers’ wages must stagnate or sink for a country that opens itself up to international free trade; even when what the market knows is that poisoning a nation’s water with cyanide is worth it if that means you can mine gold; even when what the market knows is that sweatshops and the disasters they bring with them are a necessary stage in industrial development.

How can progressives empower democracy against money? Hertel-Fernandez’s research tells us that better-funded state legislatures are better equipped to resist the troika. State legislators who are well paid and equipped with aides are much less likely to consort with ALEC and sign on to conservative bills. Publicly funding elections and creating public pools of money candidates can draw on as an alternative to AFP funding would also probably help. And we can also fix the gerrymandered electoral map and pass a new voting rights act to robustly expand the franchise.

On an international level, a pro-democracy left needs to rethink the repercussions of free-trade agreements not only for the future of the economy, but for the future of democracy. That Canadian companies felt empowered to sue El Salvador for the right to mine their mountains for gold, risk of poisoning rivers with cyanide be damned, is only one of the more visible examples of the rights private companies are afforded in a free-trade regime.

And progressives need to get there before the right steals their clothes. Already, Trump’s tough-on-China trade policy suggests a right-wing awakening to the possibility of being the party that is pro–American worker. Progressives need to robustly defend the right of sovereign states to regulate their economies, emphasize fair-trade agreements, and, when international competition threatens the livelihood of domestic workers, develop a robust industrial policy that prioritizes the needs of American people above international capital.

Finally, the pro-democracy left also has to rise to the intellectual challenge posed to it by neoliberalism. Thriving debates about the possibility of a jobs guarantee or a universal basic income suggest a reawakening of a democratic imagination that refuses to let the market be the only decider. 

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