H
ERE WE LOOKat the morale behind the financial world’s expecta- tions. How else is it possible to explain institutional memory loss? Criticisms which reduce the financialisation of life to an ideological triumph of libertarianism are an oversimplification. These days, democracies are openly divided by suspicions, public conflicts and social movements. What orthodoxy presents as an aggregate of individuals, bargaining anonymously – independently – in financial markets, is in fact a social field of mighty organisations struggling over internal credibility. Other fields contend too. Images of herds with amorphous mood-states (during alleged financial instability) are as ideological as rational actor assumptions. Consider the Jubilee debt relief movement led by the established world religions, or the legal and governmental challenges and waves of protests against the excesses of global policies. ‘Stop the MAI’ movement triumphed after a mooted Multilateral Agreement on Investment (MAI) was leaked from the OECD in 1997 and hastily withdrawn. MAI sneaked back, with a new label, again to fail at a divisive Cancun meeting of the WTO in 2003. The European and Canadian-led ATTAC move- ment proposes a Tobin tax on currency speculation (named after an economist, James Tobin). Less dramatic, as perhaps prosaically interest-based, are sharehold- ers’ revolts and their unseemly behaviour at annual general meetings of banks and corporations in the ‘core’. Such a sample of recent activity provides ample evidence that millions of people around the world are not duped by the financial sector’s self-rationalisations. Often, however, populations forget how many ignominious bankruptcies, defaults and so on have occurred. Ideology is not an adequate explanation and, this chapter argues, there is a specific utopianism which conditions actions and outbursts within the financial social field. Corporate raids and the cult of personality are only symptoms of hopes for certainty, trust in ‘the opportunity’.This utopia takes on social movement proportions, which are necessary to contest the democratic institutions, silence opponents and above all, maintain internal conviction.
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I D E O L O G Y O R S O C I A L M O V E M E N T S ? The framework of my argument is this: short-term emotions now entrenched in the financialisation of life are better explained as emanating from their social movement base. Free-market ideology was not dumbly accepted by electorates.
Britain is a case in point: Blair’s Labour Government has hardly restrained the City of London’s global interdependencies, even given a great public opportunity:
Ingham: Let me take the UK first . . . When interest rates in 1989 went up to 15 per cent, the housing market just fell off the cliff. And I remember talking to people who were suddenly homeless. I’m not exaggerating, I remember very vividly in about 1991 going to visit a family who lived in a detached house just outside London, who were about to go into a homeless bed and breakfast because they had just borrowed and borrowed and they couldn’t repay the debts. Property prices actually contracted in the UK, particularly in the south-east and one or two other boom areas for the first time in a very long time, and nobody ever thought they could. The most people thought that could happen was that the pace of appreciation would slow. In fact, prices fell – sometimes quite precipitously and sometimes I think almost to an unrecoverable degree. So this was a major problem, and it was an obsession for news editors for several years. (15 March 2002) The South is by far the wealthiest region of England and Tory voters predominate.
Or rather, they formerly voted Tory. Michael Lazar explains the debacle, in organ- isational terms, of the Thatcher Government, the Bank of England and (starting with) the commercial banks:
Lazar: [Banks] are in competition to lend, and money is just a commodity. It is something you sell and you’ve got to sell it because you’ve got too much of it on your hands. And therefore you’ve got to price your money so that the customers out there will buy your money rather than anybody else’s money. So you get this appalling state where banks lend out at five times people’s salaries at ludicrously low interest rates and then there’s a credit crunch. And everybody loses their house, and everybody is surprised. That’s what central banks are for, and Ministries of Finance are for, but unfortunately you get periods like the late 1980s when neither the central bank nor Ministry of Finance in this country took their responsibilities seriously [and the housing crisis] . . . brought down the Tory Government and has destroyed the Tory Party, maybe for good and certainly for some time. (4 June 2001).
Banks ‘forgot’ that money is not a commodity but a chain of promises. In the fall-out of this stupendous blunder came greater independence of the Central Bank (the Monetary Policy Committee in 1997), which was opposed by the Tory Party on the grounds of its former cosy governmental relation to the City. Many thought at the time that the Tory Party might never rise again, and indeed its imminent demise just before the 1914–18 War was only stopped by the Tories’ electoral
craftiness on Irish Home Rule, as George Dangerfield’ sThe Strange Death of Liberal Englandrecounts. But in the 1990s, Tories lost electoral loyalty from their own creation – a globalised City – to the Blair Government, which has defended global markets ever since, although not before time introduced a separate regulatory body, the FSA, in 2000. In the USA and elsewhere, housing speculation in 2003–04 hardly heeded this British story.
So, this chapter will argue, the dominant ideology thesis is less plausible on its own than viewing the contemporary era as a conflicting field, shattered by the rise of a present-oriented utopianism in the Anglo-American financial heartland. To say (like Will Hutton 2002 or John Gray 1998) that the interests of the USA as a military and financial hegemon are served by this ideology presumes that the US Administration can predict its interests and that intentional schemes rarely backfire. Consider, however, how the democratic social movements of the 1960s and 1970s managed to achieve significant institutional reforms in legislative and state bureaucratic organisations, even corporations. In my view, this libertarian utopianism needed, and was able, to inspire a new social movement which also institutionalised reforms.
Moreover, the following analysis does not impute motives, or unmask and exag- gerate rank ideological interests, as it only cites openly claimed hopes and aspira- tions for change. I have repeatedly argued, as well, that greed is merely a by-product of the trust (through distrust) necessary to imagine a controllable future. Utopian demands are implicit in key libertarian texts and public declarations which were, and still are, treated with public derision as a dystopia (of distrust) from diverse political viewpoints. Ruth Levitas (1986: 80) was a lone figure in showing the early rise of the New Right in Britain during the 1980s – both ‘neo-liberal economics and social authoritarianism’ – to be a phenomenon of two conflicting utopias of ‘competition and compliance’. Levitas, whose expertise is in utopian thought (1990), has never dismissed utopia as a pipedream; usually, she says, utopian hope is mistakenly reserved for the Left or ‘progressive’, ‘radical’ ‘reform’. Looking at these declared libertarian and conservative utopian projects for the ‘good society’, she compared the confident libertarian assertions in Britain of Friedrich Hayek and the Adam Smith Institute with Roger Scruton’s conservative utopian chal- lenge (1986: 80–91). She drew on Karl Mannheim’sIdeology and Utopia(1936) to explain Scruton’s conservative aspirations, then enjoying huge publicity (Levitas 1986: 91–7). But a financial utopia was perhaps too fantastic to contemplate at the time: ‘competitiveness’ and ‘inflation first’ were the 1980s terms. At that time, too, both utopian projects devoted huge resources to attacking social policy, the unions and the welfare state, with remarkable success. Very few critics then heeded Milton Friedman’s main declared aim, which was to restore shareholder control over firms in markets (Chapter 2). Only a handful (like economists) then guessed how financial short-term dominance might later speed up: now it is taken for granted as a public view, whether for good or ill. Twenty years later, the Anglo-American business world is inspired by this utopia most of all. With the financialisation of life – and not despite crises but because of them – the present-time orientation, ecstatic outbursts, corporate collapses and unseemly frenzies are a source of profits
for the daily news media. As an anti-state utopia of the present, this world has a scandalously wealthy social base in global financial centres, from CEOs to orthodox economists. It is a utopia led by self-styled ‘oppressed’ and, as I argue, in farcical contrast to a similar utopia centuries ago of poor and brutally oppressed peasants forming one of the first modern social movements to reject fatalism. Today’s version faces much opposition but, unlike those former European peasants, no oppression whatsoever.
‘ R I S K L E S S ’ G R E E D ?
Many of my informants see the past as only a rough and ready guide to the present.
They do not say, like active cult personalities, that ‘history tells us’. None of their experiences is ‘extrapolated’ to today. Many hold long cyclical views where euphoria and disillusion alternate, in a similar manner to Albert Hirschman (2002), who describes waves of profound disillusion for long-term views and public policies, with euphoria for short-term privatism.
Alan Abelson speaks of ‘intoxication’, partly waning in 2000: ‘I don’t think it’s possible to really grasp how pervasive this stock fever is; it’s really like an epidemic that’s invaded almost every part of this society’. Starting with the overconfidence in the finance world then:
Abelson: What we have had is eighteen years of uninterrupted bull market, which is the longest time ever, and it’s encompassed both the stock market and the bond market. The irony is that commodity markets, enormously strong in the ’70s, have absolutely collapsed. They have collapsed in gold, oil, and so on . . . Today the equity market is valued at $2 trillion, which represents an exponential rise for a variety of reasons. One of the reasons, as Oscar Wilde said, is that ‘noth- ing succeeds like excess’ and the excess has bred enormous interest in the stock market . . . unprecedented.
Also, until the 1980s, he says, ‘most pension plans used to be administered by a company or, at best, a company and a union together, and they were very conservative’, putting most of the money into fixed income. But now half of American households have money invested in the stock market; it used to be a mere 3 per cent.
They have an exposure to it which have implications that are not entirely salubrious if something happens obviously . . . You know, it used to be that people, if they looked on Wall Street, certainly after the experience of 1929 and for many years, they looked on Wall Street as kind of an alternative casino. Now, the problem is, it isn’t play money, this is retirement money, this is education money, it’s really, you know, the guts of their lives tied up in the stock market. (21 September 2000) Stock and bond markets are more intertwined in economic activity than ever before.
Far from euphoria for today’s financialisation, the greater the wisdom brought to
the interviews, the more gloomy they are. These are the eras when no one worries about levels of debt: confidence seems to continue, even after events like Enron.
Henry Kaufman mentions the ‘extreme period’ in the 1920s when ‘a variety of ingenious financing activities and investment activities, the lack of supervision’, led to restrictive legislation. Official policy, monetary and fiscal policy, is better now, yet he argues that ‘the world is still creating more marginal debt’ and that its quality since the postwar period has been declining. Events since Enron are
‘not extreme enough to push the system into an extreme conservatism’, not yet.
(27 February 2002)
Ingenious financing strategies are not produced by ‘herds’ but by investment banks that lack government supervision. The quality of debt is not a large topic of debate, not because it is too difficult to understand, but because there has been no depression since the 1930s that might prevent memory-loss and preserve cautious policies. Therefore Kaufman had ‘no doubt that in a year or two there will be new financing techniques and new ways of loosening the relationship between the creditor and the debtor’ (27 February 2002).
These conservative financiers worry that only a truly deep recession can shake the rich world out of its short-term money absorption. Greed oversimplifies the phenomenon, so does ideology. What inspires finance firms to create more lever- age instruments? What inspires euphoria? The argument that emotional volatil- ity occurs only in the ‘periphery’ (mums and dads), or as psychological traits of individuals, is at best a rationalisation. Journalists tend to interpret interests too mechanically as greed and fear, in aggregation or in tarnished cult figures – rarely do they write about the ‘guts of people’s lives’ tied up investing for the long term.
Others say that speculation and debt are a cultural trend, even a ‘fervour’ for risk (Baker & Simon 2002: 5–6). But consider the evidence. Opposing trends of risk refusal or precaution are also prevalent: environmental concern takes on the proportions of major social movements. Only one-third of OECD populations, though half in English-speaking countries, hold financial assets (Korpi & Palmer 2003). Indirectly, millions are affected by financial markets: results cannot be ‘salu- brious’ for modest income groups; the poorest have suffered most. Social relations of money between creditors and debtors have greater structural importance today than those between labour and capital. Greed is too simple and not provable, and cynical electorates (and informed sceptics) suggest that the euphoria of certainty – miscast as ‘risk’ – is most evident in the core of finance.
U T O P I A O R I D E O L O G Y ?
It is hard to refute arguments about a dominant intellectual fashion, or a hege- monic ideology of the market. Yet there is something missing. Most quoted is a Washington–Wall Street consensus between high finance and politicians (com- prised of social strata typically seen as bearers of specific interests). Less quoted are the monetary problems of the late 1960s, when many Europeans saw the USA deriving an unfair advantage as the main international reserve currency. The USA seemed to be financing its deficit internationally by selling dollars that were
depreciating in value (Ferguson 2004: 1). Regardless of these debates, new policies, miscast as ‘reform’, were based on the libertarian ideology of figures from Ayn Rand to Milton Friedman. Starting with Nixon’s floating of the dollar, then Thatcher’s Big Bang, all the English-speaking countries reversed the postwar policy framework.
According to some, it served as a ‘revenge of the rentiers’ (investors and speculators) against the high inflation of the mid-1970s (Smithin 1996), or the reversal was effected through finance ‘class’ alliances and ‘market developments’ (Grahl 2001b).
More convincing accounts include organisational actors, the global financial firms that redeveloped out of the Eurodollar markets, and the huge financial stimulus from corporate raiding. From this, ‘alliances’ of investment banks, accountancy firms, institutional share-owners and CEOs, economic liberal think-tanks, legal firms’ new mergers and acquisitions (M&A) divisions and business colleges played a role in forcing policy changes on US administrations first, then others (e.g.
Stretton 1999: 372; Ingham 2002).
None of these explanations is satisfactory alone. Christopher Hood’sExplaining Economic Policy Reversals(1994) argues that ‘right-wing ideology’ hardly explains Democratic President Carter’s turn to monetarism in the USA, nor Labor Prime Minister Hawke’s embrace of financial reform in Australia and the New Zealand Labour Government’s total policy reversal under ‘Rogernomics’ (Gray 1998: 39).
Moreover, some governments, for example New Zealand, have since tried to temper this ideology (after electoral outcry) but with much difficulty; hence the British Labour Government has not tried. President Clinton swore about how the success of his health program and his re-election hinged on the Federal Reserve and ‘a bunch of f—ing bond traders’ (cited in Woodward 2000: 126). With institutional milestones for the financialisation of life so entrenched, with larger segments of populations in specific financial positions, whether desired ornot, governments’
powers have been heavily qualified (Pauly 1997). No one disputes the ‘ideological’
influence on policy, as more institutional inducements to take a punt become fixed policy and more populations are subject to acting as rentiers than as savers and pensioners. Criticisms are not only from the periphery:
Fraser: I think the ideology that we see here of selling everything off, privatising everything, relying on the markets – more and more people are going to question that and will want to see some more responsible governments than we have been seeing recently. (28 June 2002)
Although relations of money are inherently trust problems, old cautious strategies like reducing vulnerability to loss were overwhelmed by investment banks taking another strategy, of trying to reduce uncertainty. Not so successfully, in various bank collapses:
Elliott: The problem with the free marketeers was that they thought you could trust the markets. They thought you could invest large amounts of trust in markets, because markets would clear, and they would come to equilibrium, and they are perfectible. Whereas post-Keynesians like me think that is rubbish. Markets are very volatile, very dangerous, very unpredictable places . . . The whole basis of
Keynesian thought was to give people some security, by saying we will surround these markets with protection, controls. That is a Keynesian approach, that it is a very unpredictable world, so try and take some of the danger out of the situation.
(5 October 2000)
One problem for economic libertarian ideology is in sustaining it within the heart- land. Over twenty years of financial crises and oscillations to mistrust demonstrate that the issue is not markets per se but the opportunistic organisations operating in them. Markets operate in speculative ways because banks and funds use complex multiples of loans, assets and transactions, often investing largely borrowed sums for small margins. Leverage mounts, then libertarian prescriptions are torn up, failures are no longer ascribed to volatile, silly herds, but to ‘systemic’ threats need- ing pragmatic ‘intervention’ (bail-outs or jail terms). Suddenly the vista of ‘free marketeers’ – a vista free of structural interconnections of big actors – cannot be trusted. Yet failures seem, strangely, to reinspire trust in new distrust strategies. Not quite memory loss, each new (rational) strategy and policy demand is a reaction to the last disastrous incident. Cult figures rise and fall among CEOs, financial ana- lysts and Nobel Prize-winning economists. Attributions of institutional credibility (financial supervision more or less) move from Moody’s to the IMF, on to central banks (e.g. G5 CBs) and back to Moody’s or a weaker SEC (see Chapters 5, 6 and 7).
O R G A N I S AT I O N A L M O R A L E - B O O S T I N G The wonder is how the ‘money power’ sustains the ‘morale of expectation’ (Shackle’s term: 1972: 447) and internally resurrects it after each unpredicted horrible event, each theory found wanting. Morale is built fromcollective emotional influenceson shared future outlooks, from disputes over uncertainties faced daily in attempts to guess the future with some modicum of rationality. Any financial outlook is made up of various conjectures (e.g. ‘fundamental’ versus ‘technical’ analysis) about
‘trends’ which, Shackle says (1972), bear little relation to others and are always intensely focused on ‘the News’ of the most latest profit changes, rate moves or any clue to a future entirelyinternal to finance.
This outlook of financial expectations rapidly becomes a new one, just as pat- ternless and laden with superstitions (‘dead cats bouncing’ is merely one; recycled ideas of how a dead market may ‘bounce’ up once, or of ‘limits’ to how low or high asset prices can go, are mere superstitions, since valuations are conjecture: when prices move cannot be predicted). Outlooks twist like kaleidoscopes (Shackle’s ingenious metaphor for 1930s financial markets), or fish in the sea, lacking even the intellectual understanding brought to sport or gambling, as my interviews emphasise. A complete and radical change to the future imagined picture of in- vestment possibilities needs only a slight shock to former expectations – based on evidence that is suddenly pass´e. As investment values are so kaleidoscopic, consequences are also ‘formidable and far-reaching’ (Shackle 1972: 183). Armies of prognosticators and interpreters of asset values respond to ‘the News’ by abrupt reaction to unheralded announcements. Reactions today arise among the vast