Adam Leaver

The democratization of finance? Promises, outcomes and conditions

ABSTRACT This paper analyses the ‘democratization of finance’ or the promise that all households can make money and/or manage risk by buying appropriate financial services products. It does so by exploring the reasons for discrepancy between what is promised and what can be delivered. Our analysis starts from the economic promises and political pitches for the democratization of finance since the early 1990s and the corollary emphasis on promoting mass financial literacy. The article then identifies three key social preconditions which must be satisfied before the promise is delivered. Evidence and argument from the UK and US suggests that these conditions are not met because the context is confusing, individuals lack calculative competence and products are opaque. Under these conditions felicitous outcomes are uncertain for existing middle class savers and very unlikely for lower income groups. A concluding section relates this analysis to the cultural economy literature and to the politics of social security versus individual responsibility.

Reconceptualizing financial innovation: frame, conjuncture and bricolage

Abstract This article argues for a reconceptualization of financial innovation which, as culprit and victim of the current crisis, is now damned by those who once praised it. But what is financial innovation? The dominant answers from mainstream finance and social studies of finance share variations on a rationalistic view whereby financial innovation is about improving markets or at least extending the sphere of rational calculability. Because improvisation is more important than the dominant perspectives can admit, this article proposes a new concept of financial innovation whose three main elements – frame, conjuncture and bricolage – are indicated by the title of this article. The importance of this problem shift is that it highlights the inherent fragility of this type of intermediary-led financial innovation where things will often miscarry and highlights the need for a more radical rethinking about policy responses to the financial crisis that began in 2007.

New actors in a financialised economy and the remaking of capitalism

The term capitalism comes with a great deal of anachronistic, non-reflexive, non-deconstructed baggage. The ‘c word’ evokes the idea of a reified system with an immanent inner principle so that capitalism is a system unified for Marxists by the imperatives of extracting surplus value or unified for political economists by the institutional forms of mobilising capital and labour for production. Such notions imply a singularity behind multiple expression and held the promise that capitalism can reach structural stability as, for example, in a Marxist regime of accumulation or an institutional configuration such as a national model with economic performance correlates. Thus, the Regulationists have for a generation waited for the restoration of coherence. This perhaps misses the point about capitalism and more especially about present-day capitalism, which we might call 20/ 21 capitalism to distinguish it from the range of historical predecessors. The distinguishing general feature of capitalism is its mobility and resourcefulness because, as the historian Fernand Braudel observed, capitalism is often sick but never dies. In the present day, this mobility in 20/21 capitalism works through processes of redistribution and relocation which are powerful, variably articulated and often misunderstood or undisclosed, as we can see if we consider the role of finance and financialisation. If our object is the remaking of 20/21 capitalism, it is hard to avoid the supposition that finance is an important driver of its mobility and resourcefulness as we survey the whole period since the 1970s and the breakdown of BrettonWoods. Let us begin by summarising three inescapably obvious and already familiar developments. First, financial liberalisation and deregulation, combined with digital technology and falling costs of information, led to a huge expansion of scale and scope New Political Economy, Vol. 12, No. 3, September 2007

Misrule of experts? The financial crisis as elite debacle

Abstract This paper is about knowledge limits and the financial crisis. It begins by examining various existing accounts of crisis which disagree about the causes, but share the belief that the crisis represents a problem of socio-technical malfunction which requires some kind of technocratic fix: the three variants on this explanation are the crisis as accident, conspiracy or calculative failure. This paper proposes an alternative explanation which frames the crisis differently as an elite political debacle. Political and technocratic elites were hubristically detached from the process of financial innovation as it took the form of ‘bricolage’, which put finance beyond technical control or management. The paper raises fundamental questions about the politicized role of technocrats after the 1980s and emphasizes the need to bring private finance and its public regulators under democratic political control whose technical precondition is a dramatic simplification of finance.

Is the stock market a disciplinary institution? French giant firms and the regime of accumulation

The French presidential election of 2007 was widely represented as a contest between left and right visions of defending or reforming the French social model, especially the compromise between labour and capital and including a 35-hour limit on the working week. The centre-right’s Nicolas Sarkozy presented the second round run-off as a choice between ‘two ideas of the nation, two projects of society, two systems of values and two conceptions of politics’. This dichotomy was partly sustained by different views of finance. The socialist challenger Ségolène Royal spoke out against ‘France in the power of money’ and argued the challenge was to ‘make human values win over financial ones’. We would agree that the second-round candidates of 2007 did offer French voters some kind of national choice, blurred in the usual way by competition for centrist voters and uncertainty about what the centre-right could deliver, but we would challenge the assumption, explicit in Royal’s rhetoric, that the forces of financialisation and globalisation are external, alien and threaten to undermine France. Against such views, this article presents evidence which shows that, after the early 1990s, French giant firms used stock market finance to expand internationally so that they can now use their acquired US and UK operations to keep things going in France. Behind these specific issues about the French case are larger general questions about whether the stock market is a disciplinary institution. The political and cultural economy literature on shareholder value and financialisation after the late 1990s started from the premise that the stock market was a disciplinary institution because, insofar as giant companies ‘destroyed value’ by failing to deliver adequate profitability, their managers would increase distributions or be disciplined by being sacked and/or forced to change strategy. This has been complicated by subsequent argument about the nature of the corporate response in the USA and UK. In the US case, authors like William Lazonick and Mary O’Sullivan influentially claimed the mechanical corporate response was ‘downsize and distribute’, which punished labour and rewarded capital. Others have argued that this thesis New Political Economy, Vol. 12, No. 3, September 2007

Ownership matters: private equity and the political division of ownership

This article returns to the issue of how ownership matters. It does so by developing a critique of the ‘advantage-value-return’ framework of assumptions about value creation from the product market, which are recurrent in resource based strategy and many other discourses that highlight what managers can do and the variable governance of management by owners. It then uses a case analysis of private equity and presents empirics which show how the financier general partners capture value so that general partners are enriched regardless of the performance of their investment funds. While private equity publicly claims to represent ownership with control for strategic decision making and operating efficiency, the undisclosed generic business model is the control of ownership through constructing a hierarchy of ownership claims for debt and equity suppliers in the capital market. Before or after the financial crisis that began in 2007, what matters is the position of the general partner as first among owners, not the motives, identity and actions of managers or the different suppliers of debt and equity.

Hedge funds as 'war machine': Making the positions work

The paper criticises current metaphorical characterisations of hedge funds as either trader/arbitrageurs or speculator/gamblers. We argue that these two different characterisations share a definition–identity–outcome frame within which hedge funds are separate and distinct from other financial actors, and engaged in an activity of buying and selling assets with ‘real’ and fixed risk/return characteristics. To break with this frame, our article makes two discursive moves. First, it counters metaphor with analogy by replacing the metaphor of buying and selling with the analogy of war, drawing on Deleuze and Guattaris concept of ‘war machine’. Second, it combines the military analogy of war with our own political and economic concept of conjuncture to emphasise the relevance of space and time in understanding hedge fund practice and performance. These two moves open up a different approach which highlights the interconnectedness of hedge funds with other financial actors, and the increasing difficulty of distinguishing hedge funds from other financial and non-financial companies who now engage in combat using identical strategies. The techniques of shorting and leveraging are presented as weapons not tools because hedge funds are not just active traders, but active manipulators of those trades, when the goal is to ‘make the positions work’. We conclude, however, that this strategy becomes more difficult on new terrain as the economic conjuncture shifts from excess liquidity to credit crunch.

Stressed by choice: A business model analysis of the BBC

This paper aims to explain the recent defensive strategy of downsizing at the BBC. The paper rejects the analysis of both industry practitioner and neoclassical economics academic critics who represent the corporation as an all-powerful, abusive player in a market and instead develops an alternative concept of the business model, which focuses the pressures of financial viability and stakeholder credibility to explain the restructuring. We argue that the BBCs business model is stressed because it struggles to deliver what key stakeholders want and expect from the corporation, from a pot of revenue that is limited by regulation. The BBCs problem is compounded by demands for more programming hours following its move into digital and by the increasingly formalized demands of regulators on behalf of an absent consumer. The paper concludes that without reflexive, business-model-centred regulation, it is likely that the BBCs business model will become unsustainable.

Not Enough Money: the resources and choices of the motoring poor

This paper helps to develop the social aspect of a new agenda for automobile research through focusing on motoring expenditure in the UK by poor households. It moves the social exclusion debate on by going back to Rowntrees 1901 survey, which established that poverty entailed not having enough resources to meet the needs of the household. Rowntrees analysis of primary and secondary poverty is updated here through the focus on the resources and choices of poor households, which incur significant motoring costs as the price of participation. Statistical sources and interviews in Inner and Outer London are used to explore these issues and the analysis shows that the story is one of constraint, sacrifice and precariousness. Car ownership imposes large costs on poor households, which limit other consumption opportunities. Labour market participation may depend on such sacrifices where public transport and local employment opportunities are limited. This locks poor households into a precarious cycle whereby the car is necessary to get to work and the job is necessary to keep the car on the road. Using Rowntree by analogy, the paper argues that, as well as improving public transport provision policy makers must also recognise the problem of poverty.

How) Do Devices Matter In Finance

This article distinguishes between different concepts of device. In traditional English usage, as in the Foucauldian or Deleuzian concept, devices exist in a context of power, opportunism and force. Through argument and evidence about hedge funds and financial innovation, we argue that this kind of non-Callonian device is ubiquitous in finance so that the idea of device can be part of a much more political analysis of the present-day capitalism. Capitalist devices are not neutral tools with fixed uses and predictable results because they vary in purpose and effects from one context to another. This is the point Deleuze makes in the context of nomadic war machine when he explains how a tool can be a weapon; and it is an issue in the present-day capitalism where we can ask whether politically strong financial elite have turned tools like short-selling into weapons that may harm other stakeholders in the economy. This article also connects devices in finance and the process of innovation with the desires of financial elites who enrich themselves and are negligent about the costly consequences of their bricolage for society. In this political frame, financial devices are products of a banking system that works for itself generating fees and bonuses and incidentally recreating pre-1914 levels of income inequality of historic proportions. This goes unchallenged because a democratic deficit allows financial elites to socialise losses and privatise gains.