Economic policy in the hands of the few, serves those few dates back to Adam Smith

In a terrific Guardian column, David Wearing turns to Adam Smith for insight into how to deal with the  problem that economic policy in the hands of the few serves those few.

Smith, the 18th century Scottish philosopher, is of course best known for advocating the liberalisation of markets .... However, what is less well known is that Smith shared some of the key concerns of today's critics of neoliberalism. 

His most famous work, The Wealth of Nations, offered a powerful political critique of the "one per cent" of his day, to borrow the terminology of the Occupy movement. In what he himself described as a "very violent attack" on an unjust status quo, Smith repeatedly emphasised the role of power, influence and class in distorting economic policy to serve the interests of a narrow elite.

Your humble blogger has made a similar argument when looking at the choice to pursue the Japanese model for handling a bank solvency led financial crisis (which has never worked) over the Swedish model (which has worked everywhere it has been tried including the US in the Great Depression, Sweden and Iceland).

Smith noted that the "English legislature has been peculiarly attentive to the interests of commerce" because policymakers were continually "imposed upon by the sophistry of merchants". 

The vested interests "like an overgrown standing army … have become formidable to the government, and upon many occasions intimidate the legislature". They argue their case "with all the passionate confidence of interested falsehood", predicting national ruin if their demands are not met. Of course, all this has a very familiar ring.

Please re-read the highlighted text as it nicely summarizes what the Financial-Academic-Regulatory Complex (FARC) has been saying.

The politician who serves the one per cent, Smith noted, "is sure to acquire not only the reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them [he is subjected to] the most infamous abuse and detraction"....

In the revolving door that exists between policymaker and finance, there is a significant incentive to serve.  Just look at the 2.5 million pounds per year that former prime minister Tony Blair makes from being a part-time senior advisor to JP Morgan.

Smith observed that "all for ourselves and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind". 

The class power of wealth and big business makes the elite the "principal architects" of policy, "an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it". 

Hence the reason why it seems perfectly reasonable to chose protecting banker bonuses and bank book capital levels (the Japanese model) over society (the Swedish model).

Smith repeatedly stresses that while the mercantile system does not serve the public interest, it does benefit the "principal architects" of policy, which is no less true of today's hyper-financialised, neoliberal capitalism....

But the larger point is that when power and influence over policymaking is heavily concentrated within an economic elite, policy will be designed to serve that elite, often at the public's expense.

This is the reason that the Financial-Academic-Regulatory Complex is worse for society than the military-industrial complex feared by President Eisenhower.