Berlusconi, Democracy and the Markets

Everyone I know wanted Berlusconi out, even before he began in politics in the first place. But we had to accept that the majority elected him, fair and square. Luckily Italy is an advanced Western democracy based on representation of the people, armed with a Constitution and loads of checks and balances.

But democracy, even in the great U.S. of A., is proving to be too slow and cumbersome for the markets. Democracy represents everyone, the entire population, from whizz kids to country bumpkins, the young and the old. And it carries an innate contradiction: governments are supposed to represent the Collective, but they are made up of politicians representing as many Individuals as possible. Individuals have short term needs; the Collective is a long-term project.

So what has happened in the West? For too long, governments have ignored the long-term interests of the Collective (clean air, a sustainable economic future for generations to come, building cities that can handle large populations, renewable energy and so on) in favor of the short-term interests of the Individual: their constituencies.

A classic case is how governments, notably in the US, allowed individuals to get rich at the expense of society, pushing them to consume and take on more and more debt, and allowing banks unbridled risk-taking to keep the funds flowing. Who would pay the bill?

In Europe, governments like Italy's, over decades, catered to short-term individual interests by pouring money on here-and now projects, like the infrastructure projects in the Italian South that disappeared into Mafia pockets, or even on just plain comfortable welfare systems. They did this by running up reckless amounts of debt, again, transferring the bill to later generations.

Meanwhile the New York and London financial markets went global and literally took over. The regulatory framework gave them the incentive to create new and more financial instruments and get us globally into a giant Ponzi scheme we are all part of, given that currently global wealth in derivatives trading amounts to nearly 10 times global GDP. Hard to fathom, but I think that means there is a lot of paper (or computer code) money floating around out there that doesn't correspond to the actual material assets wehave here on earth. Right? Doesn't it mean that if all derivatives traders decided to cash in at the same time and buy furniture with that money, someone would be left out in the cold?

But let's get back to Berlusconi. Italy has had public debt of more than its annual GDP forever. That's like a family having credit card debt of more than they earn in a year; it gets expensive to pay the interest. So the Italian government has to keep refinancing, taking out more debt to pay the interest on the existing debt, like every week. But the lenders (led by those unbridled financial players in New York and London) keep raising the interest rates. Oops - Italy is like a family about to default on its credit cards.  Can the guy in charge of that family lead at a time like this? People think not, so an economist is hurriedly brought in.

It is a very, very flawed situation that makes it OK for a non-elected official to be hustled in to run a democracy. The last time this happened in Italy was when the King appointed Mussolini. No comparison there; Mario Monti is an economist with the humility of a public servant, and he will step aside as soon as elections can be held.

But the situation that caused his appointment is very, very flawed and goes back to the fact that the entire Western world needs to pay up, in a hurry, for the short-term thinking of the past and get into a long-term, Collective, mentality. We can no longer afford to put anything at all on the public credit card. We can no longer afford to be focused on which SUV to purchase next, forgetting about clean air for our grandchildren.

In Italy, Mario Monti needs to use his time as Commissioner-with-extraordinary-powers to find a way to pay the bill, but also to try to teach people about Collective urgency. Democracy is a wonderful thing, and we need to get back to the ballot as soon as possible. But we have to stop voting for our short-term needs, or for our own little tribe or constituency, and start voting for the Collective. If we don't, there will only be more Commissioners.