Class and Inequality in the Time of Finance

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Niamh Mulcahy

• Publisher: Routledge
• Year: 2021
• Print ISBN: 9780367530990
• eBook ISBN: 9781000427837
• Edition: 1
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

This book explores the effects of the gradual liberalisation of capital markets and the expansion of consumer credit on poorer households in the United Kingdom, with particular attention to the precariousness caused by a lack of savings and a reliance on debt. Asking what it means for poorer working individuals and households to be subject to the demands of finance, the author draws on Michel Foucault's theory of subjectivation as well as Louis Althusser's interest in class, actively theorising the constraints of low income or precarious work on financial planning, alongside the reorganisation or rollback of government benefits. A contribution to our understanding of the ways in which financial concerns deepen and expand economic inequality, Class and Inequality in the Time of Finance shows how finance stratifies individual subjects rather than simply individualising and separating them. As such, it will appeal to scholars of sociology with interests in neoliberalism, economic austerity, and consumer credit and debt.

1

Introduction

Indebted investors as subjects of finance

DOI: 10.4324/9781003080428-1

The popular capitalism envisaged by Margaret Thatcher entailed enfranchising individuals beyond their democratic duties, to engage with the economic well-being of the United Kingdom as a whole. After the sale of the millionth council house in 1986, alongside the take-up in share ownership from the recent privatisation of state concerns, Thatcher held strongly to the notion of a property-owning democracy, a notion originally introduced by Anthony Eden, as a way of empowering individuals and households in the same way that extending the franchise had previously given a political voice to the working class (Thatcher, 1986). The connection of democratic rights and participation with the ownership of property or, more generally, assets, was so closely linked for Thatcher and the governing Conservatives because it gave people a claim within the community. On this, a personal stake in national success could be established, along with a sense of responsibility for its prosperity. If people owned their own houses rather than renting in council estates, they might feel an urge to preserve their new investment and become active within their communities. Similarly, if more employees could own shares of the newly privatised firms they worked for, they would take a motivated interest in the output and profitability of the company, helping the country to emerge from its crisis of productivity. There was, as a result, a heavy moral imperative to the individualism Thatcher promoted: it was practically a duty to act as self-interestedly as possible, since collective prosperity could only be achieved through the hard work that allows people to advance themselves and their own careers. To fall back onto complaints of class-based disparity, or to draw attention to the regional inequalities plaguing poorer communities, were simply excuses devoid of any personal initiative for improvement.

Four decades after Thatcher was first elected prime minster in the United Kingdom, a normative preference for entrepreneurially minded behaviour at the level of even the household persists, as individuals are tasked with incorporating a kind of Schumpeterian (Schumpeter, 1934) drive for innovation into the management of their personal finances. Chief among this is the development of “investor identities” (Langley, 2007), as the practice of investment grows to include personal investment such as share ownership, contributions to pensions or mutual funds, and property ownership. The expansion of financial opportunities under the Thatcher Government has ultimately enabled British households to participate in investment as a more innovative form of saving, potentially producing higher rates of return than the “thrifty savings practices of making deposits in commercial bank accounts and purchasing government bonds” (ibid.: 69) on their own. Technical concerns that were previously the purview of professionals have become central considerations for households, with Alex Preda noting how we:

see ourselves as small shareholders, as critical shareholders, as shareholders of ethical businesses, or of venture firms. We are against grand speculators, or dream of becoming one someday; we follow price movements every day, or only now and then, trade online, or go to a trusted broker, watch the news, look at price charts, discuss the market with friends, and so much more.

(Preda, 2005: 141)

But the financial subject, as those who inhabit the neoliberal landscape of personal risk/reward calculations are often called, deals additionally with the spectre of consumer debt as a further financial consideration in household management. The advent of consumer finance markets as lending restrictions on consumer credit were relaxed in the 1980s, alongside the expanding availability of mortgages precipitated by demutualised building societies and a growing banking sector, meant people had more options for borrowing money. To be sure, Thatcher vigorously opposed consumer credit as antithetical to the disciplined individual who knew how to make household cuts in economically tight times. Yet, the market expansion she pushed for as part of the 1986 “Big Bang” resulted in sufficiently relaxed conditions for those who chose to borrow. The world of household saving and spending was subsequently transformed into one of accumulating financial risks on either side of the balance sheet, as anticipated future financial rewards were tabulated alongside a growing list of deferred payments.

A contemporary familiarity with financial instability from the comparatively recent financial crisis of 2007–2009 has certainly called the viability of household entrepreneurial aspirations into question. Unanticipated levels of mortgage defaults, especially by poorer households in the United States, destabilised global markets while simultaneously destroying or lowering the value of savings. This highlighted the difficulties households around the world, in addition to the United Kingdom, have in keeping up with financial obligations, whilst illustrating the precariousness of savings tied to the performance of equity markets. The crisis has important implications for the study of financial subjectivity, for the clear level of precariousness financial risk and the fluctuation of markets introduce within everyday life, where the unpredictable behaviour of individuals is then reflected back into broader market trends and developments. On a conceptual level, however, it also raises questions about the theoretical fiction of the self-contained individual, capable of exerting the necessary financial discipline in hard or uncertain times, whilst simultaneously anticipating when to indulge in innovative risks that could later pay out rewards. The problem of class, in other words, returns to the fore, even if its importance in informing the likelihood of personal success had been denied by Margaret Thatcher.

This book begins with a central contention, holding that the financial subjectivity of poorer individuals and households is more constrained than entrepreneurial, in attempts to balance a series of rigid repayment schedules with the precariousness of low or unstable income. In addition, difficulty putting away money into savings makes it difficult to conceive of creative forms of investment meant to increase household wealth. The upshot, then, is the need for a reintroduction of a conception of economic dominance within the understanding of subjectivation, or the creation of financial subjects. A consideration of the subjective practices constituting individuals in an era of financial capitalism must account for the social relations that contextualise those practices. My understanding of subjectivation, and financial subjectivity more specifically, necessitates the incorporation of a theory of stratification that goes beyond a more obvious appreciation of the high level of individualisation that characterises the process. I return, then, to the study of subjectivity undertaken by Althusser (1969; 1971), who envisages subjectivity not just as an effect of the operation of power, but as a reflection of a set of institutionalised beliefs or outlooks which inform the kinds of strategies and abilities subjects may engage with in the reproduction of their ways of life.

The study of financial subjectivity has, to date, leaned heavily on the self-governing subject found in the work of Michel Foucault, with additional nods to the disciplinary measures that are invoked against individuals who find themselves penalised with high interest rates and fees designed to discourage risky borrowing. I argue, however, that the Foucauldian understanding of subjectivation excludes a theory of stratification needed to address the institutionalisation of economic inequality in finance, as a result of Foucault's attempts to avoid reducing power to a question of dominant interests. The consequence of this is an omission of any serious consideration of how poor households which struggle continuously with financial obligations fit into a financialised subjectivity, and the normative expectation of individual self-reliance. I posit Althusser's theory of subjectivation as complimentary to the work of Foucault, insofar as Althusser provides a structural context for Foucault's examination of the operation of power on subjects. This makes it possible to see how power relations, while arbitrary in the first instance, nonetheless institutionalise particular abilities and forms of strategising, creating normative expectations about self-conduct that can be difficult to live up to, depending on the material conditions subjects live within. An understanding of subjectivity inspired both by Althusser and Foucault thus illustrates how class-based inequality persists in the financial landscape of contemporary Britain alongside a moral directive to take responsibility for personal and household finances.

The financialisation of daily life

Financialisation has become such a compelling phenomenon of study, given the prevalence of a sense of risk in all matters relating to national and international economies, alongside stability and security even at the level of household earnings and savings. There is no longer any doubt that personal prosperity is closely bound up with the performance of markets: savings are more aligned with market fluctuations as individuals increasingly invest savings in defined contribution pension plans, unit trusts, and insurance in the hope of generating larger returns for future security than traditional forms of saving or occupational welfare might provide. They likewise also borrow more through credit, loans, or mortgages, to make up in some cases for stagnating wage levels in the United Kingdom. Epstein has located the spread of the logic of finance in the “increasing importance of financial markets, financial motives, financial institutions, and financial elites in the operation of the economy and its governing institutions, both at the national and international level” (Epstein, 2001: 1). The world economy has been transformed, not only through the emergence of a huge services industry that has progressively surpassed productive industries for employment in Western countries (Lash and Urry, 1994; Rhodes, 2017), but also as a result of the immense profits generated in financial sectors worldwide (Krippner, 2005).

It is unsurprising, then, that financialisation is also marked by a rapid increase in household debt, from which profits can indeed be derived as increasingly more individuals and households are drawn into the market. As wages are disconnected from already low-productivity growth (Rhodes, 2017), causing stagnation, individual households begin to experience greater inequality (Mishel, Bernstein, and Allegreto, 2007; Palley, 2013), as well as a greater reliance on credit and debt to make ends meet. Indeed, levels of debt within the United Kingdom have risen substantially over the past 40 years as credit cards and borrowing become commonplace in managing household finances. With nearly half of UK households in debt (Office of National Statistics, 2016), overall household debt as measured most recently in 2018 amounts to £1.28 trillion, including mortgages which account for £1.16 trillion, and unsecured consumer lending such as credit cards, at £119 billion (Office of National Statistics, 2019). By comparison, at the beginning of the 1970s and therefore prior to the implementation of policies encouraging financial liberalisation that began in the 1980s, credit card debt was only £32 million as credit cards were mostly unavailable until the end of the 1980s (Block-Lieb, Wiener, Cantone, and Holtje, 2009: 155). Mortgage debt among working adults in the United Kingdom has also increased with the expansion of the financial services industry: in the post-war period of the 1950s, there were 1.65 million borrowers, which had risen sixfold to 10 million by 2012. The Council of Mortgage Lenders attributes this increase to a shift in ideas about saving for and buying a home: before 1970 the majority of buyers, at 58 per cent, could purchase a house using just savings, whereas after 2000 only 37 per cent were able to do so. Likewise, before 1970 buyers did not necessarily think of their homes as investments for future improvements, since only 21 per cent relied on income from a home sale to fund a new purchase, whilst after 2000 56 per cent of buyers relied on this money (Clarke, 2012). In the realms of saving and borrowing, then, there is a distinct shift towards the use of financial services and products in the United Kingdom over nearly 40 years, which serves to highlight the precariousness of wages and savings for households in general, regardless of class or status.

For theorists of financialisation, it is impossible to separate what happens within global contexts and markets from developments at the level of the household, especially for those like Lapavitsas (2011) who see the wages of the workforce as a source of profit for financial institutions. A sense of the spreading of financial risk, as something that had previously seemed distinct to capital markets, is articulated by Randy Martin, who writes that “people from all walks of life [have] to accept risks into their homes that were hitherto the provenance of the professional” (Martin, 2002: 12). As welfare states in the United Kingdom and North America were restructured to meet new economic needs, market-based solutions were found for many programmes and benefits schemes previously administered through the government. This, in Martin's view, represents a “disembedding” of individuals from the collectivity – a collective sense of responsibility for social well-being underpinning earlier pushes for stable jobs and wages – leaving room for the financial industry to present highly individualised, and even competitive, solutions to household money problems. Acquiring debt, for example, might help in the case of financial shortfall caused by short-term or irregular employment. By definition, however, financial markets carry their own risks, introducing even greater instability into household decisions than before, the more household finances are bound up in them. As Watson (2007) observes, personal finances, and with them ways of life, can be drastically altered by market fluctuations, which diminish or destroy savings linked to markets through pensions, equities, real estate, and other assets, making risk a regular facet of everyday life.

The decisions individuals take, alongside their understanding of the prospects or rewards associated with risk, thus come to the fore. No longer are resolutions to be sought collectively, such as through a workplace union or even within a broader identification with a certain class; instead, the need for personal responsibility over one's situation, alongside innovative household solutions to any shortfall, have become key to navigating the tricky and competitive world of capital markets. From their earliest years in power, the Conservative Government under Margaret Thatcher went so far as to suggest that the economic prosperity of the nation depended upon so many individual acts of personal responsibility and self-confidence rather than government policy and regulation, which later inspired the push for profit-sharing through personal investment and share-ownership. The best way to feel secure and improve quality of life, the Conservatives maintained, was by acquiring some personal stake in the economy, as motivation to work hard and spend wisely. They may not have used the language of entrepreneurialism to discuss the path to personal prosperity through the management of household finances at the time, but the trend – in the United Kingdom and abroad – was becoming clear, at least to Michel Foucault, as a prescient observer of subjectivation and subjectivity.

Foucault was keenly aware of the transformative nature of neoliberalism and the rapid expansion of market sensibilities beyond economic domains. Unlike the subject of classical liberalism, engaged as a partner in exchange and therefore attempting to maximise utility on the basis of needs, the neoliberal subject is “an entrepreneur, an entrepreneur of himself [sic]” (Foucault, 2008: 226): following the economist Gary Becker, Foucault insists that the consumption sought by neoliberal subjects is not merely about exchange meant to meet needs and wants, but about the production of personal satisfaction using “the capital [they have] at [their] disposal” (ibid.). The ability to earn a wage as a means of consuming is thereby linked with the capacities of subjects to work on themselves as a way of improving their circumstances and life chances – by developing skills or getting an education which improves chances of finding a job or getting a promotion, for instance. This is the crux of “human capital”: the ability to earn capital, in its monetary and sociocultural forms, as a means of self-improvement and satisfaction, in contrast to the earlier conception of labour power, bound up in the worker's ability to perform labour for a wage. All activity, whether directly related to employment and earnings or not, could nonetheless be read in terms of its contribution to satisfaction and the improvement of life, so that daily decisions acquire the character of economic judgement concerning risk and reward.

When Foucault speaks of “governmentality”, he therefor...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Contents
• Acknowledgements
• 1 Introduction: Indebted investors as subjects of finance
• 2 Althusser and Foucault: Subjectivity stratified
• 3 The political economy of financial subjectivity: Structures and subjects
• 4 “The spirit of entrepreneurship”: Discourse and strategy in the policy of Margaret Thatcher
• 5 The struggles of saving and borrowing, and the question of class
• 6 The uneven and contradictory nature of financial subjectivity: Subjugation and exclusion in the financialised social formation
• 7 Conclusion: Class and financial inequality
• Index