Review: The Silent Takeover – Global Capitalism and the Death of Democracy by Noreena Hertz

“HOW COULD IT be”, ponders Noreena Hertz in the opening pages, “that ten years after landing in Leningrad to set up Russia’s first stock exchange – a travelling saleswoman with capitalism in my briefcase – I now felt a burning need to question its very tenets?” The answer to this is partly, according to Hertz herself, the anti-capitalist protests of recent years. Discussions with activists at the Prague S-26 protests in 2000 clearly made an impression on her. But this is not a book about street protests or struggle.

Noreena Hertz has made a remarkable political evolution from ’free market’ evangelist in Russia to become a prominent critic of globalisation. LAURENCE COATES looks at the arguments in her book, The Silent Takeover: Global Capitalism and the Death of Democracy which, when published last year, led to her being dubbed ’the British Naomi Klein’.

Noreena Hertz has been dubbed ’the British Naomi Klein’ by sections of the media, a comparison which is misleading. Klein’s bestseller, No Logo, reflects a certain socialist influence, a recognition of the role of the working-class movement (there is a reference to Leon Trotsky on the first page), which is missing from The Silent Takeover. Working-class protest, even the word ’class’, barely get a mention. Some globalisation theorists argue, mistakenly, that the position of the working class has been irreversibly undermined by, for example, the capitalists’ ability to shift production and investment around the globe. The Silent Takeover doesn’t venture into this territory but, nevertheless, makes the sweeping statement that “union power has been smashed”. Clearly Hertz has missed the role trade unions played in the protests against the WTO, IMF and George Bush’s Free Trade Area of the Americas. Real problems like the closer integration of union tops into the corporate structure – the process of bourgeoisification – are not addressed in the book. Hertz readily admits that she is no anti-capitalist, nor even anti-business.

“Capitalism”, she argues, “is clearly the best system for generating wealth, and free trade and open capital markets have brought unprecedented economic growth to most if not all of the world”. It would have been better to print this statement on the front cover as a ’health warning’. Yet despite its shortcomings, The Silent Takeover contains a lot which should interest anti-capitalist activists. Because it raises issues which invariably surface in discussions on globalisation, socialists need to familiarise themselves with the main ideas in the book.

The central idea is that there has been a “power shift” during the last 20 years, away from politicians and the states they govern, towards big global corporations. This contributes among other things to a “race to the bottom” as governments try to undercut one another, with tax breaks and other incentives, to attract multinationals or stop them from leaving. One statistic used by Hertz has been quoted extensively: that of the world’s 100 largest economic entities, 51 are companies and only 49 are nation states.

None of this is new but, because of these arguments, The Silent Takeover has drawn heavy fire from sections of the bourgeois press. The Guardian’s reviewer, Howard Davies, slammed the idea that politicians are at the mercy of the market as “so much globaloney”. John Kay, in the Financial Times, observed that “when you compare the sales of a company and the value added [GDP] of an economy, you are comparing apples and pears”, a point echoed by Martin Wolf in the same newspaper. Still, Kay conceded: “It is probably true that the chief executive of General Electric is a more powerful figure in the world economy than the finance minister of Greece”. This is precisely what Hertz is saying. While it is true that the statistics she quotes compare sales on one hand with production on the other, they nevertheless tell us a great deal about the total dominance of monopolies in modern capitalism: “The annual sales of each of the six largest transnational corporations, varying between $111 billion and $126 billion, are now exceeded by the GDPs of only 21 nation states”.

Lenin pointed out that capitalism in the advanced countries had outgrown the nation state: “Capitalism now finds the old national states, without the formation of which it could not have overthrown feudalism, too tight for it”, he wrote in 1915. At that time, capitalism attempted to overcome this limitation by launching into the first world war for a re-division of markets and colonies. Lenin warned that if capitalism survived the war it would give rise to second, third and fourth world wars because of this fundamental contradiction between nation states and the world economy.

Today, this is not an imminent perspective because of the crushing military superiority of US imperialism which acts as a check on inter-imperialist rivalries, at least in the military sense. Instead, a ferocious new struggle for the re-division of the world is underway, but mostly in a ’peaceful’ manner – with the subordination of new regions and industries to the industrial and financial multinationals of the dominant imperialist powers.

This is popularly referred to as globalisation.

Race to the bottom

WHEREAS INEQUALITY DECLINED in many countries between 1945-70, there has since been a reversal of this trend. Often on the orders of the IMF and World Bank, which in turn get their orders from the US Treasury, public spending has been slashed and whole branches of the economy have been privatised and opened to foreign ’competition’ – usually, in fact, multinational monopolies.

“In Latin America, for example”, writes Hertz, “by 1996 the proportion of workers without contracts increased to 30% in Chile, 36% in Argentina, 39%

in Colombia and 41% in Peru”.

But this ’race to the bottom’ also applies in the imperialist countries.

Hertz shows that US incomes are now less equal than at any time since the Great Depression. A fifth of American employees work at rates below the official poverty line. When the German government cut corporation tax to below US levels, this was in response to a massive clamour from big business threatening to move abroad and boycott government bonds. One of the German chancellor Gerhard Shröder’s senior advisers observed that “Deutsche Bank and industrial giants such as Mercedes are too strong for the elected government in Berlin”.

A similar experience has been repeated in country after country, regardless of who is in office. While Hertz claims that continental Europe has been “reluctant to fully embrace the new consensus”, she points out that the official retirement age for public-sector workers has been raised in Germany, Greece, Italy and Finland, while pension levels have been reduced.

“By the end of the millennium”, she notes, “Greece’s Socialists were slashing state spending to try to squeeze the drachma into the euro. And France’s Socialists had privatised more companies than their immediate right-wing predecessors had”.

The only way to challenge the euro and other manifestations of corporate-led globalisation is with an internationalist and socialist alternative. For Hertz the problem is one of “a lack of true political leadership or will”, rather than the economic system itself. Hers is an idealistic view of society which fails to see that the brutal pro-business policies of the last two decades are rooted – regardless of the “will” of governments – in objective conditions and, above all, the crisis of profitability of capitalism which set in during the 1970s. This will only be changed through mass struggle, which can have a salutary effect on even the most hard-faced neo-liberal governments. However, because Marxists understand that on a capitalist basis any concessions will be temporary, our alternative to globalisation is international socialism, not – as Hertz seems to favour – a nostalgic version of pre-globalised capitalism.

The end of politics “GOVERNMENTS ARE NOW like flies caught in the intricate web of the market”, Hertz says: “And voters see their powerlessness… Never since the development of the mass franchise has there been such disengagement from politics”. Election turnouts, she points out, are declining not only in Western countries but also in the new ’democracies’ of Eastern Europe.

Political parties throughout the industrialised world have fewer members than at any time since the second world war and the ’Americanisation’ of politics spawns corruption and political scandals. Hertz quotes parliamentary lobbyist Ian Greer, saying of British MPs that “you can rent them exactly like taxi drivers”.

Marxists would, in general, agree with her view. There are new features in the situation; the “power and independence of governments” has been undermined; and there is a crisis. We would add that there is a political vacuum, above all, within the working class; the decisive factor underpinning the processes Hertz describes is the bourgeoisification of the old workers’ parties; and that this raises the need for new parties and a mass workers’ international.

But Hertz views the spectacle of politicians kneeling before big business as a new phenomenon: “governments are in danger of becoming the puppets of business… people’s interests are being usurped by those of business…”

For Hertz, typical of a growing middle-class radicalisation, the class bias of the capitalist state is only now becoming apparent. This is significant.

Globalisation throws class relations into sharp relief and shatters ’democratic’ illusions.

Hertz then summonses us to “Reclaim the State” – a call which would hardly have generated much enthusiasm on the streets of Seattle or Genoa! The capitalist state, which is not just the government, but crucially the courts, prisons and, to quote Friedrich Engels, “armed bodies of men”, has never belonged to ’us’ – the losers from capitalist globalisation – but always served the interests of the rich. The true loyalties of these armed bodies was demonstrated in Genoa and Gothenburg. Hertz quotes US president Rutherford B Hayes who in 1876 remarked that his government was one “of corporations, by corporations and for corporations”, showing that this is not a new phenomenon.

If by ’state’ Hertz means the public services, utilities, etc, going under the auctioneer’s hammer, the call to reclaim them is absolutely correct.

Likewise, if the point is to reclaim basic democratic rights, such as the right to strike and demonstrate, the right of asylum, etc. These have been under attack for years, but especially now in the aftermath of September 11.

But Hertz means something else. She wonders whether protest can “pressurise governments into once again putting the peoples’ interests first”, without

showing when this was ever the case.

Misunderstanding the class character of the state, Hertz concludes that “economic power has replaced military might”, as if globalisation was a

pacifist project. The new US military doctrine unveiled by president Bush in his State of the Union address clearly refutes this idea.

Not only have the biggest multinationals – particularly US ones – been strengthened relative to the world’s weaker states, but so has the US state itself. These processes are not contradictory. Thomas Friedman, foreign editor of the New York Times, argued: “The hidden hand of the market will never work without the hidden fist – McDonald’s cannot flourish without McDonnell Douglas, the builder of the F-15. And the hidden fist which keeps the world safe for Silicon Valley’s technologies is called the US Army, Air Force, Navy and Marine Corps… Without America on duty, there will be no America Online”.

Shop, don’t vote A WHOLE CHAPTER is devoted to what Noreena Hertz calls the “new consumerism” in which she argues that “shopping has been imbued with a new political significance. It is the most effective weapon in the armoury of ordinary citizens”. And later that “consumers are beginning to play the role of

global policemen”.

This is a grossly exaggerated view of the significance and effectiveness of consumer activism. However, this is quite a commonly held view – many who sympathise with anti-capitalism see consumer boycotts as one means of fighting back. In reality, increasing monopolisation, especially in the retail sector, is reducing the scope for this type of protest. Hertz lists several examples of consumer activism, the most successful being the backlash against GM ’Frankenstein’ foods in Britain in 1999, which drove biotech giant Monsanto to the brink of collapse. This example, however, is exceptional, coming on the heels of numerous ’mad cow’ scandals, with the big supermarket chains themselves removing GM foods from the shelves at the first whiff of bad publicity.

Many of the other cases she cites are not primarily consumerist, but more general forms of activism, combining a variety of methods, for example, US college protests against sweatshop labour at Nike, Gap and Disney: “In the first six months of 2000 alone, college students led sixteen sit-ins at university buildings in protest”, Hertz notes, showing that there was far more to this campaign than consumer protest. Marxists are certainly not against boycott campaigns as part of a wider campaign involving other, more effective, forms of struggle: strike action, demonstrations or occupations.

On its own, consumerism is an extremely limited means of exerting pressure. An example is Body Shop, which virtually patented the concept of ’politically correct’ shopping and yet, as Hertz points out, “was accused of inaccuracy over its initial pledge that its products were not tested on animals, and subsequently substituted the watered-down slogan ’against animal testing’.”

Hertz herself, having blown the trumpet of consumer activism, concedes that, “It is a form of protest that favours the middle class – an expression of the dissatisfaction of the bourgeoisie. For the poor and socially excluded, those excluded from a wider range of goods and services by their low incomes and poor credit ratings, this form of protest is rarely an option”.

Unfortunately, the book is full of such contradictions. In addition to consumerism, “shareholder activism” is presented as a new form of direct action. While consumer campaigns are a real issue which crop up from time to time in discussions, this idea (shareholder activism) smacks of ’parlour radicalism’, with no connection whatsoever to the struggle of workers and youth against corporate interests.

So-called ’ethical funds’ are held up as an example of this new power, while they account for only 1% of the total UK stock market. The only example of activism Hertz gives is of environmentalists turning up to a BP shareholders’ meeting dressed as polar bears in protest at the company’s activities in the Arctic Ocean. For this type of protest you need to own a polar bear costume, not shares!

While Hertz criticises the power of the multinationals, she is ambivalent towards the anti-capitalist protesters. Both are, in her view, an unwelcome form of “external pressure” on elected politicians, lacking “any sort of democratic mandate”. Her outlook is one of classical liberalism, seeking change among the top layers of society, but distrustful of any action by the masses. Incredibly, Hertz even draws a parallel between anti-capitalist protest and the hysteria towards suspected paedophiles whipped up by sections of the British press. “Can these masked masqueraders really be representing majority views?” she asks, echoing the prejudices in most bourgeois media coverage of anti-capitalist demonstrations.

Hertz falls into the absurd position of equating the pressure of hundreds of thousands of anti-capitalist protesters – whose only power lies in their strength of numbers, organisation and support in society at large – with that of a handful of top directors. This is like equating the mass campaign of non-payment which scuppered the poll tax in Britain with tax avoidance by big business. One represents the struggle of the oppressed, the other the greed of the oppressors.

“The institutionalisation of protest risks leaving us with a political system where those with the most intensely held opinions, those who shout the loudest or are the best organised, are the people to whom politicians and CEOs respond”. This is an argument against political parties and even against books like The Silent Takeover, which reflect “intensely held opinions”.

Her mistakes on these questions lead Hertz to draw muddled parallels between today’s anti-capitalist movement, the forerunners of Europe’s Greens in the 1960s, and an even more puzzling comparison with the US ’progressives’ led by Theodore Roosevelt in the early 1900s. Hertz notes approvingly that “Green parties are currently members of governing coalitions in Germany, France, Belgium, Italy and Finland”, apparently forgetting that these are the same governments she lambasted for capitulating to big business, axing pensions and for having “privatised more than their right-wing predecessors”.

The Silent Takeover is clearly written to provoke discussion and in this it has evidently succeeded. But it is a critique of the system written from the inside. Its aim is to warn, and hopefully influence, governments and business leaders to change course, rather than to provide an alternative to capitalism.

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June 2002