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The fifth estate?

A note: I started drafting this on Tuesday, but then got caught up in work and finished it today.

Much ink has been spilt in recent weeks discussiong the extent to which the influence of the European Union (and specifically European Commission) over recent changes of government in Greece and Italy represent an undermining of democracy. Less has been said about national sovereignty, which in itself indicates the degree to which European integration has progressed. That other international superstructure–“the market”–seems unable to stay out of the fray: this week bond yields were up significantly not only for Italy and Greece, but also Spain and France. Italy is back in the danger zone, and Spain is teetering near it. Less than one working day after the passage of reform measures and Berlusconi’s resignation, Italy’s new government the press was openly discussing whether it was a failure. Setting aside the fact that I’m not sure Italy could have been said to have a new government in place at that point, it now appears that the most potent force in this whole mess is not the oligarchic bullying of the Frankfurt Group but the quasi-rational and quasi-populist tyranny of the market.

This raises an interesting set of questions: at what point will “the market” “declare” the Euro to be a failure? Who will win in a battle between two quasi-democratic institutions, both of which lack inbuilt mechanisms for defending the interests of society? Will the European Union be salvageable in the aftermath of the Euro’s disintegration?

Despite the way it’s talked about in the press, we must remember that “the market” (I promise to stop putting it in air quotes henceforward) is not a thing in the same way that the European Union is a thing. It’s million and millions of transactions occuring every day around the world, and the prices at which different things are bought or sold is a barometer of where people see the value in something–whether that’s a fish or a share of stock or a collateralized package of ill-contemplated subprime mortgages. Insofar as there are people deciding what a particular thing is worth, the market is a bit like voting. Indeed, runs on the market exhibit the same antisocial populism that can blight democracy (and which are the reason we tend to have constitutional protections against the worst excesses of majority rule). But there are some features that fundamentally distort that analogy and undermine the market’s tenuous claims to democratic legitimacy. The first, of course, is that (at least when it comes to global markets) the participants represent a tiny fraction of society at the far end of the spectrum of privilege. Second, it’s not always people doing the voting; in many cases it’s actually algorithms. Third, the speed at which the market moves means that individual transactions can be rational, but that the market as a whole–and its many vicissitudes–is not necessarily so. If you haven’t read it yet, Donald MacKenszie’s fantastic essay “How to make money in microseconds” is a fantastic guide to the technological knife’s edge on which the brave new market balances.

The fourth estate is a long-recognized concept in representative democracy, and over the course of the 20th century it generally came to be understood to refer to the press. Despite its (often ignored) commercial motivations, the freedom of the press from government interference has been a a recognized aspiration of modern western society.  That independence has given it the chance to make and unmake individual policies and whole governments. Most people argue that is a good thing: holding our elected representatives to account.

Does that mean that the market is the fifth estate? It exceeds the press in blunt commercialism, but it has shown itself in recent years to share the ability of the press to make or unmake governments. It is more dispassionate than the media are (the grudges of press barons can, after all, pervert public discourse even in opposition to the public interest), but it is also less rational and, being a global set of transactions, checking its excesses seems even more difficult than enforcing a super-injunction in the age of the web.

If the market is the fifth estate, we should decide as a society whether protections similar to those granted to the “free press” make sense to protect the “free market”. In answering this important question, it’s worth remembering that governments put themselves at the mercy of the market. The press co-conspires with popular opinion to affect the government, and though that influence can wax or wane based on a variety of factors (the majority enjoyed by the party in power or the length of time to the next general election), it is omnipresent. Governments are only susceptible to the market, on the other hand, when they need to borrow money.

As a historian I am now required to say it has been ever thus. Funding those in power has always endowed the funders with power. The City of London and Parliament both earned their rights from the English Crown by negotiating the conditions of loosening purse strings. But history is littered with examples of such tactics backfiring–when the resentment of the centre of power has boiled over: the expulsion of the Jews from England in 1290 and the suppression of the Knights Templar in 1312.

Where does that leave us? I think there are some fundamental changes that could be made in the way modern markets operate that could curb some of their excesses. I’ll talk about those another time (after I’ve spoken to some people who understand these things better than I do). In the meanwhile, all this seems to undermine the oft-argued notion that governments need not live within their means in the same way that households are expected to. In both cases, debt seems not to be a problem until it’s time to pay the piper, as it were.


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