What the hell just happened? Or how capitalism ate democracy and what voters finally did about it

"A failed parliamentary candidate and former commodities broker with a
penchant for casual racism is now the most influential man in British politics."

More than ever, economic power seems today to have become political power, while citizens appear to be almost entirely stripped of their democratic defences and their capacity to impress upon the political economy interests and demands that are incommensurable with those of capital owners.

- Wolfgang Streeck, The Crises of Democratic Capitalism

The dam of British politics has finally broken. In the madness of these last two days the media has provided a blitz of micro-narratives portraying the movements of the rich and famous as they react to events in real time - from David Cameron's last supper in Downing Street to Boris being booed by the incandescent London mob. Meanwhile social media has formed a torrent of rage, with accusations flying between rich and poor, the educated and uneducated, and the old and young. Yet none of this captures the enormity of what has happened.

Britain's integration with the EU is at an end; the UK may be finished as a functioning entity; Scotland is on the verge of leaving and Northern Ireland might like to follow; the Tory Party is in disarray (but will most probably pull through); and the Labour Party is about to disintegrate entirely. Meanwhile, the most influential man in politics is a failed parliamentary candidate and former commodities broker with no experience of government and a penchant for casual racism. To quote the esteemed German sociologist Wolfgang Streeck the "delayed crisis of democratic capitalism" has just caught up with British politics and brought the whole thing tumbling down. Understanding why this has happened will require looking at things in the broadest possible perspective and slowly honing in on the details. Of course, the story told here cannot nearly cover that why. But we have to begin somewhere.

It starts, as with all the big stories of capitalism, with a crisis. After the Second World War the USA funded the reconstruction of both Europe and Japan along capitalist lines. That era is sometimes seen as profoundly national: nationalised industries, capital controls, and labour market regimes, with suppressed finance. But it is important to remember that this was a world system established by the many tendrils of the American state for the purposes of globalizing American power. A global system was developed after the war and then was brought down at the end of the 1960s.

The United States helped redevelop the German and Japanese economies after World War Two, only for both to catch up and threaten the US's trade position in the global economy. Under conditions of intensifying competition in the 1960s, with labour able to demand higher wages and investment reaching the limits of its ability to raise productivity, the US suddenly ended the dollar's convertibility to gold. This began a decade of volatility, crisis, and civil strife across the West. Underlying many of the West's difficulties was the end of a wave of technological innovation that had helped drive productivity rates after the Second World War and enabled rising wages and living standards.

During the 1970s the official architecture of a regime of floating exchange rates was put into place by US institutions intent on maintaining US hegemony. Simultaneous with this was the unleashing of financial markets, with the end of US exchange rate controls in 1974 and the growth of markets in new-fangled financial products like derivatives.

Meanwhile, the US had been careful to integrate the German and Japanese exporting juggernauts with regional deficit trading partners. What would become the EU started life as a series of developmental trade agreements among states flush with US cash. That cash was then used to buy American goods and the dollars were repatriated to the US in a virtuous circle. Until of course the subordinate regions caught up with US capitalism and began to outpace it, with the US eventually becoming a deficit state (that is, importing more goods than it exported).

But throughout the crisis decade of the 1970s and into the 1980s the US was preparing what Yanis Varoufakis calls the "Global Minotaur", through which the US would use the dollar's reserve currency status to maintain its capacity to run deficits and finance imports, while Wall Street collected the profits of the trillions of dollars it recycled through the financial system. It was precisely because of the crisis decade that the energetic Chairman of the Ferderal Reserve Paul Volcker was able, in the early 1980s, to finalise the new system. Since Nixon had removed the dollar peg to gold, new fiancial products and new capacities of the US state-financial nexus began to blossom. The Volcker Shock hiked interest rates, causing a rush of foreign money into the US whilst dampening domestic demand and killing off inflation. In order for the domestic economy to cope with this, wages would have to fall and so Volcker and President Reagan embarked on a campaign to crush wages and to crush the unions that had extracted so much from capital in the 1960s and 1970s.

Meanwhile, in Europe, as the economists Leo Panitch and Sam Gindin write in their book The Making of Global Capitalism, European integration underwent a new lease of life "in the context of the continuing integration of European and American capitalism." First, Europe had been bound to the US by Bretton Woods. Then for years Europe floundered through various floating or semi-fixed currency arrangements. Finally, the makings of the euro were put in place with the foundation of the European Monetary System in 1979. The US turn towards deflation was quickly emulated by European economies such as Germany, which had always been sceptical of Keynesianism, and the UK, which was undergoing a monetarist revolution under Margaret Thatcher. Only France held out, with a radical Keynesian policy which would aim to socialise key sectors of the economy. However, France's Socialist leaders U-Turned in the depths of the early-80s global recession and in the face of the extreme deflationary measures being pushed, especially by Germany, but also by countries around the world.

It was the defeat of the French Socialist government, Panitch and Gindin write, which guaranteed a neoliberal order in Europe. Politicians like Jacques Delors promised to win over Europe to socialist policies even as they imposed austerity at home. A single market for goods and capital, which failed to integrate the key domestic political struggles over distribution on which democracy relied, was doomed to become a deflationary, apolitical order. As Varoufakis argues in his book And the Weak Suffer What They Must? this was a "Europe of the governments" not a "Europe of the people." No European consciousness could be fostered in conditions where key political demands had been taken out of the realm of democracy and put in the hands of technocratic experts.

For Wolfgang Streeck, politicians must arbitrate between two constituents, whose demands are in fundamental conflict with one another: voters and the markets. Since the end of the era of high growth in the 1970s, Streeck argues, these two sets of interests have become increasingly difficult to reconcile: "More than ever, economic power seems today to have become political power, while citizens appear to be almost entirely stripped of their democratic defences and their capacity to impress upon the political economy interests and demands that are incommensurable with those of capital owners." Yet today we find desperate voters, driven to despair by the collapse of their connection to "normal" politics, taking destructive measures.

Along with this new political regime, a new labour regime was imposed, which definitively ended the era of postwar class struggle. At the same time that the European Union was ending the era of national democratic politics, neoliberalism was ending any semblance of democracy in the workplace. But whilst destructive, the Thatcher-Reagan years also created  something new and disturbing. Paul Mason writes in his book Postcapitalism, "After 1979 the workers' failure to resist allows key capitalist countries to find a solution to the crisis through lower wages and low value models of production." Although there has, since the onset of neoliberlism in the 1980s, been an amazing wave of technological innovation, labour has been so definitively smashed that capital has not been driven to adopt that technology for productivity-driving ends. Instead technological innovation has simply eliminated good jobs, thus decimating skilled, unionised sectors, and encouraging the creation of low-end, unstable jobs in the services and "servant" sector.

Neoliberalism is sometimes viewed as an ideology and sometimes as a description of real processes happening across the economy. The truth is that it's a bit of both: it is the worldview which espouses the deepening penetration of markets into every facet of life, while the market itself is depoliticised and taken out of democratic control. It legitimises the twin processes of globalization and financialization. The former requires the integration and interdependence of states; the latter that an increasing number of activities once provided by the state be provided by the market and funded by growing debt. Underlying all of these secular transformations thas been a decline in productivity, a decline in growth and a massive increase in debt.

So to the crisis of politics and political representation in a neoliberal world. When you piece together the story about the transformation of global capitalism since the crisis of the 1970s, the link between neoliberalism, globalization, and the crisis of democracy becomes obvious. The European Union's in-built hostility to democracy is closely related to its hostility towards redistributive economic policy. The EU is constitutionally sceptical of meddling by social-democratic parties. Market management should be left to the experts. Because above all the EU and the world of globalized financial flows on which capitalist profits today depend is a world of experts. It needs to be aloof in order to survive. In other words, if you go about democratizing the EU it will collapse. Almost all the economic policies the EU enshrines in its treaties - not just the regulations, but the trade liberalization, the budgetary discipline, the privatizations and the price stability - are deeply unpopular. Yet they are also permanent, forever shielded by law from democracy

But this is just a symptom of the institutional world that global capitalism has created. Because in reality the policies of the EU are no different to the policies of any UK government of the last thirty years. The crisis of British democracy is linked to the triumph of the same kind of politics: the major parties converged following the onset of neoliberalism, the representative link collapsed, and with it voter turnout. In order to escape its 1970s crisis period, capitalism had to ditch the fiery democratic politics of the postwar era altogether. But neoliberalism would of course give way to yet another crisis: in 2008 the US mortgage system collapsed. It was no surprise that in a heavily financialized system built on debt, it was subprime mortgage defaults that triggered the meltdown. Decades of financial integration left German and French banks exposed. Those banks had also funded lavish spending in the south of Europe. In 2009 the combined exposure of German banks to the Greek, Irish, Spanish, Portuguese and Italian states totalled €704 billion. These losses were quietly transferred onto the backs of the most fiscally-stressed states in Europe.

The neoliberal financial paradise - in which huge surpluses could be lent to deficit states by German banks with no social controls or democratic oversight - led directly to the debt bondage of the poorest countries in Europe. Meanwhile, the German ruling class continued to benefit, having restructured its economy and bought off its unions, imposing harsh neoliberal wage restraint to keep its exports high. Financial experts have long bemoaned the excesses of German trade surpluses - ignoring the fact that Germany is simply behaving according to neoliberal type, free of any sense of solidarity with its allies and deflationary to the core.

In Britain the only institution that rivals the European Union for lack of trust is Westminster itself - and yet a majority of people has just voted to give Westminster more powers.!people did this in the vain hope that it will improve their social standing in a world that is openly contemptuous of them. The collapse of strong political identities of either left or right under neoliberalism has left a gaping representational void. In their place often violent, but also it must be said mutually supportive, cultural identities have emerged. Politicians have spent years blaming external meddling by the EU or foreign infiltration by immigrants for the breakdown of political and economic democracy. These two have become the key obsessions of people whose access to "normal" democratic politics disintegrated decades ago.

The fragmentation of the UK is rooted deep in the historical transformation of British and European capitalism under neoliberalism. It has ended up causing a profound constitutional crisis at both the national and supra-national levels. Now that the UK is leaving the EU it is highly likely that the British state will cease to exist in its current form. The secular processes which undermined democracy and imposed neoliberalism from above, and came to a head in the form of a deep economic crisis in 2008, may well end up finishing off two unions. Within a matter of years both the European Union and the United Kingdom, along with many of the institutions and political modes of representation on which they were based, may have ceased to exist.