Two decades of 'financialisation' has left our economic and social institutions suffocated by the logic of investment and debt. To alleviate this burden, William Davies argues, a new wave of 'social law' is needed to support institutional innovation and spark hope.

In the years following the financial meltdown of 2007-09, the British centre-left has rediscovered its interest in the character of capitalism, as an interlocking set of social, economic and political institutions.1 This raises a number of tricky questions. How does a political movement influence institutions, beyond the limits of the state or policy as ordinarily understood? What will be the agents, individual or organisational, that will seek to carry out this influence or transformation? And what is an 'institution' anyway?

The Labour party is proud of its great institutional innovations of the past, with the NHS at the top of this list. Yet there is now a sense that fiscal constraints and problems of state legitimacy make such bold acts of governmental invention harder to countenance. Instead, there is a diffuse hope - shared by many on the right - that someone else, be it in business or civil society, might be sufficiently energised and capitalised to invent new institutions or influence the character of capitalism from within.

We need to take this hope seriously. However, we also need to think carefully about the obstacles which stand in the way of renewal and invention. This essay addresses these in a couple of ways. First, it considers the problem that has become known as 'financialisation', which, I suggest, represents a constant drag on efforts at social and economic renewal. The second perspective is historical: institutional innovation (such as in business and ownership forms) repeatedly runs into the problem that our economy has been formatted in certain ways, to privilege certain orthodoxies about how institutions must be structured. This ties us to the past, stifling prospects for renewal. The suggestion that I conclude with is that imaginative, entrepreneurial lawyers may be a critical ingredient in overcoming this but have been too often overlooked as sources of potential innovation.

Financialisation or politics?

In the words of Hannah Arendt, all politics takes place 'between past and future'. Decisions, protests, judgments, policy announcements, social movements and speeches occur against a backdrop of shared memory and historical institutions. But politics can only offer hope if it looks capable of inventing a new future. The political present is a moment of thrilling, sometimes frightening indeterminacy, save for when it is closed down or intentionally determined in some way.

Capitalism is more explicitly constituted by relationships between past, present and future. Its expansionary logic, which brings unmatchable levels of growth, is only possible because certain agents are able to, as it were, bring the future into the present. An entrepreneur insists that their venture will yield profits in the future, and wins investment on this basis. Financiers and insurers specialise in rendering the future mathematical, that is, in converting it into risks that can then be hedged, securitised and sold. Many of the pivotal institutions in a capitalist economy are those which determine how the future is to be represented, how its rewards are to be distributed, and what happens when plans go wrong. Like consumers eagerly awaiting the next iPhone release, the rest of us only find out what has been previously decided about the future when we eventually get there ourselves.

There is always, therefore, some tension between the historical rhythm of politics, in Arendt's inventive sense, and that of capitalist activity. If political hope consists in the sense that the future is as yet unmade, amenable to collective designs and plans, then capitalist institutions reserve such rights for select groups who view the future via the logic of investment. Wolfgang Streeck has recently suggested that, in the aftermath of the global financial crisis, an endemic tension between market logic and democratic logic is being resolved in favour of the former.2 Similarly, there are reasons to fear that the constraints that capitalist temporality imposes on political possibility are being ratcheted up to a suffocating level. The reason for this derives from the trends known as 'financialisation' that have afflicted the west, the English-speaking world in particular, since the 1980s.3

What distinguishes financialisation is the extension of the logic of risk and investment, which is instrumental in productive capitalism, to non-productive assets (such as houses) and forms of activity (such as education). In this way the future, in all its possibilities, is converted into a resource to be calculated, priced and exploited. Concepts and instruments initially dreamt up at the University of Chicago, such as 'human capital', are crucial in this extension of investment logic beyond the realms of work and production and into the crevices of everyday life. The flipside of this estimation is that individuals are expected to take on debt, secured against a mathematically modelled future.

Even if the term 'financialisation' is unfamiliar in mainstream political debate, its presence can be discerned in a number of recent political trends. One is the rise of intergenerational economic conflict, in which baby-boomers are accused of 'pulling up the drawbridge' of prosperity. This may be a clumsy representation of how inequality exists empirically, but it is a symptom of how financialisation corrodes our shared experience of time and, in the process, our shared political world. Due to the power of leverage in the housing market especially, people now feel divided by force of existential luck, regarding when they were born and when they got on the housing ladder.

Financialisation is also implicated in the sense of ideological stagnation that afflicts us today. The question of how and why neoliberalism survived the banking crisis has almost generated its own sub-genre of political-economic writing.4 To many, it seems extraordinary that our capacity for political, economic and intellectual renewal is so weak. This can only be explained by taking into account the logic of debt that ties together the past, present and future in a tight swaddle. All debt is a form of promise. A society that racks up promises, as Britain has done rapidly, greatly hampers its capacity to reshape its own future, instead finding itself tied to its past obligations. When it becomes too powerful, finance not only attacks democracy but progress too.

There is an institution within capitalist societies that is designed precisely to rescue progress from the weight of past obligations: bankruptcy. Slash-and-burn libertarians and Hayekians claim that only if this institution is utilised to the full, that is, if inefficient and mispriced investments can be identified and abandoned, can progress be restored. This is ruthless, but it contains the seeds of hope. By contrast, financialisation entails keeping existing monetary promises intact at all costs - and then adding to them. Interest rates are slashed to zero (or lower), preventing bankruptcies. Bailouts keep institutions alive. The effect of all this is what Andy Haldane of the Bank of England has characterised as a 'debt hangover': the economy struggles along, merely coping with the after-effects of the night before.5 Schemes such as chancellor George Osborne's 'Help to Buy' apparently prescribe some 'hair of the dog'. Where the conditions of traditional middle class life are concerned (home ownership and higher education), the state offers to underwrite yet more debt.

The economic logic of this can be hard to fathom. Society today - from the United States to China, Greece to Germany, student halls to government coffers - is awash with indebtedness that is never going to be settled in full. Maybe the political consequence is therefore what matters most. The openness and indeterminacy of the future is narrowed down by its connection to the past, secured through the bonds of paper. Coping with historical debt becomes an economic preoccupation in itself, generating what economists term a 'balance-sheet depression', in which earnings are used to pay off debt rather than support future investment. This notion of a burdensome, inescapable past is what drives depression in the psychoanalytic sense too.

Ingredients of political hope

How does one start again? Default, bankruptcy and debt jubilees are all important ingredients in the restoration of political hope against the forces of financialisation. They facilitate a relinquishing of the past. What they cannot help with is the construction of an alternative future, in the form of new types of institution. The creation and destruction of new institutions within the productive economy has traditionally been capitalism's trump card. Those who have celebrated this capacity have often focused on individual entrepreneurs as the driving force of this process, although this understates the role of business plans, legal contracts, equity finance, credit finance and limited liability, all of which enable the institutional vision of the entrepreneur to achieve a form of tangible and intangible reality.

One way to think about institutional renewal, then, is to consider which elements of innovative capitalism can be seized and applied in the social realm, or else used to transform the social character of capitalism itself. If financialisation can be understood as the extension of the constrictive elements of capitalism to the governance of social relations, then a counter project would involve taking the liberating, dynamic properties of capitalism and channeling them into the social realm.

Strangely enough, this is a not dissimilar approach to the one taken by the early neoliberal thinkers of the 1930s and '40s, who looked to free-market capitalism in search of the mechanisms and institutions through which political liberalism might be revived. As Angus Burgin's history of neoliberal thought details, many of the European neoliberals of this period believed that they were engaged in a form of quasi-socialist reconstruction, which carried very little resemblance to the anarcho-capitalism later celebrated by the Chicago school.6

This attempt to extend capitalist dynamism and modernisation beyond the limits of the private productive economy can be witnessed in a panoply of new 'socials' in recent years: 'social entrepreneurship', 'social innovation', 'social finance', 'social enterprise' and so on. The architectural properties of the internet, which seem to lend themselves to the pursuit of aggregated public goods, underlie many 'social' ventures. These social projects are fuelled by a form of hopefulness, especially where their overheads are low and they are consequently less burdened by the logic of investment. But this is most often a utilitarian hope: the aspiration is to take familiar technologies and organisational forms and to apply them in pursuit of some broader social good.

What is less commonly explored is the political capacity of entrepreneurship to reinvent and transform core institutions of ownership, governance, money and finance. Entrepreneurship has historically been celebrated by conservatives for its individualism and capitalist romanticism. Joseph Schumpeter, the greatest theorist of entrepreneurship, expressed his admiration for entrepreneurs in militaristic rhetoric.7 But if the question is how to restore a sense of political possibility in and around economic institutions, the left cannot do without some notion of entrepreneurship, albeit stripped of some of its individualistic heroism. Some model of political-economic innovation is needed if talk of a different capitalism is not to remain merely academic.

The problem with neoliberalism is that its sense of innovation is too restricted. Novelty is limited to new products and services, and scarcely ever extended to new socioeconomic norms or practices. Hence the McDonalds menu has expanded from six items to 49 in the space of a generation but, for example, the number of corporate forms has scarcely changed since the Victoria era.8 Those who attempt to innovate in respect of a new type of business or a new type of ownership are often defeated. Where an idea is genuinely transformative not only of a particular service or product but of the dominant system in which services and products circulate, social entrepreneurs run up against life-sapping frustrations, such as the inability of regulators, auditors, banks and accountants to classify these new forms. We live in a society that purports to celebrate novelty, but we also insist that the novel is sufficiently familiar that it fits our pre-existing categories and their underlying assumptions.

Raising 'social law'

Capitalism's success in realising new institutions is attributed to various ingredients, though often as an ideological smokescreen. Entrepreneurs and financiers are happy to take the credit. But there is another ingredient, which for some reason gets largely overlooked: law and lawyers. After all, it is not only stacks of financial paper and sparks of entrepreneurial vision that enable the capitalist future to be designed and reinforced. It is also contracts, property rights, voting rights and regulatory frameworks. Indeed, without law none of the products or services offered by financial services would be tenable.

Institutions can be understood as shared illusions with real effects. Economists may claim to recognise institutions, but they only do so via the effects and miss the shared illusion that begets them. Lawyers, on the other hand, are the architects of much of what holds society together in the first place. When people agree to cooperate towards some future goal, they are often dependent on law and lawyers for doing so. When one considers the critical role that law plays in the very idea of 'society', it is curious that lawyers have so rarely been considered as potential contributors to successful socialism.

Not all institutions depend on law for their construction. Nevertheless, it is the case that those seeking to build institutions differently, through alternative forms of money, ownership and governance, often find that a shortage of legal expertise and lack of legal templates are among their greatest obstacles. Real innovation therefore depends on the heroic bloodymindedness of certain individuals, because they receive so little infrastructural or professional support. If all institutions are collective confidence tricks, law is the best and speediest means of achieving a collective suspension of disbelief. Arguably, the legal profession carries more capacity for social reinvention than any other public constituency. Why so much 'social entrepreneurship' but so little 'social law'?

Once again, the early neoliberals offer a guide. The ordoliberal school, which existed in Freiburg, Germany, between the 1930s and '50s, was focused on the question of how to design a new liberal economy. All along, this was viewed as a legal-constitutional issue, to be overseen by lawyers rather than economists. The ordoliberals were largely uninterested in the utilitarian question of how much welfare the market produced; their concern was with the rights and freedoms that it guaranteed as a matter of principle.

Their focus, therefore, was on the frameworks and conditions that were in place, backed by a form of economic constitution, within which economic competitors were obliged to operate. This way, the state could influence the economy indirectly, by acting upon its shape rather than its outcomes. This resonates with the current political mood on the British left, which is looking for ways of pursuing justice in the economy but without relying on fiscal transfers. When Labour leader Ed Miliband today speaks of 'resetting' the energy market or Jacob Hacker argues for 'predistribution', there are echoes of ordoliberalism.

Ordoliberals set great store by antitrust law. New Labour can be credited with one successful legal-economic innovation, the community interest company, which was introduced in 2005 as a template for social enterprises. But imaginative legal innovations extend beyond the limits of the state. The Creative Commons licence, pioneered by the American lawyer and activist Lawrence Lessig, demonstrates how formal social and economic norms can be rewritten without the state's assistance. In Britain, the cooperative movement has been heavily dependent on a single lawyer, Cliff Mills, for the drafting of constitutions and advice on company forms. Mills is also responsible for advising the majority of early cases of public service mutualisation.9

Once legal precedents are set they can serve as models, to be adopted and adapted. A lawyer who is prepared to engage in problems of institutional design and innovation - as the ordoliberals were prepared to engage in problems of regulatory design and innovation - can have an enormous impact on actually existing organisations. What Erik Olin Wright terms 'real utopias' - that is, non-capitalist institutions that are 'viable', 'desirable' and 'achievable' in the here and now - require instruments and experts that can help give them their reality.

Lawyers seeking to act for the social good tend to operate within one particular tradition of Enlightenment liberalism, focused upon abstract individual rights. As a result, to the extent that there is a 'social law' movement at present, it exists in legal aid work and civil rights law. The interesting question is what such a movement would look like if it appealed to a parallel tradition of liberalism, that which Stuart White has documented as 'revolutionary liberalism'.10 This is a form of liberalism, exemplified by John Stuart Mill, that is engaged in the injustices and power imbalances of actually existing capitalism and aimed at redressing these through new forms of ownership and capital. This radical tradition, which overlaps with civic republicanism and 'stakeholder' capitalism, involves a close critique of the forces of domination that are at work in firms and markets. It is also inventive and hopeful in imagining a future that is different from the present and past.

Walter Eucken, the leading figure of ordoliberalism, wrote that 'at all times and places man's economic life consists of forming and carrying out economic plans'. In common with the neoliberals of the time, his major concern was to prevent the socialist state from imposing its plans on everyone else - but also to avoid large private organisations swamping the plans of smaller ones. The language of the 'plan' seems outmoded today; in a financialised society, we no longer have 'plans' but 'models' and 'revenue streams' instead. Recovering political hope amid the fractured temporality of financialisation would necessarily mean enabling individuals, families and communities to believe that they can make plans once again. The left has never lacked ideas of how the world should be. What it has a shortage of is designers and executors of plans that operate beyond the state yet retain a vision of society.


1 As a number of observers have noted, this revives questions of governance, ownership and stakeholding that New Labour picked up then swiftly dropped in the mid-1990s. See White S and O'Neill M (2013) 'The New Labour That Wasn't', New Statesman Staggers blog, 7 May 2013 ^back

2 Streeck W (2011) 'The Crises of Democratic Capitalism', New Left Review, 71 ^back

3 See Krippner G (2012) Capitalizing on Crisis: The Political Origins of the Rise of Finance, Cambridge, MA: Harvard University Press; Lapavitsas C (2013) Profiting Without Producing: How Finance Exploits Us All, London: Verso ^back

4 See Crouch C (2011) The Strange Non-death of Neoliberalism, Cambridge: Polity; Engelen E et al (2012) After the Great Complacence, Oxford: Oxford University Press; Mirowski P (2013) Never Let a Serious Crisis Go to Waste, London: Verso ^back

5 Haldane A (2010) 'The Debt Hangover', speech, Professional Liverpool dinner, 27 January 2010^back

6 Burgin A (2013) The Great Persuasion: Reinventing free markets since the Depression, Cambridge, MA: Harvard University Press; see also Barker R (2013) 'Reviews', Juncture, 19(4): 263-266 ^back

7 One of his psychological portraits of the entrepreneur was as follows: 'There is the will to conquer: the impulse to fight, to prove oneself superior to others, to succeed for the sake, not of the fruits of success, but of success itself. From this aspect, economic action becomes akin to sport - there are financial races, or rather boxing matches.' Schumpeter J (1934) The Theory of Economic Development, Transaction Publishers, p93 ^back

8 Chakrabortty A (2011) 'How British Workers are Losing the Power to Think', Guardian, 19 December 2011^back

9 Davies W and Yeoman R (2013) Becoming a Public Service Mutual: Understanding Transition and Change, Oxford: Centre for Mutual and Employee-owned Business ^back

10 White S (2009) '"Revolutionary liberalism"? The philosophy and politics of ownership in the post-war Liberal party', British Politics, 4: 2 ^back