Why It's Still Kicking Off Everywhere (14 page)

Now a very dense crowd, maybe 10,000 people, gets crushed into a side-street. Alongside me is a man sweating in a gas mask. ‘I'm a classical pianist and I run an NGO documenting the oral history of the Cyclades,' he tells me. ‘This is not a democracy, man, it's a dictatorship. There is no way Greece can take the austerity: just look!'

This crowd is the salariat: not the fifty-something manual workers, and not the Black Bloc. A model-thin woman with carrot-blonde highlights tells me she's a bank worker on strike. ‘They just keep trying to do this every time we protest: hospitalize us. Always the same: violence. But we will stop them. We will strike, protest, occupy.'

A Maalox-caked man interrupts her, yelling manically: ‘There's a group of riot cops spraying us with chemicals when all we came here to do is protest and tell this fascist government to go!' Then, realizing my nationality, he adds: ‘You British? I lived in your country for ten years. I am an interior designer.'

Later, it will be reported that the police fired one thousand rounds of tear gas during the Syntagma protests. I am lifted off my feet in the crush. A crowd numbering tens of thousands is being collectively punished for the actions of a few hundred—and, if you think about it, for a decade of venality among the bankers and political elite.

The scene in Syntagma degenerates into the familiar choreography: running battles between cops and anarchists. In the side-streets, though, there is a different kind of resistance. People are lighting fires, dragging wheelie bins across the road, breaking pavements to make projectiles. Again, it is apparent that the vast majority are not anarchists: most are not masked, most are not even young. This is the Greek middle class: the bank clerk, the designer, the concert pianist, the shop owner, the woman with the Gucci sunglasses and Radley handbag.

And what's really burning is consent. The side-streets of Syntagma are where the Plaka district begins, the age-old urban playground of the Greek petite-bourgeoisie, with its quaint family-owned shops: one selling only maps, another only books on coin collecting, another only vegan food. They proclaim the Greek model of capitalism: civilized, small-scale, old-fashioned and now—as parliament votes to destroy what's left of economic growth—doomed.

As the vote goes through, people cluster around TV screens in the cafés around Syntagma, which do not stop serving even while rocks and grenades are being hurled twenty yards away. One TV shows the vote in parliament split-screened with the riot itself; if you look in the other direction, you can see the same riot in real life just behind you.

As the socialist MPs vote one by one for the austerity programme, people thrust their open palms at the TV screen, a traditional Greek gesture of disgust. Many are zoned out from so much tear gas and anger. As they watch the vote unfold, you can see in their eyes that intensity of people watching penalty shootouts at football finals. To see those arms and hands outstretched, those contorted faces, is like seeing legitimacy drain away from Greek democracy.

The danger of ‘anomic' breakdown

By the summer of 2011, there was a social crisis underway in Greece—one very different from those found in history books. It was not the smashing of the state, nor even a political revolution. Rather, the Greek state—which had never reached very far into civil society—had simply begun to lose its grip on the actual functions a state should perform.

It could not determine its own economic policy. It could not convince its own people it was acting with good intent. The rule of law was being imposed with draconian force in one place only to break down somewhere else, as consumers pledged non-payment of bills for their privatized utilities, drivers flouted road tolls, restaurants voted to defy tax increases and youth disappeared into the grey economy.

Borrowing a term from the early twentieth-century sociologist Emile Durkheim, commentators started to speak of ‘anomie' and ‘anomic breakdown'—a situation where instead of anarchy (lack of government), you find mass refusals to cooperate with the system, amid the collapse of social norms. As veteran journalist Takis Michas put it, pleading with the political class to get a grip: ‘Greece is slowly becoming a society where “low-intensity conflict” dominates, the legal order is breaking down and appeals to universal values become meaningless.'
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Political commentator Antonis Papayiannidis told me why it was becoming impossible for the politicians to save the situation:

The Greek political class was always floating above the people, for decades. And the people didn't care. It was win-win. They floated above us and got rich; and we got rich. Now they have lost all connection to the Greek people. They have no legitimacy.

To the youth, amid this real-life movie trailer of fire, adrenaline and blood, it had begun to feel like war. ‘The social war encompasses the totality of everyday life,' one wrote; ‘to be alive today is to be at war, to never sleep properly, to awaken at odd hours to work, to be constantly surrounded by surveillance and police …'
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On 21 July 2011, faced with runs on the sovereign debt of Italy and Spain, the EU would soften the financial terms imposed on Greece. Further austerity was called for; the result was faster economic collapse and—as the EU leaders found out in late October—imminent bankruptcy. Faced with new evidence showing that austerity had no hope of saving Greece, and the first outbreak of open violence between communists and anarchists in Syntagma, the big powers of Europe climbed down. On 25 October they forced the banks to accept the ‘voluntary' writedown of Greek debt—a controlled default—in return for the installation of permanent foreign control over Greek economic policy. To prevent a second Lehman event, they pumped €100 billion into the banking system and a trillion into the EFSF, the mega-bailout fund designed to end the crisis. But the crisis did not end.

Meanwhile the legitimacy of the Greek state was fatally eroded in the eyes of its people. And it is in this that Greece—though an outlier economically, representing just 6 per cent of the eurozone—becomes a signifier in the year it all kicked off.

Greece is the modern case study of what happens when the political elite of a developed country allows its legitimacy to go up in flames. Democracy and globalization itself are challenged. The minds of a whole generation begin to switch off from the dreams that had sustained them. And there is reason to fear that Greece might not be unique.

6

‘Error de Sistema': Economic Causes of the Present Unrest

The youths who swarmed into squares all over Spain on 15 May 2011 were an unlikely bunch. Journalists mocked them for their naivety; the socialists, communists and seasoned anarchos, meanwhile, were politely amazed. Was this not the generation that had smooched its way through a thousand mornings of
café con leche
and cigarettes, seemingly unconcerned about the serious business of politics?

What mystified both pundits and hardened activists most of all was the vehemence of the protesters' anti-capitalism. ‘Error de Sistema', said one placard, brandished by three girls straight off the fashion pages of some upmarket magazine—adding, for instant Twitter relevance, ‘#spanishrevolution'. ‘La Crisis Es El Capitalismo' said the banner in Madrid's Puerta del Sol, big as a tennis court, held up by similarly good-looking youths.

But once you see Spain's unemployment figures, there is no mystery to the anger: by mid-2011 youth unemployment was running at 46 per cent. As in Cairo, Athens and beyond, it's economic disruption—joblessness, price rises, austerity—that has driven the unrest. To most people it may feel as though this period of disruption started with the collapse of Lehman Brothers. But the real disruption began much earlier, with the onset of globalization, and in particular after 2001. Once you grasp this, you can grasp the scale of the challenge facing those in power.

How we came to the crisis

The first decade of the twenty-first century saw an uncontrolled expansion of credit, during which the major financial actors' understanding of the risks involved in lending became—and was encouraged by governments to become—detached from reality. The credit boom, in turn, was caused by a mismatch between the savings generated in the export-oriented countries—China, Japan and Germany—and the debt-fuelled consumption of the Anglo-Saxon world.

The excess credit fuelled asset price inflation in technology stocks, housing, commodities and finally financial assets themselves. On top of this a new market in complex debt vehicles was created, and on the back of that a credit derivatives system whose notional value, at the time of the crash, was about the same as global GDP: $68 trillion.

As the housing bubble began to deflate, the increasingly toxic debts were found stored inside a system of off-balance-sheet financial entities, which became known—only after it collapsed—as the ‘shadow banking system'. Very few mainstream financial journalists had noticed its existence.

Once the first phase of the crisis was over, parts of the business elite began to breathe easy and tell themselves they'd seen it all before. ‘No one has yet dis-invented the business cycle,' Rupert Murdoch chuckled, quoting Margaret Thatcher to an invited audience in London in 2010, including numerous beaming members of the Coalition Cabinet. ‘The “gales of creative destruction” still roar mightily from time to time.'
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But this is no mere business cycle, and no ordinary cycle of boom and bust. As the data clearly illustrate, the seeds of the crisis were sown by structural changes.

Exhibit One: the average US house price at the peak, in 2006, was double what the historic trend line said it should be, even when compared to every other boom–bust cycle since the war. This was no ordinary housing bubble.

Exhibit Two: the value of mortgage-backed securities issued (that is, of complex debt products designed to mask the risks involved in riding the house-price bubble) increased fivefold between 2000 and 2003, to $3.2 trillion. Credit default swaps, where unknown actors in the market can bet on the future failure of another's investment, had grown from zero to $68 trillion in eight years. This was no ordinary credit cycle.

Exhibit Three: there was a massive rise in so-called global imbalances. China's foreign currency reserves grew from $150 billion in 1999 to $2.85 trillion in 2010. The US current-account deficit (the difference between goods, services and capital flowing in and out) grew from $99 billion in 1989 to $800 billion by 2007. Before the crisis, these imbalances had been conceptualized as a kind of yin–yang pictogram of perfect harmony: China exports, America imports; China lends, America borrows; Chinese consumers save, American consumers borrow—it's just a new form of the division of labour. But in the ten years after 1999, the imbalances unleashed chaos. This was no ordinary division of labour.

Exhibit Four, probably the most signal disruption of them all: the trend for global capital flows. In 1980, the economists Feldstein and Horioka observed that since the dawn of industrial capitalism, there had been a high correlation between saving and investment within countries, at a ratio hovering just below 1:1.
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This was the famous Feldstein–Horioka paradox: why, given that capitalism had become so global, did we continue to invest our savings in our own ‘home' markets?

But after the year 2000 the paradox collapses: the ratio inverts. In a reversal unparalleled in the history of capitalism, the ratio of domestic savings to domestic investment fell to zero: capital had begun washing around the globe at speed, as savings in the west dried up and, in the east, piled high.
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This was no ordinary decade.

The scale of the property bubble, the scale of global capital flows, the scale of speculation and of the mismatch between consuming and producing countries was unprecedented—all of it. Right now, mainstream economics remains confused about the ultimate source of the disruption. Is it our greed? Are these the growing pains of the Chinese century? Was it all down to testosterone on the trading floors of major banks?

Actually, the answer is staring us in the face, but it's unpalatable. The root cause, simply put, is globalization, and the resulting monopolization of wealth by a global elite.

In the two decades after 1989 the world's labour force grew from 1.5 billion people to 3 billion and, through migration and outsourcing, the labour market itself became global. Harvard economist Richard Freeman has called this phenomenon ‘The Great Doubling'. The move from farm to factory in China and the developing world, combined with the entry of the former Soviet bloc into the global economy, effectively doubled the amount of labour available to capital, and halved the ratio of capital to labour.
⁴

The impact on wages was startling. In the USA, real hourly wages for men were, by 2005, the same as they had been in 1973.
⁵
In Japan, the real wage index fell by 11.2% in the decade to 2007, and fell a further 2% in each of the following years.
⁶
In the former West Germany, gross wages per employee have slipped by about 6 per cent from their post-unification high of 1991. For former East German employees, the same measure leapt by 25 per cent after unification—only to stagnate after 1999, and fall back by around 2.5 per cent between 2003 and today.
⁷

Of course, there are places where real wages are rising—notably, peripheral Europe and the emerging markets. But the figures show real wages falling in the 2000s across many of the West's heartland countries and in a variety of different economies: in deflationary Japan; in the highly socialized economy of Germany; in the free-market USA. And the shortfall between stagnating wages and consumption growth is met by credit.

The results of all this look benign—until, that is, they turn bad. There is a ‘heroic' period of globalization, beginning in 1989 and ending around 1999, during which China's entry into the world market helps suppress inflation; where falling wages are offset by a seemingly sustainable expansion of credit; where house prices rise, allowing the credit to be paid off and a whole bunch of innovations are suddenly deployed—above all mobile telephony and broadband Internet.