The real Parliament to worry about.

This piece was a guestpost on thethirdestate.net.

With no party holding an outright majority in Parliament, the negotiations now taking place will effectively do the job of the electorate and decide the next Government. At any time this would be a bloody important decision, but now, with the economy on a precipice, and the threat of Tory cuts in public spending, it's a bit more so.



So who will decide how long these negotiations will take? Constitutional convention? The electorate itself? Possibly. But the leaders know the real limit: the markets open tomorrow, and they must be pleased.



Economists and political scientists have noted for many years the effect that unaccountable financiers can have on the democratic process and government policy. In a mostly unregulated, 'floating' (that is, marketised), currency market, speculators have the power to decide the value of this basket of currencies or that; it is estimated that 90% of currency fluctuations occur for this reason. Speculators can buy up a huge amount of a particular currency - say, pound sterling - and thus increase its value relative to other currencies; or, they can sell off their reserves of this currency, and its value will fall. There's a reason they give you an update on the pound after the weather forecast - this stuff happens to be very important, for any economy.



This means more for Finance than the ability to make a quick buck (or Pound, or Euro, or Peso). Financiers can use this, and often do, to pass an effective referendum on government policy. If Finance is displeased with a government proposal, they can band together (informally, of course - no need for smokey rooms here) and attack the currency. The result is that governments, even with strong mandates, know where not to tread. This effect has been termed the 'virtual Parliament' and it's just placed a limit on coalition negotiations.



We saw a hint of this on election night. After the indecisive early election results, the value of the pound fell as investors felt uncertain about the prospects of any coalition doing what the 'business community' wants, namely to reduce the fiscal deficit. You may have thought that the issue of the size of a government deficit (particularly during a recession, when public spending is so important) was the concern of an elected government and the people affected by its decisions. Think again.



What's even more striking about this is the fact that in all the news coverage of the election and the coalition talks now taking place, no commentator has made this point: that perhaps its a scandal that business has the right to tank a currency when it doesn't like what the People have decided. To my knowledge, the only person to raise this point was Mariella 'thinking man's crumpet' Frostrup, on that rather odd BBC election-night boat party. Andrew Neil (don't get me started) raised this point with some enthusiasm, that if a majority for the Conservatives wasn't achieved then the markets will have their say. She slapped that right back in his very large face, saying it's a 'disgrace' that we should even talk this way during an election. He replied that its 'their' money making up the debt the government has to pay back, but she raised the objection that it's a scandal we've given the markets that power in the first place, and right she was. Surprising that no leftie-luvvie working for the Beeb (Andrew Marr, Robert Peston et al.) raised this point at all. Damn champagne socialists...



It wasn't always this way. The 'Bretton Woods' system decided after the Second World War put in place a system in which world currencies were assigned a fixed value, with little room for speculation. This allowed for capital controls and stable currencies, in a time when the government's role in demand management was seen as legitimate. The era of the Bretton Woods system constitutes what is usually seen as the 'Golden age' of capitalism (as opposed to the 'Leaden age' since then). This was done for two main reasons. First, it was the view of economists and statesmen at the time that wild speculation in currency markets would retard growth and development. In fact, they were right. According the the International Monetary Fund's own report on 'The World Economy in the 20th Century' (2000), the rate of growth in global per capita GDP in the period 1950-73 (the Bretton Woods period) was 2.9%, double the rate of growth after this period during the wonders of financial 'liberalisation'.



But there was another reason. The architects of this system realised that without the ability to control the flow of capital in and out of a country, and with a wildly speculative financial system deciding the value of currencies, there would be no space in which to enact the reforms of which business would never approve. It is highly unlikely that without this control of Finance the social democratic turn in Europe and America would never have taken place. How would 'the Markets' have reacted to the Attlee government? Or progressive taxation? Or the public health-care systems put in place in so much of free Europe?



The period in which the markets Will be done correlates exactly with the rise in global and societal inequality, privatisation, the politics of wage stagnation and that eternal horror, the 'flexible' labour market. The same system that put all that in place has just set a limit on the negotiations between the main parties.



We need to go beyond the 'objective' economic argument about the nationalisation of the banking sector and resurrect the Old Labour-speak about economic control. Who governs the the fate of working people and the economy in which they make their living? The people affected, or our unaccountable friends in the City?