Tag Archives: balanced budgets

Popular Sovereignty and Sovereign Debt

What does the friction between popular sovereignty and sovereign debt entail for our democratic orders? Are we experiencing a loss of popular sovereignty in the sovereign debt crisis?

Voices from both the left and the right decry the austerity measures devised by supranational institutions as amounting to nothing less but an assault on popular sovereignty. As fiscal hawks chip away at the welfare state in their “give-no-quarter” pursuit of balanced budgets, many a political pundit has donned the populist cape and rushed to the rescue of the “sovereign people”. Indeed, the austerity-medicine shoved down the throats of most European citizens -without their consent- has brought to the fore what now appear as two diametrically opposed concepts: popular sovereignty and sovereign debt.

It is easy at this point to slip into demagoguery, claiming that sovereign debts are illegitimate because, after all, “the people” did not cause the crisis. Blame the bankers, right? What is harder, however, is to understand what the friction between the concepts of popular sovereignty and sovereign debt entails for our democratic regimes. A look into the past at one of the first moments in history when this tension surfaced will help us understand the matter more profoundly.

The years were the 1690s in England, a period also known as the Financial Revolution. In 1694 the Bank of England was established to supply fresh credit to a cash-strapped Crown for the expansion of the Royal Navy’s fleet. For the first time individuals and firms could invest in the fortunes of government on the assumption that they would be paid back with interest at later date. Future revenues from taxation and/or economic growth of the nation would serve as collateral for investment – hence the build-up of national, or sovereign, debt[1].

The institution of national debt however was not well received. In fact, it implied a radical re-thinking of the relationship between the people and government. In the late seventeenth century this relationship had been defined by the political theories of civic republicanism (Harrington, Milton) and social contract theorists (Pufendorf, Locke) as one based explicitly on the consent of the governed. It was the people’s responsibility, as bearers of god-granted rights and as free citizens, to erect a government through the election of public magistrates (or monarchs) which would rule in their stead. Sovereignty ultimately resided with the people who enjoyed the right to revoke the mandate given to their representatives if their trust was breached. Late seventeenth century political consciousness generally conceived of a legitimate government as one founded upon on the will of the people and upon some idea of a social contract.

Accompanying the idea of “the people” as the original source of political sovereignty was the concept of civic virtue. The civic virtues were those qualities required by citizens and governments alike to be in control of their destiny and not succumb to external dominion. Civic virtue entailed political agency: participating in the political affairs of one’s community as a means of protecting individual freedoms. In fact, the very notion of personal liberty was intimately connected to the idea of civic virtue. Liberty was defined by a certain degree of political self-determination which ensured autonomy from external rule (the arbitrary rule of a monarch or of another nation for example). On the contrary, not being free was caused by being dependant on the will of someone or something else. Un-freedom thus entailed the condition in which one lost human agency and the ability to defend and define one’s liberty[2].

Within this conceptual universe, the idea of sovereign debt clashed with both the concepts of popular sovereignty and civic virtue. While before the fate of the nation was conceived as inextricably tied to the political agency of the sovereign people, now sovereign debt chained the fortunes of government to the will of anonymous investors. As nations increasingly relied on external and private credit (and eventually on the issuing of bonds), it was perceived that the people would steadily lose political agency and control over the fate of their nations. Sovereign debt therefore created a condition of dependence of government towards creditors. And, as we have seen, dependence signified the loss of civil freedom[3].

In such a way, the stability of government was no longer sustained by the civic virtue of its citizens, nor from that holy pact called the social contract. Now, government was to rely on the fickle nature of investors and what would eventually become the almighty bond market. As the historian J.G.A. Pocock puts it:

“Stability of government in the present became linked to the self-perpetuation of speculation concerning the future … government and politics seemed to have been placed at the mercy of passion, fantasy and appetite, and these forces were known to feed on themselves and to be without moral limit”[4]

“Booms and busts, bulls and bears became the determinants of politics”[5]

The lesson we may draw from this historical example is not that sovereign debt is intrinsically bad. Every modern government must at some point take up debt in order to deliver on its responsibilities. The lesson here is in recognizing the dangers posed by the loss of democratic control over the institutions of public governance. Increasingly the policies of sovereign nations are unduly influenced by credit rating agencies, international markets and anonymous investors through their speculating and passing judgment over sovereign debt. Brought to an extreme this situation becomes incompatible with the basic tenets of democracy. Subsuming popular sovereignty to the arbitrary whim of capricious markets robs the concept of the social contract of its fundamental source of legitimacy, namely, what Locke called the “consent of the governed”.

The political discourses of the late seventeenth century show us that, at times, the machinations of the world of finance and the balanced functioning of a democratic regime may be at odds. It also warns us that dependence of our governments on unaccountable institutions minimizes the political agency of citizens, thereby curbing our democratic freedoms first of which is the exercise of democratic control over government. No matter how serious the sovereign debt crisis may be, democracy and popular sovereignty must remain non-negotiable.

Bibliography

Pocock, J.G.A. 1985. Virtue, Commerce, and History, Cambridge University Press: Cambridge

Skinner, Q. 1990. “The Republican Ideal of Political Liberty”, in Bock, Skinner & Viroli ed. Machiavelli and Republicanism, Cambridge University Press: Cambridge


[1] Pocock 1985, p69

[2] Skinner 1990

[3] Pocock 1985, p69

[4] Pocock 1985, p112

[5] Pocock 1985, p112

3 Comments

Filed under Democratic Theory, John Locke, political economy, political philosophy, political theory, Social Contract

Participatory Budgeting in the Age of Fiscal Austerity

By Giulio Caperchi

A Crisis of Legitimacy

Following the financial crisis, the ensuing bailouts and the passing of austerity measures, American and European voters increasingly feel alienated by their political representatives. The Tea Party in the US rails against politicians they believe to be incompetent, far removed and corrupt. Similarly, the Occupy and Indignados movements see their elected representatives as catering to the corporate elite, lobbyists and the so-called 1%. A recent Gallup poll (12-2011) reports that the approval rating for the US congress is at an all time low: only 11% of Americans think it is doing a good job while a whopping 86% believe they are performing abysmally[1]

Both our elected representatives and our economic institutions are facing a serious crisis of legitimacy. Notwithstanding our politicians’ talk of balanced budgets, fiscal responsibility and austerity, most of us -on both sides of the aisle- are angry at how our political system has handled the “great recession” and its aftermath. Many feel betrayed by the so-called experts which head the Federal Reserve, the European Central Bank and other such financial institutions which for years have glorified the self-regulating virtues of unfettered markets.

This resentment highlights a fundamental flaw in our political systems, namely the lack of democratic control over the economic policies which affect our lives. As our politicians fail to stop Wall Street’s “irrational exuberance” from spilling into Main Street we cannot but ask ourselves: how may we, as citizens, control the excesses of twenty first century capitalism?

Participatory Budgeting

An initial answer is suggested by an increasingly popular idea practiced at the level of local governance. Participatory budgeting is a democratic instrument through which members of a community collectively decide on how to spend part or all of the community’s budget. It was first experimented in the city of Porto Alegre, Brazil in 1989 and now occurs in well over a thousand cities worldwide including New York and Chicago[3]. Participatory budgeting allows for ordinary citizens to engage in a deliberative process through which they may propose and debate projects on which to spend public money. In this way, discretionary power over the allocation of public resources is delegated from the elected representatives directly to citizens[4]. It is an instance of direct and participatory democracy through which the citizenry is empowered and rendered responsible for its own fiscal governance.

In most participatory budgeting processes neighborhood and thematic meetings are held monthly, where citizens along with elected officials propose ideas on how to spend public resources. For example, the citizens of the 49th Ward of Chicago decided to spend their $1.3 million budget on projects related to public safety, parks, the environment and transportation[5]. South of the equator, high in the Peruvian Andes the citizens of tiny Condebamba spent their town’s budget on micro-reservoirs for rural irrigation[6]. And still, on the other side of the Atlantic in the Tower Hamlets neighborhood of London, citizens used £2.4 million to improve local public services such as street lighting and education[7].

The positive effects that participatory budgeting engenders are worthy of notice. First of all it ensures transparency: the steps of project formulation, ratification and oversight occur in open and inclusive public assemblies. This reduces instances of corruption and clientelism afflicting local governments in many parts of the world. With transparency comes accountability: citizens know who is responsible for a given public project and who is responsible for its implementation[8].

Another positive effect of participatory budgeting is its ability to restore confidence in governmental institutions. Once citizens experience more control over their elected administration, public institutions are perceived as more trustworthy and accountable thereby garnering increased legitimacy. In fact, there are many cases in which tax revenues increase after participatory budgeting processes are implemented[9].

Above all however, participatory budgeting offers a deliberative space through which to democratize decision making processes. As such it allows for the inclusion of previously marginalized groups in the running of their towns and neighborhoods. Many participatory budgeting processes, particularly in Latin America, have empowered women, children, indigenous groups and the rural poor, thereby breaking negative cultural inertias such as machismo, paternalism and racism[10].

A lesson to be learned

Participatory budgeting is ultimately a democratic instrument which works best at the local level. It requires the active participation of citizens and time for lengthy deliberative assemblies. However, does it not highlight major problems within our national and international governance institutions? The lack of public oversight over financial decisions taken by unaccountable supranational institutions is a major source of contemporary popular discontent. The lack of transparency over incomprehensible financial instruments such as “collateralized debt obligations” and the unfathomable ramifications  of the derivatives market is another undeniable problem. The trends towards unelected technical governments such as Italy’s and Greece’s highlight the same issue: increasingly citizens are losing democratic control and oversight over vital economic and financial decisions.

However small and local, participatory budgeting teaches us that public oversight over fiscal policy is necessary. It restores legitimacy to those institutions which many feel have betrayed their trust as citizens. Participatory budgeting shows us that transparency and accountability are sacrosanct attributes and absolute prerequisites for any functioning democracy. And yet, increasingly we have neither: deals are still being made behind the closed doors of G8 summits.

Participatory budgeting’s fundamental lesson is that when the “experts” guiding our financial institutions -along with the politicians who appointed them- fail, we must ultimately rely on our own capabilities as citizens to set our nations’ priorities straight once more. Its renowned success as a democratizing practice teaches us that, at least locally, citizens are capable of fiscal self-determination. Only increased democratic participation in our economic and political institutions will restore the legitimacy which they dangerously lack today. Continuing on the path our politicians are presently following will increasingly alienate citizens from the political process and drastically reduce confidence in our democratic institutions. And this is a dangerous path indeed.

Bibliography


[3] Participatory Budgeting Project

[4] UN Habitat 2004

[5] Moore 2010

[6] Lindemann & Llambí 2010

[7] Participatory Budgeting Unit UK 2009

[8] Wampler 2000

[9] UN Habitat 2004

[10] Cabannes 2004

1 Comment

Filed under democracy, Participatory Democracy