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«Global Political Economy 1 IPEG papers in Global Political Economy is the official working paper series of the International Political Economy Group ...»

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IPEG Papers

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Global Political Economy

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IPEG papers in Global Political Economy is the official working paper series of the

International Political Economy Group (IPEG) of the British International Studies Association

(BISA). The working paper series is intended to provide a forum for debate and discussion.

All of the papers published in the series have been subjected to a mild refereeing process to

maintain quality. As with all working paper series, the papers published here do not necessarily appear in their final form. As such, their appearance as an IPEG paper does not preclude revision for submission to another forum. IPEG papers in Global Political Economy are only available on-line to all members of IPEG, BSIA and other visitors to our website.

While these papers are free to all, we nevertheless require that when drawn upon for the purposes of research and argumentation they are acknowledged in the appropriate manner.

Rorden Wilkinson, IPEG Convenor February/March 2003 IPEG Papers in Global Political Economy No. 5 2 The Everyday Life of Global Finance Paul Langley Lecturer in International Politics Politics Subject Group School of Arts and Social Sciences Northumbria University Newcastle-upon-Tyne NE1 8ST United Kingdom Tel: +44 (0)191 227 4481 Email: paul.langley@unn.ac.uk 3

THE EVERYDAY LIFE OF GLOBAL FINANCE*

A series of high profile controversies in recent years have raised serious questions of the UK financial services industry. The endowments debacle drew attention to the incapacity of such investments to consistently meet the obligations arising from mortgage borrowing; the Equitable Life affair in late 2000 highlighted the fragile position of insurers; and reports into the state of occupational pension schemes in mid-2002 fed considerable uncertainty as to the adequacy of existing arrangements for funding retirement. It is clearly no coincidence that these controversies have arisen amidst the daily volatility and gradual downturn in global stock market prices. The activities of institutional investors and fund managers ensure that our everyday mortgage, insurance and pension practices have become increasingly bound up with the performance of global finance.

As a field of study, International Political Economy (IPE) has established itself as one of the key academic avenues for inquiry into global finance. IPE scholars have done much to begin to develop an alternative understanding of global finance to that offered by the dominant neo- liberal mode of knowledge. Yet it is the contention of this paper that, like the neo-liberal common sense present in mainstream economics, technocratic circles and the business press, the field of IPE has tended to overlook the ties that bind global finance and our everyday credit practices.1 Leyshon and Thrift (1996) highlight a not dissimilar trend in research into the geography of finance, whereby concern with what they describe as ‘the big picture’ of global finance remains by and large divorced from research into domestic, retail finance. For Ron Martin (1999a: 5), the key task becomes to ‘span the different interlocking economic geographies of money’. Global finance is, then, typically represented as existing ‘out there’ and somehow separate from our everyday lives.

It is the aim of the paper to offer some initial reflections on the everyday life of global finance and to begin to open up a pathway for further research in the field of IPE. In the first part of the paper I reflect upon a pair of popular dichotomies that, taken together, have been central to the representation of global finance as a social space that is both separate and discrete from our everyday saving and borrowing practices. Dichotomies drawn between the financial/‘real’ economies and the global/national economies serve to bracket out and devalue our everyday mortgage, insurance, pension, consumption and investment practices in our understanding of global finance. In the second section, I consider the material, institutional and discursive significance of everyday practices to global finance. With reference to illustrative examples from pension and consumer credit practices primarily drawn from the US and UK, the restructuring of everyday practices begins to be revealed as an essential constitutive feature in dynamics of qualitative change (disintermediation, liberalisation, and financialisation) that are central to the emergence of global finance. It is not simply that global finance has implications and consequences for everyday credit practices, but that global finance in part rests upon the restructuring of everyday life.

In the final section of the paper I turn my attention to the implications for IPE of such a revaluing of the everyday in our understanding of global finance. Implications are identified that are suggestive of a series of new directions for IPE. First and most obviously, there is a need for greater attention to be paid to the restructuring of those everyday practices that have * A version of this paper was presented at the panel on ‘Global Finance in the Everyday’, British International Studies Association Annual Conference, London School of Economics, December 2002.

1 Some notable exceptions in IPE include Adam Harmes (1998; 2001), Stephen Gill (1997), and Richard Minns (1996a, 1996b).

4 tended, to date, to be regarded as largely inconsequential to global finance. Second, the subject matter of global finance should be conceptualised in the first instance not as international capital flows, but as sets of global credit relations and practices that extend within and across state-societies. Third, the emergence of global finance is not, contrary to the story told by much current IPE research, simply a process driven by the interests and powerful collective agency of states and financial capital. This neglects to recognise the manner in which global finance has also been constituted through the restructuring of everyday credit practices. Finally, IPE scholars are encouraged to reconsider their understanding of how global finance is governed. The current focus of research upon the authority exercised through the principal state, inter-state and non-state institutions should be broadened to consider the discursive and everyday features of global financial governance.





The Social Space of Global Finance World finance has undergone a transformation that most observers date as beginning in the early 1970s and accelerating through the 1980s to the present. As with so many other areas of social life, the transformation of world finance has tended to be captured under the rubric of ‘globalisation’. International organisations, national governments, financiers and the business press are all apt to further a neo-liberal mode of knowledge of change, suggesting that contemporary finance has been marked by the unprecedented emergence of a genuinely integrated, twenty-four hour global marketplace – that is, so-called ‘global finance’. Powered by innovations in information and telecommunications technologies and the assumed spread of universal market rationality, the inference is that the twenty-four hour global marketplace for finance is ‘spaceless’ as it follows the sun from East to West. Whilst those creating, allocating, buying and selling financial instruments may be a very great distance from each other, they effectively behave as if they occupy the same market space.

As the work of Henri Lefebvre (1991) serves to reminds us, this portrayal of the space of global finance is of considerable political significance. What Lefebvre (1991) terms the ‘representation of space’ of global finance acts as an important anchor point through which the dominant discourse and understanding of global finance is articulated, a ‘tool in the exercise of control and authority’ (Abbott 2002:164). The dominant portrayal of global finance as ‘spaceless’ (i.e. not territorial or able to be mapped) actually serves to endow global finance with particular qualities as a socially constructed spatial context. Global finance becomes a discrete spatial entity that is ‘out there’ somewhere, beyond the spaces of territory and everyday place. Drawing on Palan (1999: 59), global finance as a spatial entity is not subject to ‘physical closure, which implies physical restrictions on the movement of people, goods, capital, and ideas’, but to ‘imaginary closure, or the processes that lead subjects to believe that they inhabit a closed entity’. For state policy-makers and representatives of the principal international organisations, these assumed spatial characteristics have enabled global finance to be portrayed as a powerful exogenous force.

Neo-liberal policies of financial orthodoxy and structural adjustment are justified and legitimated, as the exogenous force of global finance is beyond control and does not permit alternatives.

The representation of global finance as occupying a bounded and discrete space has been partially challenged by research in IPE and across the social sciences. This research stresses the continuing importance to our understanding of global finance of the persistence of both diverse national financial systems (e.g. Moran 1991; Vogel 1996) and key financial centres as organisational spaces (e.g. Sassen 1999; Leyshon & Thrift 1997; Germain 1997). The result has been a considerably more nuanced reading of change that challenges the neo-liberal image 5 of the emergence of a smooth and seamless global market for finance. Despite these interventions, however, there is still clearly a sense in which global finance is represented in IPE inquiry as ‘out there’, bounded and differentiated from other spaces. Of crucial importance here would appear to be the drawing of two imagined dichotomies – between the financial/‘real’ economies and the global/national economies - that, taken together, fill the space of global finance with particular meanings. Global finance becomes a discrete space that is defined as much by what it is not – it is not ‘real’ or national – as by what it is deemed to be. Significantly, both dichotomies figure in the representations of the space of global finance present in the neo-liberal common sense and in IPE research.

The financial/’real’ economies dichotomy The drawing of an imagined dichotomy between the financial and ‘real’ economies is clearly not new. Consider, for example, the way in which the dichotomy finds its expression in the long standing division of Wall Street from Main Street in characterisations of the US economy. Indeed, such disaggregating of economy draws on a long lineage of thought that stretches back to Aristotle’s distinction between the home economics of ‘oikonomia’ and the superfluous economics of ‘chrematistics’. Yet the finance/’real’ economies dichotomy tends to be especially prevalent in representations of contemporary global finance. The dichotomy is a common feature of different long-standing approaches to political economy that, when brought to bear in our understanding of global finance, seems to find particular relevance.

The image of finance as separate from the ‘real’ economy is present in neo-liberal political economy as the dominant mode of knowledge of global finance. Here the key assumption that establishes this dichotomy is that finance is the use of holdings of money (as a store of value) in order to facilitate ‘real’ investment and exchange. Finance therefore serves to automatically equate saving and investment at a market-clearing rate of interest and maintain macroeconomic equilibrium (Guttmann 1994:28). The current privileging of ‘shareholder value’ by corporate managers is one particular expression of this understanding of the relationship between finance and production, with the stock market coming to be identified as the key mechanism of capital allocation.

The assumed automatic and thereby near-mystical capacity of finance to create capital for ‘real’ investment helps to endow finance with an ‘unreal’ set of characteristics. The pace of recent innovations in financial instruments, the transformation of finance into computerised information flows, and the sheer complexity of transactions would seem to justify the belief that finance is ‘unreal’ and amazing when compared with the ‘reality’ of everyday economic life. As Cox (1996: 181) highlights, differences in the perceived experience of social time the mundane and relatively slow pace of the ‘real’ economy and the rapidity, volatility and speed of finance – does much to impart finance with this air of ‘unreality’. Only experts and financiers appear able to populate this other, faster world. Under neo-liberal readings, financiers become the swashbuckling buccaneers and rocket scientists of our age. Only a web of recent and hugely influential theories from Economics - including the likes of portfolio theory, Modigliani-Miller, the efficient markets hypothesis, and asset pricing models - appear able to explain how finance mysteriously, yet efficiently and rationally, optimises the allocation of capital for ‘real’ investment.

Whilst highlighting that the relationship between finance and the ‘real’ economy is not simply a positive one, the Marxist and Keynesian traditions of political economy tend to share and reinforce this dichotomy. For Marxist-derived analyses, finance becomes, at particular historical junctures, the speculative and parasitical realm of accumulation that is distinguished from the more fundamental sphere of production (e.g. Altvater 1997; Amin 1996). Important 6 here is the effective triumph in Marxist theorising of Hobson’s use of the concept of ‘finance capital’, developed with reference to Britain, over that of Hilferding. For Hilferding, ‘finance capital’ referred not only to finance, but to the fusion of industrial and financial capital during

the establishment of German monopoly capital at the turn of the last century (Brewer 1980:



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