Post-GFC fantasies

Martijn Konings, The University of Sydney

Craig Calhoun and Georgi Derluguian (eds) Business as Usual: The Roots of the Global Financial Meltdown, New York, New York University Press, 2011 (312 pp). ISBN 9-78081477-278-2 (paperback) RRP $27.95.

Kent Osband Pandora’s Risk: Uncertainty at the Core of Finance, New York, Columbia University Press, 2011 (272 pp). ISBN 9-7802311-5172-6 (hard cover) RRP $68.95.

The British newspaper The Guardian recently published a fascinating extract of businessman and philanthropist Richard Branson’s latest book, Screw Business as Usual. The book chronicles his

seven-year journey towards realising that, while business has been a great vehicle for growth in the world, neither Virgin, nor many other businesses, have been doing anywhere near enough to stop the downward spiral we find ourselves in; and that in many cases, as demonstrated by the recent financial crises, we have actually been causing that spiral to turn ever faster.

Fortunately, however, Branson doesn’t just criticise his previous ways; he also offers a solution: ‘Capitalism 24902’, a new way of doing business where ‘every single business person has the responsibility for taking care of the people and planet that make up our global village, all 24,902 circumferential miles of it’ (Branson 2011). In the new order, the alleviation of capitalism’s unwanted side effects is no longer based on selective subventions by a small group of fabulously wealthy individuals, but on the willingness of all business leaders to assume responsibility for the world’s welfare.

What fascinates me about Branson’s proposal is the way it combines genuine critical insight into the limitations of philanthropy with an unshakable faith in the ability of what Bishop and Green (2009) call ‘philanthrocapitalism’ to eradicate the problems and oppressions traditionally associated with capitalism. There is a curious absence of a reflexive pause between finding fault with the old plan and a leap of faith into the new, oddly similar plan. It is tempting to ridicule the logic of Branson’s conversion, but it is hard to overestimate the traction that such ideas enjoy both among the public at large and in intellectual circles. One can scarcely doubt Branson’s ability to organise any number of think tanks in support of Capitalism 24902 and populate them with prominent academics—and he probably wouldn’t even have to pay them. Seen from this angle, Branson’s intervention illustrates the paradoxical logic that shapes contemporary political debate: awareness of the inability of markets to solve social problems does not motivate a more incisive analysis of their operation but primarily generates a range of fantasies about their as yet untapped potential.

This logic is, of course, not always explicit: it commonly involves the tendency to address problems by proposing variations on an economic logic of which we have only a very limited understanding. The aftermath of the GFC has seen a welter of proposals to ‘get finance right’ (see, for example, Warwick Commission on International Financial Reform 2009, Baker 2010). Such initiatives have had remarkably little to say about the specific character of the crisis. They lament excessive levels of debt, advocate the need to re-regulate the financial sector and advance proposals to redress international imbalances—all rather generic issues that could have been formulated before the GFC. It is almost as if the very event that prompted the need to rethink finance is left out of consideration. And so the discontent with capitalism has resulted in an endless series of fanciful proposals that seek to compensate for or neutralise capitalism’s deleterious effects but do not offer much understanding of the mechanisms responsible for those effects. Indeed, financial institutions are routinely ascribed capacities for egalitarian inclusiveness that the crisis seems to have demonstrated they lack.

This is especially true of my own field, international political economy, which has seized on the crisis to brand itself as a policy-relevant discipline but—important exceptions notwithstanding (Schwartz 2009, Langley 2010, Nesvetailova 2010)—has not much advanced our knowledge of the mechanisms that brought on the crisis (Cohen 2009). Although the crisis has shown that our lives have become entangled with the dynamics of finance in ways that we were entirely unaware of, interest in documenting these mechanisms has been surprisingly limited. To be sure, one of the central arguments of recent work in political economy has been that modern finance is no longer ‘haute finance’ but has become deeply ‘social’, driven by conventions and ideas. Finance is understood as ‘performative’: what we believe about money shapes how it works. But little has been done with this idea: it has quickly been reduced to the idea that ‘norms matter’, which legitimates debates that are constrained by a narrowly normative concern with the role that finance ‘should’ play.

Modern finance
has become deeply ‘social’, driven by conventions and ideas.

Such tendencies are evident in Business As Usual: The Roots of the Global Financial Meltdown, the first in a series of volumes on the GFC edited by Craig Calhoun and Georgi Derluguian. A world-renowned sociologist like Calhoun is of course fully aware that the dynamics of finance crucially involve conventions and narratives, but the book is a prime example of how one can ‘know’ this without doing much with it. In his introduction to the series, Calhoun writes that

the crisis is a matter of interpretation. We need to see it from multiple angles. This doesn’t mean that all interpretations are of equal merit, and it certainly doesn’t mean that there are not definite real-world events involved. … But the crisis has many dimensions and can be seen from different angles in different time-frames (p. 18).

This is a little insipid: the concern with narratives and ideas appears to be driven less by an aim to clarify the causal mechanisms that were at the root of the crisis than to evade such questions. That is certainly the sense that one gets as one reads more of the book.

That said, Business As Usual is one of the better contributions to the GFC literature: it offers a range of eloquent essays written by some of today’s best-known social scientists, including David Harvey, Immanuel Wallerstein, Nancy Fraser and Manuel Castells. Authors tend to draw on their previous work to give distinctive interpretations of the crisis, and Calhoun and Derluguian have woven this together in a book that presents a particular perspective on the crisis. At times, the synthesis is a little awkward; when, for example, the editors claim that ‘Drawing on Marx, but challenging most conventional Marxism, Harvey shows that capitalism works in part by repeatedly challenging transcending, or working around limits, barriers to growth’ (p. 46), it is hard to suppress the feeling that they seek to downplay the Marxist commitments of Harvey’s work for their own purposes. But for the most part the book flows and is coherent. It opens with essays that situate the neoliberal era in the longer systemic trends of capitalist development; then moves on to essays that foreground the social, cultural and political aspects of the crisis; and ends with reflections on world-historical and geopolitical implications.

But it’s all a little too smooth: it is hard to pin down exactly what distinctive insight the book offers. Calhoun’s introduction to the series deftly lays out the narrative that the book as a whole traces: the crisis of the 1970s, the rise of free market policies, the bubble economy these policies ushered in at the expense of the foundations of real economic activity, the destructive social effects of neoliberal economics, the decline of responsible politics, international shifts in economic power and the political responses they triggered, and finally the crisis and the enduring uncertainty that we are experiencing in its aftermath. But this is a story that has been told many times before. Where one is hoping to be presented with incisive analyses, Calhoun and Derluguian have recourse to tired old formulas: ‘Neoliberalism and financialization … produced a form of capitalism based in many ways on the proposition that the social didn’t matter. What mattered were individual property owners and economic transactions among individuals’ (p. 47). And so the question becomes ‘how rich and middle-income countries may reorganize to bring the social back into central consideration’ (p. 48). Such formulations have a strongly ‘Polanyian’ flavour: they suggest an interpretation of the crisis as driven by the tendency of markets to ‘disembed’ themselves from their social context, and the problem is to identify ways to ‘re-embed’ these markets. This emphasis on the disarticulation of the economic and the social has some rhetorical use, but is not much help in explaining a crisis that is above all marked by the new ways in which the social and economic dimensions have become interdependent.

It is hard to pin down exactly what distinctive insight the book offers.

Nancy Fraser’s chapter is worth some more explicit consideration, as it elaborates a Polanyian perspective in detail. Developing her earlier work on the material and symbolic aspects of capitalist oppression, she reworks Polanyi’s conceptualisation of the logic of capitalism as governed by the tension between the economic and the social. She argues that Polanyi did not sufficiently recognise that the social sphere is characterised by its own forms of oppression and that markets can serve to liberate people from traditional ties. To remedy this problem, she proposes an additional emphasis on the role of emancipation. According to Fraser, then, the logic of modern capitalism is governed not by a ‘double movement’ but by a ‘triple movement’. It’s a watertight philosophical construction, but the reader is left wondering what the point of it is. After all, the contemporary revival of Polanyi’s thought is predicated on precisely the idea that ‘the social’ offers progressive and emancipatory possibilities that ‘the economic’ does not, and that it is useful to think of these as countervailing logics—and this assumption remains critical to Fraser’s perspective. That is, her analysis maintains a distinction between the economic and the social that does not allow us to clarify the unexpected ways in which their interdependence has given rise to new forms of oppression and exploitation.

Ultimately, Business as Usual reinforces the sense that if one wants to learn something new about the pre- or post-GFC world, social scientists continue to disappoint. From this angle, Kent Osband’s Pandora’s Risk: Uncertainty at the Core of Finance makes for an interesting read. Osband is an economist who has spent decades working in the financial markets. The book is published by Columbia University press in their Columbia Business School Publishing series, which also features such titles as The Aid Trap: Hard Truths about Ending Poverty (by R. Glenn Hubbard and William Duggan). So I checked any hopes of being offered an inspiring political analysis or vision at the door. Nor is Osband a particularly strong writer: the sentences and paragraphs are short, and awkward attempts to bring in Greek mythology merely serve to underline the absence of literary qualities. But, such complaints notwithstanding, Osband’s book actually offers an exciting range of new ideas.

The analysis is focused on the ‘performative’ dimension: Osband’s central claim is that the most important questions about finance are not about risk as such, but about our beliefs about it and the way we revise these in the light of new information. This take on the role of risk and uncertainty is refreshing. One of the central arguments of recent social-scientific perspectives on financial life is that the tendency of markets to frame the world in terms of quantifiable risk ignores the existence of a more fundamental form of risk; that is of genuine uncertainty that defies all rational prediction. Osband contends that uncertainty exists not as something ‘out there’ (that is, as a few ‘black swans’ (Taleb 2007)—those extremely improbable events that financial markets are not set up to deal with) but is generated through markets’ changing modes of risk creation: as we learn to deal with certain kinds of risk, the unintended consequences of our strategies produce new sources of uncertainty that we initially have little grip on. This leads him to an interesting critique of existing regulatory structures such as the Basel Accords (which impose capital requirements on banks on the basis of the risk associated with different categories of assets) that conceptualise risk as something external to financial intermediation and so tend to ignore the financial system’s own distinctive sources of volatility. It is not that the Basel Accords and other regulatory initiatives don’t do enough (as is the typical complaint), but rather that they are concerned with the wrong things (p. 64).

Osband also puts the notion that finance is ‘the ultimate confidence game’ (p. 15) to use in other ways. He draws attention to the self-reinforcing characteristics of monetary standards (such as the central position of the dollar in the international financial system) (p. 23) and the fact that finance often draws strength from its own malfunctioning (p. 20). He illustrates this with reference to the Lehman crisis, which many political economists took as the final blow to a US dollar that had been under pressure for several years. Osband convincingly shows us that events were driven not by ‘economic fundamentals’ but by imperatives of debt roll-over: as the crisis reached new heights, the US dollar came to serve as a safe haven, providing investors with liquidity regardless of their specific objectives and concerns (p. 19).

Osband’s take on
the role of risk and uncertainty is refreshing.

Osband’s analysis of financial life is instructive in other respects as well. Whereas critical social scientists, such as the contributors to Business as Usual, often lament the speculative and unproductive character of modern finance, he argues that the main reason for the stupendous volume of financial trading is the need for the constant rebalancing of portfolios in the absence of an absolute, unambiguous standard of value. And he hints at an interesting perspective on the policies that governments deployed during the crisis, using the concept of ‘quasi-sovereign debt’ (p. 47) to emphasise that ‘too big to fail’ policies don’t just suddenly appear on the scene during a crisis but are embedded in the ways finance has penetrated the infrastructure of human life: to the extent that financial structures have come to serve as the basis of social life at large, political institutions become bound to maintaining them.

Osband’s book is full of mathematical formulas. Although he is keenly aware that these provide little quantitative or statistical precision, this doesn’t lead him to adopt a more instrumental approach to their use. It seems that the main reason for his commitment to formalising things is that it’s just what professional economists do. The book would have been more interesting if Osband had dispensed with the formulas and told us more about the substantive implications of his often intriguing insights and intuitions. That is, the book could have benefitted tremendously from a more explicit confrontation with the social-scientific categories employed by books such as Business as Usual. It is somewhat unfair to criticise an author for not being more conversant with disciplinary criteria and categories not their own, but the relevance of these considerations are underlined by Osband’s commitment to quite naïve brand of libertarianism: ‘Financial markets represent social imagination. They distill what we believe about the future, and what we believe others believe. We need to respect them and give them room to play’ (p. 89). It is precisely such variations on the fantasy of the invisible hand that provoke critical social scientists. And it is to counter such unthinking notions of the self-regulating market that critics point to the tendency of markets to erode social cohesion and weaken public institutions. Their concern with the tension between the social and the economic is allied to a political project that aims to re-embed and re-regulate markets; that is, to subordinate them again to social considerations and political priorities. What gets lost in the intellectual crossfire is a focus on the concrete patterns of human connections and practices that are the stuff of real financial markets. And this leaves us to resort to all manner of fantasies about what markets are and how they might be used.


Baker, D. 2010, False Profits: Recovering from the Bubble Economy, San Francisco, Berrett-Koehler Publishers.

Bishop, M. & Green, M. 2009, Philanthrocapitalism: How Giving Can Save the World, New York, Bloomsbury.

Branson, R. 2011, ‘How business as usual helped cause our economic problems’, The Guardian, 18 November [Online], Available: [2011, Dec 10].

Cohen, B.J. 2010, ‘A grave case of myopia’, International Interactions, vol. 35 no.4, pp. 436–444.

Langley, P. 2010, The Everyday Life of Global Finance: Borrowing and Saving in Anglo-America, Oxford, Oxford University Press.

Nesvetailova, A. 2010, Financial Alchemy in Crisis: The Great Liquidity Illusion, London/New York, Pluto.

Schwartz, H. 2009, Subprime Nation: American Power, Global Capital, and the Housing Bubble, Ithaca, Cornell University Press.

Taleb, N.N. 2007, The Black Swan: The Impact of the Highly Improbable, New York, Random House.

Warwick Commission on International Financial Reform 2009, In Praise of Unlevel Playing Fields, University of Warwick [Online], Available: [2011, Dec 10].

Dr Martijn Konings is Lecturer in the Department of Political Economy at The University of Sydney. His latest book, The Development of American Finance was published by Cambridge University Press this year.