Abstract
This article explores the relationship between race and finance. By looking closer at risk, this article seeks to contribute to the literature in three ways: First, the concepts of risk and uncertainty need to be understood from a post-colonial perspective. Second, through a post-colonial reading of risk, we seek to develop a different concept of risk itself which emphasises its three qualities of de-humanisation, de-socialisation, and de-territorialisation. Last but not least, we propose to understand the post-colonial critique not only as a reconstruction of Europe’s past, as Dipesh Chakrabarty has named it, but locate it at the intersection of the present and the future: The post-colonial critique is enacted as soon as Europe’s future is imagined through risk.
Introduction
It is a widely accepted truth that financial markets produce racialised outcomes. 1 For example, a Report to the US Congress on Credit Scoring and Its Effect on the Availability and Affordability of Credit in 2010, confirmed that credit scores vary with ‘ethnic’ group. 2 Along the same lines, evidence shows that mortgage borrowing costs can also vary up to 15 percent and that white families are more likely to enjoy financial advantage than Hispanic or Black families – even when their income is similar. 3 These examples do not take into account the xenophobia and racial discrimination that the 2008 economic crisis unleashed throughout the Western world, yet they still beg the question of how race and finance are intertwined. 4 Are these outcomes the product of contingent misguided policies or the product of deeper logical assumptions upon which financial operations rely? In pursuing this question, we propose to push the problem of ‘race and finance’ beyond the analysis of empirical data and their specific policy implications. Our aim is not to find the causal relationship between finance and its racist outcomes. Rather, we investigate the condition of possibility through which finance is irredeemably linked with the question of race. Practices of risk assessment, the identification, measuring and trading of risks, and the categorisation of risk and uncertainty and their translation into numbers are not colour blind. 5 Building on this intuition, we draw on the political economy of finance, post-colonial approaches, and risk studies in order to put forward three basic arguments:
First, we aim to show that in order to understand how our modern concepts of risk and uncertainty developed, we need to understand their place in a post-colonial historical reconstruction of Europe’s past. 6 This is in line with a now firmly established literature in International Political Economy (IPE). For example, Alexander Anievas and Kerem Nisancioglu have provided a powerful history of capitalism that demonstrates the inherent Eurocentrism in our understanding of capitalism. 7 Also, in Chakrabarty’s Provincializing Europe, a distinction is made between the visible and invisible histories of capital accumulation to show how the history of capitalism is one of violent struggle and oppression in the name of a singular Eurocentric notion of capitalist development. 8 As well as normalising the ascendance of capitalism, this Eurocentric history denies the significance of the Ottoman Empire on the evolution of modern capitalism. 9 Other historical discussions have similarly pointed out that the Industrial Revolution in England, and the emergence of the City of London as one of the world’s leading financial centres needs to be linked to the British Empire and the surplus it was able to extract and control. 10 Here we simply suggest that this literature is also instructive for understanding how today’s concepts of risk and uncertainty work and how this understanding of risk makes the observable racist outcomes possible in the first place.
Second, this reconstruction of the post-colonial literature allows for a different understanding of risk itself. While risk is usually understood as a universally valid and value-neutral algorithm which links decisions to outcomes, we suggest that the concept of risk itself operates through three qualities of de-socialisation, de-humanisation, and de-territorialisation. We argue that these three qualities stabilise risk as a quantitative rationality. Thereby we, thirdly, hope to show that not only have Europe’s institutions an unacknowledged racial past, but also that racism and the post-colonial moment is operational today in the continuous re-envisioning of its future. The post-colonial moment is not just to be found at the intersection of the present and the past, but it is operational in the very way the future is imagined – through the concept of risk. 11
To pursue this argument, this article is structured in three sections. The first section provides a brief discussion on the ‘economic’ and ‘cultural’ concepts of risk that allows us to see how current narratives of rational finance and neutrality are stabilised. Building on this discussion, the second section uses the already existing rich historical studies on slave trades to derive the historical link between risk and the qualities of de-humanisation, de-socialisation, and de-territorialisation. The third section then shows how this post-colonial moment in the construction of the future plays out in the eventually most important current initiative within the European Union: the Capital Market Union. This initiative will bring back the securitisation of financial debt in Europe on a massive scale, a process that was at the core of the 2007 Subprime Crisis. We expect it to lead to the same unstable dynamics which will again fuel the xenophobia that we see everywhere today.
On Risk and Uncertainty
When one looks at official documents, policy briefs and even the finance section of newspapers, one encounters a highly specialised language that is symbolised in Table 1. The rationality that is displayed is based on ‘empirical’ numbers that are taken as measurable facts and framed around percentages, dynamics, interests, and growth rates. 12 Take for example the central plank in the EU’s current economic programme: the creation of a European Capital Market Union (CMU). The Capital Market Union is said to deepen financial markets in part to facilitate Small and Medium-Sized Enterprises (SME) access to risk finance to boost innovation and growth. 13 The initiative identifies the lack of access to finance as one of the major risks to the EU economy that needed to be both addressed and made productive. The European Commission’s Green Paper argues that there is ‘a wide variation in the development of risk capital markets among Member States: around 90% of all venture capital fund managers are concentrated in eight Member States’. 14 Among those eight Member States, the UK holds around 50 percent of all risk capital. Thus ‘in some Member States, venture capital funds face problems reaching the scale they need to spread their portfolio risk. The absence of an equity investment culture, lack of information, a fragmented market and high costs seem to be among the main reasons for this’. 15
New Funds Raised by Country of the Fund Management Team – All Private Equity Funds.
The key argument by the European Commission is actually not that difficult to dissect: Deepening financial markets will facilitate access for SMEs and this translates into growth and new jobs. Even though this argument is certainly subject to critique, what is more important for the current discussion are two things: First, it is through its quantitative form that the apparent neutrality and objectivity of the economic arguments are produced. Through their quantitative form, economic arguments take on a specific technocratic functionality that can only be countered in equally quantitative terms. This excludes a large majority of society which then feels either silenced or ignored. 16 The questionnaire introduced to review the CMU proposals only allowed for answers that may differ on how this pre-defined objective of Capital Market Union could best be achieved. 17 The questionnaire was answered predominantly by the financial industry and ‘the public’, as it is often so nicely named, was unable to raise its voice. 18 The CMU initiative itself, the rationality it portrays and the social consequences that it may produce, were situated beyond political deliberation and consequently off the agenda. 19
On the other hand, by invoking an economic concept of uncertainty and risk, the Green Paper also fixed the presentation of Europe’s past, present, and future through those very graphs and numbers as the past, present and future of ‘integrating’ nation states . 20 For example, it regarded the UK as the prime example for Venture Capital which has to be ‘mimicked’ by other countries to increase Europe’s competitiveness. The UK’s colonial past, and its legacy in confirming the role of the UK within Europe and in the development of the UK’s financial system, was graciously ignored and silenced. Instead, an image was created that was based on a specific institutional design and the assumption of competition between member states. While much could be said about the specific rationale displayed in those numbers and the securitisation of credit that it seeks to introduce, it is instructive to realise that it is through the concept of risk that the idea of ‘equal’ nation states, future integration, and growth was stabilised.
To make visible other histories that acknowledge the Eurocentrism of finance therefore requires a different notion of risk. One avenue can be found in the work of cultural anthropologist Mary Douglas. Although her work is not without limits, Douglas pointed out that risk is not merely an algorithm which then fosters the (Western) logic described by the literature on ‘decision making under uncertainty’. Rather, risk is related to questions of how societies allocate dirt, taboo, and guilt. In her Purity and Danger, she reconstructed another way of reasoning which moved from misfortune to spiritual beings, instead of from effects to causes. As she termed it: ‘when miscreants are accused of spoiling the weather, killing with lightning, or causing storms at sea it is not a flaw in the reasoning process that should interest us, but something about casting blame’. 21 Rather than a behavioural regularity or objective chance, risk is linked to the community in which it operates, an idea she would later develop in the ‘Grid-Group Model’. 22
Without going into the details of the Grid-Group Model at this point, Douglas’s key intuition is important for the argument advanced here: The very quantitative rationale of risk presupposes and is stabilised by qualitative judgements rooted in the social fabric of groups. By recognising these different ‘qualities’, Douglas’s anthropological understanding of risk is sensitive to the spatial and temporal differences of ‘risk acceptability’. 23 Going further down this line of reasoning, one can see how the distinction between risk and uncertainty has been transformed as it has moved from being a technical elite-based decision to one through which individuals lead their lives. Today, almost everyone is aware of the credit scoring procedures that their banks use to convert their lives into quantified liabilities that will directly affect the size of the house they can buy. 24 Many also now understand the vulnerabilities that inflation or over-leveraged banks pose to their everyday lives. In policy terms, the challenges of managing financial stability during periods of radical uncertainty and a ‘New Normal’ of low growth have depoliticised vast tracts of economic decision-making. The threat of an algorithm-induced currency flash crash renders political elites almost ineffectual in ways that have fundamentally compromised the credibility they hold with their electorates. And we can already see how the long standing connection that bound political elites to their constituents has strained national democratic traditions in many of Europe’s developed democracies. Managing risk and uncertainty has radically altered the territorial politics of Europe in the 21st century.
In the following discussion, we want to build on this insight that risk’s quantitative logic presupposes qualities that have to be made visible in the first place. While Douglas referred here to distinct qualities in group structures (Grid-Group) and thereby pre-supposed well-defined groups, we depart from her model at this point. Instead, the next section links risk with recent post-colonial contributions in IPE to show that the quantitative logic of risk is stabilised by the three qualities of de-humanisation, de-territorialisation, and de-socialisation. 25 We suggest that these usually invisible qualities stabilise the operation of risk in finance even today. A discussion on the role of the slave trade in the development of European capitalism allows us not only to develop these qualities, but also to counterbalance the idea that the ‘deep’ capital markets in the City derive from the ‘national’ achievements as something that the UK could take pride in. 26 Rather, our discussion intends to show that financial practices, that were once so familiar to Atlantic slave traders, demonstrate financial capital’s ability to reproduce power relations capable of transcending both place and time. By doing this we hope to show how the racial implications of finance today are made possible through the operationalisation of risk.
Risk and the Slave Trades
The post-colonial contributions to IPE have already challenged our understanding of the origin and development of European Capitalisms. 27 Most of the mainstream IPE narratives build on the ‘First in Europe, then Elsewhere’ temporality that Chakrabarty has so vividly criticised. 28 In his critique of IR theory, Sanjay Seth argued that ‘mainstream IR, where it has been interested in history at all, has mis-described the origins and character of the contemporary international order, and that an accurate understanding […] requires attention to its colonial origins’. 29 We fully agree and certainly do not intend to challenge these insights. At the same time, we do approach this literature from a slightly different angle, as we want to understand the role of slavery in the articulation of risk in early modern Europe. While slavery has been shown to have been quantitatively central to the emergence of London’s financial system, we want to explore how it was also important qualitatively in the normalisation of distinctions between risk and uncertainty. We therefore believe that a retelling of the historical origins of financial risk management that pays special attention to this period may help us understand the power relations reproduced under contemporary forms of financial capital.
Slavery’s relationship with industrial capitalism in the UK and USA has already been scrutinised for some time. 30 Slavery was propelled by the growth in consumption of consumer products that industrialisation brought and also generated wealth that fed back into Britain ‘furnishing novel incentives, wider markets, premium commodities, sources of capital and raw materials’. 31 Portugal did not have the same domestic demand, French metropolitan economies were tightly regulated, but Britain was affected in a number of ways:
1) The stimulus afforded to British manufacturers by exports to Africa and the Americas;
2) Planting and mercantile profits;
3) The provision of finance, credit, and financial instruments;
4) The ability of plantations to supply raw materials in great quantity and at a low price;
5) The contribution of plantation products to a new world of consumption, itself linked to more intense work patterns; and
6) The ability of the plantations to ride out periods of disruption and war.
For the past half century there has been a lively debate over the role that the profits of slavery played in the industrialisation of modern Europe, and especially the UK. 32 Engerman estimated slavery’s profits contributed 7.8 percent of total British investment in 1770, or 38.9 percent of total commercial and industrial development. 33 Similarly, Inikori showed that the reinvestment of the profits of slavery was far more important for the Industrial Revolution than the reallocation of aristocratic wealth into fixed capital. 34 Yet the spread of slavery interests in the building of London’s docks demonstrates that ‘the wider slave economy permeated almost every aspect of London’s commercial life’. 35
What is important here is that slave trades were instructive for the development of modern insurance practices upon which financial markets would later grow. For example, the practice of defining an interest that can be insured and traded, practices which we see today in asset securitisation and credit default swaps, shared qualities with the mercantile insurance of the slave trade. Slave trades were not ‘unique’ and maritime insurance had already developed an extensive pedigree before imperial states emerged. The practice of ‘bottomry’, in which a ship’s captain could draw a debt against the keel of the vessel that would be exonerated should the ship be lost, had been practiced broadly since medieval times. 36 The industry was governed by fierce cultural and political opposition to the practices of usury and taking wagers. Italian port cities grew by servicing the insurance requirements of ship companies in the treacherous Mediterranean as Hanseatic practices were outlawed as usury. Within these cultural constraints on maritime insurance the practice emerged of creating an object that was insurable in order to create an insurance premium to charge a fee against. This was mentioned explicitly in Williams’ 1803 Treatise On Insurance. He observes that in order to generate a legitimate financial transaction a specific identity had to be created: 37
There cannot be an indemnity without a loss nor a loss without an interest. A policy, therefore, without an interest is not an insurance but only a mere wager.
38
Slave trades were, as important subjects of insurance, also defined as an ‘interest’, and so the practice categorised slaves as objects or as cargo. Indeed the 1745 Gambling Act, which formally introduced the concept of an ‘insurable interest’ or a property that could be insured against losses, included slaves in this category. 39 The concept of an interest, whose loss was insurable against, was pivotal to the emergence of modern insurance.
The form of property insurable in the maritime trade reflected the wide breadth of economic activities associated with slave trading in this particular period and helped to differentiate ‘modern’ from ‘ancient’ slavery. Roman slaves were often captured and brought home by Legions to take on senior roles as imperial administrators or teachers. In contrast, New World slavery was strictly a commercial enterprise. It flourished through market forces that linked the production of commodities, like sugar, in one continent with consumers in another. The slaves were also attributed more sharply delineated racialised characteristics to differentiate their value as assets.
40
Slaves were wholly treated as the property and chattels of another, rather than a serf tied to his master by labour or a worker tied to his job by a wage. As Paul Fickelman explains: slavery was not simply a system of exploitive labor. Rather, it was a system of treating people like property – without the power to control their own lives, without the right to own land or personal property, without the power to speak out about their own liberty, without the power to even control their families.
41
As a property the slave could, either individually or as part of another set of interests, be insured against measurable risks and a fee could be charged. The rewards generated by slavery for the insurance industry were significant. Around 15 percent of risks insured by value and a third of maritime premium income was from West Indian and African slave trades. 42 Inikori suggests that 63 percent of premium incomes was from slave trading in the West Indies in the 1790s, 43 while Eltis catalogues the costs of insurance in the illegal slave trade as fluctuating around 29 percent around Cuba between 1826 and 1865, and between 13 and 24 percent of the total cost around Southern Brazil between 1831 and 1850. 44
Defined as an interest, slaves could be insured in relation to risks. Income from premiums could be derived accordingly. This allowed insurers to protect traders all over the world and against all manner of risks, including that of apprehension by the authorities. Between 1738–1731 the exposure of maritime risk was predominantly orientated to trade between North America and the West Indies. 45
Regardless of the volumes of wealth created through these transactions, the capacity of the insurance sector to accommodate the sums insured was managed through conditions placed on the interests insured. Explicit clauses required that slaves be disciplined: the assured doth hereby agree to warrant the ship sheathed [in copper to protect against sea worm damage], to take upon himself all loss or damage by death or insurrection of slaves and all loss or damage by prohibited trade.
46
Entering into an insurance contract involved a specific obligation on the insured to take measures to protect their interests. The standards, such as those above, had significant consequences. With slave ships poorly supplied and conditions harsh, their crews were living in poor conditions too. Slaves who starved would be tossed into the sea so that their loss could be recorded as due to disease and insurance claimed. Williams describes a specific judgement over the ship Zong on which a massacre occurred in 1871: Short of water, the captain had thrown 132 slaves overboard, and now the owners brought an action for insurance alleging that the loss of the slaves fell within the clause of the policy which insured against “perils of the sea”…. Damages of thirty pounds were awarded for each slave, and the idea that the captain and crew should be prosecuted for mass homicide never entered into the head of any humanitarian.
47
The construction of the slave as cargo that could be insured as an interest, and the obligations that this placed on the insured, shows the de-humanising effect of risk management and how it was closely linked to insurance practices. 48 The value of slaves was defined quantitatively and in accordance with clear sets of rules designed to neutralise empathy and humanity in dealings with slaves.
Joint stock companies provided institutional as well as geographical separation of the investor from the harsh reality of the slave trade, as did the normalisation of absentee plantation ownership in Britain. The necessity of insuring assets and offering financial services to clients with interests all over the world offered opportunities for innovation and expansion to the financial sector. Slavery was an inherently risky business and the challenges of managing credit terms or even securing payment created significant problems for slavers. These could be managed for a fee by financial services like factoring and the management of credit and remittances. 49
The subordination of slaves was reproduced across society and in its commercial and social institutions. Slaves were treated differently to other servants in ways that penetrated social relations and endured, separating slaves from ‘normal’ society. This was the case in the political as well as the domestic spheres. As a young man, the future liberal Prime Minister William Gladstone, whose father owned significant plantation estates, showed how freedom, for slaves at least, would be conditional on the fitness of the slave to be free: let emancipation go hand in hand with fitness to enjoy freedom; and let fitness be promoted and accelerated by all possible means, which the Legislature can devise. Such has ever been, such is and such please God shall be my language.
50
Being liberal allowed people to express support for the freedom of man but only on condition that he conformed to certain forms of behaviour. As Seth observes: We are accustomed to think that the social contract theorists of the 17th century awoke to the fact that men are born free, rational and equal, equipped with the capacity for willing, desiring and promising. In reality, there was often an anxiety underlying the seemingly self-assured pronouncements of these thinkers, an anxiety born of the recognition, or half-recognition, that this individual was less a premise that could be taken for granted and more something which had to be forged.
51
Whether Gladstone knew of the suffering of those on his father’s plantation or not is irrelevant. These were abstractions of humanity conceived against an ideal and committed to in terms of Parliamentary action and heavenly oversight. There was no reference to the emotional or relational context in which slaves experienced their humiliation. As one participant in the Parliamentary debates over slavery put it: the question of the abolition of the slave trade, was a question between humanity on the one side, and interest on the other.
52
The rich and powerful of the London society and even many abolitionists were therefore able to reconcile slave ownership with their liberal values by distancing their ownership through the construction of interest and by equating their status with their property, of which slave ownership was a clear part. At the end of the slave era, even Abolitionists were investing in docks dedicated to the importation of sugar and other slave dependent trades. 53 By the time of Abolition, slave ownership was typical in towns and villages across the country. As the new data base assembled by the University College London Legacies of Slavery project demonstrates, claims for compensation for emancipated slaves was spread broadly, demonstrating both the banality of slave ownership and the extent to which society at large was linked to the slave economy (see Figure 1). 54
Map of slave reparations in the south of England.
As a brief summary, this re-reading of the relationship between slavery and finance allows us to identify three qualities of risk that are continuously performed through its quantified discourse. 55 First the primary relationship was defined in terms of property or interest which de-humanised the slave and their relationship with their owner. Once defined, the value of this interest could be protected by obligations placed on the owner of the slave. Second the physical distance of absentee plantation owners from the slaves they owned was possible by the de-territorialisation of their assets. Property law privileged whiteness in line with the prevailing social norms of the day. 56 But it also allowed slave ownership to be normalised and enforced beyond any territorial constraint that property rights may have entailed. Different national traditions of property rights were transcended in the trade in slaves and in the distribution of profits generated by their labour. Finally, while the abolition of slavery was led by the British, the profits and even the practice of slave ownership continued to benefit British society. The abuse of slaves was as evident when they were sold in scrambles as in the punishments used to discipline them. But slaves were also displayed as a consumer product by a ‘sophisticated’ society keen to demonstrate its wealth. As trinkets, slaves were distanced from the society they lived in through their commodification. The practice of slaving therefore de-socialised financial practices rendering them discrete from societal values. Although slaves became a common feature of aspirational households, they were differentiated from the rational public sphere. While abolition was an important milestone and a powerful symbolic gesture, it left powerful institutions and legacies in place that persist to the present day.
In a next step, we want to show that these three qualities used to differentiate between risk and uncertainty in Atlantic capitalism persist in financial practices to this day. The subsequent discussion is less interested in showing how finance and race relate empirically. Using the three qualities above, we instead offer a distinct interpretation of the EU’s CMU agenda by examining the condition of possibility of the link between race and finance.
The Capital Market Union
The CMU was one of the central planks of the European Commission’s programme to reinvigorate the EU’s flagging economy at a time when Eurosceptic political pressures were beginning to build up to the Brexit vote. For the UK in particular, the promotion of Small and Medium-Sized Enterprises (SME) and the realisation of a single market in financial services were long standing priorities. This was recognised in the appointment of UK Commissioner Lord Hill as the lead Commissioner on the CMU. The SME element of the CMU was explicitly designed to demonstrate how the UK’s prize of financial service integration married with the broader interest of providing credit to SMEs across the EU.
In contrast to the often portrayed story that the CMU helps to generate future jobs and growth, we also want to demonstrate in this section how the qualities of risk also rendered race (and gender and disability) invisible through a similar discourse. In the next paragraphs, we want to show how financial practices are based on a) the de-humanisation of debt through the invention of interest (de-humanisation); b) the assumed potential for capital to translate value over geographical and cultural distance (de-territoralisation); and c) the imposition of rationality in investment decision making (de-socialisation). SME loans and the financing of the slave trade are not similar phenomena, but these logics that undergird them are.
De-humanisation
The creation of SME Asset Backed Securities (SME ABS) in debt markets, is an exercise in de-humanisation. 57 The securitising of SME debt transferred the interest paid to the bank by the SME to a separate legal entity (a special purpose vehicle) that could then be sold on debt markets as an Asset Backed Security (ABS). This process of ‘securitisation’ turned a bundle of real life debts owed by shopkeepers and small manufacturers into an interest (ABS) that once separated from the bank, was also separated one move further from the debtors themselves. This allowed banks to reduce their capital leverage and to also generate a transaction fee for making the trade. 58 EU banks held far higher amounts of SME debt than their US counterparts because they were less inclined to sell on the securitised SME debt to bond markets. 59 This left them less able to comply with Basel III obligations and with less credit to pass on to SMEs. The public policy benefit was that this process also distributed financial risk across the financial system through the secondary markets in SME Asset Backed Securities. SME ABS were presented as making the EU banking system more stable while allowing banks to lend more to their SME customers.
Central to the process of securitisation was the definition of a new interest, the Special Purpose Vehicle (SPV), to hold the debt for the bank as an asset. By defining the interest as a security, offered now in the form of the SPV rather than a loan, the SME debt would take on a separate legal personality. This allowed it to become an ‘interest’ just like the slave ship. This ‘interest’ could then be serviced by a wide range of other financial products, like insurance, and also be traded and regulated. The originators of the SME ABS would charge a fee to show that it complied with new protocols (called STS ‘Simple, Transparent and Standardized’) intended to demonstrate that the debt that went into the ABS was indeed secure. Credit Rating Agencies, for another fee, offered a risk score to these assets informing investors of the risks they were taking on. Regulators could therefore make demands on the pension fund which invested in SME ABS to ensure that they conducted due diligence on the assets they were investing in (for another fee). 60
This definition of a loan as an interest held by a third party was therefore made possible by the separation of the debt of the SME from the SME itself. This was vital because the EU’s definition of an SME was so wide that it described 99 percent of the EU’s economy. 61 An SME could be anything from a biotech company to a cheese shop. The heterogeneity of this group made it so diverse that it was not possible to capture the qualitative characteristics of the owner manager, let alone how their market is affected by macroeconomic changes, regulatory obligations, changes in demand etc. 62 It was the very act of the abstraction of the SME’s debt through the process of securitisation that translated it into a tradeable asset.
While the social context may have differed, and the physical and emotional violence is ostensibly absent, the technique was remarkably similar to the conversion of humanity into property through enslavement and from property into interest through an insurance contract. Complex troubling experiences were negated and reduced to tradeable assets that could be reconditioned into futures that would generate profits for the owners of those assets. Asset owners found themselves in a position not only to determine when lives were traded, but also whether they were tradeable. Here, it is instructive to realise that the exercise of power comes in the definition of the future value of an asset rather than its past value. The futures regulated under the CMU are no more related to the needs of SMEs as the post-abolition economy was designed to compensate slaves for the abuse they suffered. In both cases it was the asset owners (slavers and bond traders) who traded to determine the future financial value of these assets.
Historically the determination of financial value has, through the evolution of financial markets and their expansion globally, been white. The fact that a CMU strategy was required indicated in itself the enduring historical ties between financial capital, national industrial capital, and the state. 63 But the rationale that the CMU would promote further European integration, rather than linking the CMU to its global development agenda, or to a regional market that crossed the Mediterranean to the Maghreb region, clearly indicated where the cultural boundary of risk and uncertainty set the limits of acceptable risk for a European financial market.
De-territorialisation
The second CMU technique for supporting SME finance was the promotion of ‘private placements’ (PPs). Popular in the USA, PPs have seen limited development in the EU because of significant variations in national share issuance practices. 64 These allowed companies to sell shares to small groups of interested investors without disclosing commercially sensitive information required in a normal public offering. The CMU built on a series of attempts to enable the selling of shares across the national borders of the EU. Private Placements attracted significant interest from investors in the USA. UK issuers dominated PP issuances and were predominantly oriented to companies in the USA. 65 The US law firm Clifford Chance, for example, suggested that PP was the singular most important element of the CMU for SME capital. 66 Central to the promotion of PPs in the CMU package was the expertise of the US financial services sector with an eye to generate new fee incomes from the promotion of this new market. Indeed, a newly formed Euro PP Charter was launched in 2014 with the support of the Banque de France, French Treasury and the Paris IDF Chamber of Commerce and Industry to promote the development of the sector. 67
From the SME perspective, the pursuit of private placements was either the alternative to failing domestic bank loans (including the traditional ‘Schuldschein’ in Germany) 68 or an opportunity to attract international investors. At first glance, this initiative appeared to contradict the separation of company ownership and control as it implied greater investor engagement with the company. Yet in practical terms, the main interest in PPs came from US legal firms seeking new opportunities in the EU to deliver services to potential investors. PP sales would allow wealthy US investors to invest in the EU with fewer regulatory safeguards, and thus lower costs, than in the USA. This would make the fees charged by US lawyers appear more competitive especially in comparison to the more onerous and expensive legal safeguards in place in the USA. With distance no longer relevant, investment decisions could be more instrumental and quantifiable, allowing the value of the SME to be translated as an asset across national borders with ease. From this perspective, the CMU was not just about the generation of wealth or promotion of future growth, but also about reducing the cost of long distance investment by removing the national investor protections that had accompanied private placements. That the focus of PP was predominantly about attracting investment from the USA rather than cash rich investors from high growth economies such as China, where there is already a burgeoning PP market, 69 also indicated a preference for the future ownership of European SMEs being more transatlantic or European than Eurasian or Asian.
De-socialisation
Finally, the CMU also aimed to promote venture capital (VC) supply across the EU. Risk capital was central to the Europe 2020 strategy of smart growth and a range of initiatives were designed to increase the supply of funds to innovators (e.g. ‘Risk Sharing Finance Facility’). Venture capital involves ceding control in exchange for equity investment and expertise usually for a limited period in a firm’s growth. The venture capitalists usually realise their return by selling their shares to a small caps market like NASDAQ or AIM. Policies to promote venture capitalism were normally justified as providing high risk investments in new high technology companies and offering tax incentives to early stage investors was meant to encourage them to invest in unproven technology. 70 Again, the US model was frequently referred to and the rationale for policy intervention argued in terms of market failure, information asymmetry, and competitiveness.
The VC market was heavily concentrated in the UK with 48 percent of new funds raised in 2014 (France raised 16 percent). 71 The obstacles to a broader European market in VC were therefore significant. In addition to finding investors, few SMEs were investment ready 72 necessitating significant education and training for time-starved entrepreneurs. Government support for the VC industry in the UK was shown to help companies in the initial stages of their growth. 73 But the availability of data was limited, making conclusions about the impact of political interventions costly and difficult to achieve. 74 Successful evaluations of the performance of high growth new technology companies were found to be less like gazelles and more like muppets: ‘marginal, undersized, poor performance enterprises’. 75
More significantly, in the UK, the VC industry had evolved into one dominated by Private Equity (PE) as investors sought safer returns in management buy outs. These quickly replaced the high risks investments that venture capitalists were meant to make in start-up and high-tech companies. The pursuit of low risk, high return management buy out investments by Private Equity investors further underlined their disengagement from firms. PE firms typically managed the assets of wealthy families and tended to exhibit a far more concentrated distribution of wealth than the VC sector. 76 Furthermore, while proponents of financial services argue that re-organising the relationship between finance and capital benefits the general public good, 77 the Private Equity sector exists solely and explicitly for the private benefit of investors. 78 PE investors often pitch the interests of the company managers as against those of the owners 79 while the paying of tax 80 or the generation of employment 81 are presented as incidental. The PE sector specifically absolves the investor from anything other than the pursuit of shareholder value as there is no long-term commitment to the company invested in. Private equity therefore represented a highly evolved, heavily de-socialised form of financial agency in contemporary capitalism. By means of its association with venture capital it also stands to benefit significantly from the CMU.
As a way of summary, we see how placing de-humanisation, de-territorialisation and de-socialisation at the core of the financial practices of risk provides a different reading of the contemporary financial practices underpinning the CMU. From this perspective, the CMU is far less about the provision of wealth and future growth than about the positionality of the creditor vis-à-vis the ‘tradeable’ asset. Entrepreneurs and their debt are now turned into a tradeable asset whose productivity and imagination is translated into risk and uncertainty through the process described above. Securitisation redistributes SME debt risk (through the secondary ABS market), private placements allow lawyers to charge to refine investment risks so they can be sold internationally, and VC and PE abdicate the investor from any responsibility other than the pursuit of their own interests, allowing them to minimise their liabilities to their workers by selling off pension fund assets.
This brings us back to our focus on race and finance. One may wonder what does the definition of the asset in the debt futures market share with the depersonalised commodification of a slave? Of course, we are not suggesting that SMEs can be in any dimension compared directly with the lives of slaves. We only suggest that through risk, the same qualities were at play back then and continue now. Both SME loans and the lived experience of slaves are determined as assets through the definition of interest. Both are de-humanised, de-territorialised and de-socialised using ancient conceptual techniques practised in the financial sector for centuries.
However, once those assets have been created we see the power of finance in defining the value of the future. In this act, forms of insurance reflecting powerful hierarchies that privileged western Eurocentric concepts, values and techniques defined the exchange value of assets against existing allocations of capital. The exercise of power was conservative in its definition of manageable risk and dismissive of that which was uncertain. But it was in the anticipation of asset value in the future that the slave found themself discriminated. It was not the assets but the futures that were defined by an agenda that was predominantly European. Just as the futures of slaves were defined to reflect the interests of white slave traders, so the future of the social economy was defined to reflect the interests of asset holders of European capital markets. The focus on a ‘European’ Capital Market Union demonstrates the exclusive nature of this agenda as is the direction of the project towards American practices and investors rather than Asian ones.
To unpack the whiteness of the future we may need to seek more guidance from writers on black studies, critical race theory, and black marxism. 82 Unfortunately, it is beyond the scope of this article to develop a full account of the further explorations that are needed, but the work of Cedric Robinson comes to mind in his examination of the forgetting of black histories. In his own words ‘our glorious future depends on our capacity to remember, to connect our social consciousness with a collective history’. 83
We do hope that we have opened an alternative reading of current financial practices that, we think, also departs from the dominant Marxist or Foucauldian analyses. Marx recognised that capital treated labour and slaves differently: In the slave system, the money capital invested in the purchase of labour power plays the role of the money form of the fixed capital … the gain realised by a slave owner directly through the industrial employment of his slave … was regarded merely as interest (plus depreciation allowance) on the advanced money capital, just as the industrial capitalist under capitalist production places a portion of the surplus value … to the account of interest …
84
Even though Marx in this quote shows an awareness of the de-humanisation as individuals were treated as assets, the concepts of alienation and accumulation characterises most of Marxist analyses of contemporary capitalism. In this context, commentators have introduced the notion of financialisation as a distinct ‘mode of accumulation’ that characterises contemporary political economies. 85 From a European perspective, the emphasis on the wage-labour relation was central to the manufacturing relation that underpinned many of the national welfare compromises that characterised modern capitalism from the mid-19th to the 20th century. The observed conflicts around industrial manufacturing and capital accumulation then analysed the accumulation of past value through the extraction of surplus value. 86 Conflicts between creditors and debtors over financial risk management take on a much more prominent role over the distribution of future risks rather than the distribution of assets from the past. 87 The key ‘conflicts’ and paradoxes of modern capitalism have moved from labour to financial relations. 88 Yet moving beyond the European stories, this narrative is de-stabilised as this definition of the future was already important 200 years ago.
Our analyses also offer a different reading to a Foucauldian account. While much can be said about discipline and biopower in a financialised world, the concepts of race and risk play less a role in these discussions. While Foucault’s writings on race in society must be defended and do offer a potential avenue for reconsideration, the concepts of risk and debt and with them the financial dimension remains ‘underdeveloped’. 89 Through a post-colonial reading of finance we can see why debts take on a new quality within our financialised economies and link them to the ‘state apparatus’ in a new way. This shows particularly well, we think, in the context of the CMU. More importantly it also shows the racial origins of modern financial capital because as long as assets are described as interests which can be valued according to cultural stereotypes, inequalities can be reinforced around notions of ‘whiteness’ and ‘blackness’ with relative ease. 90
Conclusion
This article explored the links between risk, finance, and race. In our discussion, we suggested that risk as a quantitative rationality is stabilised through three qualities of de-humanisation, de-territorialisation, and de-socialisation. These qualities were derived by a reconsideration of post-colonial contributions in IPE where importance was given to the way in which slaves were defined as property and then property was defined as an interest. This ‘unleashed’ the financial dimension (with insurance being an important part) from an abhorrent practice into an integral part of the first world’s first global economy. Abject horrors were forced on vast populations of innocent people on a truly industrial scale. Indeed the only time the death count of slavery was seen again was during the years of World War II. It may well have been that in time this form of exploitation was accommodated or even mollified by the progress of modern industrial democracy. However, we reject the representation of finance as an objective force that ‘allocates financial means’ and guarantees ‘access to credit’ in line with democratic demos. Instead, we argue that finance was and remains a machinery for control, exploitation, homogenisation, and de-humanisation.
At this point, we want to conclude by pointing out three lessons and hopefully promising avenues for future contributions. First, and eventually the most important lesson is that the post-colonial critique is very much operational today in unnoticed places, such as the CMU. Individual small firms and the households they support are regularly turned into tradeable debt assets. Their experiences are separated from the value placed on the debt in the bond markets. While the private placement market appears to promote the social integration of investment risk through closer investor ties (or ‘crowdfunding’), it in fact challenges and undermines many of the traditional national structures which have protected investors. Second, and in line with the notion of risk and uncertainty developed here, the post-colonial moment for us is thus not to be found at the intersection of the past and the present, i.e. where questions of memory and (forced) forgetting are to be found. Rather, we argue we should explore it at the intersection of the present and the future. The post-colonial critique is important in the very way the future is imagined and then made applicable through notions of risk and uncertainty. The future may be portrayed in quantitative terms through risk, but this quantitative rationality performs the three qualities of de-humanisation, de-territorialisation and de-socialisation.
Finally, our analysis shows that we are currently witnessing a new constellation of power relations in finance that depart from classical Marxist and even Foucauldian trajectories. A focus on financialisation as bio-political power may reveal the technologies present in credit scoring but it fails to link them to the processes privileging financial capital that have endured from pre-modern times. A Marxist focus on financialisation as an economic relation omits the cultural and social violence that rests just beyond the view of economic analysis – in the disrespect of cultural discrimination and in the drudgery of household debt. Specifically we can draw from literature on race that shows how power relations, such as those historically defined by slavery, have become inseparable from a racial politics in understanding debt and indebtedness. To be in debt is to be defined by a history of power relations that stretch back before memory. 91 This allows us now to understand how a financialised debts society creates racialised futures through risk and why risk is such an important, albeit neglected, dimension for understanding the racial consequences of financial practices. We hope to have shown that race is not just the product of racist policies (that as well), that could be somehow turned around, but the question of race is much deeper inscribed in financial operations themselves, i.e. in the way they imagine and shape our future. Our focus on a racialised financial future also enables us to explore how literature that has imagined futures sensitive both to the lessons of the past and to the limitations of western philosophical traditions can inform our analysis of financial markets. 92 A focus on financial inequality may reveal the symptoms of an unjust decision, but it does not explain an enduring form of power that is still capable of denying the value of another life.
Footnotes
Acknowledgements
The authors would like to thank the editorial team of Millennium for their encouraging and insightful comments, and acknowledge their appreciation of two excellent referee reports. Previous versions of the article benefitted from discussions at the Millennium Conference on ‘Racialized Realities in World Politics’. Here we want to thank in particular Aida Hozic for her kind comments. Also, this manuscript benefited from conversations among Team Erfurt (Timo Walter, Matthieu Hughes, Filipe dos Reis) and with Nick Draper, Dave Holland and Anita Rupprecht and on comments on a previous draft from colleagues at POLIS, University of Leeds. They include: Alexander Beresford, Jonathan Dean, Kingsley Edney, Victoria Honeyman, Louise Pears, Nick Robinson and Neil Winn. We also want to acknowledge the support from Alice Ratajczak and Karoline Färber. All remaining mistakes are our own.
Funding
This research received no specific grant from any funding agency in the public, commercial, or not-for-profit sectors.