potlatch

predators vs producers

I refer the Right Honourable Gentleman to the answer I gave a few months ago:

A critical question for Ed Miliband is how far he is willing to propose and celebrate transformations in Britain’s private sector. This is tricky political territory, at a time of minimal growth, a shrinking public sector and high unemployment. The last time the social democratic left seriously considered the need to reform Britain’s model of capitalism (and not merely its models of public service delivery, as preoccupied Tony Blair) was around the time of Will Hutton’s State We’re In in 1995. This was swiftly dropped.

But Hutton’s argument has not become any less pertinent in the year’s hence: quite the opposite. The dominance of the financial sector in the UK economy and the dominance of finance over UK firms is a pressing problem. Cases such as the Cadbury takeover capture the public imagination, while assetstripping by private equity companies hollows out hundreds of lesser known British firms. If Miliband were aggressive enough, and were willing to repeat the message enough, the electorate might be successfully reminded that our economic woes originated with a series of one-way bets made by a few thousand millionaires living in London...

Discussing private sector reform is difficult for politicians, which partly explains why public service reform has preoccupied policymaking for the past fifteen years. To do so successfully, they need allies in business and civil society, who are able to speak out when governments cannot.

This was from a report I wrote for Policy Network about mutualism at the end of last year.

I would never (ever) position myself as a political strategist, but surely Miliband's team slightly under-estimated the difficulty of discussing private sector reform, and the importance of being able to follow up his distinction between 'predatory' and 'producer' capitalists with substance, examples and - most importantly - a chorus of coordinated agreement from prepped business leaders, to outflank the CBI who react like wounded animals on these occasions. The more cut-throat and rich the better: if Jack Welch or Terry Leahy had been persuaded to take to the airwaves, and say that, yes, there is a distinction between businesses which extract and exploit, and those which invest and grow (which of course there is), this would have defused the situation. One of them (and certainly a Warren Buffett or a George Soros, should they be in Ed Miliband's contact book) might have been prepared to even name some of the predators, in a way that every Shadow Cabinet Minister was unable to and made to look somewhat ridiculous as a result.

new paper on 'externalities' and neoliberalism

Over the last year, I've been collaborating with my former supervisors, Scott Lash and Michael Keith, on an ESRC-sponsored network looking at 'rising powers' in the global economy, primarily China and India (building on their own research on China, which led to a forthcoming book). We held events in Beijing, Delhi and London with experts from all over the place.

  The organising conceptual focus for the project was 'externalities', understood as the boundary between the 'economic' and 'social' realms, but also between economics and sociology, thereby allowing economists and sociologists to come together to explore how the distinction was manifest in different cities from around the world. Synthesising various themes, ideas and relevant literatures from this, I've published a working paper, The Politics of Externalities: Neo-liberalism, Rising Powers and Property Rights [pdf]. It's deliberately stuffed with references, as its partly a review of ideas and reading that occurred over the course of the three seminars and discussions.

The proposition in the paper is quite simple. Classical liberalism, of the 19th century variety, was predicated on a clear split between the 'economic' and the 'social', as Karl Polanyi bemoaned, in which markets are transparent, exact and autonomous, and the 'social' realm involves costs and benefits that are inexact, opaque and typically dependent on the state. This becomes the core disciplinary assumption of welfare economics, which is an effort to distinguish those parts of capitalism which do maximise utility, from those which do not ('market failures', 'externalities') and hence require some form of regulation or public provision. In that sense, contemporary public policy in Britain still operates with a liberal imaginary.

Neoliberalism and 'new economic sociology' each problematises this from opposite stand points. The former (in the tradition of Ronald Coase and Gary Becker) treats the 'social' as a cost that needs allocating or privatising more clearly, ideally via property rights. This is 'economic imperialism'. The latter (in the tradition of Harrison White and Marke Granovetter) treats the 'economic' realm as an institutional achievement of norms and networks. This is 'sociological imperialism'.

The question - and the relevance the 'rising powers' - is what alternatives to these might look like, after liberalism and neoliberalism, or in parallel to it. There are cases in both India and China of new, potentially more efficient, economic forms, which rest on ambiguous or hybrid property rights, either because trade exists outside of the clearly formal economy (see Ravi Sundaram's working paper [pdf]) or because new accomodations between the rural and urban economies are being invented (see especially Cui Zhiyuan's work on Chongqing, e.g. this interview [pdf]). Western neoliberalism's commitment to calculate every cost and benefit then becomes the basis of future competitive disadvantage.

Incidentally, Richard Bronk's The Romantic Economist points towards a similar critique, and draws inspiration from JS Mill to do so, as does Cui Zhiyuan's celebration of 'liberal socialism' in Chongqing.

the Ring-Fencing State

Economic liberals have always relied on metaphors for the state's economic function. For classical liberals it was a 'night watchman'. The neoliberal period saw a host of updated equivalents, such as the Clinton-era 'steering not rowing' to Gordon Brown's 'light touch' regulation (which, when you think about it, could sound a little creepy; whatever next - 'limp handshake contracting'?) through to the endless analogies between sport and the free market, which position the state as some sort of chilled-out umpire.

The Vickers review of British banking, published last week, gives us 'ring-fencing', in this case between the retail function of banks (taking desposits and making loans) and the wholesale function (speculation, deal-making, securitisation etc). But the ideal of the 'Ring-Fencing State' also extends beyond what is, in effect, an 'as if' version of Glass Steagall. The RFS - in the grand tradition of Regulationism, acronyms are essential here - could possibly be the template for the capitalist state, for the duration of this crisis.

Earlier in the crisis, the central metaphors were biological ones: financial contagion, toxic assets, systemic risk. These were already available, thanks to the ecological finance economists, such as Andrew Lo, who had been studying the financial economy as a complex adaptive system. And the function for the state in this scenario was to take possession of the most toxic bits, namely the investment banks holding all the mortgage-backed securities. Within the biological imaginary, nationalisation of banks was the equivalent of the army moving in to control a plague-ridden territory. And the most crucial role of an army in this situation is to prevent entry and exit: to ring-fence the contagion.

This has repeatedly emerged as the state's function, for instance in the division of both Northern Rock and RBS into separate divisions of 'good bank' and 'bad bank'. It could well emerge at a geopolitical level, in efforts to rescue the euro. One plausible strategy for the eurozone would be to place a 'ring-fence' around the northern European nations, to protect them from the economic and political 'contagion' of meditteranean debt and realpolitik. Many have wondered whether and how nationalism might eventually arise, as a result of this crisis. Could it be that it will sneek up on our political leaders, in their own economic metaphors? Giorgio Agamben highlights the fact that 'states of exception', such as that declared by Hitler in 1933, have often been occasioned by financial crises throughout history; there is a relationship between crises of money and eruptions of sovereign autonomy. Certainly analogies between dodgy money handlers and pestilence have strong Fascist undertones. At present, states simply want to exclude 'bad' banking and 'bad' debt from the rest of the economy, but this desire to exclude obviously has more primal versions too.

The RFS is unlikely to be a long-term 'fix' for the capitalist system, in the same way that the Keynesian Welfare State or Schumpeterian Workfare State were. But it's possible to identify a few of its contradictions that will both define it, and eventually topple it.

Firstly, the RFS has a fundamental uncertainty regarding what it is trying to ring-fence. Is it separating the accountable, decent part of the money economy, from the unaccountable, dodgy part? Or is it separating the publicly consequential part from the privately consequential part? These are two separate distinctions, one resting on what the government in principle ought to under-write, and the other on what in practice it will or can under-write. The Vickers Review has sought to ring-fence those parts of banks which have a utility function for society, and which the state is therefore prepared to bail out, from those which do not have such a function, and which the state is therefore not prepared to bail out. But the fact that the state may not recognise an institution as public in any way, does not mean that the state will not end up having to under-write it.

At present, the state is behaving like Julie Myerson, kicking her dope-head son out of the house for being an arsehole, pretending that it's a principled, non-negotiable situation. But as the great narcissist reported here:

And then one day we can’t do it any longer. We can’t be without him. We do what the experts categorically say you should not do. We take him back without negotiation, without having secured any promises. Unconditionally. We tell him we love him and we just take him back. Is this really right? We have two other children to protect. But then again, they miss him. It feels right to try to put the family back together.

“If we can just draw up a set of conditions”, his father says brightly. I’m barely listening. It’s too late, I’m gone, I want my boy. Love shoots through my veins. I want the mummy-fix of seeing him fast asleep, safe and warm in his own bed.

When he comes home, we try to talk to him about the possibility that he needs help.

“Help with what?”

“Your addiction to cannabis.”

As usual, he laughs loudly.

Substitute George Osborne for Myerson, Vince Cable for her husband and Bob Diamond for her son, and you have a plausible vision of the next three years. The RFS turns its back on the 'bad' bits of finance, but has no way of guaranteeing that it won't be won back.

Secondly, as Keynes famously remarked of Hayek, the RFS can never know where to draw the line. The fences are being erected in a defensive fashion, and markets can smell the fear. As soon as a fence is put somewhere defensively, the question becomes how much more territory would the defender be prepared to give up. The RFS is seeking to restore confidence, by excluding the non-credible parts of the financial system. But it faces a fundamental dilemma, of whether to act bullishly or bearishly in doing so. Act bullishly, and nobody really believes its reasons for doing so, including its own protagonists. Act bearishly, and it appears to be on the run.

For instance, if the eurozone splits in two, around which nations does the fence get drawn? And on what basis is it drawn there? Any new fiscal rule, a la the Stability of Growth Pact, would look pretty flimsy second time around. So would the fence be drawn in such a way as to restore confidence in the Euro itself, or simply to protect the sovereign interests of the two nations who invented the vision of an 'ever greater European union' in the first place? If the single currency is really about exorcising the ghosts of Napoleon and Hitler, then maybe someone at the ECB should come out and say so. That may be the single statement that the markets will actually believe.

Thirdly, any fence has gates, and the RFS then faces a dilemma over how to police them. The Vickers review suggests that banks should be allowed to throw capital 'over the fence', so as to spread risk. But one of the problems is that the 'bad' side of banking may end up being far more successful than the 'good' side, as the attempts to split Northern Rock and RBS have shown. In this situation, the RFS appears like the GDR building the Berlin Wall, not so much as to protect East Germany from the pestilence of capitalism, but to stop its citizens escaping to the West.

One driver for the financial crisis was that British and American consumers lost interest in the 'boring' bit of banking (which necessitated saving, which they were no longer prepared to do), meaning that only securitisation could support their lust for credit. The image of a public in need of protection from 'bad' banks is too simplistic. The public also needs restraining from their own excesses, as the 'nudgers' imply. In this respect, the RFS is also a shepherd, watching over a flock, and driving them into pens for their own safety.

Jamie Peck writes in this paper that "Neoliberalism’s curse has been that it can live neither with, nor without, the state." The RFS encounters this curse in a new way: it can neither own nor disown the fantasies and nightmares of a predatory financial system. It wants to turn its back on them, and shut them out, but knows that it can't. The somewhat neo-con distinction between 'good' and 'bad' ignores the constantly shifting distinction between the two, and the question of 'good for whom?'. The distinction between 'public' and 'private' risk also breaks down, as the RFS discovers that its economic responsibilities do not simply stop at a given line, in the same way that traditional sovereignty does. So we will find it endlessly shifting its fence, raising it, lowering, negotiating with those seeking to pass through it, acting tough with those on the 'wrong' side of it, until eventually its fence-building capacity loses all credibility.

riots and credit crunches: when economic objects attack

Congratulations to The Guardian and LSE for addressing the London riots as an anthropological problem to be investigated, and not simply a function of some pre-existing economic model or historical theory. When a Blairite such as Martin Kettle recognises the need to listen to rioters' own explanations, then it is time for economists and structuralist sociologists to pause for thought. There has been much debate regarding the 'causes' of the riots, but as I addressed here, intelligent analysis surely also has to cover the meaning of the word 'cause' in such a context. It sounds daft, but I would love to hear a debate amongst politicians, journalists and social scientists on how they understand this word. Most recognise that it isn't quite the same thing as 'correlate', but that's about as far as the consensus goes. I suspect that, like Alan Partridge describing God as some sort of 'gas', a growing proportion might now turn to neurology, in seeking to make sense of the senseless.

Allow me to complicate matters further with a dose of Actor Network Theory, and the following suggestion: the crises of neoliberalism are not only caused by unruly egos and neurons, but also by unruly objects. Material things, such as mortgages and consumer goods, have become animated and unpredictable over the past four years, having once seemed familiar and docile. The ghosts and vampires that Marx saw haunting the capitalist economy presaged this, being symptoms of an economic system which allows objects (for Marx, commodities) to take on a life of their own. Doors creak in the night, lights flicker on and off, a glass darts across a table and smashes on the floor; capitalism spooks the hell out of us. Real Enlightenment, for Marx, would mean exorcising the economy of its demons, and putting humans back in charge. (Contemporary Marxists might add that this also involves de-mystifying social theory of its postmodern obsession with talking objects...).

From a different perspective, Hayek wanted to revive the magic and animism of the markets. The price system held a beautiful mystery for the early neoliberals, that needed releasing from socialist and bureaucratic cages. It achieves social coordination, potentially on a very large scale across multiple, complex cultures, but without anyone actually intending this. The logic of the market means that the less we consciously intend to coordinate our actions, the more coordination we actually achieve. By trusting in the autonomy of the price system, we might even attain a society with no humans in charge at all. Magic!

I paid a visit to Argos shortly after the London riots, and felt an eerie sense that objects were no longer what they were. After the televised images of people queuing outside JD Sports to loot goods, of individuals lugging boxed electronic goods through smashed windows, and the subsequent images of ransacked shop interiors, a branded cardboard box suddenly appeared like an offensive weapon or hallucinogenic drug. It was capable of causing anarchy, madness, egomania. This display cabinet of watches appeared like a quasi-theological incitement to commit arson, or wage holy war on behalf of the objects inside.
The objects themselves seemed culpable, and as I lugged a new vacuum cleaner out onto the street, I felt that I was holding something explosive. Perhaps the rioters were like animal rights activists, releasing rabbits from pharmaceutical testing laboratories. Hundreds have now selflessly sacrificed their own freedom, purely to liberate HDTVs and trainers from the tyranny of the retailer!

If rules and law have become excessively dis-enchanted, then the market place has become excessively magical, with consumer goods taking on transcendent qualities, as discussed by Jens Beckert in 'The Transcending Power of Goods: Imaginative Value in the Economy' [pdf]. Secularisation is always incomplete, and the divine suddenly appears where we least expect it, in advertisements and store-fronts. Watch the two clips below, and you get a similar sense of the overwhelming pathos of the sacred object being pursued in both cases.

 

 

 This sense of placid, inanimate objects becoming alive and dangerous also pervaded the financial crisis, from 2007 onwards. Remember the boring old mortgage? It was once a symbol of dull, middle-aged constraint, something one took out only after youthful dreams of emancipation or excess had died. It went with the term '2.4 children'. But combined with the transcendent power of home ownership (fuelled by the culinary and interior decor cult-leaders), and the magical mystery world of finance, this once placid thing came alive, until it held the entire global economy to ransom. American families were transfixed by the house as an object they were prepared to enslave themselves to; meanwhile, the bankers were transfixed by the computer screens and numbers, whose shamanic authority they trusted above all else. Mortgages, like consumer goods, went through their own form of puberty, raising the question of how much of the child remains in the adult (a theme brilliantly explored by Teen Wolf, then shamelessly ripped off by Black Swan.)

What to do? The Actor Network Theorist might smirk and say that we should be putting the HDTVs and trainers in jail, rather than the poor human actors who sought to liberate them. Maybe the mortgage-backed CDOs should themselves be appearing before Congress, explaining what they were up to in the years leading up to 2007. The bankers were merely their servants. Or else we need to rediscover the virtues of a boring, inanimate economy, as the basis for an animated social and cultural world, as Marx intuited. The tedium of the old socialist block - laughable cars, unchanging fashions, steady incomes, pitiful growth - was always at the heart of its apparent legitimacy crisis. But it strikes me that it's precisely this tedium that we now need more of, to escape the tyranny of financial and consumer objects.

new nudge

How far are we through the economic crisis? Some fools probably thought it was 80% of the way, whereas now are discovering that it's less than halfway. Martin Wolf sagely points out that a "double-dip recession" would require the first dip to have come and gone, which was never really the case. So lets call it a "single-trench recession" (aka a depression). Meanwhile, we entertain ourselves by competing for the silliest micro-explanation for this most macro of shit-storms, the latest being 'sexio-economics' (the perfect complement to Catherine Hakim's risible 'erotic capital'), just as a sufferer from tooth-ache flicks through back issues of Hello in a dentist's waiting room and tries to ignore the pain.

Science and Technology Studies has made an artform of discovering the micro in the macro, including the design of new mediations between the two. Consider Andrew Barry and Lucy Kimbell's 'Pindices' artistic experiment, which offered the public a choice of badges, containing  various declarations of civic participation, such as "I obeyed the law", "I shopped ethically" and "I protested".  As the project explains: 

The badges were arranged in 2m-high plastic tubes which from a distance resemble physical bar charts. As people take the badges, the levels in the tubes vary presenting an aggregate view of political activity.

They are each given a different colour, and unpopular forms of political activity remain glaringly obvious, as the tube remains more full (see the image above).

Why not adapt this experimental device, and install an equivalent near Canary Wharf tube station, with badges specially designed for people working in financial services. The text on the badges could read:

- I paid the legally-mandated level of income tax

- I passed on an interest rate cut

- I used customer savings in order to make a loan

- I advised someone not to buy a derivative because I had no idea what was in it

- I recognise that I work for a semi-nationalised industry

And so on. Watch as these buttons get snapped up, creating new norms to behave in a vaguely civil manner, and nudging us out of the financial mess we're in! It's similar to how all footballers are now required to wear 'Kick it out' anti-racism badges on their shirts. Alternatively, the badges that have not been selected will remain glaringly apparent, highlighting the refusal of the financial services industry to take any responsibility for its public impact. Adapting another piece of wonk wizardry, anyone with an entirely badgeless lapel will then be required to travel to and from work wearing a day-glo jacket.

private ownership is alive and well

There is apparently a mini-panic going on amongst Tories at the moment, on discovering that home ownership in Britain has plummetted to levels not seen since the mid-1980s. This story has been running for three days now, and I'm still waiting for someone to answer a very simple (rhetorical question): do you mean proportion of homes owned privately, or proportion of the population who are owning? They clearly mean the latter.

I fail to see how the proportion of homes owned privately can have fallen very much, seeing as council-house building has dried up and there is little sign of co-operative ownership expanding dramatically. Someone is owning all these homes, just not the same people who are living in them. Hence we have a choice between a liberal, republican vision of a market economy, in which individuals attain a degree of autonomous citizenship by virtue of owning assets, and a neoliberal capitalist vision of a credit economy, in which cash surpluses and leverage are used to exploit and exaggerate booms and busts.

In one camp we have Adam Smith, John Stuart Mill, Henry George, James Meade, contemporary civic republicans and liberal Marxists such as Erik Olin Wright and Giovanni Arrighi. They argue for market freedoms of the trader and the petit bourgeois proprietor, based upon the principle of equality of exchange. In the other camp we have Ronald Coase, Milton Friedman, the rest of the Chicago School, and every person who has ever made the journey from Wall Street to the White House. They argue for the capitalist freedoms of the manager and the speculator, based upon the principle that self-interested, individual economic decision-making is utility maximising in the aggregate, regardless of whether markets are fairly regulated and transparent or not. 

I suspect that one significant reason why home ownership has fallen (in the sense of proportion of the population owning) is that there was a buy-to-let explosion, fuelled by the cheap money of the Blair era. And being the ponzi scheme that it was, many of these properties are still in the hands of people who took out 100%, interest-only mortgages on the basis that they could sell a few years later for twice the price. The same principle is at work in much of the private equity world of business investment, in which one absentee-owner takes a bet on being able to sell to another absentee-owner a couple of years down the line. 

The Conservative Party can't turn around now and claim that it was the petit bourgeois, asset-owning liberalism that they were in favour of all along, when they created the conditions of one of the biggest waves of financial speculation (and subsequent ruin) in the history of capitalism. Were they duped into thinking that the Adam Smith Institute was propagating the ideas of Adam Smith? Was the Adam Smith Institute even duped into thinking this? An economy which privileges computer screens, paper and speculation cannot also be an economy which privileges dwelling, making and growing. Psychologically and culturally, they are worlds away: the former lacks either patience regarding the future, or memory of the past, sacrificing both to the opportunity of the present, whereas the latter treats the present as part of a continuum. The fact that markets are common to both worldviews is almost irrelevant.

Private ownership of homes is alive and well, as Thatcher intended. It's just that many of the owners have no relationship to them, beyond what they have to inform their accountants.