Independent trader Alessio Rastani caused a stir on BBC News on sunday with his claim that “Goldman Sachs rules the world, not governments”. Leaving aside the questionable credibility of someone who shares a job title with Del Boy (of Trotter’s Independent Traders – T.I.T. – fame) and Rastani’s obvious exaggerations in his bid for media celebrity as the bastard offspring of Gordon Gekko, is there any truth in his claim?
Well, Rastani is certainly correct in asserting that the major financial companies currently wield a lot of power. The financiers’ ability to make life difficult for governments and ordinary people by manipulating the global financial markets is perhaps unprecedented in world history, as illustrated by their ongoing malign influence over some Eurozone countries.
But this influence does not equate to Goldman Sachs ruling the world instead of governments. The most durable definition of what constitutes a state is the German theorist Max Weber’s explanation that it “has a monopoly on the use of legitimate force within a given territory”. In its most literal sense, this means governments have the tanks and guns and are the only ones entitled to use them. It also means, though, that governments set the rules by which every individual, organization and business in the society concerned must abide, including banks and financial institutions. If governments do not like something that Goldman Sachs and its ilk are doing, then they can legislate against it and enforce that law, right up to the point of prosecuting individual managers or forcing the errant company out of business. The primacy of government power is why the financial industry spends so much time and money on lobbying governments to make the decisions that suit them, and not vice-versa (as shown, for example, by the City’s strenuous recent efforts to influence the Vickers Report on banking reform and the UK government’s decisions on implementing it).
The primacy of government power is why the financial industry spends so much time and money on lobbying governments to make the decisions that suit them, and not vice-versa...
As well as having the sole right to set the legal framework within which financial institutions must operate, governments have the power to decide the economic system. Since the end of the Cold War in 1990, a particular form of globalised capitalism has become so dominant across the world that it appears to be the natural state of affairs. It is not; in fact, it is the product of government policy choices. A brief glance at history shows that very different economic systems can be adopted and even enduring ones such as the current version of capitalism can come and go. Radical changes to the economic structure are often produced by crises which demonstrate that the prevailing system has failed. An increasing number of influential voices are questioning whether the present financial crisis is one such moment. Astonishingly, for those of us who remember Michael Portillo in his previous incarnation as a right-wing Tory politician, it was argued this morning on his BBC Radio 4 programmer, “Capitalism on Trial”, that the present form of capitalism perverts true capitalism’s own driving principles by providing huge rewards to people (namely, those who work in the financial markets) who take almost no personal financial risks and produce nothing of economic value. By following different policies and making different laws, governments can change this. Goldman Sachs cannot.
And there is more. Apart from controlling the guns, making the laws and setting the economic policy, governments print the money and issue the bonds that the financial markets trade in. Clearly, tools such as control of the money supply and deciding what bonds to issue or pay out on have to be used with caution because of their effect on national economies. But, again, the point is that governments decide what to do with these tools, not the financial companies that merely rely on trading in the end-products for their existence.
Perhaps the final handful of soil on the coffin containing Rastani’s outlandish claim is provided by the recent history of the financial companies themselves. Who did they come running to for handouts and protection when Lehman Brothers collapsed and numerous others of them were at risk of going under? Yep, governments – the people who apparently no longer run the world but still exercise the power of life and death over them.
Nonetheless, despite his bumptiousness, Comical Alessio did raise some useful issues in his TV appearance. Apart from sparking the who runs the world debate, his exultations about his prospects for making money from a recession (was I the only one who expected him to whip out a book, snake-oil salesman style, “explaining” how to do this, available to the gullible by mail order for only £19.99?), highlighted how traders and financial firms are amoral entities, concerned only with their own financial gain. This one track mind is the financiers’ greatest source of power. But this need not be a problem because it is also their greatest weakness, in that it makes them subservient to the existence of a legal and economic framework that allows them to prosper. And these would-be “masters of the universe” do not have the power to put that in place, governments do.
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