Regulatory change, consciousness building, and the three transitions (including a debate with Frédéric Lordon)

The whole idea of a "Next-Step Economy" is to make do with the unavoidable fact that, since (for better or for worse) we are living in a capitalist social democracy with globalized goods and financial flows, the transition towards a genuinely plural economy (ultimate goal) will require a transition towards new framework conditions (intermediary goal), which in turn will require the emergence of new economic practices, the forging of new political alliances, and the modification of at least some citizens' awareness (immediate goal). Of necessity, such a three-tier model of transition implies the need for tactics. More to the point, depending on "our" ultimate goal, "we" need to recruit citizens whose immediate interests, given their current level of awareness and consciousness, are in line with the intermediary goals "we" have envisioned (i.e., in our case, the six basic framework conditions for a genuine transition).

Now this pronoun "we" that I've been using in the previous few sentences is notoriously elusive. At the same time, it's of absolutely crucial importance. In a democracy -- and in the present day this means, roughly, a parliamentary and therefore representative democracy, usually quite prone to special interests intervening at various stages in the ongoing "muddling through" process in order to influence policy-making -- the only concrete "We" is, trivially, the set of inhabitants of the relevant decision-making area: a sovereign country or, as in the case of Europe, a set of countries that have in part relinquished their sovereignty. When it operates its economy or when it sets in motion the mechanisms of a general election, this concrete "We" functions as a more or less mechanical system. In that case the "We" actually works like an "Its," a collection of things in interaction. Cogs and wheels start moving, inputs become throughputs and then outputs, and certain measurable results ensue. However, the same concrete "We" also generates, and is sustained by, a language-mediated culture, in which ethical values, metaphysical worldviews, and political visions circulate through language. Ideas start to flow, words and images become debates and arguments, and gradual shifts in collective values and views (sometimes hard to quantify) occur. Cultural exchanges and systemic interactions make up the external and the internal sides of "the collective," and they reinforce each other: the dominant systemic logic -- made up of a myriad of interlocking mechanisms -- influences, and is in return influenced by, the dominant cultural motifs, made up of a score of assertions about what's right to "us," what's self-evident in "our" eyes, what "we" think is the meaning of life and the cosmos, and so on.

Now notice, however, how these first-person-plural pronouns have suddenly become much more abstract. OK, "we" may generally believe that parliamentary democracy is preferable to all other systems -- that's part of today's democratic culture -- and "we" may be living in a society where the market is considered as preferable to all other allocation mechanisms -- that's part of today's market culture -- but not all of "us" equally believe these things. It's not an issue of being right or wrong at this stage; it's just a plain fact. Not every "I" within the concrete "We" actually adheres to the dominant mechanisms and ideas that "We" profess as a collective. Contrary to what the most reductionist neuroscientists would have us believe, the universal biological and neuronal features of each "I," which we all share as human animals, don't completely determine what aspects of the abstract "We" each "I" will adhere to when it comes to fitting into the concrete "We." In other words, there exist various degrees of -- more or less conscious -- non-adaptative and anti-functional thinking and behavior in human "I"s when faced with the dominant systemic logic and the dominant normative motif of the "We."

In my recent book Full-Spectrum Economics (Routledge, 2010), I have tried to spell out the consequences of this for economics as a scientific discipline. These consequences are actually, or so I believe, quite momentous. Once the external and internal sides of the "We" and the "I" are all taken into account, economics needs to be re-thought almost completely and made into a highly pluralistic discipline -- which it isn't for the moment, although some small progress is slowly occurring at the fringes. In this post, let me say a few things about how I believe this "four-quadrant" approach (OK, yes, some of you may have guessed I take this framework initially from Ken Wilber's so-called "integral" approach and then work out its implications for social science) allows us to better understand the three-tier transition model I'm proposing in this blog.

Actually, I'm glad to be able to use this opportunity to reflect further on the pro's and con's of awareness and consciousness building in economic agents. The opportunity is given me by a book I recently finished reading, by a French colleague of mine from Paris, Frédéric Lordon. The book is called Jusqu'à quand? Pour en finir avec les crises financières. Frédéric easily stands as one of the most brilliant economists of his, and hence my, generation. (Well, yes, it's publicly known that he was born in 1962, just four years before yours truly.) The way he blends technical expertise, political shrewdness, and a focused interest in philosophy and anthropology is something I find not only personally appealing, but scientifically essential. Frédéric Lordon has endeavored over the past twenty years to build his own particular brand of what I would call integral economics. Taking his cue from the 17th-century philosopher Baruch Spinoza, he has chosen to use economic agents' "affects" (which lie at the border between the neuronal and the emotional) as the anchoring point for both an approach to money and finance which is truly fascinating, and a theory of social conflict which he terms a "metaphysics of struggles" (métaphysique des luttes). I won't go into too many details now, but let me just say that Frédéric's central idea is that, since we (universally) act in the vicinity of our affective perceptions, and hence of our interests as we perceive them, we can only be brought to change if we affectively adhere to the idea that something must change; and, on the contrary, as long as (be it out of fear or because we are angry that things of interest to us are going to be taken away from us) we affectively refuse the idea of change, we won't just resist it but actively struggle against it. Therefore, the "We" is a theater of constant struggles -- and this, to Lordon, is a metaphysical fact, not just a momentary feature of reality -- and interests clashing with, or even crashing into, other interests. Self-regulation is therefore virtually impossible, and codes of ethics and good conduct are, in his eyes, a complete sham. For him, calls for morality and "ethics" are, especially in the business and financial worlds, mere alibis to avoid having to submit to the only really effective tool: political -- and therefore juridical -- regulation.

It's a shame that Frédéric Lordon's two gripping books on the financial crisis -- Jusqu'à quand? Pour en finir avec les crises financières (Raisons d'agir, 2008) and La crise de trop: Reconstruction d'un monde failli (Fayard, 2009) -- as well as his hilarious play in alexandrine meter (D'un retournement l'autre, Seuil, 2011) haven't been translated into English. Together, they form an amazingly didactic panorama about the causes and consequences of financial deregulation (alternatives in English include George Cooper's The Origin of Financial Crises and Adrian Buckley's Financial Crisis), and they also trace out radical reform measures by way of re-regulating the financial sector, re-disciplining banks (way beyond what the current Basel Accords impose), and massively backtracking on so-called "financial innovation." Lordon's threefold message -- if I may be permitted to collapse his truly brilliant analyses into a few rudimentary words -- is that (a) financial deregulation and the proliferation of high-risk "innovations" were pushed in the name of a more economically efficient "We" (efficient money, asset, and capital markets were supposed to allocate risks and resources "optimally") and of a more culturally advanced "We" (Fed Chairman Alan Greenspan saw the access to home ownership, with the associated feeling of prosperity as people rode the wave of the real-estate bubble, as a way to reinforce pro-capitalist worldviews in the U.S.); but that (b) in actual fact, the underlying economic and cultural model served a small minority of interests and created perverse incentives for an even smaller minority of "I"s whose existential meaning lay in earning ever more millions -- and those minorities could obviously not be counted on to regulate and rein in their own excesses. Ergo, (c) only a State-driven, public and therefore sufficiently drastic re-regulation of finance, banking, and the market economy in general could undo the fundamentally perverse incentives which the promoters of financial interests had created for themselves.

Let's call Lordon an ontological and metaphysical realist. He's not neo-Hobbesian, however, because for him, everything is political to begin with -- there isn't ever any "state of nature" in reference to which the rules and regulations we adopt could be explained. There's never an "I" without a "We" in Frédéric's work (he doesn't espouse stark methodological individualism), but the key issue in his metaphysics of struggles is that, most of the time, the "I" uses the reference to the "We" out of pure self-interest -- hijacking the collective, as it were, to use it for the furtherance of his/her own interest, of his/her existential meaning. This is what points (a) and (b) of his message indicate. In other words, each "I" builds his/her worldview and preferred economic theory (both of which refer to "We") in such a way that they will cohere with, and further, his/her existential interest -- and s/he does this within a framework in which, most likely, political relations are highly asymmetrical so that some worldviews and theories get disproportionately more hearing from public authorities than others. This means that a minority of "I"s' self-interested references to the abstract "We" get translated into actual policy (in this case, financial deregulation in the alleged "common interest") and become the dominant political and cultural reference point of the concrete "We."

In the everyday functioning of society, there will therefore be various classes of self-interest. Each such class is a network of "I"s who, even though they may never have met and may never meet, share the same outlook on what's important for them and therefore for society as a whole. There is no conspiracy involved (although there frequently are asymmetries as to who gets listened to most, and who gets ridiculed), there is simply an objective collusion of self-interests based on shared existential outlooks (that is, shared views as to what's meaningful and what's important). These interest classes, Lordon proposes, gradually shape the functioning of the economic system and create the incentives (for instance, asymmetric bonuses leading to an absence of accountability, or financial derivatives that allow for Herculean amounts of leveraging) which will most further their interests. The self-interest of certain intellectuals, he continues, plays into these mechanisms as well, leading some economists to defend deregulated financial markets as "efficient" and to portray -- in line with the interests of the financial institutions that sometimes finance their research -- various "financial innovations" such as derivatives as conducive to optimal risk-sharing, even though the reality of the crisis has shown markets to be grossly inefficient and derivatives to create leverage-driven catastrophes of previously unheard-of proportions as huge risks that had long remained invisible suddenly materialized.

Lordon brilliantly combines the microeconomics of Spinoza, Keynes, and Bourdieu with the macroeconomics of the French "régulation" school of economics to offer us an approach to the crisis in which the sole plausible outcome is a firm, top-down re-regulation of the whole financial sector by the public sphere. He makes a very convincing point of it and, in fact, goes about it in a way quite similar to what I earlier called the "ultimate" and the "intermediary" goals. Frédéric's ultimate goal is a high-growth, full-employment capitalist economy with high levels of social protection (as a Keynesian social democrat, he isn't at all interested in de-growth or in post-capitalist alternatives). His intermediary goal is a set of regulatory framework conditions -- both microeconomic and macroeconomic, going from the creation of unlimited negative bonuses (i.e., "maluses") for traders all the way to the radical reforms of the Lisbon treaty -- that severely rein in the latitudes of financial institutions to reap two-digit returns by emitting exceedingly risky instruments. What Lordon's approach is highly skeptical of, however, is what I have called the "immediate" goal of building awareness and consciousness among citizens in general, and among the agents working in the economy in particular.

Why is this so? He holds hard and fast to a theory of "interest classes" which says that people will only act on their own interests and, more precisely, on the affective emotions that "mobilize" them to act. So yes, there may be -- and are, in fact, likely to be -- revolts and even revolutions as the common people gradually realize that, for all the dominant rhetoric and for all the dominant mechanisms of the economy, none of what goes on in the financial sphere is in their own interest. But Lordon's approach is adamant that such movements will not be transitional but, rather (as happens at the end of his play D'un retournement l'autre), will be more or less reenactments of the storming of the Bastille. The reason for this is, mainly, that in his perspective revolt or even a change of vision and a change of heart, leading to "transition advocacy," can't possibly occur in people who are active within the financial sphere. Why? Well, because if such people did act on "alternative" or "transitional" convictions they'd be trampled by the competitive logic that's at work in the sector -- they'd make losing investments, offer too low rates of returns, and be driven out of the market in a short while. Their "class" interests wouldn't be furthered at all. It's not a question of individuals being "bad," says Lordon, it's a question of the structural rules not being the right ones -- and this is what motivates his insistent call for top-down re-regulation without any concern for whether there are agents within the system who might "support" this regulation. In short, he is utterly skeptical of what I have called "low-grade radicalism" as a prelude to "high-grade radicalism" (see previous post, dated June 29).

I have spoken in private with a few "alternative" investors, as well as with a few economic lawyers, who have been kind enough to look at some or all of my blog posts. The lawyers will tend to agree with Lordon and stress that regulatory measures must be pushed for at top levels and with no regard for what most investors, entrepreneurs, bankers, or politicians at the grass roots think or believe -- simply because most of these agents are so busy getting by within the system that they have no objective interest in really thinking about the system or in investing the time and resources required to do so. So, forget the "Next-Step Economy" and just push for the six framework conditions wherever necessary so that they can be implemented directly -- same as Lordon's conviction that the re-regulation of finance ought to be imposed on the finance sector. And, in full coherence with his own approach, he does express this conviction in acidly trite, and also sometimes affectively charged, ways. Translated into our terms here, this would mean that the six framework conditions identified in Part 4 should simply be imposed -- meaning, in a democracy, voted into being through the maze of national, international and supranational decision-making entities.

The alternative investors, surprisingly enough, are more ambivalent. They do, of course, recognize that regulation is crucial if there is to be a common foundation for everyone's decisions -- which is the regulatory version of the free-market idea of the "level playing field." They see clearly that worldwide accounting rules need to be modified, that international or supranational rules for protecting "green" or "integral" foreign investments more than "gray" or "brown" ones may be needed, and so on. But they also believe that such regulations only have a chance to be passed if they're advocated by a sufficiently visible minority of powerful actors in the investment community itself. This may be an unfortunate fact of our contemporary capitalist social democracy, but if a whole "interest community" whose interests stand to be affected by legislation or regulation has the financial and symbolic means to lobby against it, that legislation or regulation will not be passed unless there's a haphazard coup within the political institutions. "Muddling though," remember, means that competing interests are to be given equal hearing -- and de facto this often means they get un-equal hearing, some turning out to be more equal than others... Therefore, in order to even have a chance to have new regulations and legislation encouraging eco-preneuring and sustainable investment, we need to have a sufficient number of investors themselves asking for such new rules -- and that obviously requires the emergence of a minimum number of already active, already practicing "alternative" investors. Not pseudo-alternative ones, not greenwashers (for these will gladly, in full compliance with Lordon's theory, push for more of the same and for business as usual), but individuals who, due to some event in their lives which caused them to experience a consciousness shift, are truly open -- with their whole affectivity -- to going all the way and doing, as well as asking for, whatever regulation is necessary for a genuine transition to get off the ground. But for this to be the case, they already have to be such alternative investors within the system as it is. Which means that they already have to have started on low-grade radicalism -- some because they think it's just good business, others already with a view to furthering high-grade radicalism later (in the form of a genuinely plural, sustainable economy as the ultimate goal).

So the fated expression, "consciousness," has been pronounced yet again, and it could equally well have been "awareness." Structures-oriented social scientists are legitimately wary of these expressions. Frédéric -- as well as other radical colleagues I'm thinking of -- will surely associate them with the worst of New Age hogwash. If consciousness/ awareness is structure-determined, he might claim, then what sort of "mutation" can one expect from a person who's still busy making a living within the financial system, investing his/her own or other people's money? Actually, wanting to do "alternative" investment within the existing structure is suicidal: the deregulated capital and asset markets and their cutthroat competition will take care of such fantasies... The only true latitude for surviving within the system while appearing to be "alternative" is, indeed, to practice greenwashing -- so that greenwashing is, in fact, the only really systemically coherent form of behavior and is, by that token, only to be expected from capitalist investors. Or so the claim would be.

Of course, as he's surely aware, "heterodox" economists such as Frédéric Lordon himself are living counterexamples to this very approach. In order to survive intellectually, institutionally, and financially within a profession whose dominant mainstream is quite hostile to them, "alternative" economists both accept sacrifices (on average, fewer career opportunities and lower salaries) and militate for the creation of "havens" and opposition forces, such as professional associations and partnerships with specific institutions (e.g., trade unions or government agencies, rather than perhaps banks or multinationals). There are also, within the mainstream of economics, quite a few "heterodox-washers" (Lordon offers a scathing critique of some of them in his two books) who seek to combine a critical-looking façade with innocuous practical recommendations. Their existence makes the life of more sincere heterodox thinkers even more difficult, but the latter nevertheless sometimes manage to carve out a place for themselves -- just like Frédéric himself has done -- in the hope that they might, someday soon, influence the deeper structure of the profession and of teaching curricula so as to durably modify the incentives economists face. (I have devoted two books to a general theory of the reform of economics: in French, L'économie c'est nous [Erès, 2006] and, in English, Critical Political Economy [Routledge, 2008].) If economics is someday to become a genuinely pluralistic discipline, the first transition that has to occur -- still at a long distance from this ultimate objective -- is the emergence of thinkers such as Lordon who, through one form or other of "mutation" of their self-interest, start doing alternative economics within a still largely hostile professional environment with its institutional constraints and systemic sanction mechanisms. (Another example is my colleague from the University of Athens, Yanis Varoufakis, born 1961, who has just co-authored a stunning Modern Political Economics [Routledge, 2011] and has spent two decades struggling within the establishment, ending up successfully creating a pocket of serious, rigorous, and credible "heterodoxy." His book, written with Joseph Halevi and Nicolas Theocarakis, is the uncontrovertible proof that this is possible.) This first transition toward a critical mass of "new consciousness" economists might then, in a second transition, lead to a modification of the rules by which PhDs are awarded, academic positions are labeled and filled, and economics departments are evaluated -- so that, in a third and final transition phase, the actual everyday functioning of the profession might become durably pluralistic. That such a transformation requires deep structural changes is quite clear; that it also, and probably first, requires the emergence of a cohort of "alternative" actors who start acting from within seems to me equally clear.

This, and nothing else, is what I see as the "Next-Step Economy" phase. I don't care about building a Next-Step case per se. I, too, like many of the visitors to this blog, would prefer the six framework conditions (and others accompanying them) to be implemented in a one-shot, once-and-for-all "bang!" It would save a lot of time and a lot of energy spent working on mentalities in more or less skeptical, more or less hostile environments. It would save the resources that, right now, are going to have to be devoted to creating embryonic groups of "alternative" actors. And by that I mean groups aiming to have a significant impact given the intermediate and ultimate goals set out in this blog -- not given a hidden agenda of neutralizing radicalism so as to maintain the status quo. And this, as I insisted in my two previous posts (June 25 and June 29), requires critically vigilant citizens (a minority, surely, given current living conditions in our societies) and partnerships between NGOs and businesses that go way beyond empty declarations about "social responsibility" and "the greening of business" (a minority endeavor also, to be sure). In fact, when Frédéric Lordon admonishes his readers about the primary influence of structure-determined interests on most people's actions, he is offering a tool to critical citizens who seek to work with the currently available handful of genuinely "alternative" investors and decision-makers. (This is, in fact, how the great late French sociologist Pierre Bourdieu, who has clearly had a big influence on Lordon, saw the role of his own theory of "habitual" action: Most actors in politics and in the economy aren't upfront interested in deeper change, but clearly becoming conscious of this very fact might lead a minority of them, and then an increasing proportion, to actually become interested in structural change.)

Is it all a gamble? Yes, in a way. Given the current power relations, and given the way incentives work in the capitalist system, even among those who are genuinely concerned about alternatives there will only be a handful who step forward as pioneers. (It's the exact same idea as Warren A. Johnson's point, put forward in an earlier post [dated April 21, 2011], that there's a crucial social role to be played by pioneers who sacrifice their comfort inside the system and resolutely act "outside the box" so as to set an example.) So let's say that while Frédéric Lordon may be quite correct as to what regards the average population's lack of concern, he may not be right in inferring that regulation and legislation can, and should, be pushed forward regardless of the readiness of anyone in the business community and the political elite to follow suit. In fact, he may well want to argue that this is what should happen, but I fear that it simply won't be what actually happens. That's why some people I know are working in the world of investment or in environmental NGOs in order to win at least some of the mainstream business actors over to some embryo of "radical" change. Which means, like it or not, consciousness- or awareness-building -- but with convincing economic arguments as to why the six framework conditions, if implemented, would either (a) not mean any losses and would perhaps even improve business or (b) imply restrictions and losses whose magnitude would be more than compensated by other valuable aspects linked to environmental or social bottom lines. And once such actors are convinced of this, they will themselves not simply draw up vacuous and opportunistic "ethical charters" but ask governments and international as well as supranational institutions for regulations that make sustainable investment more easily feasible and allow more localized banking and trade to be less exposed to the strictures of planetary competitiveness.

No easy task, and more than occasionally frustrating, to be sure. But necessary if, in the medium run, the six framework conditions are to have any chance of emerging with enough legitimacy and if, in the long run, a truly pluralistic, sustainable economy is to become a durable, established reality. In fact, even those of us who read Frédéric Lordon's own suggestions for radical reform of the financial system will only adhere to them, and make them part of our individual conception of a desirable "We," to the extent that -- like Frédéric himself -- we have undergone a change in awareness that makes us agree in a deep, affective way that this system has deep faults and needs to be changed structurally. Now, Lordon believes such awareness will come more easily to citizens who are not working within the financial system itself because their affect of revolt and anger can be more easily mobilized. But to have a "Next-Step" case for reforming our system and for taking the first steps towards a long-term transition goal, we also need people from within the system to experience affective changes in awareness, i.e., to be jolted into the "gut feeling" that something is very wrong. There are a handful who already have had such an experience -- each with his/her own specificity and his/her own character qualities and flaws -- and it's these individuals who need to be mobilized towards genuine structural change, because it is they who can help decision-makers realize that there's an "intra-system" demand for change, not just a "clamor from the street." Both are very necessary in a democracy, but without the demands for truly structural re-regulation and legislation from within the system, a long-term transition will be much more difficult to steer.

Does this mean we must, as citizens, uncritically accept all calls for regulation and legislation arising from within the mainstream system? Not at all. Transition-oriented vigilance means that we'll probably -- in line with Lordon's skeptical approach -- unmask 90 percent of such calls as covert attempts to hijack the transition process and maintain an interested (and interesting) status quo. Yes, there's a lot of greenwashing out there, and there's bound to be quite a lot of "transition-washing," too. At the same time, the principled stance according to which no businessperson from within the mainstream economy could ever truly renege his/her own "class" interests and be won over by a truly alternative perspective is nonsense. True enough, a few isolated cases wouldn't be sufficient. Critical mass is essential, and therefore the "Next-Step Economy" and its specific properties (which I set out in the post dated June 25) requires that a new "interest class" be gradually built up -- a class of individuals whose conception of a desirable "We" rests mainly on the promotion of sustainable (or "green") investment, of genuinely alternative management (or eco-preneurship), of new processes of European integration and a new logic of trade regulation, and of a new social compact (or Green New Deal). Surely, protests from the man in the street may help quite a bit in hastening the change of awareness in some decision-makers -- but they will never be sufficient in a real-world capitalist democracy where, like it or not (and this sometimes takes objectionable forms indeed), the powers that be -- elected representatives as well as administration officials -- need to see that a significant fringe of the capitalists, investors, and CEOs have changed their minds before they go for more or less radical legislation for re- (as well as de-) regulation.

This means, of course, that if such a new interest class doesn't arise, our cherished transition objectives won't be attainable. Sure enough, we may be able to create tiny "alternative" enclaves where some of us live "as if" the transition had taken place, but still in total dependency on the system they would have wanted to transition away from. This is what happens now with all manner of "voluntary simplicity," "transition town," or "grass-roots agriculture" groups. It can be stimulating to see how such groups operate and what new horizons of possibility they're imagining. It is, in fact, essential. But in the end it can get highly frustrating, too, if the systemic logic in which all of these groups are embedded doesn't change a bit. That's why what is ultimately needed -- here I fully agree with Lordon as well as with my economic lawyer friends -- is full-scale regulatory change of a fairly deep nature. This regulatory change needs to be supported by some of those who have the means to act on it and who -- therefore -- also have the means to block it. Alas, this is part of the realpolitik of capitalist social democracy. That they might massively use their economic poser to actually block real advances -- and again, Lordon is quite right in suggesting that this might happen -- is what prompts the need for extreme vigilance on the part of citizens (and NGOs should ideally be of help here). But citizens' vigilance will only overcome such blockages if, in parallel to grass-roots activism (and here, again, I follow Lordon's lead, but with a smaller dose of skepticism than him), the emergence of a new interest class that genuinely wants investment, trade, and governance, both nationally and internationally, to be shaped in a transition-conducive way.

A long shot, yes? Sure. But if there's another avenue short of remaining stuck in the status quo and feeling resigned to it, I'm eager to hear about it.

This post from the "Eco-Transitions" blog by Christian Arnsperger is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.