Karl Kraus observed that psychoanalysis is the ‘problem for which it claims to be the solution’. The same might be said of finance today. This is not simply to condemn financial institutions as deceptive, but to try and focus on the precise ways in which their power is exercised and why their stranglehold is so difficult to escape. What is suffocating about financialisation today is that hovers on both sides of the public-private divide. When the reach of the market extends further into the social or public spheres, the financial sector benefits. When governments then insist that certain public principles or regulations must nevertheless be up-held, the financial sector tends to benefit even more. This can be witnessed across various critical policy issues today, from housing, to the fate of the Euro, to higher education.

Paradoxes of neoliberalism

In his book Never Let a Serious Crisis Go To Waste, Philip Mirowski explored the various techniques, tactics and strategies through which the ‘neoliberal thought collective’ succeeded in retaining power over the course of the global financial crisis of 2008-09. One of his most powerful analyses in that book concerns the split between the broadly ‘Austrian’ neoliberal response to the banking crisis and the ‘monetarist’ neoliberal response.

The ‘Austrian’ response to such crises is to let them play themselves out, allow inefficient firms to go bankrupt, bad debts to be written off, and wait for the system to cleanse itself, no matter how painful that process may be. Underlying this is the libertarian impulse that capitalism can only be damaged by attempts to inject some sense of the public interest: incentives get skewed, bad institutions are sustained, moral hazard is created. Only if the economy can be a space of purely private interests can the market work effectively. Hence, Wall Street should have been left to gradually purge its own mistakes.

The ‘monetarist’ response, as Mirowski analysed it over 2008-09, involves an active role for the state in securing the viability of financial markets, through the creation of more money and the underwriting of collective risks. Technocracy (primarily of central banks) moves to the fore in managing the crisis, reinforcing the role of agencies that are public yet not democratic.

This, of course, is the variety of neoliberalism that actually won the day during the banking crisis. The Austrian response is simply too abstracted from the realities of politics, in which governments must respond to short-term social and economic demands. But crucially, Mirowski argues, the opposition between the ‘Austrian’ and the ‘monetarist’ wings of neoliberalism allows the latter to position itself as ‘moderate’ and committed to the ‘public interest’, if only because it involves doing something at all. This way, the entire spectrum of political responses, from left to right, could be shifted into narrow terrain that is acceptable to neoliberals.

Mirowski pinpoints one manifestation of a broader paradox within the logic of neoliberalism, from which financial institutions repeatedly benefit. As I argue in The Limits of Neoliberalism, the neoliberal vision of a society purely organised around the logic of private incentives is only achievable through the deliberate designs and interventions of public agencies. This paradoxical state of affairs necessarily opens up residual political and social questions about things like equity, inequality and inclusion, that ironically produce even greater opportunities to the financial sector. The inability of contemporary states to simply let the market rip, in some proto-Austrian fashion, ends up being a gift to the banks.

Exploiting ambiguity

This was demonstrated most dramatically by the sub-prime crisis. Plainly that crisis was enabled and exacerbated by the presence of derivatives and securitization, which occurred well outside of the purview of the state. And yet the impetus to extend mortgage credit further into society was a political one, in which the boundary between public and private interests and risks was more blurred as a result. In a context where certain financial institutions (in that case, Fannie and Freddie) are striving for public goals, but using instruments that can’t adequately calculate such things, the Austrian critique of the state becomes valid. The contradiction of pursuing a socially inclusive housing policy via the means of private finance and private ownership eventually exploded. But this kind of ‘third way’ thinking offers lucrative opportunities to the financial sector at each stage along the journey.

The same is now well underway in the case of higher education. A wholesale privatisation of the UK’s higher education system is scarcely possible to imagine: the short and medium-term disruption would be so great, as to be politically and publicly unthinkable. Concerns about access and research integrity do not disappear, even within a government committed to austerity. Instead, the combination of fiscal retrenchment with sustained political commitment to ‘fairness’ offers the perfect cocktail for financialisation: financial markets become integral to the delivery of ‘social’ goals, making it unclear precisely where the boundary between public and private risk lies. The hangover of liberal or social democratic political commitments, in an age that deems them no longer affordable, is the fertile territory into which financial re-engineers arrive with gusto.

The political insistence that the Euro be defended at virtually all costs represents another example. Once again, there is the paradox of a political venture masquerading as an economic one, with financial speculators able to exploit the gap between appearance and reality. Politicians are forced into the position of technocrats, speaking a language that is neither politically nor economically credible, that the currency will not change because they say it won’t. Bond-holders and currency traders are free to make of these pronouncements what they will.

In every case, finance exploits the ambiguity between collective and private interests. It preys on the social and political commitments that people make to one another, but are no longer able to deliver on. As Giovanni Arrighi argued in The Long Twentieth Century, financialisation is therefore always a symptom of waning hegemony, for it arises when states can no longer match political ambitions with economic power. Political rhetoric and promises outlives the economic capacity to fulfill itself, and finance plugs the gap, if only for a few years. Private finance kicks the can down the road for a short while.

In philosophical terms, financialisation expands in the aporetic space known as ‘rule utilitarianism‘. Norms, values and pledges, which hold intrinsic value for those who are party to them, are interrupted and manipulated by those who view them only in terms of their monetary possibilities. This is why the work of Chicago School ‘economic imperialists’ (calculating ‘human capital’, ‘social capital’, economics of law etc) is so important: it creates the pathway from moral to utilitarian logic. Nothing demonstrates this better than securitisation itself, in which one party’s promise to another party is converted into a product to be traded. The very capacity of society to cohere over time becomes something for speculators to bet on.

Disentangling the public

The challenge of combatting or reversing financialisation is that of disentangling the ‘political’ from the ‘economic’ once more. In relation to the Eurozone, the argument is made well in a new article by Jan-Werner Muller in the London Review of Books. “Instead of clinging to the fantasy of an apolitical union based on unchangeable rules that aren’t observed in practice,” he argues, “the countries of the Eurozone have to find ways to make their policy seem legitimate in the eyes of their peoples”. Of course this necessarily runs the risk of far greater divergence of national economic policy-making, including the likely revelation that there is very scarce social solidarity across national borders.

Technocracy is, in many ways, the institutional mirror of financialisation. It hovers in its own space, between the ‘political’ and the ‘economic’, elevating expert techniques to the level of constitutional procedures, and replacing constitutional procedures with expert techniques. ‘Rule utilitarianism’ is its guiding philosophy. The question, then, is also how might the reach of technocracy be squeezed?

Arguing that technocracy be re-politicised is comfortable territory, especially for those on the Left (and helps explains the rise of the populist Left in recent years). The harder question is how to envisage an economy not entangled with technocratic manipulation, both for better and for worse.