A moral economy

The great historian, E. P. Thompson, first raised the issue of the moral economy of the crowd in a paper published in 1971. He was referring to the food riots, which occurred every ten years or so in late eighteenth-century England. He demolished the old belief that the riots were spasms of hunger, suggesting instead that they represented a ‘highly complex form of direct popular opinion’. They were about establishing the moral price of food rather than the going market rate.

We have witnessed the moral economy of the crowd last week in the US with the public outcry over the $165 million retention payments to workers in the bailed-out insurance giant AIG. The company had followed some very risky practices, jeopardized the entire US financial system, lost a great deal of money and was eventually bailed out by the federal authorities.

On the surface, the retention payments are small compared to the $170 billion that the company received. With more to come. And many of the people responsible for the risky behavior had long left the company. But the popular sentiment was not a calibrated public policy response; it was a restatement of a moral economy in the face of a market economy out of step with current realities and popular concerns.

Crowds in Washington DC. Photo: John Rennie Short

The financial service sector at the top level is over rewarded. The system of bonuses and retention packages originated when both profits and risks were borne by partners in trading companies. Now, in large public companies, the upper executives overpay themselves, a practice authorized and condoned by compliant, collusive boards, while the risks and costs are socialized and paid by the shareholders or eventually the government and the public. The former CEO of Countrywide, a mortgage company that specialized in risky subprime mortgages, made out very well in the last six months of 2007. Angelo Mozilo, who looks like a lizard in an expensive suit, was paid almost $2 million in salary, given $20 million in stock and sold $121 million in stock. The company meanwhile lost $1. 6 billion while the share prices fell 80 percent. Bad luck for the shareholders, but no problem for Mozilo.

It is against the background of the widespread appreciation of privatized benefits and the public nature of the costs that people responded to the AIG bonuses. What is surprising is how quickly the political system responded to peoples’ anger: within a week of the bonuses becoming public, the House introduced a measure to tax the benefits up to 90 percent.

The close connection between the public mood and federal response is rare. The founders were distrustful of a full and functioning government by all the people. The Congress and the other two branches, the executive and the judicial (an oligarchy of lifetime appointees whose ideology always seems half a century behind the general public), limit and blunt the expression of the popular will into policies and politics. Policies in Washington DC are shaped by interest groups who hone regulations to meet their needs. The political system listens to the power of money. Politicians desperately need money to stay competitive, win races and stay in power. Those with most money have the best access: they have the power to influence and advise. Ordinary people exercise political choice at elections but those with money exercise real political power.

So the events last week in Washington were highly unusual. The consequent legislation may not stand up. Already experts are pointing to its haste and questioning its legality. The proposed legislation was not well thought out, and it was done in haste and anger. But so are much of US federal policies. It was a raw expression of a true democracy. It was the moral economy of the crowd armed with blogs and emails rather than pitchforks and street demonstrations, reaffirming values of fairness and community over greed and self. The moral economy expressed against an amoral economy.