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Technocrats or populists: Who gained influence during the financial crisis?

Screen Shot 2014-03-20 at 10.03.34 AMThese notes were prepared for a talk at Victoria University of Wellington on May 14.  Many scholars of public administration characterize the three decades between 1978 and 2008 as a period when we reconsidered the best way to organize public services. In fact, the stakes were higher than that. The essential question was an old one: in a democratic system, should power be put in the hands of technocrats, or citizens and their elected representatives? There was certainly a powerful global movement for democratization during that period. But there was an equally powerful, and ultimately more successful, movement for the shift of power into the hands of technocrats.

In those parts of government critical to the smooth operation of a globalized economy, the pre-crisis years saw a decisive move toward technocratic governance. (See my 2010 book, The Logic of Discipline.) For example, regulatory power was put in the hands of independent agencies to provide reassurance to international investors, as was responsibility for the operation of critical ports and airports. to facilitate international commerce. Similarly, other elements of critical infrastructure were handed over to commercial operators. In many countries, revenue collection became the responsibility of independent bodies, often to reassure foreign creditors that their loans could be repaid. The proposition was that these governmental functions were too important to be left to democratically-elected politicians.

The shift toward technocratic governance was most evident in the realm of economic policy. In many countries, finance ministries increased their influence over fiscal policy, and in the ongoing battle between spenders and guardians, the guardians now had the upper hand. And monetary policy was handed over to central bankers;during the pre-crisis years, there was a “quiet revolution” in central banking according to Alan Blinder. Many countries granted formal independence to their central banks,and the profile and prestige of central bankers grew. In the United States, Alan Greenspan acquired “rock-star” status.

Then came the financial crisis. At first, there were several reasons to think that this might signal an end of the movement toward technocratic governance. For example, there was a sharp decline in trade, lessening the pressure for port reform. There was also a decline in foreign investment, lessening the pressure for regulatory reform. Investor enthusiasm about privately-financed infrastructure projects waned as well.

Even in the field of economic policy, technocratic power seemed to weaken. The old battle between guardians and spenders seemed to tilt in favor of spenders, as governments put less emphasis on fiscal discipline and more emphasis on stimulus. At the same time, the credibility of central bankers appeared to be undermined because of their failure (and the failure of the closely-aligned community of scholarly economists) to foresee the crisis. Queen Elizabeth caught the public mood when she asked why economists had not seen the crisis coming. The difficulty, the British Academy responded, was “a failure of the collective imagination of many bright people.” The assault on central bankers was harsher in the United States, where Representative Ron Paul’s book End The Fed became a bestseller.

Meanwhile, there was a brief resurgence of popular protest in many countries. In Europe, there were mass protests that led, in some cases, to the collapse of governments. And the United States saw the emergence of the Occupy movement, first in New York City, and then in dozens of major cities across the country. By the end of 2011, many progressive writers were optimistic about what the Occupiers might accomplish. Some called it “the most important progressive movement since the civil rights marches.”

But by 2012, the tables had turned against the populists. There were at least three reasons why this was so. (I discuss this in more detail in my 2013 book, The End of Protest.) The first was that populist protest could not be maintained. A major difficulty was the lack of an adequate institutional structure for building a protest movement. In previous decades, the union movement would have provided that institutional foundation, but by the time of the financial crisis, private-sector unionism had largely collapsed in the United States and the United Kingdom. And Occupy-style movements, built on leaderless, web-based networks, proved to have real limits as vehicles for social mobilization. They had immense difficulty orchestrating protests, articulating platforms, negotiating alliances, and controlling militant factions.

At the same time, governmental capacity to contain and intimidate Occupy-style protesters had improved substantially since the mid-1990s. Police forces adapted quickly after their failure to contain protests at the WTO meeting in Seattle in 1999, and at the FTAA summit in Quebec City in 2001. They invested in better equipment for crowd control, and developed new doctrines of public order policing that put an emphasis on the minimization of disruption. Police forces were supported by the general public, which was also less tolerant of public disruptions even when peaceful. As a result, protests like Occupy could be shut down quickly once public sympathy had been exhausted.

Meanwhile, support for stimulative fiscal policies collapsed. The doctrine of austerity was resurgent, and finance ministries regained their influence over spending ministries. The collapse of support for stimulative fiscal policies was sometimes attributed to doubts about the likely effect of stimulus on economic activity, or fears about the adverse effect of increased public debt. But this was probably not the main concern of stimulus skeptics. The larger question was whether legislatures would have the backbone to reverse stimulus policies and pay down debt when the economy recovered. There was no way to bind legislators to do this, and good reason to suspect that they would not. So the second-best policy was one of strict controls on spending, even in the moment of crisis.

While legislators hesitated, central bankers acted boldly, with frankly experimental policies such as quantitative easing. Central bankers conceded that they were not sure that quantitative easing would avoid a collapse or spur recovery. Nor were they sure that the policy of quantitative easing could be ended neatly once the crisis was past. But they were not deterred by these uncertainties, because the price of inaction seemed unacceptably high. By 2013, central bankers had regained the prestige that they had enjoyed before the crisis. In the United States, the fight over replacement of retiring Federal Reserve Chairman Ben Bernanke had unprecedented intensity, mainly because everyone recognized that this was where much of the power over national economic policy still rested.

Shortly after the election of Barack Obama in November 2008, many commentators compared the United States’ predicament to the autumn of 1932, when Franklin Roosevelt succeeded Herbert Hoover and launched the New Deal. But there was a critical difference between New Deal policies and those of the Obama administration. The New Deal era was distinguished by widespread public unrest, energetic legislative action, and a central bank that took a subordinate role in crisis response. By contrast, the Obama years were distinguished by relatively muted unrest, even though opinion polls showed that an overwhelming majority of Americans were dissatisfied with the way things were going in the country. Congress was gridlocked for much of the period after 2010, unable to pass budgets or agree on refinancing of the federal debt. It was the Federal Reserve that took the lead in crisis management.

In short, the New Deal model was turned on its head. In the end, the financial crisis did not alter the power structure that was established during the decades between 1978 and 2008. Technocrats are still in charge, and populists are still in a subordinate position. But this is not an entirely happy outcome. Certainly, we have avoided an even more devastating economic collapse, but citizens in many countries are still deeply dissatisfied with their circumstances. In the United States, for example, it has been more than a decade since a majority of the adult population believed the country was heading in the right direction. The technocratic mode of governance may have managed its way through the economic crisis, but could still confront a crisis of legitimacy if it cannot address persistent public anxieties about growing economic insecurity and inequality.

Alasdair Roberts is the Jerome L. Rappaport Professor of Law and Public Policy at Suffolk University Law School. These notes are prepared for a talk at the Institute for Governance and Policy Studies, Victoria University of Wellington, in May 2014.



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