CHAPTER 7 MAIER DEPLOYING GOVERNANCE Consider two very different phenomena of the 1960s and 1970s. - Disintegration of public order and growing demands for redistributing wealth and authority - A change in political language in the global west, with the adoptance of the term governance. If on the one hand, government stability seemed threatened; on the other “governance” suggested an approach to administration that promised to rise above the divisions. “Governance” Takes Off The realm of governance was a domain of norms based on science, considerations of justice, or calculations of utility. Policymakers claimed to act on behalf of expert knowledge, or in terms of the common good and not just on behalf of a particular party or interest. The real of governance comprised many different institutional forms: new political associations, public interest lobbies, and international organizations. The issues they addressed needed to be renegotiated and defended in new forums, no longer states but associations and international agencies. In these forums, of course, were gathered analysts with the same ideas so it is not wrong to say that the realm of governance remained permeated with ideology. Is it possible to trace a genealogy for this strand of public intervention? - America has been recognized as hospitable to multilevel government and independent organizations UN and League of Nations, which responded to humanitarian emergencies and then to more general needs - In Germany, we have the legacy of local and corporate “self-administration” or corporations’ regulations - In France, associations were treated as governed by the state and codified in the laws of 1884 and 1901. French thinkers argued that society itself was a source of cohesion and possible reform Montesquieu’s idea of “intermediate bodies”. The Unified Socialist Party (post 1968) seemed open to the new direction of governance but then produced a Common Program with the Communist; a traditional one based on nationalization and increased taxation. On this program Mitterrand won the presidency in 1981 but he had to stop his welfare program in 1983, choosing the monetary collaboration with Germany. By 1980, the sites of governance were multiple and increasingly aligned around a neoliberal agenda, including: - World Bank, IMF, ECOSOC and OECD - The dense thicket of domestic foundations and nongovernmental institutions recruiting members by co-optation. They all claimed to represent a wisdom or knowledge that transcendent any identification with party. Behind them stood intellectuals who had long argued the policies now coming into fashion. It’s important to consider also the special commissions, the foundation (Rockefeller) and all those private voluntary organizations which sent aid abroad from 1960s to 20’000 organizations in developing countries. The agenda of these entities stressed left-leaning social and political participation. Germany and the United States had set up bodies of economic advisers that supposedly furnished nonpartisan expertise. Others represented particular interests whether on the side of business (or labor unions. From the 1970s on political and economic elites could mobilize the realm of governance, whose organizations claimed scientific independence to reorient the discourse of entitlements and equality that had set the agendas of the 1960s. in order to achieve these ideas they needed networks with political or economic power. This was cause of concern for the left because it was possible that the ideas would have been instrumentalized by their patrons, it was true that capitalist interests tended effectively to smother the possibilities for governance. Historians have emphasized the international dimension of these policy networks and intellectuals. In the 70s the term governance was also related to the concept of “governability” (=capacity to peacefully administer a society and to overcome open unruliness) which seemed in danger, because the states’ capacities to hold in check the demands of social groups seemed weak. One reason for this weakening can be find in the fact that political systems were overloaded with participants and demands. The pursuit of the democratic virtues of equality and individualism has led to the delegitimation of authority generally and the loss of trust in leadership. In this period, Beer used the term populism to suggest the breakdown of organizational discipline in favor of mass demands and participation. The trilateral commission, for example, was created as a responsible mobilization of experts for global economic governance. These organizations were also a response to the dispersion of global power and resources from the one-time imperial powers to third world challengers. International Redistribution? Certainly, claims for recognition, respect, and resources saturated the public arena, which extended from schools and neighborhoods up to the UN General Assembly. Some of the claims were couched in the language of rights that had been transgressed or rights that needed to be recognized. Political philosophers took them up in the language of obligations. For the new nations of Africa and Asia as well as those long established, the inequality of wealth and their perceived vulnerability vis-à-vis the “first world” remained major concerns. Especially when long-standing analyses of exploitation suggested that the wealth of the first world derived from the third world. In the General Assembly, the countries of the global south had a voice they lacked individually or in the agencies derived from the Bretton Woods agreement. What the third world producers needed immediately was access to the markets of the first world, but it was difficult to achieve. The Congress, overrepresenting rural interests, made the United States unable to overcome its own agricultural sector’s commitment to quotas and protection. In 1963, the EU gave tariff concessions to African ex-colonies. The former colonizing powers had their clients for low-tariff privileges but would hardly welcome Che Guevara’s manifesto for free trade. Free trade alone, however, was not designed to solve the problems of the global south. UNCTAD ’s Geneva meeting called continually for a vague “structural adjustment.” The struggle of the global south was supported by the Prebisch-Singer thesis, which stated that over time, deteriorating terms of trade for agriculture would favor industrialized nations at the expense of agrarian exporters. The idea was potentially explosive and certainly contested but was seized on by economists of the so-called periphery, or the global south, and it would become central to so-called dependency theory. For sympathetic economists, it demonstrated that the global north continued to exploit the south and that imperialism lived on in the form of neocolonialism. In 1972, at the Santiago UNCTAD, the Marxist president of Chile became ambassador of Third World, bringing accusations of neocolonialism based on dependency theory became the centerpiece of third world laments. Three groups of countries emerged as contending actors during the 1973–1974 crisis: - OPEC members - Western powers but divided between US concern about continuing leadership and France’s Gaullist reflexes - Group of 77, in the UN they could exploit the energy vulnerability of the Atlantic powers to press common claims against the wealthy West. Kissinger, always preoccupied by independent initiatives by NATO allies proposed a conference among the major importers at a Washington conference for February 11, 1972. The invited states reacted differently: - The Federal Republic could be counted on because of its need for American troops - Britain and France were in a stronger position to bargain with oil-producing countries Michel Jobert, President Georges Pompidou’s foreign secretary, saw the conference as another overweaning US initiative to impose a world energy order. On the other hand, the Algerian leader (Boumédienne) in 1974 ccused the industrialized countries of having accepted self-determination for their colonies only after having won control of the world economy. The UN G-77 announced their program for a New International Economic Order (NIEO) based “on the principles of equity, sovereign equality, interdependence, common interest, cooperation and solidarity among all States.” They also pretended full sovereignty over their national resources, bilateral and multilateral aid to promote industrialization, reform of the international monetary system to advance development, shared technology, and terms of trade more favorable to commodity producers. Lawyers and philosophers might debate whether these were claims or rights. Did they mean, “we demand” or “we deserve”? The UN had inscribed the right to have rights in its 1948 Declaration of Human Rights. But these were the liberal rights, supposedly inhering in human nature. European conservatives had been eager to enshrine human rights in part as a response to Soviet concepts and in part to avoid any recognition of the more troublesome economic rights. But democracy could not subsist without the claims of rights. Governments alone could not guarantee them even when inscribed in constitutional documents: the realm of governance provided the networks and legal forums where these ideals might be defended. The status of economic rights was clearer; the West or the global north had despoiled the third world. Economic rights were a form of reparation or rendering justice. Facing this conjunction of OPEC’s oil price increases and the third world’s moral offensive, the EEC, recently enlarged by British, Danish, and Irish membership, signed the Lomé Convention at the end of February 1975, opening access to European markets for the forty-six members of the African, Caribbean, and Pacific (ACP) countries. The program included aid provisions but gave the European Council access to ACP mineral and energy resources and reinforced European access to natural resources and markets. What about outright aid? How responsive was the global north? Bilateral aid from the capitalist countries constituting the Development Assistance Committee (DAC) amounted to 88 percent of total official financing between 1956 and 1960. The 1960s brought an expansion of multilateral aid through governance agencies. Overall, the results that the NIEO countries hoped for were disappointing. An important point to underline concerns the Mashall Plan; many observer believed that these aid were comparable to the latter but they were not. First of all, the billions of dollars that the US sent in 1948-1951 reached already developed countries, it simply help the restart of trade and the rebuilding of infrastructure and economy. The human resources required for development, skilled labor, and engineers, were already present in the European recipients. On the other hand, aid recipients in Africa and Asia required a qualitative transformation. The last major obstacle for a redistribution between rich and poor was the internal division of the Global South, because the Petrostate were considered as rich, even if only a small elite benefit from the petrodollars. Their main objective was to recycle the incomes of the petrol economy, to avoid an economic contraction. Oil dollars were deposited into Western banks, which by virtue of fractional reserve requirements that allowed them to lend far more than the cash they held, were able to extend significant credits to third world government programs. A decade of inflation The claims of the NIEO (New International Economic Order) seemed irrelevant if compared to the inflation level reached in the First World. The inflation of the 70s did never reach the levels of the hyperinflation after the two World Wars BUT lasted longer and was far more internationally transmittable. For a decade the average level was around 10% in the OECD countries. An additional problem was that inflation did not bring a reduction in unemployment. The problem started at the end of the 60s when Central Banks fund budget deficits to satisfy the demands of a militant labor movement and then because of OPEC price increases. Example: in some countries like Italy and Israel there was an indexation of the high cost-of-living into pensions and wages wage-price spiral From an analytical perspective this problem opened divergent analyses of democratic capitalism: - Social scientist on the left: convinced that the neo-corporatist experiments under way would replace market capitalism with a far more state-managed economy. - Conservative commentors: democracies tended inexorably to inflation and slow growth since they had to appease so many pressure groups. - Public choice theorists: applying economic analyses to political outcomes, argued that inflationary tendencies were likely to become chronic in democracies. Public expenditure arose from 34% of national income in 1950 to 49% in 1973. However, there is no simple correlation between government spending and the rate of inflation. Once the problem became eradicated in the society there were different position not only on its causes but also different interpretations: - James Tobin of Yale: he was a liberal democrat and for him it was not very concerning since States frequently intervene in cost-of-living - Conservatives: the increase of prices was the consequence of a fundamental moral problem. Some of them perceived a spirit of permissiveness (e.g. liberalization of sexual activities, less importance of work ethic, deterioration of product quality, alienation of voters), according to them “Inflation destroys expectations and creates uncertainty”. the motto was “enjoy, enjoy” because tomorrow is insecure. For the first time since the 30s there was a doubt about the value of democratic government. Modern capitalism had lost the impulse to save that had created wealth to begin with. The “moral basis” required for a functioning capitalism had supposedly eroded. What are the basis? We can interpret it from two perspective: - What it requires: work ethic and the willingness to defer gratification for the sake of future return - What are the fruits of it: a certain fairness of reward and of life chances. Not equality of outcome but equality of opportunity. These standards became utopian after the spreading of racial and economic cleavages. Rawlss proposed two criteria for social policy that also took account of political reality but would satisfy most progressives: 1. Any redistribution must make the most disadvantaged citizens better off 2. All advocates should act as if they operated behind “a veil of ignorance” and did not know which social class they actually belonged The question that arose after this analysis is: up to what point redistributive corrections should be made? In the 50s growth was the only way to attenuate feelings of inequality without altering national shares of income or wealth. In these years, both the willingness of the masses to restrain their consumption or social welfare benefits to assure growth and the readiness of their representatives to vote the taxes to cover social programs had apparently dissipated. The voice of governance continually reminded citizens that the future must not be sacrificed for present consumption. There can be multiple remedies for inflation but much depend on the interpretation that one has of its cause: - Liberals: Keynesianism was responsible for the inflation of modern economy and there should be no license to worsen inflation with further regulation such as price and wage controls. - McCracken report: The analysis was careful, well-reasoned, mature, judicious, and virtually tautological bad things happen in the economy from time to time. No extraordinary regulatory measures need be taken. This report was fundamental to make the “independent expert” recover their influence. Experts made truth claims in many spheres of life but, international affairs, public hygiene, and economic performance were domains in which their authority seemed most important. The realm of governance was to play a major role in the great reorientation of economic policy that began in the 1970s. Most societies had long institutionalized legal governance within a system of public or religious courts. Claims to expertise and governance would become increasingly politicized. The mid-70s were a political turning point, the analysis of inflation quickly entailed an attack on redistribution in general—national and international. The major achievement of the postwar project-state—encompassing social welfare systems—soon. Especially unemployment benefits came under heavy criticism as too generous, disincentivizing the unemployed. It is important to remark that there was criticism against the development paradigm. For example, Bauer’s papers rejected the concept of a specifically underdeveloped world, criticized comparative national income statistics as too undifferentiated, insisted that agriculture and commodities as well as industry could lead to national wealth. In March 1975, Moynihan published his attack in Commentary on third world ideologies and the Western guilt feelings that had allegedly encouraged them. A Governance Unicorn: The European Economic Community in the Years of Stagflation Defining what sort of institution the EU was (and is) has always been a frustrating exercise. When it was negotiated in 1957 it was thought with: - Limited powerfull Parliament - A non-partisan body which would purusue “objective politics” Commission - A body representing national interest Council of ministers EEC national members retained theoretical sovereignty although they ceded large areas of authority over their own legislation. It was established by the Court that Community law could override national rules. In 1973, UK, Ireland and Denmark joined. The British were for a federal structure that allowed them to maintain the “special relationship” with the United States. At the beginning the Us were not in favor of this development. The French believed correctly that Kissinger wanted any European project to remain subordinate to American leadership; NATO, not the EEC, must always remain the preeminent association. In 1975 there was the 1st meeting of the newly created European Council but it did not produced any miraculous transformation, it would gain in traction. In these years (mid 70s), even if it was a difficult period, the EEC might provide a unique organism for transnational governance. In this period the rebuilding of the system of monetary exchange started, in two phases: 1. Creation of a European Monetary System (EMS) of coordinated exchange rates (treated in this chapter) 2. Creation by leading EEC members of a common European currency the Euro There were either an external (EEC as a whole vs USA) and an internal (among EEC members) source of tensions in the 70s. The difficulty to solve the internal tensions were linked to the fact that the currency, along with defense, was a primary prerogative of statehood. FIRST PHASE: The US had benefited from the fact that the West had accepted the dollar as a reserve currency (Bretton Woods), from the end of the 50s it also seemed overvalued. European firms and ultimately the central banks accumulated dollars, which added to their own domestic inflationary pressure. As a consequence of the pressure on the Federal Reserve, Nixon administration suspended “convertibility” of dollars into gold on August 15, 1971, effectively nullifying its Bretton Woods commitments. In December 1971 the West signed the Smithsonian Agreement to try to stabilize fixed rates by sharing the costs of adjustment. They all agreed to keep their currencies within a band or “tunnel” of 4.5 percent above or below against the dollar. The EEC member decided to keep the internal currencies under 2.25% instead, and they established a credit facility that the weaker currencies might draw upon. DID NOT WORK, because in 1973 US let the dollar floating, as consequence also Germany, UK and France. So long as the United States as the major reserve currency provider found it difficult to discipline its own economic policies, no international system that depended on its restraint was likely to work. The oil price rise of early 1974 redressed the weak- ness of the dollar since OPEC demanded payment in dollars for oil. Europeans needed to think of an alternative, on a global level, to the dollar as a reserve currency, there were different proposals: - French finance minister: proposed a European unit based on a basket of EEC currencies weighted according to the size of the respective national economies - Expert committees: using a weighted average of exchange rates - Commission: concerted floating or a renewed snake - Committee of experts: parallel currency, called Europa By June 1975, a Commission report urged that “monetary policy would become an exclusively Community policy domain, in the same way as trade policy and common external tariff”. The positon towards the snake of France was particular, because after exiting in 73 they rejoined it in May 1975 and then exit again in April 1976. In 1978, The EEC finance ministers agreed and proposed a system that would include all Community currencies, even before the differences in rates of inflation and balance of payments were entirely resolved. The European Council of heads of government agreed a few weeks later to create a European Monetary Fund (EMF) that could support currencies under pressure. Now, the heads of government had to convince their national banks. The European Council reached agreement between December 1978 and March 1979 on a new EMS. Hard bargaining was required not only between countries but also within them. German industry objected to the tolerance for French devaluation that the agreement envisaged. Britain finally refused to join the system. The agreement would soon have to confront the impact of the second major OPEC oil price hike, the Iranian revolution, and a major new surge of inflation. By 1983, the central rate adjustment had been triggered seven times: the deutsche mark revalued upward on four occasions and the French franc’s parity reduced on three occasions. The moment of truth for the EMS came when Mitterrand won the French presidential election in 1981 on a left-wing program of higher taxes on the wealthy and increased public spending. He soon faced the choice of leaving the EMS or reversing his electoral program and submitting to austerity. As we shall see, he chose alignment with Bonn. From one perspective, the monetary travails of the 1970s revealed the fra- gility of the EEC, but from another perspective, they demonstrated that after a quarter century, linked currencies had become a scaffolding for European governance. Governance was deployed by the mid- 1980s no longer primarily as a brake on the left; that threat had faded. It was an institutional counteroffensive on behalf of capitalist modernization. This story raised the issue of how the realm of governance might represent the broad strata of society it allegedly served. The European Community and its monetary travails revealed the potential for and the limits of governance. When governance did not suffice With political parties, democratic and authoritarian alike, less capable of providing order or satisfying mass demands, centrist and conservative voices needed to regain control of the policy landscape, at home or internationally, as they had in the 1920s. They could do so by capturing the state, legally through elections or extralegally through military takeover. In some societies, conservative forces felt they could not tolerate party competition and imposed military dictatorship. We have many different cases: - BRAZIL: Following an electoral victory by the left in 1964, the Brazilian mil- itary had stepped in to oust President João Goulart in 1965 and imposed a harsh dictatorship that would last until the early 1980s. - CHILE: In 1968 a Marxist was voted. The private entrepreneurs, supported by the Americans connived in the seizure of power in 1973 by General Augusto Pinochet and the military. - ARGENTINA: in 1974, the military returned to claim power from the widow of Juan Peró n, who had re- turned to power for the third time in 1973 brutal repression against any suspected “left” elements. In the wake of the civil rights movements, followed by waves of feminist mobilization, a growing insistence on acceptance of open homosexual relationships, and recognition of the needs of the disabled, a culture of rights would liberalize Western legal systems from the 1960s on. Divorce and abortion became lawful alternatives even in Catholic redoubts such as Italy and Spain. The successful though often partial conquest of rights accompanied the widespread acceptance of nonviolent mass political action, championed most conspicuously by Mohandas Gandhi in interwar India, then inspiring Martin Luther King Jr. and sit-in leaders in the United States, and influential voices in the African National Congress in the Republic of South Africa. Nevertheless, after the 60s emerged radicalized students and intellectuals who believed that mass action without violence was useless terrorist assassination Faced with such vigorous protest movements in the areas of race, gender, and working-class representation, the older structures of political represen- tation in the 1970s appeared rather moribund and dead. Where one-party rule was enshrined legally as in Communist countries, the problem of dissent in the aftermath of the 1960s returned with a vengeance in the 1970s. International politics and nation-state rivalry had helped to unleash the impatient social forces of protest; but might they not also help to channel them? One particular example is India: it had inherited British parliamentary institutions but cast them aside. Reconciling new liberal institutions with the single-party domination that has often followed revolution or nation-state formation has traditionally proven challenging. Was the project of grassroots democratic development historically feasible, whether in the Mezzogiorno of 1860 or in independent India after 1947? Per- haps it is impossible to resolve the counterfactual issue when we envisage a society divided between elites whom we can identify, and a residual “mass” population whose politics we find hard to make sense of. If one looked around the globe, single-party systems seemed a durable form of rule. In Italy and Japan, the electoral hold on power of a single party after World War II also seemed almost unshakable. With time, however, and the appeal of neoliberal alternatives to corporatist institutional inheritances, the dinosaur parties loosened their hold. The authoritarian regimes would also crumble, peaceful transition in Spain. In all these cases, the realm of governance stepped in on the side of democratization. But governance organizations were also often convinced that the way forward required the new economic wisdom supposedly taught by the experience with inflation that is, diminishing the role of the state over economic policy. The Western state project of the 1980s would become the neoliberal turn: turning toward the market, slimming welfare and bureaucracy, and clearing the way for the financiers and industrial leaders who spoke for capital. The institutions of governance would manage to convert key leaders of the social democratic, reformist left to accept the importance of redressing economic policy and public finance. By the late 1970s, all Western governments were unpopular, as were their efforts at unionmanagement “concertation” or neocorporatism. As inflation eroded the real value of its dollar revenues, OPEC announced a second three- fold oil price increase at its Dubai meeting in December 1978. In theory, the West’s pain was the petrostates’ gain. They could embark on rapid development of infrastructure, health facilities, urban development, expensive arms purchases, and investments in Europe and North America BUT unevenly distribution In the Gulf countries a new wave of migrants created a new subproletariat trapped in domestic service and menial jobs. Emergence of authoritarian leaders: Gadhafi and Hussein. In national elections, voters tended to rebuff every ruling coalition or party. The wind did not always blow from the right, but where the left prevailed, they did so less as a consequence of economic issues than as an impulse to replace the conservative disciplinarians. 1981 victory of Mitterrand Elsewhere, impatience with the left’s incapacity to master inflation took its toll GE and IT But equally important (and prefiguring the way “civil society” movements would displace Communist authorities in the 1980s), associations proposing policy in the name of governance offered a path to stabilization.
