The promise of liberal democracy and the sustainability of our eco-system are imperiled by the crises wrought by public apathy, negligent corporations and captured regulators. In particular, as charged by critics across the political spectrum, corporations and governments have failed to meet constitutional, legal, market, and ethical standards of good governance in their repeated failures to prevent significant crises caused by greed, regulatory capture, and criminal malfeasance.
For example, within the US, Richard Posner, legal scholar and former free-market advocate, declared in The Failure of Capitalism: The Crisis of '08 and the Descent into Depression that contemporary laissez-faire capitalism has conclusively demonstrated its liabilities and corrective government regulation and moral reform, among other changes, are sorely needed.[i]
Legal scholar Rena Steinzor, author of Industrial Catastrophes, Corporate Malfeasance and Government Action, makes a similar case, arguing that contemporary deregulatory governance coupled with modest fines, rather than criminal settlements, enable and encourage reckless daily operations that pose catastrophic risks.[ii] Steinzor attributes deregulation to “hollow government,” defined as governance with weak legal authority, funding shortfalls that preclude appropriate regulatory implementation, and de-valuation of the civil services.
Hollow government, achieved in the west by contemporary “neoliberal” logics and austerity practices, certainly played a role in producing the crises examined in this book, but lack of oversight and over-confidence in business integrity have been supplemented with a far more insidious disregard for externalities, or the costs produced, but not acknowledged, by powerful corporations and industries aligned too closely with government regulators.
Critics such as William Black, a former US financial regulator and economics professor at the University of Missouri, contend that government has proven itself to be an incapable regulator because of disproportionate policy influence by powerful interests.[iii] Black compares criminal financial prosecutions across financial crises and finds a trend toward civil, rather than criminal prosecutions, which produces moral hazard, encouraging more malfeasance.
Black’s analysis suggests the contemporary neoliberal state is not merely hollow, but that important elements are also captured. The purpose and conduct of government agencies and authorities can at times be organized around interests that run counter to the public welfare.
Left wing academic critics such as David Harvey described the captured state under late capitalism as abdicating democratic principles in order to “facilitate conditions for profitable capital accumulation on the part of both domestic and foreign capital” with decreasing regard for human welfare.[iv]
As described by Harvey, late capitalism, is characterized by the consolidation of global ownership of resources and centralization of political decision-making within transnational corporations, powerful and co-opted government agencies, and non-democratic international governance entities, such as the World Trade Organization (WTO).
Citigroup, one of the most powerful global financial corporations, appears to agree with Harvey’s characterization of gross consolidation of ownership, at least such a world is implied in their October 16, 2005 report: “Equity Strategy: Plutonomy: Buying Luxury, Explaining Global Imbalances.”[v] In this report Citgroup adopted the term “plutonomy” to describe a world “dividing into two blocs—the plutonomies, where economic growth is powered by and largely consumed by the wealthy few, and the rest”[vi]
The U.S. is cited as a “key” plutonomy characterized by “disruptive technology-driven productivity gains, creative financial innovation, capitalist-friendly cooperative governments, an international dimension of immigrants and overseas conquests invigorating wealth creation, the rule of law, and patenting inventions.” The financial elite, as represented by Citigroup, has no false beliefs about the distribution of power....
The consolidation of decision-making power about the economy, energy, food, health and war in powerful and entrenched institutions challenges reform. Yet, escalating financial and environmental crises will continue to occur until the underlying pathology has been remedied. Fascism is rising quickly. We don't have much time.
[i] Richard Posner (2009), The Failure of Capitalism: The Crisis of '08 and the Descent into Depression. Cambridge MA: Harvard University Press.
[ii] Rena Steinzor, Industrial Catastrophes, Corporate Malfeasance and Government Action (2014) Cambridge, MA: Cambridge University Press 2.
[iii] Black, W. (2010a, April 15). Epidemics of “control fraud” lead to recurrent, intensifying bubbles and crises. Social Science Research Network [on-line]. Available: http://ssrn.com/abstract=1590447
[iv] David Harvey, (2005). A brief history of neoliberalism. Oxford: Oxford University Press, p. 7.
[v] Citigroup. (2005, October 16). Equity strategy: Plutonomy: Buying luxury, explaining global imbalances. Retrieved from http://www.scribd.com/doc/6674234/Citigroup-Oct-16-2005-Plutonomy-Report-Part-1
[vi] Citigroup, Equity Strategy, 1-2.