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The governmentality of sovereign credit ratings: exploring
the political economy of creditworthiness in South Africa
Cecilia Schultz
Department of Political Studies
Thesis submitted in fulfilment of the requirements of the degree of Doctor of Philosophy at
the University of the Witwatersrand, Johannesburg, South Africa
2021
Supervisor: Professor Lawrence Hamilton
ii
Abstract
The sovereign credit ratings issued by the ‘Big Three’ credit rating agencies (CRAs) – Standard
& Poor’s (S&P), Moody’s, and Fitch – significantly influence how emerging market
governments structure their economies. This is despite several rating failures that have cast
doubt on the accuracy and transparency of ratings and revealed problems such as conflict of
interest in the business model of CRAs. Existing critiques about the political economy of
sovereign credit ratings, however, fail to explain how their authority remains intact amidst these
contestations. This thesis shows how the authoritative agency of CRAs and sovereign credit
ratings are produced by an epistemic culture that places a high value on numerical data as a
transparent reflection of reality and therefore the most rational basis for decision making. While
acknowledging that ratings can be improved, the assumption is that under certain conditions,
CRAs can unearth the objective ‘truth’ about a government’s fiscal profligacy. This thesis
reveals the historical, discursive, and geopolitical framework that informs this assumption and
how it fits into global power relationships. As such, the thesis shows how modern credit
arrangements are embedded in long-term colonial histories and the continued relevance of
these histories in the reproduction of the global political economy.
The goal is to re-politicise the discourse of sovereign credit ratings by exposing the historical
ambiguities, ideological contestations, and methodological compromises that underpin their
production. This analysis is divided into two themes. The first two chapters of this project
examine the historical processes through which financial markets and the economy became de-
politicised, and conceived as a natural, self-regulatory mechanism that can be scientifically
‘known’ and the macro-economic policies this assumption made possible. The two chapters
after that reveal the myriad subjective assessments, political considerations, and methodological
compromises that go into the production of ratings. These include deciding what type of data
to collect, model specifications, as well as how to interpret flawed or missing data.
The final two chapters of this thesis consider how sovereign credit ratings are entangled in the
political economy of South Africa. These chapters reveal the post-colonial nature of modern
financial markets by showing how South Africa’s political economy has profoundly been shaped
by colonial regimes of power and knowledge. Sovereign credit ratings are entangled in the
reproduction of these power structures in two ways. First, the assessment of creditworthiness
necessitates a forgetting of not only these violent histories and how they have come to shape
asymmetrical power relations around the globe, but also their own complicity in the
reproduction of these hierarchies. Secondly, their authoritative position in financial markets
iii
contributes significantly to the normalisation and sedimentation of macroeconomic policies
which similarly require a ‘forgetting’ of these histories by disciplining unorthodox fiscal and
monetary measures to address them. By exposing the political processes inherent in ratings,
this thesis emphasises the necessity of broadening their content to enable modalities of
economic policy making that aligns with the social welfare and democratic needs of society.
Keywords: sovereign credit ratings, global South, South Africa, governmentality, post-
colonial finance
iv
Declaration
I declare that this thesis is my own work. It has been submitted for the degree of Doctor of
Philosophy at the University of the Witwatersrand, Johannesburg. It has not been submitted
for any degree or examination at any other university.
Cecilia Schultz
Student number: 1633996
January, 2021
v
Table of Contents
ABSTRACT ................................................................................................................................... I
LIST OF ABBREVIATIONS .................................................................................................... VIII
PREFACE .................................................................................................................................... XI
INTRODUCTION ...................................................................................................................... 1
RATIONALE ................................................................................................................................... 4
LITERATURE REVIEW ................................................................................................................... 6
EXPANDING ‘THE POLITICAL’ IN INTERNATIONAL POLITICAL ECONOMY ....................................... 6
RATINGS, CRAS AND IPE: LIMITS OF STRUCTURAL CRITIQUES ........................................................ 8
THEORETICAL FRAMEWORK AND METHODOLOGICAL APPROACH ............................................. 11
POWER-KNOWLEDGE, DISCOURSE, AND TRUTH ............................................................................... 11
THE GENEALOGICAL METHOD ........................................................................................................... 13
STUDYING THE SOVEREIGN CREDIT RISK ASSEMBLAGE ................................................................... 25
STRUCTURE OF THESIS ................................................................................................................ 30
CHAPTER ONE ......................................................................................................................... 34
THE POLITICAL HISTORY OF CREDITWORTHINESS ................................................... 34
THE SOCIAL DIMENSION OF FINANCE: CREDIT, TRUST, AND OPINION ...................................... 37
DEBATING CREDIT: THE QUEST TO MORALISE FINANCE .................................................................. 43
GENDERING UNCERTAINTY: LADY CREDIT AND FORTUNA ........................................................ 45
GOVERNING UNCERTAINTY THROUGH SELF-DISCIPLINE: THE GENDERED FACE OF
(IR)RATIONALITY ......................................................................................................................... 50
GOVERNING UNCERTAINTY THROUGH THE INSTITUTIONALISATION OF BOOKKEEPING:
DISCIPLINE AND NUMBERS ................................................................................................................. 52
FROM GENDER TO GEOGRAPHY: LADY CREDIT AND THE GEOPOLITICAL IMAGINATION OF
EMERGING MARKETS ................................................................................................................... 54
CONCLUSION ............................................................................................................................... 63
CHAPTER TWO ........................................................................................................................ 66
ASSEMBLING THE TECHNICAL ECONOMY ..................................................................... 66
ON THE ROAD TO SCIENTIFIC STATUS: THE 1870 ‘MARGINAL REVOLUTION’ AND THE
EMERGENCE OF NEO-CLASSICAL ECONOMICS ............................................................................ 68
AWAY WITH THE POLITICAL ............................................................................................................... 69
STUDYING MARGINAL UTILITY: METHODOLOGICAL IMPLICATIONS OF NEO-CLASSICAL
ECONOMICS ........................................................................................................................................ 74
vi
PROBABILITY THEORY AND RATIONAL ACTION IN CONDITIONS OF UNCERTAINTY ................... 79
MODELLING RATIONALITY: FROM HOMME ÉCLAIRÉS TO HOMME MOYEN ................................ 80
DEBATING INDETERMINISM IN ECONOMICS: PROBABILITY WITHOUT STATISTICS, STATISTICS
WITHOUT PROBABILITY .................................................................................................................... 88
CONCLUSION ............................................................................................................................... 94
CHAPTER THREE .................................................................................................................... 96
THE ECONOMY IN MODEL FORM ..................................................................................... 96
MODELS AS MEDIATORS .............................................................................................................. 98
NEGOTIATING WITH KEYNES, IDEALISING EQUILIBRIUM ........................................................ 100
LUCAS AND THE REVIVAL OF HOMO ŒCONOMICUS: NEW-CLASSICAL ECONOMICS .................. 106
THE RETURN OF METHODOLOGICAL INDIVIDUALISM: JEVONS AND WALRAS IN THE
TWENTIETH CENTURY ..................................................................................................................... 110
RATIONAL EXPECTATIONS AND FINANCIAL MARKETS .............................................................. 113
FINANCIALISATION AND NEW-CLASSICAL ECONOMIC MODELS ................................................. 118
CONCLUSION ............................................................................................................................. 126
CHAPTER FOUR .................................................................................................................... 128
MODELLING SOVEREIGN CREDITWORTHINESS: CRAS AND THE TRANSLATION
OF RISK .................................................................................................................................... 128
CRAS AS MACRO-EPISTEMIC ACTORS: POWER, AGENCY, AND THE POLITICS OF TRANSLATION
................................................................................................................................................... 132
NAVIGATING THE CHAIN OF TRANSLATION IN THE CALCULATION OF SOVEREIGN CREDIT RISK
................................................................................................................................................... 134
THE POLITICS OF TRANSLATION: THE MESSY WORLD OF DATA COLLECTION AND
INTERPRETATION ............................................................................................................................ 136
THE PERFORMATIVITY OF RATINGS .......................................................................................... 151
CONCLUSION ............................................................................................................................. 153
CHAPTER FIVE ....................................................................................................................... 156
THE POLITICAL ECONOMY OF SOVEREIGN CREDITWORTHINESS IN SOUTH AFRICA ............... 156
GEOGRAPHIES OF HISTORY: RAW LIFE, AND EROSIONS OF ORDENTELIKHEID .......................... 160
APARTHEID’S DREAM GEOGRAPHIES ............................................................................................. 165
RAW LIFE IN DEMOCRATIC SOUTH AFRICA: POVERTY, HOUSING, AND EDUCATION ............... 170
CONCLUSION: SOUTH AFRICA AS A HAUNTED SOCIETY .............................................................. 178
CHAPTER SIX ......................................................................................................................... 179
ASSEMBLING THE CREDITWORTHY SOVEREIGN ....................................................... 179
NEOLIBERALISM AND THE STATE: A GOVERNMENTALITY APPROACH ...................................... 182
THE RISE AND FALL OF SOUTH AFRICA’S SOVEREIGN CREDITWORTHINESS ............................ 189
CONCLUSION ............................................................................................................................. 196
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CHAPTER 7 ............................................................................................................................. 199
CONCLUSION: RE-POLITICISING SOVEREIGN CREDIT RISK .................................. 199
REFERENCE LIST .................................................................................................................. 214
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List of Abbreviations
AIM academic-institutional-media
ALIU Anti Land Invasion Unit
AMCU Association of Mineworkers Union
ANC African National Congress
ASGISA Accelerated and Shared Growth Initiative for South Africa
BIS Bank of International Settlements
BRICS Brazil, Russia, India, China, South Africa
CAPM Capital-Asset Pricing Model
CBOT Chicago Board of Trade
CCM Country Ceiling Model
CDO Collateralised Debt Obligations
COSATU Congress of South African Trade Unions
COVID-19 Coronavirus 2019
CRAs Credit Rating Agencies
DBSA Development Bank of Southern Africa
DEP Department of Economic Policy
EDF Expected Default Frequency
EMH Efficient Markets Hypothesis
EMO Emoluments Orders
ESMA European Securities and Markets Authority
FDI Foreign Direct Investment
FED Federal Research Bank
FMG Financial Markets Group
FSB Financial Stability Board
GDP Gross Domestic Product
GE General Electric Company
GEAR Growth Employment and Redistribution
GFC Global Financial Crisis
IFA International Financial Architecture
IFC International Financial Corporation
IFIs International Financial Institutions
IMF International Monetary Fund
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IMS International Monetary System
IPE International Political Economy
IR International Relations
IS/LM Investment Savings/Liquidity Preference Money Supply
JSE Johannesburg Stock Exchange
LLN Law of Large Numbers
MBS Mortgage-Backed Securities
MCI Micro-Credit Initiative
MEC mineral-energy complex
MERG Macro-Economic Research Group
MIV micro-credit investment vehicles
NCA National Credit Act
NDP National Development Plan
NGOs Non-Governmental Organisations
NIFA New International Financial Architecture
NP National Party
NUM National Union of Mineworkers
OCC Office of the Comptroller of the Currency
ODA Official Development Assistance
OECD Organisation of Economic Co-operation and Development
OLS Ordinary Least Squares
OTC Over-the-Counter
PGM Platinum Group Metals
PIT Point-in-Time
QO Qualitative Overlay
RAC Royal African Charter
RAMP Ratings Analysis Methodology Profile
RDP Reconstruction and Development Programme
REH Rational Expectations Hypothesis
S&P’s Standard & Poor’s
SACP South African Communist Party
SAHRC South African Human Rights Council
SANDF South African National Defence Force
SAPS South African Police Service
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SARB South African Reserve Bank
SEC Security and Exchange Commission
SRM Sovereign Rating Methodology
Stats SA Statistics South Africa
TTC Through-the-Cycle
VaR Value-at-Risk
VOC Vereenigde Oostindische Compagnie
WEF World Economic Forum
WTO World Trade Organisation
UN United Nations
UNDP United Nations Development Programme
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Preface
Dear Paul,
Toward the end of 2008, something happened in the realm of high finance as a result of
which, we are informed, most of us are now poorer […]
The question is, what is the something that happened? […]
The answer we are given is that certain numbers changed.
Certain numbers that used to be high suddenly became low, and as a result we are poorer.
But the numbers 0, 1, 2, … 9 are mere signs, no less than the letters a, b, c, … z are mere
signs. So it could not have been the drop in the numbers that in itself made us poorer. It
must have been something that was signified by the drop in the numbers that did it.
But what exactly was it, signified by the new, lower numbers that made us poorer? The
answer is: another set of numbers […]
[W]hy, I ask, do we have to accept the verdict that we are now poorer and must start
behaving as if we are poorer? Why not, I ask, simply throw away this particular set of
numbers, numbers that make us unhappy and don’t reflect a reality anyway, and make
up new numbers for ourselves, perhaps numbers that show us to be richer than we used
to be [..]
The response I receive to this proposal (this ‘naïve’ proposal) is a pitying head shake. The
numbers that confront us, the numbers we have inherited, I am told, do indeed describe
the way things are; the internal logic in the progression of those numbers from higher to
lower, from early 2008 to late 2008, describes a real impoverishment that has taken place
[…]
P.S.: I am not unaware that in proposing that we make up a new, “good” set of numbers
to take the place of the old, “bad” numbers and install these new numbers in all the
world’s computers, I am proposing no less than the discarding of the old, bad economic
system and its replacement by a new, good one – in other words, the inauguration of
universal economic justice […] (Auster & Coetzee, 2012:18-21).
1
In this letter, J.M. Coetzee makes several observations that constitute the main themes of this
thesis. First, he notes how the use of numbers dominate the language of finance markets,
making it difficult for us to see the crisis. Although Coetzee writes from Australia, the only major
economy that avoided a recession during the 2008/09 Global Financial Crisis (GFC) (Khalil,
2020), his observation alludes to the ‘black boxed’ nature of financial markets and the numbers
that represent them.
2
The arithmetic appearance of financial markets render these spaces
opaque to outsiders, and it becomes difficult to imagine how markets materialise outside the
trading rooms of stock exchanges in New York, London, Beijing or Tokyo (MacKenzie, 2005).
It is during times of crisis, when the ‘normal’ operation of the market becomes disrupted, that
1
These letters between J.M. Coetzee and Paul Auster are published in Here and Now: Letters, 2008-2011 (Auster & Coetzee,
2012). This letter in particular was written by J.M. Coetzee to Paul Auster on the 6th of December, 2008.
2
John Maxwell Coetzee (1940-) was born in Cape Town, South Africa. He emigrated to Australia in 2002 and won the Nobel
Prize in Literature in 2003. He has chronicled South Africa’s transition from apartheid, and I draw on his works several times
in this thesis (see Kannemeyer, 2012).
xii
we are able to expose the intricate connections between financial practices and disparate places,
practices, locales, histories, economies, and societies across the globe. Second, Coetzee points
out the numbers that made us poorer are signifiers of things whose value had dropped. They
are signifiers in the same way letters and words mean certain things in certain contexts. These
meanings are socially and discursively contingent: they do not exist outside human action and
belief systems; as noted in the post-script, Coetzee suggests that the current way of valuation
can be changed. He then proposes that we replace these numbers with better ones: we must
find new things to value and new ways of valuing things. In his reply to Coetzee’s letter a few
days later, Paul Auster adds the following:
What we are talking about here, I think, is the power of fiction to affect reality, and the
supreme fiction of our world is money. What is money but worthless pieces of paper? If
that paper has acquired value, it is only because large numbers of people have chosen to
give it value. The system runs on faith. Not truth or reality, but collective belief (Auster
& Coetzee, 2012:22-24).
3
Contrary to mainstream explanations that the 2008/09 GFC was caused by greed,
miscalculations of credit risk, or a flawed regulation (see Amadeo, 2020; Kohn, 2011a, 2011b;
Weidner, 2015), the implication here is that it was a lack of belief that certain objects have value
which sits at the heart of the crisis. An etymological enquiry of ‘credit’, as de Goede (2000:60)
points out, captures the socially constructed nature of financial practices. Crédit, as used by the
French circa 1520 meant ‘belief’ and ‘trust.’ From Latin, in the form of credere, credit means ‘to
trust, entrust, believe’ – a person worthy of trust or having the reputation for being believed. In
commercial transactions, credit came to mean respect and trustworthiness, ‘honour,
acknowledgment of merit’ (Online Etymology Dictionary, 2017). In modern finance, complex
risk metrics that hold out the promise of calculating the creditworthiness of a certain borrower,
obscures the sociality of financial practices and the extent to which they depend on faith and
imaginations of profit. Third, Coetzee’s question of why ‘we have to accept the verdict that we
are now poorer and must start behaving as if we are poorer?’ necessitates an investigation into
the power of financial numbers to shape the behaviour of market participants. If we accept the
assertion that financial practices are based on social imaginaries of trust, value, and profit, how
do some ideas of creditworthiness and profit shape the collective belief of market participants
while others fail?
3
From Paul Auster to J.M. Coetzee, written on the 9th of December 2008.
xiii
This thesis examines the authority of a particular set of numbers that have become extremely
influential in shaping the trust and behaviour of financial participants, namely, sovereign credit
ratings. Sovereign credit ratings are risk assessments of a government’s capacity and willingness
to repay its financial debt obligations in full and on time (see Fitch, 2018a; Moody’s, 2019;
S&P’s, 2017a). Packaged into an alphanumerical indicator and placed on a rating scale from
AAA (prime grade) to D (in default), these ratings essentially answer the question of whether or
not a government can be trusted to deliver on its promises of future profits in a particular
transaction (Fioramonti, 2014). These calculations help grant governments access to liquid
capital markets and the necessary debt financing for programmes of national self-determination
such as health care or fiscal stimulus. In a context where states significantly rely on capital
markets to finance their development needs, sovereign credit ratings are powerful technologies
that encourage states to present themselves in a creditworthy manner to investors. Far from
being merely ‘informed opinions’ of credit quality, sovereign ratings are imbued with power
and knowledge by establishing an infrastructure of referentiality – via the rating scale – to signal
what ‘correct’, creditworthy conduct entails (Löwenheim, 2008; Paudyn, 2014).
This project interrogates the historical, geopolitical, and discursive frameworks that make the
rating of sovereign default risk possible. It engages with Coetzee’s observations in the following
ways. First, my thesis aims to disrupt the technical, black boxed nature of financial numbers by
exploring how the discourse of sovereign creditworthiness is based on a set of ideas and theories
about the economy and the marketplace that are historically contingent and the product of
multiple contestations and ambiguities. I investigate how discourses of trust and
creditworthiness are rooted in a masculine, racist, and colonial imagination of rationality and
scientific ‘truth’ that envisions people and spaces beyond the horizon of ‘the West’ as chaotic,
irrational, and backward. Yet, these places and people are potentially lucrative and thus
destinations to be conquered (Agnew, 2003; de Goede, 2000, 2005). This geopolitical
imagination of creditworthiness resurfaces in contemporary portrayals of ‘emerging’ and
‘frontier’ markets as investment destinations beleaguered with uncertainty: corrupt politicians,
inaccurate information, inexperienced traders and policy-makers, currency volatility, and
social unrest. However, because they are still ‘becoming’ advanced, they are lucrative short-
term investments; they are ‘wild frontiers’, ‘hot’ and ‘ripe’ for capital penetration (Sidaway &
Pryke, 2000; see also Lee, 2003; Schultz, 2021). Far from being merely rhetoric, this thesis
shows how these descriptions of emerging markets can often engender the volatility of their
currencies, Gross Domestic Product (GDP) and economic growth (Schultz, 2021). Sovereign
xiv
credit ratings tend to sediment these colonial tropes in their assessments of political willingness
to repay debt which, as this thesis shows, engages with a particularly geopolitical dimension of
trustworthiness and rationality. This project is motivated by a desire to interrogate how the
discourse of sovereign creditworthiness fits into global power relationships: to what extent does
it represent what Doty (1996) terms an imperial encounter? Doty (1996) explains how the
asymmetrical power relations between the global North and global South is produced through
representational practices, where one entity “has been able to construct ‘realities’ that were
taken seriously and acted upon and the other entity has been denied equal degrees or kinds of
agency” (Doty, 1996:3). How do sovereign credit ratings constitute identities, actors, objects,
and power relationships?
My thesis also looks at how these power relations, shaped by long-term histories of colonial
violence, unfold in the political economy of South Africa. By doing so, this thesis seeks to
elucidate how credit activities are entangled in socio-economic realities beyond New York or
London. The aim is to ‘spatialise’ global capital markets by exploring how they interact with,
and configure, unstable geographies of accumulation (Brenner & Theodore, 2002:7). This is
not to conflate all of post-apartheid’s South Africa’s socio-economic problems to the decisions
and activities of financial elites like CRAs. Instead, the goal is to explore the spatial impact of
the workings of global finance (highlighting the authoritative position of CRAs) and the
imaginaries that enable financial flows to move around the globe (Pryke, 2006). Focusing on
‘the local’ and ‘everyday life’ of South Africans within the global political economy, the
objective here is to explore the networks of socio-historical and power relations articulated
through financial flows at particular sites, such as mining enclaves, city-centres, or through
public infrastructure. Here, the local becomes stretched, as Hunter (2010:23) suggests, to
account for the ways in which global markets and states figure in people’s life experience, and
what these experiences can reveal about the continuous assembling and reassembling of capital
relations (Rankin, 2011:565).
Second, this study examines the micro-processes involved in the production of a sovereign
credit rating. I will focus on the methodologies, models, and assumptions of the Big Three
CRAs that is, Moody’s, S&P’s, and Fitch. The goal here is to investigate how certain
phenomena about the budgetary affairs of governments are translated as ‘risks’, such as deficit
spending or redistributive programmes. Far from representing an objective reality about the
likelihood that a government will default on its debt obligations, these assessments reflect the
xv
social and cultural worlds of the actors and organisations that create them and the regimes of
power within which they are formed (Merry, 2016a:4). However, once packaged into an
alphanumerical indicator, the social aspect of credit ratings becomes stripped away. Moreover,
I show how the articulation of sovereign creditworthiness not only embodies a particular
ideological claim about what constitutes normal budgetary conduct, but that the production of
ratings also involves countless subjective, political considerations that shape both the collection
and presentation of data (de Goede, 2017a; Gitelman & Jackson, 2013; Jerven, 2013; Merry,
2016a). Data and information are never ‘raw’ – neutral – and always presuppose some form of
interpretation. Selecting what counts as data, where and how it should be collected, compiled,
stored, and processed entails an interpretive base (Gitelman & Jackson, 2013:3). My thesis
interrogates the cultural, political, and epistemic practices that shape the translation and
interpretation of data into sovereign credit risk.
Third, this thesis addresses Coetzee’s question about why we accept and act upon financial
numbers. I will adopt a post-structural lens of power, mainly influenced by the work of Michel
Foucault, which explores the discursive workings of power that normalise certain ideas and
possibilities of budgetary rectitude at the expense of others (de Goede, 2003, 2006; Peterson,
2006). This notion of power differs from conventional accounts that capture power as a
commodity, owned by one entity to restrict, punish, or control another (Digeser, 1992;
Foucault, 1982). Power works through systems of knowledge and discursive practices to
establish a field of normality concerning financial behaviour (de Goede, 2012:46). Although
CRAs are often scrutinised, especially during times of crisis, the information they sell has
become embedded in the everyday decision-making of market actors. In this sense, CRAs do
not only measure sovereign creditworthiness, but are in fact part and parcel of the processes
that produce the budgetary realities of states. Given that financial practices are based on social
imaginaries of trust and profit, market actors are constantly seeking to determine not only the
accuracy of information about a certain entity, but also how the ‘market’ will react to news and
interpret information. As such, ‘expert analyses’, risk valuation metrics, and growth estimates
are more than just observations of commercial realities, but precisely how financial markets
materialise (de Goede, 2005:7). This thesis emphasises the geopolitics of financial and economic
knowledge production and the subjects/objects this discourse creates and foreclose. Theories
and calculations of sovereign default probability are formed within an epistemic culture that
places high value on numerical data as a form of knowledge and a basis for decision making
(Merry, 2016a:9). Here, culture refers to a set of techniques and practices of knowledge
xvi
production to be applied within a specific situation instead of a description of society. Its
characteristics are trust in technical rationality and the idea that all things can be measured and
that those measures provide an ideal guide to decision making (Poovey, 1998). My thesis situates
this culture within a broader geopolitical history of economic theory and methods, dominated
by the ideas, experiences, and histories of the global North and in particular, colonialism. This
geopolitical history has significantly influenced who gets to define sovereign creditworthiness
and how should be measured. I explore how this history becomes concealed and de-politicised
in the rating process, thereby consolidating and reinforcing existing power relations between
states, regions, and societies.
This project has come a long way since May 2016. Originally, I wanted to adopt a neo-Marxist
lens to examine the politics of sovereign credit ratings in sub-Saharan Africa. This changed
when I encountered the following works, all of which have had a significant influence on this
project: Marieke de Goede’s Virtue, Fortune, and Faith: A Genealogy of Finance (2005); Sally Engle
Merry’s The Seductions of Quantification: Measuring Human Rights, Gender Violence and Sex Trafficking
(2016a); Mary S. Morgan’s The World in the Model (2012), as well as Morten Jerven’s Poor Numbers:
How we are misled by African development statistics and what to do about it (2013). These works chronicle
the politics of quantitative knowledge production and draw attention to the many uncertainties,
contestations, compromises, and subjective assessments that get concealed through the
numerical representation of phenomena. This motivated me to incorporate literature on the
politics of financial and economic knowledge production into the disciplinary domain of
International Political Economy (IPE). The goal is to expand ‘the political’ in political economy
beyond a focus on government policies and behaviour vis-à-vis the market. I aim to show how
an exposition on the (geo)political history of financial and economic ideas, which underpin the
articulation and measurement of sovereign creditworthiness, opens a space for a critique of the
present.
Akin to the journey of many doctoral students, this project encountered some rough patches,
and I considered discarding it on a number of occasions. There are many people in my life that
prevented this from happening. First and foremost, my supervisor, Professor Lawrence
Hamilton. I would like to thank him for his words of encouragement and mentorship during
the past few years. Perhaps without knowing it, he often said the right things at exactly the right
time. Apart from this, I would also like to thank him for giving me a doctoral bursary through
his SARCHi/Newton Research Chair in Political Theory, funded by the National Research
xvii
Foundation and the British Academy. A special thank you therefore goes to these funding
bodies for their financial support in the first three years of my doctoral studies. The financial
assistance of the National Research Foundation (NRF) towards this research is
hereby acknowledged. Opinions expressed and conclusions arrived at, are those
of the author and are not necessarily to be attributed to the NRF.
I am also grateful to have had the opportunity to be a visiting PhD student at Clare Hall,
Cambridge University, for three months in 2018. This formed part of the SARCHi/Newton
Research Chair’s Wits-Polis exchange programme and was undoubtedly the highpoint of my
doctoral studies. I got to attend a number of academic workshops, conferences and attend talks
of some of my academic heroes. During my visit, I made a number of friendships that I will
always cherish. But I am particularly grateful to have made friends with Christopher Tso,
whom I’d like to thank for sending me articles that aren’t available in South Africa, being an
ear when I needed one, and for setting up around 50 Garmin Running Challenges since 2019
that forced me to stay active! Thank you, and hopefully, I will now get to beat you.
I am also grateful for the friendship and support of Chinique Mortimer, Gerbrandt van
Heerden, Benito Trollip, Frankie Bielfeld, Aditi Mehrotra, and Marlie Freitas dos Santos.
Thank you for always being patient and willing to listen to my ideas, challenging me, and for
providing encouragement and support (albeit in the form of jokes, gossip stories, or wine) when
I needed it most. I am also particularly grateful for Nadine Boller, Leone Hudson and Lizanne
du Toit, who agreed to read large parts of this thesis and providing invaluable feedback.
A special thanks should also go to my amazing parents. Being polar opposites, both of them
played a unique role throughout my PhD journey. On the one hand, I would like to thank my
father for always reminding me to not to take myself too seriously, for providing me with endless
dad jokes, and for believing that this ‘school assignment’ would be exceptional. On the other
hand, I would not be where I am today without my mother. Thank you for all those years of
giving up luxuries and working long hours to be able to provide me the opportunity to pursue
a tertiary degree without accumulating any debt. Words cannot express my gratitude.
Finally, a very special thank you goes to Gideon van Riet, who read all chapters of this thesis
more than once. I cannot imagine ever completing this thesis without your support,
encouragement, guidance, and love. Thanks for being my soundboard and patiently listening
xviii
to all my ideas, and being a shoulder when I needed to cry. You are an amazing person and
will always hold a very important place in my heart. Thank you for everything.
1
Introduction
In recent decades, the rating judgements of the Big Three CRAs significantly influence how
governments structure their economies and spend their budgets (Fioramonti 2014; Gaillard,
2012; Paudyn, 2014; Roos, 2019; Sinclair, 2005). This is especially true for emerging and
frontier markets that target private capital to finance their development needs, instead of relying
on Official Development Assistance (ODA) and World Bank or International Monetary Fund
(IMF) loans as they did during the 1970s and 1980s (Armijo, 1999:17). Since the 1970s, the
criteria of sovereign creditworthiness entail an austere fiscal programme, the privatisation of
state-owned entities, the removal of capital controls, central bank independence, targeting
inflation, and reducing ‘red tape’ to ease doing business (Armijo, 1999; Datz, 2004; Grabel,
2000). These measures, it is assumed, creates a ‘favourable investment environment’ and thus
the necessary capital to finance economic growth and repay debt (Grabel, 2000; Mosely,
2003:104; Paudyn, 2014). Yet, in many instances, government efforts to improve
creditworthiness oppose more immediate social welfare and development needs (Armijo, 1999;
Datz, 2004).
This is especially true for post-apartheid South Africa. Instead of borrowing money from
international creditors to address urgent issues of socio-economic and racial inequality, the
post-apartheid government chose to consolidate its budget through the adoption of an austere
fiscal programme (Bond, 2013; Habib, 2013; Hamilton & Viegi, 2009). Targeting private
capital investment, the goal is to gain credibility in the eyes of investors and CRAs to obtain
favourable access to capital markets, which would lower the cost of financing the
transformation of the economy (Hamilton & Viegi, 2009). This entailed significant
compromises on the African National Congress’s (ANC) promises during the anti-apartheid
struggle to restore social justice through state-led initiatives to grow the economy such as the
nationalisation of key industries – including land – to create jobs and promote social equality
(Nattrass, 1994). Seen as ‘macro-economic populism’ and unsustainable in the long-term,
economic ‘experts’ associated with the IMF and World Bank argued that the social backlogs
left by apartheid could best be financed through private-sector-led investment, albeit at the cost
socially progressive compromises in the short-term (Lachman & Bercuson, 1992:1). Yet, despite
implementing the necessary policy measures to create a ‘favourable investment environment’,
it is now general knowledge that the much hoped for influx of capital failed to arrive. When it
did, it was short-term and volatile (Hamilton, 2014a:155). As such, the government’s ability to
2
substantially address the social, economic, and spatial legacy of apartheid has been limited, and
South Africa is consistently ranked one of the most unequal societies in the world (Hamilton,
2014a; OECD, 2020). This, in turn, has undermined the government’s creditworthiness, as
persistent inequalities and frustrations with historical continuities in modes of suffering leads to
frequent, and often violent, protests in a way that reduces the country’s attractiveness for
investors (Alexander et al., 2018; Hamilton, 2014b; Hart, 2014). Despite some important socio-
political changes post-1994, colonialism and apartheid’s socio-spatial, racial, and economic
legacy stubbornly persists (see Chapter Five). Indeed, post-apartheid South Africa remains a
haunted society in Chambers’ (2002:96) formulation, that is, one that struggles to put its ghosts to
rest:
It always seems easier to lay the ghost than to repair the injustice – but ‘seems’ is the
operative word because ghosts ultimately refuse to lie down and be still, for the very
reason that the consciousness of injustice, otherwise known as a sense of guilt, inhabits
the living, not the dead. However much…we may think that the dead should feel less
alive and act more dead, they remain restless because the living remain anxious, being
prevented by guilt from completing the normal process of mourning that would lay them
to rest. They keep returning, as revenants (author’s emphasis).
These challenges often portray South Africa as a ‘risky’ investment, as persistent inequalities
and social unrests spur fears that the state will be pressured to renege on its debt obligations
(Hamilton & Viegi, 2009; May & Woolard, 1997). Having been downgraded below investment
grade – ‘junk’ – by the Big Three CRAs in March 2020, the first time since the government
got it first rating 26 years ago, the cost of borrowing has reached a record high (World
Government Bonds, 2020a). In an attempt to restore its credibility, the government has
announced a range of measures to consolidate its budget, including significant spending
reductions (National Treasury of South Africa, 2020a). These budgetary cuts come amidst the
COVID-19 pandemic that has had a devastating impact on livelihoods, particularly amongst
low-income households. Such measures are furthermore expected to exacerbate the socio-
economic impact of the pandemic-induced recession, thereby further limiting the government’s
ability to address, in a meaningful way, historical inequalities (African Peer Review Mechanism,
2020).
South Africa has not been the only country whose pursuit of policy credibility has undermined
its creditworthiness (see Bhogal, 2017; Datz, 2004; Grabel, 2000; Kaminsky & Schmukler,
2002; Roos, 2019). In fact, in recent years, the Big Three CRAs have received a great amount
of criticism from governments, policy makers, and international financial institutions (IFIs) like
3
the Financial Stability Board (FSB) and the IMF (see Ferri et al., 1999; IMF, 2010; Mennillo &
Sinclair, 2019; Partnoy, 1999; Paudyn, 2014; Ryan, 2012). A prominent critique relates to the
procyclicality of rating actions, which tends to intensify during times of crisis. Procyclicality refers
to the tendency of CRAs to be lenient during ‘booms’ and excessively conservative during
‘busts’, thereby intensifying the socio-economic impact accompanied by different business
cycles (Mandel, 2020). For instance, Ferri et al. (1999) show how the rating actions of the Big
Three CRAs aggravated the 1997/98 Asian Financial Crisis. They allude to the fact that, at
first, CRAs failed to predict the emergence of the crisis and when they did, became excessively
conservative. Standard & Poor’s, for instance, downgraded South Korea three notches in a
single day (Ryan, 2012:11). According to Ferri et al. (1999: 336), these rating downgrades could
not be justified when considering the economic fundamentals of these countries. This unduly
exacerbated the cost of borrowing abroad for these countries, which amplified the crisis (see
also IMF, 2010). Likewise, before the 2008/09 GFC, CRAs assigned high investment ratings
to toxic sub-prime backed securities and allegedly ignored signs of deteriorating credit quality
(Lewis, 2010). As rising defaults in the United States (US) sub-prime mortgage market began
to feed through international securities markets, the weakening economic conditions led to a
European Sovereign Debt Crisis. The government debt of ‘periphery’ countries (Portugal,
Greece, Ireland, and Spain) was excessively downgraded after nearly ten years of rating stability
(Gaillard, 2013). According to critics, these downgrades were both too excessive and occurred
too fast, thereby accelerating the debt crisis (Ryan, 2012). Between 1999 and 2009, the
creditworthiness of Greece, for instance, was consistently rated in the upper-medium grade by
the Big Three CRAs. When the government announced that the budget deficit would be double
the previous government’s estimate in December of 2009, the downgrades began. Three years
later, in 2012, the Hellenic republic’s creditworthiness was rated approximately eight rating
categories below its 2009 levels (World Government Bonds, 2020b).
These ‘rating failures’ have been accompanied by calls from governments and policymakers to
reduce market reliance on the Big Three CRAs, strengthen supervision and regulation of the
rating industry and to enhance the transparency of the rating process (Ryan, 2012; Paudyn,
2014). As a response, the US Security and Exchange Commission (SEC) has expanded its
mandate to regulate CRAs, while the European Securities and Markets Authority (ESMA) has
been granted centralised supervisory powers over these private firms (Mennillo & Sinclair,
2019). Yet, amidst the COVID-19 pandemic, which is expected to plunge the global economy
into the deepest recession since World War II (World Bank, 2020), signs of rating procyclicality
4
are re-emerging. By the end of July 2020, CRAs have downgraded a record number of issuers
(Jones, 2020). Fitch has downgraded 32 governments, with more than a third of its 118
sovereign grades placed on a negative outlook, and similar trends are evident in the rating
actions of S&P’s and Moody’s (Jones, 2020). On the 24th of April 2020, the US SEC announced
the formation of an internal interdisciplinary COVID-19 Market Monitoring Group, tasked
with the responsibility to monitor the interrelationship between the rating actions of the Big
Three CRAs and financial stability amidst the pandemic (US SEC, 2020). While cautioning
against analogies with the 2008/09 GFC, the monitoring group recognises the centrality of
ratings in the movement of capital and the devastating impact rating procyclicality could have
for the stability of the financial system (US SEC, 2020). This is especially the case for emerging
markets, where ‘progress in reducing mechanistic reliance on ratings since the global financial
crisis may have been slower…than in advanced economies’ (FSB, 2020:8).
Rationale
Despite the many criticisms and rating failures that cast doubt on both the transparency and
accuracy of credit ratings, the authority of the Big Three CRAs financial markets remain intact,
especially when it comes to emerging markets. This thesis aims to understand how the authority
of CRAs in financial markets is constituted and the political economy of sovereign
creditworthiness normalised. Building on existing literature in the field of IPE (Löwenheim,
2008; Mennillo & Sinclair, 2019; Paudyn, 2014), I show that the authority of CRAs is rooted
in an epistemic culture that recognises the production of quantitative risk metrics as objective
and transparent. These metrics hold out the promise of eliminating uncertainty by replacing it
with risk, ‘turning the incalculable to calculable and subject to rational choice modelling’
(Short, as cited in Paudyn, 2013:798). However, the process of transforming uncertainties into
calculable risks that provide information about a government’s fiscal profligacy is far from being
an objective, ‘technical’ exercise. Instead, it is based on a number of political considerations
and historical contestations about what can and should be measured, the weights that should be
accorded to different categories, as well as the theories and datasets that should go into credit
risk modelling. The main rationale of this thesis is to re-politicise the discourse and practice of
sovereign credit risk. To re-politicise in this sense means to ‘interrupt’ discourse, ‘to challenge
what have, through discursive practices, been constituted as normal, natural ways of carrying
on’ (Edkins, 1999:12). This requires a genealogical investigation into the contested political and
cultural histories that made possible certain assumptions about sovereign default risk and the
mathematical tools for its measurement (de Goede, 2004).
5
Furthermore, this thesis endeavours to show how the discourse of sovereign credit risk, and the
budgetary limits it articulates for governments, gets entangled in the political economy of South
Africa. This entanglement, I suggest, has been produced through long-term histories of
colonialism that have forged the global connections that constitute the condition of capitalist-
modernity (Bhambra, 2020). Indeed, although the relations between colonialism and capitalism
have been thoroughly documented, and often acknowledged in IPE, Bhambra (2020) argues
that the centrality of colonialism is rarely given a central role in our understanding of
contemporary structures in the global economy (Schultz, 2021). Historical analyses of
capitalism in IPE tend to present colonialism as the companion condition of the emergence of
capitalism which, in mainstream economics, ‘is understood to be constituted through an
immanent logic…that is independent of colonialism’ (Bhambra, 2021:2). Here, colonialism is
presented as a consequence of the operation of the logic of capitalism, rather than being integral
to its operation. As such, colonialism has been displaced from IPE’s centre of analyses and
returns via the discourse of imperialism, that is, a later stage of the development of capitalism
in its maturity (Hobson, as cited in Bhambra, 2021:2). CRA’s and other international financial
institutions, politicians, and corporations particularly linked to the US, have often been
described as the leading actors behind modern imperialism (Bond, 2013; Roos, 2019). Yet, as
this thesis shows, there is an underlying continuity between Europe’s colonial imaginary and
the conquests these visions gave rise to and modern ‘imperialist’ capital market arrangements.
For the purposes of this project, I explore how these continuities have been articulated and
reproduced through the mathematisation and rationalisation of neo-classical economics and
particularly, rational economic man. By exploring how this history is entangled in post-
apartheid South Africa’s political economy, this thesis seeks to render visible the long-term,
profoundly political, and colonial histories of modern credit practices (de Goede, 2020). I also
aim to show how the de-politicisation of sovereign credit ratings, and financial discourses in
general, enable the reproduction of colonial regimes of power and knowledge by transforming
the complexities, histories, and messiness that constitute the social world into a single
measurement. This number not only enables the erasure of historical injustices, but also
produces particular modes of power that are central to the reproduction of hierarchies in
modern capital markets.
The objective is therefore to emphasise the urgency to question how sovereign creditworthiness
is defined and measured in a way that makes certain forms of budgetary rectitude possible over
others, as well as the socio-material realities these discursive practices produce for populations
6
across the globe. Before explaining how this analysis will be approached, the following section
briefly outlines existing accounts of the politics of CRAs in IPE. It delineates IPE as a field of
study and explains how this thesis endeavours to contribute to post-structural understandings
of the practises of knowledge production that underpins modern financial practices.
Literature Review
Expanding ‘the political’ in International Political Economy
As an academic discipline, IPE is often assumed to have emerged in the 1970s as a result of a
‘mutual neglect’ (Strange, 1970) in the field of International Relations (IR) and international
economics to account for how a number of significant changes in the world economy could
influence the international society and relations between states. This is not to suggest, however,
that the interaction between politics and economics on a global and domestic level have not
been explored before the 1970s (Conley, 2007; Ravenhill, 2010). Political economy analyses
have a long history and date back to the intellectual pursuits of Adam Smith, David Ricardo,
Karl Marx, and economic anthropologists like Karl Polyani (see Gamble et al., 1996; Underhill,
2000). Here political economy has a range of meanings. Some scholars focus on the political
basis of economic actions, that is, how government policies affect market operations. For others,
political economy entails a focus on the economic basis of political action: how economic forces
shape government policies (Frieden & Lake, 2000:1). Although, in the field of development
economics – specifically dependency theory – a separation between politics and economics
never took place, towards the end of the twentieth century, economists such as Stanley Jevons,
Leon Walras, and Alfred Marshall sought to separate their field from political concerns so as to
render economics a scientific discipline. I will explore this issue in detail in Chapter Two.
Nevertheless, for the purposes of this discussion, the separation between politics and economics
meant that interest was scant among those in IR and economics to understand how their fields
interact. As Benjamin Cohen writes (cited in de Goede, 2001:33), about the post-war boom in
the study of monetary relations:
[F]or all the intellectual energy expended in these efforts, most discussions have been
seriously deficient in at least one fundamental respect. They have failed to integrate
satisfactorily the economic and the political aspects of the problem into a singly analytical
framework. With few exceptions, economics and political scientists each have relied on
their separate disciplinary approaches to design parallel analyses of the same set of
issues…The result has been a vain sort of dialogue of the deaf.
7
To this end, it became imperative for IPE scholars to bridge the gap between economics and
politics. Although there is much debate about what exactly this research agenda should focus
on, many explore the changing relationship between the state and the market. For Susan
Strange (1998:18) this entails a focus on ‘the social, political and economic arrangements
affecting the global systems of production, exchange and distribution, and the mix of values
reflected therein.’ The mix of values – security, prosperity, freedom, and justice – within the
market-authority nexus constitutes the core of IPE for Strange, coupled with her focus on
explaining structures of power in the world economy (Murphy & Tooze, 1991:2). Robert
Gilpin’s (1987) study on IPE focuses on the causes and effect of the world market economy, the
relationship between economic and political trends, and the significance of the world economy
for domestic economies (as cited in Murphy & Tooze, 1991:2). In a later publication, however,
Gilpin (2001) notes the limitations of his initial focus which failed to take into account how
domestic factors can influence the international economy and entailed a limited treatment of
the role that non-state actors play in both domestic and international economic affairs. These
include private actors such as investors, CRAs, IFIs, multinational corporations, think tanks,
and non-governmental organisations (NGOs). The growing influence of non-state actors has,
according to Strange (1998), led to the ‘declining authority of states’ and the growing power of
market processes and actors to secrete the daily life of citizens across the globe.
For Robert Cox (2002:79-80), IPE is predominantly a critical discipline that ‘gradually changed
the way of thinking about world order.’ He centres the focus of IPE on the ‘frameworks or
historical structures within which human activity takes place and the slow processes of change
in these frameworks’ (Cox, 2002:79). This focus differs significantly from mainstream IR
theories that worked with fixed assumptions about the nature of the state system, the economy,
and the market. Instead, Cox (2002) postulates that the norms and practices that constitute the
international political economy are not ‘pre-determined’ by ‘natural’ or ‘inevitable procedures’
but exists through ongoing processes that have been historically formed by human intervention
(Abbott & Worth, 2002:1). Despite this broadly critical agenda, there are a limited number of
studies that explore the historical and discursive contingency of our understanding of economic
phenomena. In other words, although the field of IPE explores how politics and economics
interact, these analyses operate within a restricted definition of both. Politics refer almost
exclusively to identifiable actions of states and non-state actors. These actions interact with the
domain of the economic, yet remains largely distinct from it (de Goede, 2001:34). ‘This
distinction’, according to Murphy and Tooze (1991:24) is based on a definition of economics
8
“as the science investigating wealth production and distribution under scarcity, where wealth
is somehow separate from ‘politics,’ and ‘politics’ takes place where the realm of economics
stops.”
Ratings, CRAs and IPE: limits of structural critiques
The continued conceptual separation of politics and economics in IPE leaves the historical and
discursive contingency of economic realities – such as sovereign credit risk – unquestioned.
Existing analyses of sovereign credit ratings and CRAs within IPE typically operate through
the distinction between ‘politics’ and ‘economics’ mentioned above. Here the authority of
CRAs and private creditors are often explained in terms of structural power. Structures are made
up of interactions between different actors, where the conduct of these practices and
engagements resembles the shared understandings of acceptable behaviour toward different
actors and objects (Wendt, 1994). A classic example is the master-slave relation, whereby
structure is conceived as an internal relationship – a direct constitutive relation in the sense that
the position of the master exists only by virtue of its relation to the structural position of the
slave. Structures, therefore, produce ‘the very social capacities of structural, or subject, positions
in direct relation to one another, and the associated interest that underlie and dispose action’
(Barnett & Duvall, 2005:18). As such, it is the structure of the global capitalist economy that
shapes the fate and conditions of existence for CRAs and sovereign governments, or markets
and states. This happens in two critical ways. First, structural positions do not generate equal
social privileges, but instead distribute differential capacities and advantages to different
positions. Thus, social structures are made up of unequal social privileges and capacities
(Barnett & Duvall, 2005:18-20; Roos, 2019; Rupert, 2005). Second, social structures not only
constitute actors and their capacities, but also their self-understanding and interests. As such,
structural power operates in such a way that it limits some actors from recognising their own
domination.
This account has much in common with Steven Lukes third face of power, developed in his
seminal book, Power: A Radical View (1974). The first face of power refers to Robert Dahl’s classic
formulation, where power entails the ability of A to get B to do what B would not otherwise do.
Power, in this definition, is both coercive and intentional and lead to observable behavioural
change in its target population (Abrahamsen, 2004:1458). The notion of intent was later
challenged by Bachrach and Baratz, who suggests that power is not solely a matter of getting B
to do something she does not want to do, but also preventing B from doing what she wants to
9
do (Lukes, 1974:16; see also Hayward, 2000). This second face of power incorporates the ability
to shape political agendas and prevent issues from entering public debate as another way of
exercising power. In the field of IPE, this dimension of power is used to explain how some
actors (linked to the US and Western Europe) have the ability to shape the institutional
arrangements of organisations like the World Trade Organisation (WTO), IMF, World Bank
and United Nations (UN) in a way that indirectly exercises power over other actors (Finnemore
& Skikkink, 1998; Keohane, 1984). The third face of power, developed by Lukes (1974), adds
another dimension that is largely ignored in the first two faces of power. Here power not only
influences whether actors behave as they want, but can also shape the ways they perceive their
wants, desires and interests (Hayward, 2000:4). As Lukes observes (1974:24): ‘is it not the
supreme and most insidious exercise of power to prevent people, to whatever degree, from
having grievances shaping their perceptions, cognitions, and preferences in such a way that
they accept their role in the existing order of things?”
According to scholars like Roos (2019), the structural power of CRAs in IPE stems from a
number of changes in the regulation of cross-border capital accompanied by the dismantlement
of the Bretton Woods monetary regime in the 1970s. These include the implementation of
floating exchanges, the deregulation of financial markets, the rise of monetarism, and the
disintermediation and securitisation of capital (Carruthers & Kim, 2011; Sinclair, 2005).
4
This
led to an explosion in the amount of private capital and intensified the financialisation of the
world economy (Roos, 2019:60). Often positioned alongside ‘globalisation’, financialisation
refers to how the growing integration of states, economies, cultures, and societies have
intensified the influence of capital markets, their intermediaries, interests, and processes in
contemporary economic and political life (Pike & Pollard, 2010:30). According to Roos (2019),
financialisation since the 1960s has especially benefitted the financial interests of big banks and
advanced capitalist democracies and have strengthened the structural position of private capital
over the interests of the state. Financialisation post-Bretton Woods has also consolidated the
shift towards capital market-based financing for states. This creates intense competition among
states for a sustained share of global capital markets, financial services and products to fund
4
Disintermediation involves the replacement of traditional forms of lending, like bank loans, to the increased use of debt
securities such as bonds and notes or investment in stocks (Seabrooke, 2006a:198-199). Whereas traditionally banks took money
from savers and lend it to borrowers at an interest rate – with the aim to create a profitable spread in the long term – banks
increasingly securitise loans. Securitisation involves bundling loans together and selling them to investors. It turns bank loans,
which are notoriously illiquid, into marketable securities. Instead of holding a loan until it reaches maturity, banks pooled loans
together and then sold them as ‘new debt to a third party’ (Carruthers & Kim, 2011:243; Seabrooke, 2006b:155). As such,
banks recovered their capital sooner (when securitised loans are sold) rather than later (when borrowers complete repayment)
and were ready to lend again.
10
public investments (Kruck, 2011:33). Although modalities of public borrowing can be traced
back centuries, Roos (2019) argues that from the 1980s, the influence of private financiers in
the regulatory affairs of a nation has become increasingly invasive. Furthermore, while states
traditionally relied primarily on taxation for public debt creation, they now increasingly depend
on external sources of revenue, particularly developing countries. This, according to Roos
(2019:57) renders the state
[…] structurally dependent on the provision of private credit to be able to reproduce itself
and carry out its social, political, and economic functions over time. The effect of this
dependence is to constrain the state’s relative autonomy from finance and impose certain
limits on the room for manoeuvre available to government.
Structural Marxist scholars maintain that CRAs both legitimise and advance the interests of
private capital, thereby strengthening the structural power of finance vis-à-vis the state (Bond,
2013; Iannou, 2013). Here, financialisation is seen as a process driven by the expansionary
ambitions of the market, enabled by elite individuals, politicians, and organisations associated
with the US and Western Europe. This agenda has furthermore been imposed onto the
governments of Third World countries, which intensifies inequality on both a domestic and
global level (see Bond, 2012, 2001; Cerny, 2005; Fine, 2013; Soederberg, 2013). The solution
for Cerny (2005) and Soederberg (2013, 2005) is to transform the transnational regulation of
financial markets and to promote the stability of the financial system and protect citizens against
market volatility. Bond (2001, 2012) on the other hand suggests that the core dynamics of
financialisation can be challenged by global anti-neoliberal social movements, while Fine (2013)
calls for a complete abolishment of the capitalist system.
Although structural accounts recognise the role that politics play in the global economy, they
nevertheless reify an image of finance as an autonomous sphere with mythical powers that
impose itself on societies and states. They tend to assume a zero-sum struggle between the state
and private creditors for material resources or sovereign authority (Barnett & Duvall, 2005:2).
Without undermining the value of these contributions, it is necessary to expand the scope of
political criticism by exploring how structures are produced on a daily basis in disparate places
and through a wide range of discursive practices. These include, among others, the monitoring
and reporting activities of the Financial Stability Board (FSB), IMF, and World Bank, the
measurement and ranking of economic performance of states, corporations, and investment
vehicles as well as cultural representations of spaces and people in entertainment media such
as Hollywood films. Thus, instead of viewing sovereign credit risk, financial markets, and the
11
economy as something that exists prior to and, therefore, independently of theories about it, I
draw on a growing body of post-structural analyses in IPE that challenges this perception by
exposing how objects are constituted through the discourses used to describe them and to act
upon them (du Gay & Pryke, 2002:2). Here, sovereign credit risk is not an unmediated reality
that can be objectively ‘known’. Rather, it is a mediated concept: ‘a series of representations
and practices through which meanings are produced, identities constituted, social relations
established, and political and ethical outcomes made more or less possible’ (Bialasiewicz et al.,
2007).
Theoretical framework and methodological approach
Power-knowledge, discourse, and truth
Foucault’s theorisation of power provides a framework through which we can analyse the
discursivity of economic and financial reality. One of the most important ways that Foucault’s
notion of power differs from the first three faces outlined above is that he rejects the idea of a
sovereign, human subject which demands an analysis of: ‘why certain people want to dominate,
what they seek, what is their overall strategy’ (Foucault, 1980:97). Foucault’s conceptualisation
of power does not take as presupposed the subjects A and B, but rather focus on how they are
constituted through discursive systems. Instead of asking: ‘who is in power?’, we should
interrogate:
[…] how things work at the level of on-going subjugation, at the level of those continuous
and un-interrupted processes which subject our bodies, govern our gestures, dictate our
behaviours etc…we should try to discover how it is that subjects are gradually,
progressively, really and materially constituted through a multiplicity of organisms,
forces, energies, materials, desires, thoughts etc. (Foucault, 1980:97).
By implication, rather than asking why CRAs have the power to shape the budgetary realities
of states, we should focus on how their authority is produced through discursive systems that
enable them to act in a particular way and influence the decision-making of others. Post-
structuralism sees discourse as systems of meaning that constitute institutions, practices, and
identities in contradictory and disjunctive ways (Fourclough, as cited in Larner, 2006:205). By
attaching meaning to social realities, discourses make intelligible ways of being in, and acting
towards the world (Milliken, 1999:26). These systems of meaning do not exist outside relations
of power, which draws attention to how discourse ‘rules out’ certain ways of making sense about
reality. For instance, in Chapter Six of this thesis, I show how the discourse of sovereign credit
12
risk ‘ruled out’ certain policies of budgetary rectitude for the post-apartheid state, such as
implementing capital controls to protect local industries or using discretionary fiscal policy
measures for redistributive goals. These budgetary norms have been articulated in spaces of
hegemony, particularly academic institutions linked to Wall Street and London, and are also
the product of historical and political contestation regarding what counts as ‘the economy’, how
it should be investigated, and managed. This thesis – particularly chapters two to four –
interrogates the contestations, historical processes and ideological contingencies that have
normalised certain ideas about budgetary rectitude. The goal is to examine how meanings are
produced through a power-knowledge nexus that determines – through forms of exclusion –
what gets to be counted as ‘true’, ‘valid’ or ‘scientific’ claims (Foucault, 1976). Knowledge, by
implication, is both produced by and exists within a ‘certain strategic relation in which man is
placed’ which ultimately define the effect of knowledge. Knowledge is therefore partial, oblique
and perspectival (Foucault, 1978a:14). Power and knowledge therefore ‘directly imply one
another’ according to Foucault (1977:27-28): ‘there is no power relation without the correlative
constitution of a field of knowledge, nor any knowledge that does not presuppose and constitute
at the same time power relations.’ This power-knowledge, knowledge-power dyad is produced
in a circulatory fashion: power both produces and is produced by knowledge (Digeser,
1992:989).
The link between power and knowledge is bound up in complex and historically grounded
technologies of truth production that enables the fixation and stabilisation of particular
meanings and identities in circulation of discourses (Doty, 1996:6-8). Here, ‘truth’ should not
be seen as something that can be seized or unearthed with the correct methodological tools,
but rather as an ideology that determines the types of discourse a society accepts in order to
make it function as true:
[…] the mechanisms and instances that enable one to distinguish true and false
statements; the means by which each is sanctions; the techniques and procedures
accorded value in the acquisition of truth; the status of those who are charged with saying
what counts as true (Foucault, 1978b:132).
Ideology, as it is used here, refers less to the conscious distortion of truth to advance class
interests. Instead, ideology functions more as an episteme, the orderly ‘unconscious’ structures
that underlie the production of ‘scientific knowledge’ (O’ Farrell, 2007). The effects of an
episteme are always discursive, as it constitutes the ‘epistemological field’ that shapes the
conditions of possibility for knowledge production in a given time and place. In this sense, the
13
production of knowledge always follows a filtering: not only should particular statements submit
to a regime of truth – the defining rules of discourse – but only they, from a multiplicity of
statements are constructed by it (DuBois, 1991:6).
The partiality of knowledge suggests that, contrary to their stable appearance, discourses of
sovereign credit risk are inherently open-ended and incomplete. Discourses are unstable grids
that require work to ‘articulate’ and ‘rearticulate’ their knowledges and identities (to fix a regime
of truth) and open-ended meshes (Doty, 1996:5-6; Milliken, 1999:230). When a certain
meaning or interpretation about, for instance, ‘proper’ fiscal rectitude becomes fixed, it can
only ever be of a partial nature (Doty, 1996:6). The incomplete and overflowing nature of
discourses ‘opens up spaces for change, continuity, and variation’ (Doty, 1996:6). This
necessitates a focus on the efforts made to stabilise and fix dominant meanings as well as to
study the ‘subjected knowledges’ that were silenced by hegemonic discourses. Subjected
knowledges refer to the ‘blocs of historical knowledge that have been disqualified as inadequate
to their task or insufficiently elaborated: naïve knowledges, located low down on the hierarchy,
beneath the required level of cognition or scientificity’ (Foucault, 1980:82). This thesis adopts
Foucault’s genealogical method to account for the political history of knowledges that have
rendered sovereign credit risk intelligible and measurable.
The genealogical method
Influenced by Nietzsche, Foucault (1998) encourages the use of genealogy to investigate the
constitution of knowledges, discourse or domains of objects whose meanings continue to guide
our daily lives and set clear limits to political and social options (Bartleson, 1995). Genealogies
are historical investigations into the ideas and events that have shaped our thinking, speaking
and acting towards phenomena (Bleiker, 2005:25). The goal, however, is not to uncover a single
meaning or an authentic origin of, for instance, the emergence of sovereign creditworthiness.
A search for origins, according to Foucault (1977:78), would be ‘an attempt to capture the exact
essence of things, their purest possibilities’. This is often the case in historical analyses of global
finance, whereby financial globalisation gets portrayed as an evolutionary and thus inevitable,
teleological unfolding of history (de Goede, 2005:14-15). According to Edkins (1999:8) these
accounts read events ‘backward or retroactively’. Such readings facilitate ‘objective’
explanations of why certain forces were able to exert their dominance and how particular
tendencies ‘won’ (Edkins, 1999:8). A genealogy, by contrast, ‘starts from an analysis of the
present, and identify something as problematic in that present in order to write a history of it’
14
(Bartleson, 1995:73). Such an investigation focuses on that which seems unproblematic and
timeless, and interrogates the historical processes, contestations, and accidents that have
rendered them stable in the present.
By adopting a genealogical method, this thesis traces the insecurities and uncertainties that
accompany the technical and objective appearance of financial numbers, particularly sovereign
credit risk ratings. I will investigate the epistemological field that has rendered certain ideas
about the problem of sovereign credit risk possible – ‘them and none other in their place’
(Foucault, 1991:59). To this end, I position the discourse of sovereign credit risk within
historical debates about finance, credit, and the economy that have shaped the ‘limits of the
sayable’ (Foucault, 1991:59) in the measurement of default probability. This historical
investigation is episodic in the sense that it does not aim to supply a history of the past as it
actually was. Instead, a genealogical analysis ‘deals with those episodes which are involved in
the effective formation of that which was identified as problematic in the present’ (Bartleson,
1995:73). Chapter Two and Three, for instance, examines the historical contexts, political
assumptions, and discursive strategies that underpin contemporary macro-economic policies
such as inflation targeting and central bank autonomy. This investigation reveals the many
contestations, ambiguities, and compromises that accompany these policies – issues that remain
relevant today. The genealogical method therefore enables us to render visible the fragility of
modern arrangements of financial markets and the economy. By following lines of fragility in
the present, a genealogy describes:
[…] that-which-is by making it appear as something: that might not be, or might not be
as it is […] History serves to show that-which-is has not always been; i.e. that the things
which seem most evident to us are always formed in the confluence of encounters and
chances, during the course of a precarious and fragile history (Foucault, 1988: 36-37).
These ‘fragilities’ can be explored through a plethora of sources: works of art, fictional texts,
scientific publications, policy documents, as well as primary data-collection methods like in-
depth interviews or focus groups with key actors in the rating industry and government. While
qualitative interviews with these actors would certainly have been valuable in gaining insight
into the micro-processes involved in the production of ratings, there are a number of constraints
that complicated this approach. These include, amongst others, geographical limitations.
Sovereign credit rating analysts are primarily located in the headquarters of CRAs, that is, New
York, London, Paris and Honk Kong. This is coupled with additional constraints such as
securing financial assistance, ethical clearance and, given the secrecy of these rating decisions,
access to the necessary information. As such, this thesis relies mainly on secondary data as
15
sources of analysis. The selection of sources is guided by a thematic analysis of financial and
economic discourses, particularly as they relate to the rating of sovereign creditworthiness.
These include the fragile and contested nature of credit relations that emphasise the extent to
which financial practices rely on imaginations of trust, faith, and rationality. To this end, the
thesis relies on existing analyses and critiques of fictional works produced by authors like Daniel
Defoe which capture the anxiety, hysteria, and fears associated with the rise of credit structures
in eighteenth-century England. Portraying finance as a fickle, irrational, and hysterical female
– Lady Credit – Defoe argued that the virtues of the colonial gentleman, i.e. rationality,
scientific asceticism, and self-discipline, provides a solution to ‘master’ the uncertain nature of
Lady Credit. The historical and socio-political context of Defoe’s colonial gentleman,
particularly his masculine, racial, and geographical qualities is an important theme throughout
this thesis. For instance, I show how this articulation or rationality has travelled to the discipline
of economics. Here, I rely on the original works of economists such as William Stanley Jevons
and Leon Walras to examine how the ambiguities and historical context of Defoe’s gentleman
have been de-politicised through the mathematisation of theories of individual economic
behaviour. The analysis of these works aims to describe the ‘episteme’ of this historical period,
‘the relations of various scientific discourses: the episteme is not a sort of grand underlying
theory, it is a space of dispersion, it is an open and doubtless indefinitely describable field of
relationships’ (Foucault, 1991:55, emphasis in original). To this end, this thesis relies not only
on original texts published by prominent scholars, but also considers how colonial, masculine,
and racialised discourses of rationality surface in policy documents, travel diaries of colonial
voyagers, letters of correspondence, and scientific publications in economic journals. This thesis
consequently traces how these political assumptions about rationality resonate not only in the
neo-classical economic models of Milton Friedman and Robert Lucas, but also the geopolitical
imagination of modern financial markets. Exploring, once again, the original publications of
key economists, my focus here is to establish the extent to which historically racialised, colonial
connections have been ‘normalised’ through mathematical modelling. Additionally, this thesis
investigates how the geopolitical imagination of rationality shapes discourses of
creditworthiness in financial journals, ‘expert commentaries’, policy advice, financial
regulations, and the methodologies of CRAs. These resources enable an exposition of how
historical ideas, concepts, and categorisations are produced, reproduced and transformed ‘in a
particular set of practices through which meaning is given to physical and social realities’
(Hajer, as cited in Sharp & Richardson, 2001:196).
16
In demonstrating the insecurities that accompany the institutionalised discursive frameworks of
financial markets and the economy, it becomes possible to open a conversational space for
political criticism to take place, as well as to imagine alternative ways of understanding
phenomena (Williams, 1999:80). This does not mean, however, that it is possible to identify,
via genealogy, historical alternatives and choose a different path (de Goede, 2005:19; du Gay
& Pryke, 2002). Although this thesis highlights the historical and discursive contingency of
modern credit practices, the goal is not to endorse a politics that ‘serves to free up ideologically
frozen relations of dependence and domination in the name of human possibility and
inventiveness’ (du Gay & Pryke, 2002:5). Laclau (1990:33-35), drawing on Husserl’s distinction
between sedimentation and reactivation, explains why this is not the case. Sedimented
theoretical categories are those that are routinely produced in scientific disciplines, where the
results of previous investigations are taken for granted to the extent that they ‘conceal the acts
of their original institution’ (Laclau, 1990:34; Laclau & Moffe, 2001:viii). Reactivation ‘makes
those acts visible again’, by recovering the constitutive activities of thought that enabled the
sedimentation of certain discourses. Laclau (1990:34-35) nevertheless argues that:
The moment of reactivation cannot consist of a return to origins, to the historic system
of alternative possibilities that were discarded…rejected alternatives do not mean
everything that is logically possible, but those alternatives which were in fact attempted,
which thus represented antagonistic alternatives and were suppressed. But in a new
situation, the system of those alternatives will be different. Reactivation does not therefore
consist of returning to the original situation, but merely of rediscovering, through the
emergence of new antagonisms, the contingent nature of so-called ‘objectivity’ (emphasis
in original).
The passing of time has therefore modified systems of possibilities. This is because discourses
are not merely social constructions that exist in texts. They regulate, shape, and constrain
modes of conduct, possibilities of action, and identities (de Goede, 2005:19). Sovereign credit
ratings, for instance, form part of an apparatus of financial regulations, academic curricula,
pricing models, bond indices, policy think tanks, credit risk analyses, and other investment
vehicles that perform the discourse of sovereign creditworthiness into being. Ratings have
embedded in them certain theories about how the economy works, how it should work, how it
should be managed, how it grows, as well as what constitutes signs of danger. These theories
outline a field of ‘normal’ conduct for a wide range of subjects: investors, policy-makers,
governments, CRAs, and IFIs. Over time, these modes of conduct, ways of thinking and acting
toward the problem of sovereign default risk becomes stabilised, or ‘sedimented’ in Laclau’s
formulation. And although it is not possible to revisit the exact origin of these sedimented
17
objectivities, a genealogical analysis of these objectivities can reveal their contingent nature. By
questioning these objectivities that make sovereign creditworthiness intelligible, it becomes
possible to broaden the democratic content of financial practices (de Goede, 2001:61). At this
point, it is necessary to explain how the materialisation of discourse will be approached through
the concepts of performativity and governmentality.
Re-imagining the ideal/real dichotomy: the performative and governing effect of
ratings
A performative analytic of discourse problematises the ideal/material dichotomy and suggest
that practices of budgetary rectitude, investment, or credit risk analyses cannot exist
independent of ideas and beliefs about them (Campbell, as cited in de Goede, 2003:80; see also
Aitken, 2006; Barry & Slater, 2002; Callon, 2007, 1998; Cochoy et al., 2010; MacKenzie, 2004,
2006; MacKenzie & Millo, 2003; Paudyn, 2014). CRAs, for instance, do not merely publish
their opinions on the default risk of a sovereign’s debt. Attached to these judgments are a set of
meanings that render intelligible certain modes of conducts for investors and governments.
CRAs and credit risk ratings do not exist in isolation; they are connected to an infrastructure
of meanings, practices and institutions that create the conditions for this representation to
materialise (Merry, 2016a:21). Their discursive authority becomes revealed by how rating
judgments create self-fulfilling prophecies when market participants coordinate their behaviour
in line with the rating actions of the Big Three CRAs. This often generates ‘herding behaviour’,
which triggers the very contagion risk CRAs must then judge (Paudyn, 2014:52).
The idea that discourses perform the reality they claim to describe has largely been influenced
by J.L. Austin’s ideas on ‘performative utterances’. Austin (1962) argues that speech does not
primarily ‘state’ facts, but in certain felicitous conditions, ‘acts’ or ‘performs’ certain realities.
The performativity of speech acts can be seen in their ‘illocutionary’ and ‘perlocutionary’
effects. Illocutionary acts are those we do in speaking, which have a pragmatic force by virtue
of conventions interpreting them, for example promises, bets or apologies (Espeland & Stevens,
2008:404). Here, ratings – as statements of creditworthiness – help constitute the things they
measure by communicating a range of judgments about proper fiscal conduct. Formulated
through a readily identifiable scale, ratings translate normative statements about
creditworthiness into practice. Perlocutionary performative effects on the other hand, depend
on the reality produced by illocutionary utterances that translate that depiction into material
existence when felicitous conditions are in place. These utterances are sensitive to context and
18
communities of interpretation (Espeland & Stevens, 2008:404; Sinclair, 2005). For
performativity to yield a material reality that conforms to its modelled depiction, that discourse,
model, or theory must be applied over and over again (Butler, 2010; de Goede, 2005:7-8). As
such, it would be a mistake to overvalue the subject who speaks, i.e., CRAs, as their speech acts
are reiterated forms of discourse (Butler, 2010: 48). CRAs articulate and rate sovereign credit
risk but are not the sovereign originators of their actions (de Goede, 2005:10; Milliken, 1999).
Rating agencies learn what to say, speak in codified ways, which implies that ‘the codification
and ritualisation of that discourse precede and makes possible the subject who speaks’ (Butler,
2010:148). According to Butler (2011:xix), this entails a process of materialisation that ‘is
neither a single act nor a causal process initiated by a subject and culminating in a set of fixed
effects.’ Instead, it is an ongoing, citational practice that ‘operates through the reiteration of
norms’ (Butler, 2011:xix; de Goede, 2005:7). As such, it is not only CRAs that establish, time
and again, the existence of sovereign credit risk. A series of mundane practices, such as expert
analyses, commentaries, working papers published by IFIs, regulatory practices, and policy
analyses are some of the discursive practices that contribute to the reiteration, re-establishment,
and sedimentation of ideas about sovereign creditworthiness, the economy, and, indeed, the
market. This is not to suggest that discourse construct reality. Instead, a performative analytic
invites us to study the ‘spatially distributed and temporally reiterative process that characterise
the performative agency of various institutions’ (Butler, 2010:148). How are the felicitous
conditions that perform sovereign credit ratings into existence produced? To address this
question, it is necessary to return to another dimension of Foucault’s account of power-
knowledge, which looks at the governing effect of discourse.
Governmentality ties together Foucault’s conceptualisation of power-knowledge and discourse
by investigating the political imaginaries and political rationalities that guide praxis (Zanotti,
2013). Power is diffused, circulates through discourse and has a governing effect. Governmental
power is likened to the term conduct, which implies on the one hand to lead others and on the other
hand, a way of behaving within a more or less open field of possibilities (Foucault, 1982). This activity of
governing does not act directly on its subjects. Instead, the operation of power entails the
‘conduct of conduct’ of others (Foucault, 1982). Governmental power works through ‘the
structuring of possible fields of action’ and rendering some modes of conduct more rational
than others. Yet, this is not the conscious action of one actor or institution, but rather activities
that exist at multiple sites through heterogenous strategies and practices. Government takes
place from a distance over ‘free’ subjects who are faced with a structured field of possible
19
actions. By ‘free subjects’ Foucault (1982) means individuals or collective subjects ‘who are
faced with a field of possibilities in which several ways of behaving, several reactions and diverse
comportments, may be realised.’ This is not to say that freedom is as an illusion. Instead,
government works through freedom and presupposes the capacity of the subject to act and,
crucially, choose to act in a certain way (Rose, 1999: 95). As Wendy Brown (1995: 6) explains:
Freedom is neither a philosophical absolute nor a tangible entity but a relation and
contextual practice that takes shape in opposition to whatever is locally and ideologically
conceived as unfreedom…Rendering either the ancient or liberal formations of freedom
as ‘concepts’ abstracts them from the historical practices in which they are rooted, the
institutions against which they are oriented, the domination they are designed to contest,
the privileges they are designed to protect. Treating them as concepts not only prevents
appreciation of their local and historical character but pre-empts perception of what is
denied and suppressed by them, of what kinds of domination are enacted by particular
practices of freedom.
Central to this analysis of freedom is a focus on the regimes of power-knowledge and truth that
govern how subjects choose to act and relate to themselves and others, which has also been
explained in terms of subjectification/subjectivation (Rose, 1999; Rosenberg & Milchman,
2009). Subjectification refers to how human beings, states, territories, economies and
organisations become objectified as subjects in discourse and the modes of government this
wields. Subjectivation on the other hand entails a mode of governing oneself, self-fashioning,
based on what one takes to be the truth of a discourse. These practices of self-fashioning should
be seen in the context of a particular problem of government, such as, securing the stability of
the financial system. This problem is made visible through representative practices of risk,
uncertainty, and danger that constructs a field of ‘safe’, and ‘proper’ fiscal conduct for states,
municipalities, and corporations (Philips & Ilcan, 2004: 395). Here, government takes place ‘at
a distance’ by making use of various technologies to create locales, governments and individuals
able to operate a regulated autonomy (Rose & Miller, 1992:184). Through processes of
subjectivation and subjectification, governmentality recasts the subjectivities of actors so that
they internalise the goals of government. In other words, by normalising a specific set of
budgetary conducts, the government of sovereign credit risk takes place through a complex set
of apparatuses that results in the self-regulation among states, policy officials and investors to
achieve the same ends (Rose & Miller, 1992: 184; Rydin, 2007).
20
The rationalities and technologies of government: liberalism and neoliberalism
The question of how certain modes of conduct are made to appear more normal relates to the
political rationality of government. As a neologism for ‘government’ and ‘mentality’, a
governmentality analytic requires an investigation into the political discourses that inform a
‘system of thinking about the nature of the practice of government (who can govern; what
governing is; what or who is to be governed)’ (Gordon, 1991:3). Rationalities of government
have a distinct moral and normative character in that they define the ideals and principles of
how actors – governments, CRAs, investors – should conduct themselves and elaborate on the
fitting authorities and duties for actors concerned with these ideals (Rose & Miller, 1992:178).
Of particular interest to this thesis is Foucault’s account of liberal and neoliberal
governmentality that emerged in the eighteenth-century.
In his 1979 lectures, published in The Birth of Biopolitics (2008), Foucault starts with an analysis
of liberalism as an ‘art of government’ that embodied a significant change in thinking about the
governmental connections between the market and the state. As a rationality of political
government, liberalism in this view is not a theory, ideology, philosophy of individual freedom,
or a set of policies adopted by a government. Instead, rationality describes and visualises a way
of doing things that functions as a method for the rationalisation of governmental practices
(Burchell, 1996). Foucault emphasises the critical and problematising character of liberalism by
investigating how ‘classical’ liberalism in eighteenth-century Europe emerged in relation to the
problem of ‘how a necessary market freedom can be reconciled with the unlimited exercise of
political sovereignty’ (Burchell, 1996:21). In other words, how can we secure the freedom of the
market in relation to the judicial powers of the State? This problem should be read as a criticism
of the ‘police state’, associated with the Raison d’état during the Middle Ages. Foucault grounded
his analyses of the Raison d’état in Niccolò Machiavelli’s The Prince, which details the advice
Machiavelli gives to the Price on how he could secure his sovereignty. The main objective of
the Prince, according to Machiavelli, should be to secure his sovereign authority by ensuring
not only that the country is rich, but that the sovereign has wealth and funds at his disposal,
and can build an army with which to secure his policies (Foucault, 1978c:214).
The Raison d’état assumes that the Prince has an adequate and detailed knowledge of what had
to be governed and how, which constituted the point of critique for liberal thinkers. They were
sceptical about the ability of the state, or any actor or institution for that matter, to know in
detail what has to be governed. Moreover, alongside the nascent discourse of classical
21
economics, particularly that of Adam Smith, the market became framed as something that
“obeyed and had to obey ‘natural’, that is to say, spontaneous mechanisms” (Foucault,
2008:31). The principal actor in this model of the marketplace is homo œconomicus: the self-
interested individual whose actions, when left alone, supposedly have a multiplying and
beneficial value as they spontaneously converge with the interests of others (Foucault, 2008:270;
Polanyi, 1944:112). In classic economics, homo œconomicus is characterised by his inherent
propensity to ‘truck, barter, and exchange one thing for another’ (Smith, 2008{1776}:25).
Markets should therefore be unrestricted sites of exchange that enable homo œconomicus to pursue
economic activities. Foucault (2009:451) argues that this naturalistic interpretation of economic
functions implied a form of government where the state has the responsibility to:
[…] respect these natural processes…It will be necessary to arouse, to facilitate, and to
laisser faire, in other words to manage and no longer control through rules and regulations.
The essential objective of this management will not so much be to prevent things as to
ensure that the necessary and natural regulations work…Natural phenomena will have
to be framed in such a way that they do not veer off course, or in such a way that clumsy,
arbitrary, and blind intervention does not make them veer off course.
The impression of freedom in liberalism however, should not be equated with anarchy, since it
historically depends on the exercise of discipline (Dean, 2002; Foucault, 2008; Gane, 2012;
Rose, 1999:61-97). ‘Economic freedom’ or liberalism in this sense, is bound up with disciplinary
techniques (Foucault, 2008:67). Foucault visualises this rationality of governing through Jeremy
Bentham’s Panopticon. Bentham’s Panopticon is an architectural design initially proposed to
institutions like schools, factories, cities, asylums and prisons, and is primarily recognised by
how it enables the surveillance of individuals in order to increase the profitability of their bodies
(Foucault, 2008:67, 1977). As a formula for liberal government, the Panopticon appoints a
supervisory role for the state vis-a-vis the market: to ensure that everything is working in
accordance with its natural mechanisms. In this limited function of supervision, the state should
solely interfere when something is not happening in accordance with the natural mechanisms
of exchange (Barry et al., 1996; Foucault, 2008:67; Gane, 2012). In this sense, Gane (2012:618)
suggests that the Panopticon becomes a normative model of governance that recasts the
connection between the state and the market, where the former seeks to promote conditions of
‘freedom’ for the latter through disciplinary techniques that operate through specific forms and
practices of surveillance.
In the aftermath of the Second World War, which revealed the ‘intrinsic defects’ of the state,
the connection between the state and the market in classical liberalism became problematised.
22
Instead of looking at how a space of market freedom can be found within an existing state, the
problem became reversed and dealt with ‘how to create a State on the basis of economic
freedom that will secure the State’s legitimacy and self-limitation’ (Burchell, 1996:22). These
questions emerged in the German School of Ordoliberalen, which argues that the cause of
National Socialism was not the result of some monstrous aberration, but the inevitable outcome
of a series of anti-liberal policies: national protectionism, Keynesian demand economics, and
the welfare policies of Bismarckian state socialism. These policies, the Ordo-liberals argue,
enables an exorbitant growth of the State with disastrous consequences that are inevitable
(Burchell, 1996; Gordon, 1996; Plehwe, 2009). The Chicago School of neoliberal thought
similarly used the Second World War as a criticism of the consequences of too much
government. Here, the sense of naturalism inscribed into liberalism gets replaced with a kind
of constructivism (Burchell, 1996; Dean, 2010:69-74; Foucault, 2008). This is best exemplified
by how homo œconomicus transforms from being a ‘man of exchange’ into an ‘entrepreneur’ in
neoliberal society, defined solely in terms of competition (Burchell, 1996; Foucault, 2008:118-
120, 131-147; Hamann, 2009; Joronen, 2013:359). Here competition is not a natural action,
but rather actively created. Homo œconomicus will conduct himself in terms of an enterprise only
under certain conditions, which have to be carefully and artificially created (Foucault,
2008:120). This suggests a divergence from the state’s supervisory role in liberalism, which
served as the foundation of its legitimacy. The Panopticon becomes effectively reversed: instead
of the state ensuring the legitimacy of the market, the market produces legitimacy for the state,
which in turn becomes its ‘guarantor’ (Gane, 2012:626; Lemke, 2001). Neoliberalism removes
the limiting, supervisory role of the state in relation to the economy and puts a regulatory,
internal principle in its place: it is the model of the market economy which serves as the
organisational principle for the state and society (Foucault, 2008:116; Lemke, 2001:200).
Since the market refers to a space of competition in neoliberalism, where this sense of
competition is produced through a set of artificially created conditions, the role of the State is
to work actively to ensure competition in the market. As the 2008/09 GFC illustrated, the
market in neoliberalism relies extensively on the State, not only as a banker of last resort, but
to institutionalise an infrastructure for its ‘free functioning’. In return, should the State agree to
do this, the market produces the State’s legitimacy in the eyes of financiers via, for instance,
sovereign credit ratings. The neoliberal art of government therefore requires the State to work
for the game of market competition and as a kind of enterprise itself by extending the principles
of competition or ‘choice’ into all its structures and institutions (Barry et al., 1996; Foucault,
23
2008; Gordon, 1991:43; Joronen, 2013). Neoliberalism necessitates the State to marketised to
its core, to continuously make the effort to ensure that competition plays, as Foucault (2008:145)
explains a ‘regulatory role at every moment and every point in society’, thereby promoting the
‘general regulation of society by the market’. Thus, for the purposes of this thesis, neoliberalism
refers to a political rationality that seeks to govern through the calculative choice of formally
free actors (Rose, 1999). The model of homo œconomicus as a calculative, utilitarian agent becomes
an ‘approach’ capable of addressing the totality of human behaviour and consequently, of
envisaging a coherent, purely economic method of programming the totality of governmental
action (Gordon, 1991:43). Homo œconomicus is posited as a fundamental human faculty of choice,
which encodes the social domain as an economic space where cost-benefit calculations can be
applied to the decision-making processes within the family, married life the management of
populations, and importantly, financial markets. Here, government is not confined to the power
of the State, with the State being a sovereign, unified actor with considerable autonomy (Rose
& Miller, 1992:177). Instead, it invokes an inquiry of how, and to what extent, the State is
articulated into the activity of government. Foucault (1978c:221) terms this configuration of the
state in the activity of government as the ‘governmentalisation of the State’:
[…] the invention and assembly of a whole array of technologies that connected up
calculations and strategies developed in political centres to those thousands of spatially
scattered points where the constitutional, fiscal, organisational and judicial powers of the
State connect with endeavours to manage economic life, the health and habits of the
population [nation states], the civility of the masses and so forth (Rose, 1999:18).
With regards to the role of the State vis-à-vis financial markets amidst the contemporary bout
of financialisation, a governmentality analytic sees the changing relation between states and
non-state actors like CRAs as a ‘changing logic or rationality of government’ (Sending &
Neumann, 2006:152). Thus, contrary to the idea that financialisation implies a reduction of
state authority or what Thrift calls ‘a phantom state’ – as suggested in a zero-sum conception
of power in global politics – neoliberal governmentality redefines the State from being a passive
object that is acted upon into an entity that is both an object and subject of government
(Sending & Neumann, 2006).
This operation of government relies on the use of technologies that instrumentalise political
rationalities and includes the particular, technical devices of writing, rating, ranking,
numbering and computing that renders a realm into discourse as a knowable, calculable and
administrable object (Miller & Rose, 2008:30). This thesis investigates the discursive
24
technologies that render the domain of government – in this case, sovereign credit risk –
knowable, in a calculative form, and problematised with a corresponding set of interventions
(Miller & Rose, 2008:33; Rose & Miller, 1992:184). The governmentality of sovereign credit
risk is embedded in a set of problems concerning the ‘global’ government of financial markets.
A recurrent theme in discussions about the ‘international financial architecture’ (IFA), for
instance, is the prevention of crises (Knorr-Cetina, 2007). The IFA can be defined as the
‘collective governance arrangements for promoting the stability of the international financial
system’ (Elson, 2010). Focused on securing the stable circulation of financial flows, the
governing activities of the IFA aim to manage uncertainty through the deployment of, amongst
others, risk metrics that hold out the promise of transforming unknowable futures into knowable
probabilities that can be acted upon in the present (de Goede, 2012; Langley, 2013; Paudyn,
2014). Risk, as Dean (1999:25) explains:
[…] is a way – or rather a set of different ways – of ordering reality, of rendering it into
a calculable form. It is a way of representing events so they might be made governable in
particular ways, with particular techniques, and for particular goals. It is a component of
diverse forms of calculative rationality for governing the conduct of individuals,
collectivities and populations.
To this end, the neoliberal governmentality of the IFA, which has as its goal the secure and
stable functioning of the financial system, seeks to create conditions that enable and encourage
market participants to behave in a rational, calculative manner. This entails the use of
technologies that problematise irrational, deviant behaviour: threats to the stability of the
financial system. In the case of sovereign credit ratings, these technologies include the
representation of sovereign creditworthiness on a scale that not only enables comparison, but
also entails a normative directionality that governments have to take in order to improve their
status. Sovereign credit ratings act as a technology of government that link together
responsibility and calculation: to create the responsible states (Miller, 2001:380).
The deployment of risk technologies to secure the stability of the financial system coincides with
a profit motive, resonating with the entrepreneurial spirit of homo œconomicus in neoliberalism
(Amoore, 2013). This is captured in the dual meaning of securitisation being, in one sense, ‘a
process that renders societal problems into objects of security’ and in another ‘a process that
renders future income streams and other financial claims into tradeable financial instruments
such as derivatives’ (de Goede, 2012:xxii). Although these meanings may appear distinct at first
glance, they are both based on processes of mediation and calculation, which are inherently
25
political, and ‘whereby an uncertain and insecure future is rendered actionable, as well as
commercially profitable, in the present’ (de Goede, 2012:xxii). Risk is therefore a form of
government that works through probabilities, by ‘maximising the positive elements…and
minimising what is risky and inconvenient’ (Foucault, 2009:34).
While a substantial part of this thesis seeks to re-politicise the discourse of sovereign credit risk
by exploring, amongst others, the historical contingency and political contestations
underpinning the production of knowledge about finance and the economy, I also investigate
how this governmentality gets entangled in the political economy of South Africa. This
necessitates a focus on how the governmentality of sovereign credit risk – its political
rationalities and technologies – interacts with socio-spatial materialities that exceed their
institutional form. These spaces are produced through processes of uneven development, based
on historical rounds of accumulation, dispossession, and particular geographies of biased
investment that reproduce socio-spatial inequalities. By examining how local and social
histories are entangled in the governmentality of sovereign credit ratings, I do not mean to
suggest some form of linear causality between these modalities of governing and the
reproduction of historical spatial inequalities. The ‘global’ governing of sovereign credit ratings
does not act in a determinative way, but involves a promiscuous entanglement with the local,
that shapes unpredictable conditions of possibility (Ong, 2007:5). Adopting an assemblage
perspective, I examine how the governmentality of sovereign credit ratings involves an
‘interplay of forces where a range of actors mobilize, enrol, translate, channel, broker and
bridge in ways that make different kinds of government possible’ (Allen & Cochrane,
2007:1171). The following section discusses the assemblage approach and how it will be used
to investigate the relations and effects between the diverse elements that come together in the
rating of sovereign credit risk.
Studying the sovereign credit risk assemblage
An assemblage can be thought of as a whole ‘whose properties emerge from the interactions
between parts’ (DeLanda, 2006:5). Assemblages are made up of a multiplicity of heterogeneous
objects, “whose unity comes solely from the fact that these items function together, that they
‘work’ together as a functional entity” (Patton, 1994:185). This unity is not the result of an
organised system, however. The components that make up an assemblage do not function in
an organic manner but are shaped and defined through relations of exteriority. The exteriority of
relations implies a certain autonomy of the parts that make up an assemblage, which allows us
26
to consider how the diverse components have potential agency beyond these relations to create
something new (Anderson et al. 2012). The components in an assemblage therefore do not have
an intrinsic ‘function’. Instead, their functioning depends on how they interact with other parts,
which differs across time and space. Massumi (1987:xiii) explains the idea of relations of
exteriority in an assemblage by suggesting we think of concepts or objects as bricks. ‘It can be
used to build the courthouse of reason. Or it can be thrown through the window (Massumi,
1987:xiii)’. The meaning and function of a concept and/or object is shaped through its external
relations with other elements. Contrary to how, in an organism such as the branch of a tree,
each part has an entirely determined and necessary role, the relations between parts in an
assemblage are contingent rather than necessary. They are aggregated, mixed, and composed,
and like a ‘machine’ they can be removed and used in other assemblages (Dovey, 2010:16). As
such, the components that make up an assemblage are defined in terms of their capacities: they
are an open-ended set of potentialities (Anderson et al., 2012; DeLanda, 2006:11).
Deleuze and Guattari (1987) frame the interaction between heterogeneous relations in an
assemblage in the image of a rhizome and thus contrary to the arborescent system mentioned
above. Rhizomes are plants that grow in surface extensions through interconnected vertical
root systems. Here, it is not always possible to physically trace the interactive relations in an
assemblage, as their rhizomic operation often throw up shoots in different locations. The ‘lines’
in a rhizome always territorialise, de-territorialise and re-territorialise themselves (Deleuze &
Guattari, 1987). These processes always exist in relation to each other. To illustrate this point,
Deleuze and Guattari (1987:10) adopts the following analogy:
The orchid de-territorialises by forming an image, a tracing of a wasp; but the wasp re-
territorialises on that image. The wasp is nevertheless de-territorialised, becoming a piece
in the orchid’s reproductive apparatus. But it re-territorialises the orchid by transporting
its pollen. Wasp and orchid, as heterogeneous elements, from a rhizome.
A rhizomic understanding of how objects, discourses, history, and politics interact enables us
to expand our investigation into the processes and practices that not only de-politicise sovereign
credit ratings, but also how this assemblage territorialise itself in place. A sovereign credit rating,
for instance, is an assemblage of heterogeneous elements: histories of statistical probability
methods, economic theories, modelling software, performance metrics, data/information
infrastructures, buildings, electricity, education systems and curricula, face-to-face meetings,
profit motives, imaginations, fears, and political rationalities. Within this assemblage, economic
theory is nothing more than a further assemblage of connections between things, histories, and
27
practices. It is the connection between these multiplicities that makes up an assemblage. The
question then becomes: how are they brought together? Here, concepts such as
governmentality and apparatus enables an investigation into the techniques, discourses, and
epistemologies that bring heterogenous elements together in a particular way and in a particular
time and place.
Causality, within this framework, is realised in its effect (Deleuze, 1988:37). It is not governed by
a set of underlying laws, and it cannot be predetermined. William Connolly (2004:342) terms
this form of causality as emergent causality, which occurs when something that takes place ‘at the
immanent level has effects at another level’. Yet, this causality is emergent for the following two
reasons:
[…] first, the character of the immanent activity is not knowable in precise detail prior to
effects that emerge at the second level, second, the new effects become infused into the
very being or organisation of the second level in such a way that the cause cannot be said
to be fully different from the effect engendered and, third, a series of loops and feedback
loops operate between first and second levels to generate the stabilised result (Connolly,
2004:342, original emphasis).
Emergent causality in an assemblage stems from the agency of various somatic, technological,
cultural, and atmospheric elements (Bennet, as cited in de Goede, 2012:29). An assemblage
furthermore distinguishes itself from a social structure, which implies a greater degree of
coherence. Although, as Connolly’s notion of emergent causality implies, the various feedback
loops between different levels of effect generates a stabilised result, this sense of coherence is
always temporal, contingent and unstable. Indeed, Marcus and Saka (2006:102) notes that the
concept of assemblage provokes a ‘nervous condition for analytic reason’, caused by an attempt
to balance ‘the contradictions between the ephemeral and the structural, and between the
structural and the unstably heterogenous’. This can be seen during financial crises, for instance,
but also by how the sovereign credit rating assemblage interacts with the political economy of
South Africa that is characterised by historical tensions, inequality, and violence. Sovereign
credit ratings are not the causal determinant in this story. They often act as a catalyst in the
decision-making of government authorities on macro-economic policies which, in many ways,
enable historical forms of suffering to persist in South Africa’s social fabric. Here, ‘catalyst’
refers to how ‘well-placed’ elements in an assemblage sometimes have a decisive effect by how
it interacts with other elements in a particular time and place (Anderson et al., 2012:182).
DeLanda (2006:20) for instance uses the claim that ‘smoking cigarettes causes cancer’ to
illustrate how some causes in an assemblage lead to moments of turbulence, but emphasises
28
that ‘one and the same causes can produce very different effects depending on the part of the
whole it acts upon’. He explains that not everyone who smokes develops lung cancer and not
all victims of lung cancer were smokers at some point in their life. In cases where smoking did
lead to lung cancer, cigarettes acted as a catalyst for cancer. Causality is therefore multiple and
indeterminate, which implies that the identification of mechanical causality only becomes
‘visible in shifts between moments of unchartered turbulence and the congealment of agencies
that appear as traces’ (Anderson et al., 2012:183).
The study of the sovereign government assemblage in this thesis also depends on an
understanding of causality in terms of resonance. Akin to the rhizomic functioning of assemblages,
the re-politicisation of sovereign credit risk in this thesis brings together disparate histories
which, on the surface, might appear to have no relation to each other. Drawing on Connolly’s
(2005) notion of resonance that replaces traditional understandings of causation, I aim to show
the complex ways in which:
[…] diverse elements infiltrate into the others, metabolising into a moving complex –
Causation as resonance between elements become fused together to a considerable
degree. Here causality, as relations of dependence between separate factors, morphs into
energised complexities of mutual imbrication and interinvolvement, in which heretofore
unconnected or loosely associated elements fold, bend, blend, emulsify, and dissolve into each
other, forging a qualitative assemblage resistant to classical models of explanation
(Connolly, 2005:870).
In line with a rhizomic framework, this understanding of causation enables the use of diverse
methodological sources to examine how relations in an assemblage resonate together. Any
point in a rhizome, according to Deleuze and Guattari (1987:7) can and must be connected to
other points. These semiotic connections however, are not necessarily linked to one specific
discourse, but instead ‘bring into play not only different regimes of signs but also states of things
of differing status’ (Deleuze & Guatarri, 1987:7). This thesis for instance investigates the
resonances between the identity of colonial man in the works of Daniel Defoe and the
contemporary modelling of rational action in the marketplace. Although there are traces of
Defoe’s colonial gentleman, this model of rationality has been subject to various
transformations (or ruptures a-la Deleuze and Guattari, 1987), connected to diverse elements
with varying political, social, and economic consequences.
This tension between temporal stability and uncertain periods of emergence, or ‘lines of flight’
in a rhizome, exemplifies the mediation between territorialisation and de-territorialisation.
29
Territorialisation refers to the processes that aim to stabilise an assemblage, ‘to draw a circle
around that uncertain and fragile centre, to organise a limited space’ and keep ‘the forces of
chaos’ outside (Deleuze & Guattari, 1987:343). Here, territorialisation can be understood in a
literal way, that is, to create spatial boundaries (DeLanda, 2006:13; Dovey, 2010:17-19). This
includes the use of physical boundaries to territorialise spaces such as walls to separate rooms
in a house, fences to demarcate the geographical boundaries of a property, neighbourhood, or
nation. Territorialisation also involves non-spatial processes that seek to stabilise an assemblage
by increasing its internal homogeneity (DeLanda, 2006). For instance, the segregation practices
that exclude people, groups, or nations to become members of an organisation or society. In
global finance, the sovereign creditworthiness assemblage deploys a range of surveillant
mechanisms, performance metrics, and rating updates to normalise particular fiscal conduct.
This practice of governing involves a political imagination of the ‘globe’ that envisions spaces
beyond the horizon of the West as sources of uncertainty and a threat to the financial system.
The territorialisation of spaces ‘is a matter of marking out a territory in thought and inscribing
it in the real, topographising it, investing it with powers, bounding it by exclusions, defining
who or what can rightfully enter’ (Rose, 1999:34). However, because assemblage emphasises
the ‘instability of things’ (Marcus & Saka, 2006), these territories are temporal, contingent, and
always prone to de-territorialisation. These lines of flight signifies the open-ended potential of
assemblages to interact with and create new assemblages through processes of re-
territorialisation. Urban inequalities between, for instance, Mitchell’s Plain and Constantia in
the Western Cape province of South Africa, are produced through relations of history and
potential. These include histories of capital accumulation, historical configurations of uneven
spatial development, and legacies of socio-political contestation that plays a crucial role in
defining the nature of possibility, inequality, poverty, struggle, and mobilisation at a particular
site (McFarlane, 2011a:381).
Assemblage places emphasis on the depth and potentiality of urban sites, processes and
actors in terms of their histories, the labour required to produce them and the inevitable
capacity to exceed the sum of their connections…By ‘depth’, I am referring to the crucial
role of multiple and overlapping histories in producing habits of practice, ways of going
on, and trajectories of policy and economy that shape urban inequality…By ‘potentiality’,
I am referring both to the intensity and excessiveness of the moment- the capacity of
events to disrupt patterns…invent new connections and ways of inhabiting everyday
urban life…(McFarlane, 2011b:209).
This thesis investigates the relations of history mediating South Africa’s sovereign
creditworthiness and the unstable and unequal territories this assemblage creates. On the one
30
hand, the modalities of spatial governing sovereign credit ratings assemble tend to reify
historical forms of socio-spatial and economic exclusion. On the other hand, while these
modalities of governing often succeed in attracting much sought for foreign investment, they
are continuously contested in place by those who must bear the brunt of austerity measures,
inadequate housing, sanitation, education, and physical safety. In this way, the sovereign
creditworthiness assemblage creates the conditions for its own demise. Growing resistance to
post-apartheid spatial governmentalities in the form of large-scale protests reinscribes the
geopolitical imagination amongst investors and CRAs, undermining the government’s
creditworthiness. The conclusion chapter of this thesis considers how, via re-politicisation, the
authority of CRAs and financial markets in general can be resisted, which could open the space
for alternative ways of imagining sovereign credit risk.
Structure of thesis
This thesis is divided into six chapters and a conclusion. The first chapter examines the
masculine, colonial imagination of creditworthiness and rational finance. This chapter draws
on de Goede’s (2000, 2005) account of Daniel Defoe’s personification of finance in eighteenth-
century England as Lady Credit. Defoe’s writings took place in a context that saw both an
unprecedented rise in credit practices and growing concerns about what this form of wealth
creation means for the virtue of society. In an attempt to create a moral and political space for
financial practices to take place, Defoe argued that Lady Credit, despite being an irrational
female, can be beneficial for the country on the condition that she be engaged with on a
gentlemanly ethic. This gentleman – emblematic of the colonial voyager – is rational,
calculative, honest and will therefore bring out the best in Lady Credit. By creating a moral
space for the nascent financial structures to flourish, the English state was able to establish a
system of long-term borrowing via secondary debt instruments to fund its colonial conquests
and wars with rival powers in Europe. The chapter then explores the lines of resonance between
Defoe’s binary imagination of the English gentleman and Lady Credit and modern
representations of emerging and frontier markets. These resonances are bound up in a violent
history of colonial conquest and slave trade, which were funded by the institutionalisation of
credit instruments as we know them today, including national debt.
Chapter Two examines how Defoe’s portrayal of rationality and truth became absorbed in the
research agenda of economists associated with the 1870s Marginal Revolution. This chapter
examines the discursive techniques deployed by economists such as William Stanley Jevons,
31
Léon Walras and Alfred Marshall to establish the field of economics as a scientific, apolitical
discipline. These techniques entailed the use of analogies with physics and rational mechanics
to not only describe the workings of the economy – reduced to the study of price formation –
as being driven by natural laws, but also consolidated the use of mathematics to investigate and
represent the economy. The use of analogies was justified by the Enlightenment episteme and
an unconditional faith in the scientific method, used primarily in the natural sciences, to reveal
the true laws governing society. Thus, by merely incorporating analogies from natural sciences,
certain economic theories became conceived as scientific and truthful representations of
phenomena. A number of theories developed from these analogies continue to inform the way
in which economists and financial analysts understand and investigate market phenomena,
such as general equilibrium theory. The goal of this chapter is therefore to reveal the historical
contingency through which certain theories and understandings of the economy, and the
implications they entail for macro-economic policymaking, became conceived as ‘rational’ and
scientific. However, the determinist framework of the marginal economists encountered several
methodological complications, the cause of which is the limitation of man’s imperfect
knowledge of the underlying causes governing social and natural phenomena. This opened the
space for probability theory and statistical methods to the study of economics to portray not
necessarily the way things really work, but rather how they ought to work, based on notions of
normality.
Chapter Three explores how the use of statistical inference and probability mathematics
enabled the portrayal of the economy in model form. Model-making, this chapter reveals, is a
characteristically creative exercise whereby the representation of economic phenomena has
been manipulated by the political imagination of model-makers. Inherent to this discursive
exercise is an idealisation of how things ought to work, coupled with a set of policy prescriptions
for governments. This chapter reveals how model-making emerged as crucial political devices
through which economists advised governments on how they should ‘engineer’ the economy
out of crisis-situations, such as the Great Depression and, later, the fiscal crisis of the State. The
chapter also reveals how these modelling exercises have enabled the ‘triumph’ over calculative
risk over uncertainty in financial economics and are therefore central to the recognition of
credit risk rating as a scientific, objective practice.
Chapter Four navigates the ‘chain of translation’ involved in the production of sovereign credit
ratings. Akin to Laclau’s explanation of sedimented knowledges, this chapter examines how the
32
histories, theories, methods, and Western-centred epistemic cultures discussed in the previous
chapters unfold in the rating of sovereign credit risk. The chapter shows how the circulation of
value in financial markets takes the form of an epistemic infrastructure where certain nodes –
centres of calculation – occupy authoritative spaces of representation. Furthermore, this
chapter revealed the extent to which the rating of sovereign creditworthiness involves requires
a great amount of interpretive work, which is inherently political.
Chapter Five spatialises the governmentality of sovereign credit ratings in South Africa by
examining the historical and political processes involved in the production of raw life. These
processes include the colonial conquests conducted by European powers via joint-stock
companies such as Holland’s Vereenigde Oostindische Compagnie (VOC) in the seventeenth
century and Britain’s East India Company in the eighteenth century. This was accompanied
by not only large scale dispossession, but also, especially in the case of Britain, the introduction
of racist scientific reasoning that played an influential role in apartheid ideology. Here, a
number of close entanglements between Lady Credit, the colonial gentleman, and the post-
apartheid present becomes revealed. The goal of this chapter was to show how the
governmentality of sovereign credit risk assembles forms of knowledge that enables a forgetting
of this history and obscures the many ways in which it is complicit in its continuous
reproduction.
Chapter Six examines how the governmentality of sovereign credit ratings unfolded the making
of South Africa’s macro-economic policies post-1994. This entailed the use of scenario planning
exercises that worked to rationalise new-classical policy prescriptions, such as inflation
targeting, austerity, and central bank autonomy. These scenario exercises, alongside the
consultative practices of influential knowledge actors like the World Bank and IMF, cautioned
against the use of Keynesian policy tools to transform the economy and redistribute wealth.
Portrayed as macro-economic populism, a Keynesian economic programme for post-apartheid
South Africa was portrayed in the same light as Lucas and Friedman’s attack on demand-side
economics to diagnose the problem of stagflation in the late 1960s. They argued that the
benefits would be short-lived, as inflation, uncertainty, and unemployment would inevitably
follow. Instead, the ANC should act responsible: consolidate the budget and enable a business-
friendly environment to attract investment. Although, initially, the post-apartheid state was able
to secure favourable ratings from the Big Three CRAs, the inability of the government to
substantively address the historical legacy of apartheid has rendered social and labour unrest
33
ubiquitous. This has undermined the government’s efforts to secure private capital investment
and, coupled with sluggish economic growth and currency volatility, South Africa’s
creditworthiness has been deteriorating over the past few years and rated ‘junk’ by the Big
Three in 2020.
Chapter Seven, the concluding chapter, considers how the analyses of de-politicisation
conducted in this thesis enable us to challenge the authority of sovereign credit ratings by re-
politicising the stabilised knowledges contingent in their production.
34
Chapter One
The political history of creditworthiness
In August 2013, financial analysts from Morgan Stanley coined the term ‘fragile five’ to
describe the economies of South Africa, Brazil, Indonesia, Turkey, and India. Morgan Stanley’s
analysts argued that these countries have become too dependent on unreliable foreign
investments to finance their domestic economies (Kuepper, 2017). Their state of ‘fragility’
followed the US Federal Reserve Bank’s (Fed) announcement of a rise in interest rates and a
significant reduction to its bond-buying programme (Nechio, 2014). Prior to this, in the wake
of the 2008/09 GFC, the FED carried out a series of large-scale purchases of government and
asset-backed securities to lower longer-term interest rates and provide additional stimulus to
the economy. This ‘highly accommodative monetary policy’ strengthened market participants’
tolerance for risk, which enabled a large amount of ‘hot money’ to flow into emerging market
economies (Colombo, 2013). As they are not yet ‘advanced’, emerging markets signify
geographies of risk and accumulation (see Lee, 2003; Schultz, 2019; Sidaway & Pryke, 2000).
They are ‘risk-versus-reward’ investments, as one hedge fund manager put it:
[…] emerging markets are arguably the single most important avatar of investment
opportunity for our generation. The demand for commodities to support the
modernisation and urbanisation of these and other developing economies, and the
demand for food and products by growing consumer classes, should continue to fuel
opportunities for years to come (Brown, 2009).
In the immediate aftermath of the crisis, emerging markets witnessed historically
unprecedented levels of foreign investment; by the end of 2010 capital inflows to this group of
economies totalled US$825 billion (Gamble, 2010). However, uncertain about how emerging
markets would respond to the FED’s tapering measures, investors withdrew their money and
re-invested it into advanced economies (Kuepper, 2017; Nechio, 2014). The ‘fragile five’
currencies, namely the South African rand, Brazilian real, Turkish lira, Indian rupee and
Indonesian rupiah were especially implicated in this currency run, which resulted in widening
budget deficits, weakened currencies and contractions in economic growth (England, 2013;
Kuepper, 2017; Nechio, 2014; Thomas Jr., 2014).
For many analysts, the events that led up to the formation of the ‘fragile five’ confirmed the
existence of an emerging market ‘bubble’ that was bound to pop (Colombo, 2013; Emmot,
2015; Samuelson, 2013). Placing ‘emerging markets on trial’ for their irrational behaviour,
35
Koeserich et al., (2014) writes that the risk-versus-reward rhetoric associated with emerging
markets created highly distorted incentives for investors. ‘Gone are investor illusions [that] the
emerging world had miraculously grown into an all-weather source of returns. Gone is the easy
money, exposing market complacency about emerging market (EM) risks (Koesterich et al.,
2014).’ This notion of ‘distorted incentives’ parallels Jeffrey Sachs’s (1997) reference to ‘optical
illusions’ during the 1997/98 Asian Financial Crisis, which clouded investors’ judgements and
channelled money into the wrong investments. According to Sachs (1997), there are two drivers
of optical illusions in financial markets. First, the idea that when macroeconomic conditions
look good, as emerging markets did in the aftermath of the 2008 financial crisis, the increase in
foreign capital inflows generates overvalued currencies. This ‘wilfully deceives’ investors into
thinking that emerging markets would ‘behave differently in a crisis’ (Koesterich et al., 2014).
A second illusion occurs when emerging markets pursue a policy of financial market liberation
that grants them access to large amounts of credit (Sachs, 1997; see also Koesterich et al., 2014).
Sachs (1997) alludes to how the banks of the Asian crisis countries (Thailand, Indonesia, Korea
and Malaysia) invested with ‘reckless abandon’ into their domestic economies – a kind of
‘irresponsible’ bank lending that typically follows financial market liberation. Koesterich et al.,
(2014) similarly argue that emerging markets pursued reckless lending policies in the aftermath
of the 2008/09 GFC, which enabled them to ‘feast on credit’ without implementing proper
banking regulation policies.
In these depictions of financial crises and market instabilities, investors get portrayed as victims,
deluded and misguided by optical illusions that prevent them from seeing fundamental
economic truths (de Goede, 2000:59). The risk-versus-reward rhetoric associated with
emerging markets increases the potential for ‘optical illusions’, as it taps into investors’ desires
for short-term financial gain that clouds their understanding of how the economy ‘really works’.
To remedy this sense of uncertainty, financial leaders emphasise the importance of quantitative
risk assessments as a means of ensuring transparency in global capital markets. The higher the
transparency, the less room for optical illusions (Best, 2010). Consider the following statement
made by Donal Kohn in his 2011 address to the Financial Markets Group (FMG)
5
:
5
The FMG is a research centre at LSE, established in 1987 (LSE, 2018). On 6 September 2011, Kohn addressed a group of
researchers as an external member of the Bank of England’s Interim Financial Policy Committee. This committee was formed
in 2010 by the British government, tasked with the responsibility of identifying risks to financial stability in the UK and
secondly, to make recommendations to government and financial institutions on how to address these risks via policy measures
(Kohn, 2011b).
36
The stability of the financial system ultimately rests on the decisions of its private sector
participants. To be sure, government regulations can and should help shape those
decisions and provide a structure within which private participants are more likely to help
stabilise the system. But, in the end, it is those private decisions that will determine the
allocation of capital, economic growth, and economic and financial stability. Those
decisions cannot contribute to financial stability if they are not well informed…The
available information needs to be comprehensive and accurate, it needs to focus on the
important risks and characteristics, it needs to enable comparisons across institutions and
time to facilitate analysis… (Kohn, 2011a).
Kohn (2011a) goes on to suggest that it was ultimately the lack of transparency, caused by a
lack of quality information that exacerbated the 2008/09 GFC. Greater transparency,
according to Kohn (2011a), promotes ‘better market discipline’ and thus financial stability. To
improve the quality and transparency of information, Kohn (2011a) emphasises the importance
of implementing regulations that incentivise institutions and investors to ‘release as much or as
useful information as is needed to judge fully and accurately the risks to the institutions or to
the broader financial system’.
Underpinning the accounts of financial instability is an image of the marketplace as an
ensemble of rational actors – homo œconomicus – using all available information at their disposal
to choose among a bundle of perfectly divisible commodities. In a free, competitive
environment, these exchanges between ‘rational’ agents generate prices that accurately reflect
market fundamentals, ensure the efficient allocation of capital and, in the long-term, ‘natural’
equilibrium (Arrow & Debreu, 1954; Fama, 1965; Lucas 1972). Here, financial instabilities are
the result of information asymmetries, caused by corrupt politicians, greed, and moral hazard
that leads to a miscalculation of risk.
This chapter aims to re-politicise this depiction of the marketplace by exploring the gendered,
geopolitical imagination of rationality. Of interest are the resonances between homo œconomicus
and the historical portrayal of rationality and creditworthiness as characteristics of the colonial
gentleman, the ‘self-disciplined, naturally legitimate ruler and protector of morals’ (Hooper
1999:482). To this end, this chapter draws extensively on Marieke de Goede’s (2000, 2004,
2005) work on the gendered history of credit. De Goede reveals how the identity of the colonial
gentleman underpins Daniel Defoe’s modelling of rationality in eighteenth-century England as
an attempt to create a moral and political space for financial practices to take place. Defoe
personified finance as Lady Credit, a being both irrational and ambiguous, yet potentially
beneficial for the welfare of the nation. To maximise the benefits Lady Credit had to offer,
Defoe argued that only the English gentleman: a rational, self-disciplined, educated man should
37
be engaged with finance, as he possesses the necessary virtues to master her uncertain nature.
The rationalisation of finance enabled the English state to conduct numerous wars and colonial
conquests that were funded by credit instruments as we know them today, including national
debt. Given the significance that these colonial encounters continue to play in the formation of
South Africa’s political economy, Defoe’s discursive portrayals of rationality are more than just
rhetorical devices. Instead, they are intricately bound up in a violent history of colonial
conquest, slave trade, and the dispossession and subordination of people, places, and nature.
This chapter extends Defoe’s gendered imagination of irrationality to a geopolitical one and
considers how this vision informs contemporary portrayals of emerging markets as ‘fragile’,
‘risky’, yet, akin to Lady Credit, potentially rewarding. By investigating the lines of resonance
between Lady Credit and the geopolitical imagination of emerging markets, this chapter shows
how discourses governing modern finance has been produced through a process of negation
with the colonial Other that has important implications for understanding global power
relations.
This discussion is divided into four sections, the first of which emphasises the sociality of credit.
The first section shows how notions of truth and honesty are linked to historical portrayals of
the colonial European gentleman, and the many resonances these imaginations have with
contemporary representations of risk and irrationality in financial markets. The second section
discusses how, in order to carve out a space for financial practices to take place, Defoe gendered
the uncertainty of credit as a female that can be mastered by the rational faculties of the English
gentleman. The third section outlines the methods and value systems required for this
mastering of Lady Credit and considers how these techniques resonate with contemporary
efforts to govern uncertainty and secure the stable functioning of the financial system. The final
section extends the gendered portrayal of uncertainty to the geopolitical imagination of
emerging markets and examines how these discourses reproduce asymmetrical relations
between the global North and the global South.
The social dimension of finance: credit, trust, and opinion
Contemporary financial markets exist in what Mackenzie (2005) terms ‘black boxes’, they are
opaque to outsiders as their contents assume an aura of technicality. However, as discussed
earlier, financial practices depend significantly on social imaginaries of trust, ‘worth’ and profit
(de Goede, 2000:60; Wennerlind, 2011). Consider, for instance, how the diamond magnate De
Beers sought to retain the value of diamonds in the 1980s amidst a number of realisations that
38
contested the ‘myths’ about their worth. These myths based the value of diamonds on a set of
intrinsic, natural properties (Pallister et al., 1988:108-111). The first myth, according to Pallister
et al. (1988:108-111) is that diamonds are special – unique, unusual, and not easily replicated.
However, De Beers and other diamond manufacturers like the US’s General Electric Company
(GE) was aware that this was not really the case: industrial diamonds are manufactured in
laboratories throughout the world. In 1970, GE announced that it had perfected the process to
make synthetic diamonds in unlimited quantities but decided not to proceed. The reason is that
they ‘would be destroyed by the success of [their] own invention. The more diamonds we made,
the cheaper they would become. Then the mystique would be gone…’ (cited in Pallister et al.,
1988:109). A second myth is that diamonds are scarce. De Beers wanted to maintain this idea
at a time when world markets were glutted, which led the company to suspend all diamond
production in South Africa in order to reduce supply (Pallister et al., 1988:109). Third, the
company embarked on a number of multi-million-dollar advertising campaigns that created an
image of diamonds being ‘forever’ and therefore a perfect symbol of enduring love in the form
of an engagement ring. This is a double-sided image however, with one being safe and another
being sexy, ‘dividing women into patriarchal categories of wife and whore’ (Pallister et al.,
1988:110). The latter side became symbolised in the 1950’s with Marilyn Monroe’s song,
‘Diamonds are a girl’s best friend’, through which diamonds became the price a married man
had to pay to enjoy his mistress.
Although these are representative practices that intentionally seek to create value, they are by
no means different from how the value, or ‘worth’ of commodities – including paper money –
depends on a range of interpretations, instead of being an intrinsic property of something.
Value has to be imagined which, as Tsing (2001) points out, depends on stories of discovery,
scarcity, and opportunity. She documents the story of Canadian gold mining company Bre-X
that attracted large amounts of investment after it claimed to have discovered gold in the forests
of Indonesia. This turned out to be false, and investors lost their money. Nevertheless, Tsing
(2001) alludes to how speculative financial practices depends on imaginations of profit before it
can be extracted: ‘the possibility of economic performance must be conjured like a spirit to
draw an audience of potential investors’ (cited in de Goede, 2005:8). Charles Davenant
(1771{1698}:38), a political economist writing in a context that saw the unprecedented
emergence of credit instruments in England, similarly emphasises the imaginative character of
credit:
39
Of all Beings that have Existence only in the Minds of Men, nothing is more fantastical
and nice than Credit; ’tis never to be forc’d; it hangs upon Opinion; it depends upon our
Passions of Hope and Fear; it comes many times unsought for, and often goes away
without Reason, and when once lost, is hardly to be quite recover’d.
The issuing of debt is a relationship established on trust: belief that one entity will honour its
commitments. While credit is ‘fantastical and nice’, Davenant emphasises that it ‘hangs upon
Opinion’: it has a porous foundation and is therefore unstable, subject to chance and liable to
accident and uncertainty (Wennerlind, 2011:1-2).
In the context of eighteenth-century Europe, the extent to which someone was considered to
be trusted in a business transaction (how someone’s creditworthiness was established) related
particularly to gender and social status (Shapin, 1994; Wennerlind, 2011:88). Members of the
gentility ranked the most creditworthy, as they embodied a greater sense of honesty and virtue
compared to women and servants and thus better able to hold true on their promises
(Wennerlind, 2011; see also O’Brien, 1996; Shapin, 1994). During this period, numerous coffee
houses in London’s St. James area transformed their premises into gathering houses for
gentlemen’s clubs. These spaces were exclusively reserved for members of a society to conduct
business, share information and, importantly, determine the creditworthiness of individuals,
organisations and even countries (Seabrooke, 2006:150; Taddei, 1999:4). Emphasising the
connections between ‘credit’ and ‘truth’ in the emergence of the scientific method, Shapin
(1994) argues that truth was generated in a social network, which recognised the seventeenth-
century gentleman as the quintessential truth-teller. Gentility, Shapin (1994:42) argues, ‘was a
massively powerful instrument in the recognition, constitution and protection of
truth…gentility implied a conception of truth, just as the location of truth in that culture might
invoke a notion of gentility.’ As mentioned earlier, Foucault’s conceptualisation of truth
similarly emphasises that the production and recognition of ‘truth’ are intricately linked to not
only the discourses a society accepts as true, but also ‘the status of those who are charged with saying
what counts as true (Foucault, 1976:132, my emphasis). Shapin’s notion of ‘gentlemanly science’
indicates the link between objective truth and the social-economic status of the person charged
with telling the truth (de Goede, 2000:60; Wennerlind, 2011:88). The generation of ‘truth’ is
therefore not based on an objective reality that transcends universally, it is inherently political
and produced by a range of mechanisms and assumptions about credibility, as Shapin’s notion
of gentlemanly science shows. Here, the gendered dimension of credit becomes visible in that
wealth, worth and reputation – credibility – was seen as aspects that belonged solely to the
gentleman (de Goede, 2000:60; see also Amussen, 1988:152).
40
The gendered dimension of credit can be understood in relation to the emergence of paper
money and public credit in seventeenth-century England and the Scientific Revolution
(O’Brien, 1996; Wennerlind, 2011). This is not to say that financial instruments did not exist
prior to this. Modalities of public borrowing can be traced back to ancient and medieval times.
Bullock (1930:266) showed how Dionysius of Syracuse (432-367 BC) borrowed money from
citizens and repaid them by debasing the coinage. Compared to contemporary debt
instruments, such as securities traded in secondary, liquid markets with processes and yields
visible on public exchanges, ancient and medieval modalities of public borrowing entailed loans
in kind (commodities) instead of money, for shorter rather than longer periods and for war or
personal purposes rather than a permanent source of funding (Salsman, 2017:12). In other
words, lending to government meant lending personally to rulers, usually monarchs and popes.
Yet, I am interested in the emergence of credit as a means of payment that emerged in
eighteenth-century England, as it enables an exposition of the sociality of credit practices in
modern finance (Baucom, 2005; Carruthers, 1996; Salsman, 2017; Wennerlind, 2011).
Contrary to debt instruments that existed prior to this, credit money is detached from a direct
relationship to any actual commodities (Boyer-Xambeu et al., as cited in Ingham, 1999:87). As
Strange insists (1999:347):
The big breakthrough for states came at the turn of the [seventeenth] century with the
introduction of a new kind of money – state promises-to-pay. Two Scots, John Law and
William Patterson, both saw that by this means money could be created with which to
replenish the resources of the state by issuing pieces of paper carrying the ‘guarantee’ of
the monarch.
Credit money, as a form of payment, is a type of ‘depersonalised debt’ that differs from
commodity money (Ingham, 1999, 2001). Bills of exchange and promissory notes became
transferable in practice. ‘Bills existed as pure debt; that is to say, they were no longer based directly on
goods, but rather on promises’ (Ingham, 1999:87, my emphasis). Money, regardless of its
phenomenal form, is credit in that it represents a claim on goods and is, therefore ‘constituted
by social relations and cannot be understood outside them’ (Ingham, 2001:306).
The eighteenth-century proliferation of depersonalised debt instruments in London’s
secondary markets took place on an unprecedented scale and symbolises the development of
institutionalised finance as we know it today (Dickson, 1976). These developments in England’s
system of public borrowing are crucial considerations in comprehending the fiscal strength of
the state and have been termed a ‘Financial Revolution’ (Carruthers, 1996:71; de Goede, 2000,
41
2005; Dickson, 1967; Wennerlind, 2011). This revolution entailed a critical transformation of
English society from a feudal aristocratic to a commercial, trade-orientated one, and enabled
the formation of London as one of the principal financial centres in the world (de Goede,
2000:61; see also Langley, 2002). The financial infrastructure required for this form of large-
scale public borrowing stimulated innovations such as liquid secondary markets in public debt
instruments, circulating credit currency, new partnership banks and new insurance offices
(Dickson, as cited in de Goede, 2000:61; Wennerlind, 2011:8). Through this system of public
borrowing, the English state was able to tap into the savings of the population in order to fund
its numerous wars, undertake colonial conquests and ensure commercial and military might in
Europe (Baucom, 2005; Brown, 2001; Carruthers, 1996:76; de Goede, 2000; Dickson, 1967;
Wennerlind, 2011:5-7).
The creation of joint-stock companies interlaced finance and the State. Through this system of
long-term public debt, joint-stock companies received monopoly concessions to conduct trade
and conquest in the name of the State. As Strange (1991) points out, the contemporary
international economy consists of the unique combination of a ‘political system based on
territorial states’ and an ‘economic system based on markets and profit’. This combination
however, has a particularly violent history (see Chapter Five and Six) that is often overlooked:
it is through the creation of public credit that practices of slave trade, colonial endeavours and
the subordination of peoples, countries and regions were made possible (Baucom, 2005; Inikori,
1990; Paul, 2011). For instance, the Royal African Charter (RAC), a joint-stock company, was
chartered in 1672 with a thousand-year monopoly on African trade and the specific purpose of
rivalling Spanish and Portuguese trade in Africa in order to open the way for British slavers
(Newson & Minshin, 2007:12; Paul, 2011:38). The RAC was empowered to ‘deal in slaves, gold
and silver, and to establish forts and factories at appropriate places on the African coast’
(Palmer, as cited in de Goede, 2005:24). Visions of long-term prosperity, along with the crown’s
endorsement of colonial voyages that secured the public’s ‘trust’ in the credibility of businesses
like the RAC and the South Sea Company, enabled not only the proliferation of financial
innovations but also prompted citizens to buy stocks in the RAC and South Sea Company
(Baucom, 2005; Burch, 1998:107-135).
The significance of this colonial history in the forging of global connections which constitute
the basis of modern capital relations is often overlooked in IPE (Bhambra, 2020). Yet, as the
discourse of ‘fragile five’ mentioned earlier might suggest, this history continues to play a
42
prominent role in the reproduction of the global political economy. Baucom (2005) has shown,
for instance, how the transatlantic slave trade conducted by joint-stock companies was central
to the development of insurance schemes and modern banking systems. Challenges such as the
specific time horizons of slaving enterprises, their geopolitical pathways and the vast amount of
resources required for these enterprises stimulated the innovation of new types of lending
instruments. Because credit depends on an imagination of value that will materialise at some
point in the future, financiers developed a system of collateral whereby slaves were treated as a
‘guarantee’ if a debtor was unable to settle its debts (Baucom, 2005:89). Thus, not only did
credit instruments enable the slave trade via joint-stock companies like the Royal African
Charter, but also the purchasing of slaves. Additionally, treated as collateral, the transatlantic
slave trade turned human beings ‘as a species of money’ that regarded them, ‘on the point of
sale in the new world as the account deposits for a network of interest-bearing bonds’ (Baucom,
2005:90). Today, the countries from where slaves were extracted – essentially funding the
commercial might of imperial powers – are some of the highest indebted countries (Kazi, 2020).
Private investors from the global North tend to target bonds and stocks in emerging and frontier
markets as the ‘high risk’ they symbolise translates to higher yields, enabling them to reap
significant profits. From the 1980s, there has been a vast amount of outflows of public money
from the global South in interest payments: nearly 4.2 trillion US dollars, far overshadowing
the aid received by these countries (Hickel, 2017).
Yet, one should be careful not to interpret the emergence of this form of state credit and public
debt as monetary evolutions that sprang up naturally and inaugurated the conceptual apparatus
of modern finance. Indeed, as Charles Davenant’s description of credit suggests, credit’s porous
foundation meant that the evolution of credit money as a form of payment was anything but
uncontroversial and required ‘nothing short of an epistemological revolution […] for people to
understand and embrace it, and to overcome their trepidations about basing both commerce
and the state on what was fundamentally a mental construct’ (Wennerlind, 2011:2; see also
Baucom, 2005; Brown, 2001; de Goede, 2005, 2002; Glaisyer, 2005; Hoppit, 1990; Ingrassia,
1998; Nicholson, 1994; Pocock, 1975; Wennerlind, 2011). In order to re-politicise finance and
eventually open a conversational space for political criticism to take place (Williams, 1999:80),
de Goede (2000) suggests that we approach the Financial Revolution as the articulation of
moral and political spaces in which credit instruments became possible and condoned.
43
Debating credit: the quest to moralise finance
At the time of its introduction, credit money was conceived by many as morally suspect instead
of naturally beneficial (Carruthers, 1996:85-89; Hoppit, 1990; Paul, 2011). The concepts of
promise and pledge underlying credit assumably subjugated England to the whims and fancies
of its emerging financial elite, also known as the ‘Monied Interest’ (Carruthers, 1996:86). This
burgeoning group of elites obtained their wealth not through the production of tangible
commodities, but through the stock market (Paul, 2011:12). The so-called ‘Landed Interest’,
Britain’s traditional elite, was among the strongest voices of opposition against credit – a fury
that was fuelled by burdens of low rents, high interest rates and heavy taxes on landed estates
(Carruthers, 1996:85-87; Dickson, 1967:15-35). A prominent line of critique against the
emerging financial class was that this form of wealth creation, located in London’s booming
stock market, stimulated self-interested behaviour and caused a decline in civic mindedness
(Carruthers, 1996; Paul, 2011:12). The term ‘stock-jobbing’, with clear overtones of self-interest
and corruption, was freely used to denote any kind of activity in the stock market (Dickson,
1976:32-33). Stock-jobbers referred to stock brokers or middlemen in the City of London and
were typically portrayed as evil, effeminate individuals who are corrupting the morals of society
by encouraging practices like gambling, usury and excessive ambition for luxuries (Hoppit,
1990:316).
The rapid transformation of England from a feudal society to a commercial one sparked a sense
of nostalgia for Aristotelian notions of freehold and real property as the foundations of
personality and value (Nicholson, 1994:4). The Tories’ public pronouncements, representing
the pleas of the ‘Landed Interest’, articulated landed property as the guarantee of a civic virtue
that enabled the citizen as head of his household to rule and be ruled as one of a community of
heads making decisions that would bind all of society in an equitable, dignified manner
(Nicholson, 1994). It was believed that wealth ‘created out of nothing’, as opponents interpreted
credit, fostered corruption, greed, gambling, and vanity (de Goede, 2005; Hoppit, 1990; Horne,
1978; Paul, 2011). This sense of hostility was expressed in the literary works of prominent
writers at the time. For example, in Alexander Pope’s Epistle to Bathurst (1757{1735}), he
laments the ‘invention of money’ and the ease in which individuals can gain access to funds
(Ingrassia, 1998:4). ‘Blest paper-credit! last and best supply! / That lends Corruption lighter
wings to fly’ (lines 39-40). According to Pope, the possibilities of wealth facilitated by paper
credit caused disruption of entrenched social order that had traditionally ensured a sense of
civic mindedness, by luring financial participants into schemes promising vast amounts of
44
wealth. Charles Davenant (1771:217) argued similarly in a 1702 pamphlet, adding that ‘[t]hese
gimcracks and new devices of funds, stocks, exchequer bills, malt and lottery tickets, have
turned the brains of a great part of the city: there is not such a thing left as publick spirit, and
in its room we have set up knavery, extortion, and self-interest.’
Concerns akin to those expressed by Pope and Davenant captures the extent to which
contemporaries emphasised the importance of morals in society (see Horne, 1978; Ingrassia,
1998; Nicholson, 1994; Pocock, 1975). Pocock (1975) labelled this conflict between commerce
and virtue England’s ‘Machiavellian Moment’, which can be interpreted in two ways. In the
first sense, the Machiavellian Moment constitutes a problem in historical self-understanding as
a crisis develops between personality and society (Nicholson, 1944:1; Pocock, 1975:vii).
Secondly, the moment in question symbolises a phase in which the republic is seen as
confronting its own temporal finitude – as attempting to remain morally and politically stable
in a stream of irrational events that could destruct stable social orders. According to Pocock
(1975:viii), this entailed the confrontation of ‘virtue’ with ‘fortune’ and ‘corruption’. Thus, in
attempting to resist the revolutionary changes brought by finance activities, there was a growing
need to disperse virtue throughout society, so as to enable individuals to recognise a public
interest and act upon it. The goal of any social organisation should therefore ‘be the creation
and nurturing of virtuous men’ (Horne, 1978:ix). Commercial activities, especially ones created
through credit mechanisms, were seen to be the most dangerous threat to virtuous life. Even
supporters of credit emphasised the importance of virtue and, in fact, constructed their defence
within a moral framework by claiming that the successful use of credit depended upon good
conduct, i.e., to get credit depended on behaving credibly (Hoppit, 1990:316). The
Machiavellian Moment thus has a continuing history (Nicholson, 1994:2; Pocock, 1975:viii),
evinced in contemporary attempts to restore virtue to the financial system by making use of risk
instruments that would supposedly ensure transparency in the dissemination of information in
markets, hence promoting responsible and accountable conduct in the financial sphere.
With some recognising the necessity of credit and critics emphasising issues of virtue,
corruption, power, passions, justice and faith, credit became the focus of political struggle and
satirical debate during this period (de Goede, 2000, 2005; Hoppit, 1990; Ingrassia, 1998;
Nicholson, 1994; Sherman, 1996). These debates took place through various press outlets like
pamphlets, court house reports, newspapers, novels and other literary works (Pocock,
1975:427-428). The ‘paper wars’ peaked between 1698 and 1734 and a number of legendary
45
British authors participated, most notably Daniel Defoe, Johnathan Swift and Alexander Pope
(Pocock, 1975:426). These debates played an important role in expressing the political
confusion around the transition from a feudal society, in which wealth was embodied in land,
to a commercial and trading one where wealth is more intangibly located in mechanisms of
credit-creation (Backscheider, 1981; Nicholson, 1994; Pocock, 1975). As such, they do merely
reflect on emerging credit structures: ‘they produce and manage new (financial) knowledge and
subjectivities’ (de Goede, 2005:26, emphasis in original). Literary texts, according to Osteen
and Woodmansee (1999:4) ‘both produce and respond to reformulations of the nature of
representation and credit embodied in money and in the economic system in general’. In the
following section, I use de Goede’s analysis of Daniel Defoe’s imagination of credit as a ‘female
inconstant’ – Lady credit – to capture the porous foundation of the money system. The
characterisation of Lady Credit as an ‘inconstant, often self-willed but persuadable woman’ is
a pattern of representation that, though not absolute, nevertheless forms part of an older
practice of gendering feminine that which is devalued (Ingrassia, 1998:2; Latta, 2002).
Iconographic associations with female figures, particularly Fortuna, were deployed by both
opponents and supporters of credit structures as a way of highlighting credit’s fickle and
insubstantial nature (Glaisyer, 2005:278). de Goede looks at how Defoe captures this
insubstantial essence of credit, but also the ways in which to manage and eventually, ‘master’
her through scientific methods. This analysis enables us to reveal the politics of sovereign
creditworthiness by exposing the resonances between discourses of credit risk and colonial
imaginations of uncertainty and profit that underpin portrayals of ‘emerging’, ‘frontier’ as well
as ‘fragile five’ markets. Far from being merely ‘colourful rhetoric’ to describe economic
phenomena, these descriptions are used in a strategic way to justify policy responses to crises,
investment decisions, as well as legitimise particular political discourses (Kelly, 2001).
Gendering uncertainty: Lady Credit and Fortuna
The feminisation of credit in public discussions, according to Ingrassia (1998), typically took
place through the deployment of sexual metaphors and female allegorical ‘figures of disorder’.
The intangible nature of speculative investment prompted the representation of financial
participants such as stock-jobbers, investors and insurers, preoccupied with paper credit as
‘feminised creatures’, lured by fickle female goddesses who symbolically control the new
economic world (Ingrassia, 1998:20). These depictions of credit embodied ‘many associations
of negative and stereotypically female qualities [like] avaricious sexuality, emotional instability
[and] hysteria’ (Ingrassia, cited in de Goede, 2005:26). The ‘paper wars’, conducted in the
46
pages of The Spectator, The Review and The Tatler thus followed a tradition of sexualised public
discourse. They reproduced a long misogynist tradition and preserves what McKeon
(2002:205) describes as ‘that association with the volatility of exchange (or of fortuna) which they
possess under older, patrilineal assumptions.’ Merchant alludes to seventeenth and eighteenth-
century conceptions of the scientific method assuming a distinct sexual character and refers to
Francis Bacon’s construction of Nature as a female that had to be subdued and mastered by
the male scientific mind through ‘relentless interrogation’ (Merchant 1989:170; see also
Harding, 1986; Lloyd, 1984). In The Masculine Birth of Time (1603), Bacon writes ‘I am come in
very truth leading to you nature with all her children to bind her to your service and make her
your slave (quoted in Merchant, 1989:170). The accumulation of knowledge, obtained through
the scientific method, combined with mechanical technologies that enabled discoveries such as
printing, gunpowder, warfare and navigation ‘helps us to think about the secrets locked in
nature’s bosom’. ‘They do not … merely exert a general guidance over nature’s course; they
have the power to conquer and subdue her, to shake her foundations’ (Bacon, as cited in
Merchant, 1989:172). This sexualised representation of nature, as Agnew (2003:26) points out,
also featured in the eighteenth-century European geopolitical imagination, which ascribed the
different levels of wealth, commerce and in general ‘socio-economic progress’ in terms of
climactic factors. Here, the tropical climates of the global South were seen to encourage
idleness, whereas the temperate climates of Europe stimulated industry and innovation.
Representations of climactic differences had a distinct gendered character in the sense that they
denoted differing levels of sexual desire in women according to their ‘level of civilisation’.
Writing in 1767, Adam Ferguson for example associated hot climates as zones of unrestrained
passion while temperate climates produced greater control (Agnew, 2003:26-27). These
projections of nature as a female that can be ‘known’ and mastered through science also
informed Defoe’s defence for financial practices.
Defoe’s sexual representations of credit were characteristic of the time. What was original about
his work, de Goede (2000, 2005) shows, is that he used sexual metaphors as literary devices to
put forward a new idea of morality in which the nascent credit structures would be able to
flourish. Defoe’s feminine representation of credit engages with the moral conflicts between
virtue, fortune and corruption that characterised England’s Machiavellian moment. Displaying
no sense of nostalgia for Aristotelian values of landed property, where wealth is located in
tangible commodities as a guarantee for civic virtue, Defoe conceded the possibility that wealth
based on the circulation of credit can coexist with civic virtue. He highlighted for example, how
47
‘money-as-pledge’ could enable the creation of sturdy financial structures that would strengthen
England’s domestic and foreign authority, on the precondition of a gentlemanly ethic (de
Goede, 2000:63, 2005:27). By linking the conditions for the successful coexistence of finance
and civic virtue on a particular identity, the English gentleman, Defoe’s work offers a
resourceful starting point to gain insight into the discursive foundations of the modern financial
economy (de Goede, 2000:63; Hoppit, 1990). This is also true for his later novels, particularly
Robinson Crusoe (Defoe, 1719), as I will explain later.
Defoe’s feminised depiction of credit personifies all the irrational, fantastical, passionate and
irresponsible elements that Pope, Davenant and other participants in the paper wars attributed
to the new credit-based economy (de Goede, 2000, 2005). When Defoe introduced Lady Credit
in a 1706 issue of his Review of the State of the English Nation, he emphasised her dubious character,
which is worth quoting at length:
Money has a younger Sister, a very useful and officious Servant in Trade … Her name
in our Language is call’d CREDIT, in some countries Honour, and in others I know not
what.
This is a coy Lass, and wonderful chary of her Self; yet a most necessary, useful,
industrious creature: she has some Qualification so particular, and is so very nice in
Conduct, that a World of Good People lose her Favour, before they well know her Name;
others are courting her all their days to no purpose, and can never come into her Books.
If once she be disoblig’d, she’s the most difficult to be Friends again with us, of any thing
in the World and yet she will court those most, that have no occasion for her; and will
stand at their Doors neglected and ill-us’d, scorn’d and rejected like a Beggar, and never
leave them: But let such have a Care of themselves, and be sure they never come to want
her; for, if they do, they may depend upon it, she will pay them home, and never be
reconcil’d to them […]
’Tis a strange thing to think, how absolute this Lady is; despotickly she governs all her
Actions: If you court her, you lose her, or must buy her at unreasonable Rates; and if you
do, she is always jealous of you, and Suspicious; and if you don’t discharge her to a Tittle
of your Agreement, she is gone […] (Defoe, quoted in Sherman, 1996:41-42).
In this introduction, Lady Credit’s ambiguous character is displayed to us through a range of
stereotypical, unpleasant feminine characteristics. While she is fundamentally good-natured,
nice and useful, she can also be jealous, suspicious and stubborn if mistreated. She is also a ‘coy
Lass’, a young, shy girl: attractive and innocent, yet mature enough to know how to use her
attractiveness, coquettishly inviting public men to play. In stereotypical feminine fashion, she
lavishes her attention on those possessed of so much money that they ‘have no occasion for
her’, while ignoring those who ‘are courting her all their days’ (de Goede, 2005:28).
48
Lady Credit is thus ambiguous and fickle. De Goede (2000:64) traces her haphazard
characterisation in Defoe’s writings, highlighting how she appears alternately as an innocent
lady, a virtuous virgin or gentlewoman on the one hand, or on the other a spoilt flirt and
demanding mistress (see also Latta, 2002; Pocock, 1975:453; Sherman, 1996:41-45). She
displays various degrees of sexual activity and Defoe even refers to her as a ‘whore’ in Eleven
Opinions of Mr. Harley (1711): ‘a meer Common Strumpet, will lie with any Body that has Money
to supply her insatiable Cravings’ (quoted in Sherman, 1996:51). Yet she is also a passive victim
of the concoctions of various political fractions and is always in danger of being raped
(Backscheider, 1981:94; de Goede, 2000:64). Pocock (1975) traces the narrative development
of Lady Credit from an inconstant mistress to a ‘stabilising, virtuous and intelligent agency’. In
fact, the August 1 Review introduces Lady Credit as the daughter of Prudence and sets out her
genealogy in association with Virtue, Wisdom and Probity (Backscheider, 1981). On the other
hand, Sherman (1996:51) suggests that Lady Credit has always been and eventually remains a
whore in Defoe’s writings. These conflicts allude to how her character is best understood as
ambiguous, malleable, and inconsistent. Baucom (2005:81) describes that her vulnerability in
the face of ‘the fickle swings of the imagination, her insubstantiality apart from the trust
alternately vested in and withdrawn from her, was the very secret of her power.’ Yet it is her
very changeability that enables Lady Credit to change society’s fortunes. This depiction of her
powers, to govern over the fortunes of a society, evokes images of literary goddesses of the
Renaissance, especially Fortuna (Pocock, 1975:453).
Fortuna, the mistress of chance and luck, has a long lineage in the history of political thought.
Aristotle described her as the one who distributes the external foods of wealth, power, beauty
and health – a conception retained in Renaissance Christian thought (Daston, 1988:151).
Identified as a female, Fortuna was typified as fickle, capricious and unpredictable, and
although man could attempt to please and honour her, he was never guaranteed success (Pitkin,
1984:140). Her symbol is the wheel, which signifies the means ‘by which men are raised to
power and fame and then suddenly cast down by changes they cannot predict or control’
(Pocock, 1975:38). The wheel’s movement and Fortuna’s character shifts from capriciousness
to inexorability in Christian writings, especially in the thought of Boethius, where Fortuna is
pitted against virtue (Campbell, 2003; Pitkin, 1984:140). Within this tradition Fortuna becomes
the enemy of prudence, rationality and calculability: the characteristics that ensure the
production of virtuous men in society. Pocock (1975:37) shows how this dichotomy between
Fortuna and virtue was often expressed in the image of a sexual relation:
49
[…] masculine active intelligence was seeking to dominate a feminine passive
unpredictability which would submissively reward him for his strength or vindictively
betray him for his weakness. Virtus could therefore carry many of the connotations of
virility, with which it is etymologically linked; vir means man.
These contrasting images of Fortuna in her historical lineage captures the different degrees of
human autonomy in the face of her powers (de Goede, 2005:30). Ciofarri (1947) has
documented for example how the image of Fortuna changes between Dante, Boccaccio and
Machiavelli. In Dante’s Divine Comedy, Fortuna is portrayed as a true goddess, appointed by the
‘Master of the Universe’ to distribute earthly goods from one nation to another, and from one
family to another, thus leaving no possibility of human defence against her or even human
understanding of her actions (Ciofarri, 1947:2; see also Campbell, 2003:17-24; Pitkin,
1984:141). Her divinity changes in Boccaccio’s Decameron, replaced by an image of the goddess
as mischievous and cunning. Determining the outcomes of human actions, Fortuna enters the
financial sphere and enables the promotion of men’s illicit intentions and favours ‘the business
of lending at usury’ (Ciofarri, 1947:3). However, it is in the works of Machiavelli that Fortuna
becomes of particular interest for this chapter. Machiavelli emphasises Fortuna’s mischievous,
cunning and cruel qualities: ‘…she pushes the sailor back into the storm just at the moment
when he thinks he has reached the shore …she cuts off her victim at the time he is nearest
reaching his goal … she strikes so frequently and so constantly that her striking is compared to
that of a hammer …’ (Ciofarri, 1947:4). In Tercets on Fortune, Machiavelli (1989:746) portrays
Fortuna as an ‘unstable goddess and fickle deity’ who ‘often sets the undeserving on a throne
to which the deserving never attains’. Similar to Lady Credit she is at once hostile to men, finds
pleasure in putting them down because she is full of envy (Machiavelli, 1989:533), but also likes
to tempt and tease them, setting before them apparent short-range goods or dangers or seduce
them into the wrong course of action (Campbell, 2003:26; Pitkin, 1984:155). Here, Fortuna
loses her god-like qualities and ‘what remains is the image of fortune as a woman, mostly in
juxtaposition to autonomous human effort, often explicitly to virtú’ (Pitkin, 1984:153). Stripped
from her divine abilities, Fortuna’s humane demeanour implies the possibility to control and
dominate her (Ciofarri, 1947:6; see also Campbell, 2003; Daston, 1988:152).
Machiavelli’s characterisation of Fortuna shares distinct similarities with Lady Credit, as de
Goede (2005:30) points out, buttressed by a view of two despotic female figures ruling over the
affairs of men. Most strikingly is the duplicity inherent to both Fortuna and Lady Credit, the
double nature of the feminine who is simultaneously a ‘sexually attractive maiden’ and a
‘dangerous matriarch’ (Pitkin, 1984:143; see also Campbell, 2003:28). This duplicity underpins
50
Defoe and Machiavelli's stories that begin with a woman’s state of purity and innocence,
implying that she is (still) a virgin (de Goede, 2000:65). This virgin is characterised by a passive
seductiveness, which Machiavelli articulates as evidence of ‘mysterious and dangerous powers’
specifically confined to daughters and young women: beautiful, desirable possessions,
potentially sources of great pleasure for men…objects of desire, conquest or possession’ (Pitkin,
1984:110-111). Lady Credit similarly starts her career as an innocent virgin, while the suspense
of lurking disaster accompanies her introduction in the 1706 Review. She then matures, as noted
earlier, into a threatening and conniving woman akin to Machiavelli’s Fortuna, in de Goede’s
(2005:31) words being ‘unreliable, malleable, and fickle, both are seductive and tyrannising,
both are represented as stately ladies who need to be treated with respect on one hand and as
unreliable loose women who cause destruction on the other’. Depicting man and goddess in a
distinct sexual conflict, virtue becomes the manner in which Fortuna can be resisted (Campbell,
2003:26-27). Thus, by framing Lady Credit in Fortuna’s persona, Defoe opened the way for
articulating the financial sphere as manageable, necessary, and eventually respectable. As the
following section shows, the methods, values and forms of knowledge Defoe put forward to
tame and secure the reputation of Lady Credit resonate with contemporary discourses that seek
to rationalise and stabilise the financial sphere.
Governing uncertainty through self-discipline: the gendered face of
(ir)rationality
Similar to Fortuna’s lineage, Lady Credit’s persona also underwent numerous changes
reflecting controversial interpretations of the financial sphere at the time. Yet, Defoe argues
that Lady Credit is indispensable for the English nation. She becomes an emblem of England’s
soundness: when she is well, she graces every aspect of English life, therefore confidence, health
and even peace abide. Should she die, ‘[T]he French will beat you without Fighting, make
Peace with you without treating, and end the War without seeking’ (Defoe, as cited in
Backscheider, 1981:91). Credit ‘turn’d nothing into something, Coin’d Paper into Metal, and
stampt a Value upon what had no Value before’ (Defoe, as cited in Backscheider, 1981:92). At
home, she makes everyone, small shop-owners and large estate holders prosper; abroad she
makes England a force to be reckoned with (Backscheider, 1981:92). Defoe therefore suggests
that Lady Credit should not be abolished, but rather actively mastered and controlled. Similar
to Machiavelli’s Fortuna, she is neither a virgin nor a whore: she is what financial man makes
of her (de Goede, 2005:31). Indeed, a brief consideration of Machiavelli’s advice to man in his
struggle to resist the temptations of Fortuna reveals not only how his conceptions foreshadow
51
Defoe’s, but also disclose striking parallels to contemporary discourses of financial risk
management.
Following in the footsteps of Aristotle’s Eudemian Ethics, where he pits good luck against good
reasoning and argues that the latter snatches ‘victory in the jaws of defeat’ from the former,
Machiavelli argues that man can control the blows of Fortuna through active anticipation
(Daston, 1988:152). In The Prince, Machiavelli (1989:90) compares Fortuna to a potentially
destructive river that can be partially tamed by proper precautions:
I compare Fortune with one of our destructive rivers which, when it is angry, turns the
plains into lakes, throws down the trees and the buildings…everyone yields to its fury and
nowhere repel it. Yet through such it is, we need not therefore conclude that when the
river is quiet, men cannot take precautions with both embankments and dykes, so that
when waters rise…their fury is neither so wild nor so damaging. The same things happen
about Fortune. She shows her power where strength and wisdom do not prepare to resist
her, and directs her fury where she knows that no dykes or embankments are ready to
hold her.
Instead of letting Chance govern the activities of men, man must show virtuosity and anticipate
the cunning forces of Fortuna. Machiavelli’s confrontation with Fortuna led him to value the
virile qualities that constitute the Roman virtus: ‘that quality of stern, serious, strong-minded,
courageous manliness that despises pleasure and playfulness, cleaving to duty and strenuous
effort’ (Pitkin, 1984:50). Virtue, not only located in man’s military capacity to fight in combat
but also how he uses knowledge, skill and foresight to seduce Fortuna, becomes the manner in
which he controls the blows of this ‘capricious bitch goddess’ (Walker, 1989:36).
This sentiment re-emerges as the means through which the capricious nature of credit can be
mastered in Defoe’s sexual warfare between Lady Credit and her suitors. Like Fortuna, who is
attracted to men who have the ability to master her, Lady Credit will also be conquered by
those who pretend to ‘have no occasion’ for her (de Goede, 2005:32-33, 2000:66). In other
words, those who are able to practice self-control – the source of which are virtues of knowledge,
skill, and foresight. Since Lady Credit is by nature fickle, Defoe insists that the monetary fertility
she is able to generate can only take place if men are confident in the prosperity of the kingdom
and hence appealed for the construction of foundations of ‘regular structures’, such as honour
and mutual trust to underpin the emerging financial sphere:
[…] if you will entertain this Virgin, you must act upon the Principles of Honour, and
Justice; you must preserve Sacred all the Foundations, and build regular Structures upon
them; you must answer all Demands, with a respect to the Solemnity and Value of the
52
Enlightenment; with respect to Justice, and Honour, and without any respect to Parties
– If this not observ’d, Credit will not come (quoted in Pocock, 1975:455).
Referring to the gentility, Defoe argues that an honourable marriage can ensure Lady Credit’s
respectability, especially if she agrees to ‘marry…without a potion’ the ‘Young Man full of
Application, sober, sensible and honest, that lays his Bones to his Work, and his Head to his
Business’ (as cited in Latta, 2002:374). In his Compleat English Gentleman (1729), Defoe described
the English gentleman as ‘a person Born (for here lies the Essence of Quality) of some known,
or Ancient Family; whose Ancestors have at least from some time been rais’d above the Class
of Mechanicks’ (quoted in Shapin, 1994:53). Once married to an honourable gentleman, Lady
Credit becomes positively usurious and better able to produce not only more credit, but also
creditworthy and interest-generating citizens (Latta, 2002). Thus, only when she exists in a
relationship with the gentleman, being his wife, her reputation gets restored. This breed of men
is perceived to be the most trustworthy due to their social status and education, which provides
them with the necessary qualities to act in moderation when engaging in financial activities. In
other words, the gentility possesses the necessary qualities to tame or discipline Lady Credit’s
capricious nature, by resisting her temptations. Eighteenth-century moral philosopher Francis
Hutcheson (1755:12) shared this view, claiming that it is possible to accumulate wealth and
ensure a virtuous society at the same time if financial man remains calm and moderate: ‘…the
calm desire of wealth will force one, tho’ with reluctance, into splendid expences when
necessary to gain a good bargain or a gainful employment; while the passion of avarice is
repining at these expences’ (quoted in Hirschman, 1997:65). What distinguishes a calm desire
from avarice is thus the willingness to pay high costs to achieve even higher benefits; in other
words, to act with calculation and rationality (Hirschman, 1997:65).
Governing uncertainty through the institutionalisation of bookkeeping: discipline
and numbers
Defoe explains that the first step to control and eventually manage Lady Credit is for the
gentleman to learn how to control himself. In the Compleat English Gentleman, Defoe (1729:244)
emphasises the importance of governing oneself before governing subordinates: ‘If the
gentleman we are treating of can not govern himself, how should we expect any good oeconomy
in his household?’ Meticulous bookkeeping is the way to self-mastery and good government.
The combination of calculation, anticipation and planning will foster an ethical relationship to
the self, enable accountability and the mastering of Lady Credit (de Goede, 2005:35). The
keeping of one’s books enables the punctuality of payments and represents a way to keep Lady
53
Credit and her temptations in check by promoting the tradesman’s honesty: “nothing can
support Credit, be it publick or private, but Honesty; a punctual dealing, a general probity in
every transaction; he that once breaks thro’ his honesty, violates his credit”. In this sense, the
system of keeping one’s books represents a way through which man can mathematise his
commitments, secure his reputation and promote good, virtuous men (Backsheider, 1981:94).
Bookkeeping resembles what Ewald (1991:207) terms a moral technology in that by conducting
one’s life according to an enterprise, man no longer resigns ‘to the decrees of providence and
the blows of fate’, but rather gains active responsibility over his affairs and the ability to arm
himself against ill fortune.
There is another dimension to bookkeeping, as a moral technology, that is important for the
articulation of financial rationality: since it requires the tradesman to ‘cast up his books’
(Defoe:1841{1726}:186), it represents a mechanism through which man obtains an
undistorted, truthful reflection of his state of affairs. Much like Kohn’s emphasis on transparent
information to secure the stability of the financial system, Defoe emphasised that bookkeeping
would ensure rational, calculative action when faced with temptress credit. The ‘duty to truth’
that forms the core of accounting facilitates an ethical relation to the self, required for mastering
credit and thus holds out the promise of undistorted access to economic truth (Carruthers &
Espeland, 1991:41; de Goede, 2000:69). This association between accounting, truth and virtue
should be read in the context of the consolidation of double-entry booking as an economic
technology in eighteenth-century England (Carruthers & Espeland, 1991; see also Poovey,
1998; Sherman, 1996). According to Poovey, double-entry bookkeeping was one of the earliest
practices where a prototype of the modern ‘fact’ was generated, that is, where statements are
assumed to reflect things that really exist and recorded in a language that seems transparent.
Since the early nineteenth-century, this transparent language took the form of numerical
representation (Poovey, 1998; Porter, 1995). Rooted in the works of Italian mathematician Fra
Luca Pacioli, double-entry bookkeeping requires that every transaction be entered on two
occasions, once as a credit and once as a debit in order to ensure accuracy (Black et al.,
2011:115). Because each transaction is entered twice, this method of accounting became
constructed as the epitome of reliable calculation and a vehicle to gain undistorted access to
commercial realities (Sherman, 1996:131-8). The asceticism of the accountant was reflected in
the ability to adhere to the principle of mechanical objectivity: ‘the honesty and self-restraint
required to foreswear judgement, interpretation…the testimony of one’s senses’ as well as ‘the
taut concentration required for precise observation and measurement, endlessly repeated
54
around the clock’ (Daston & Galison, 1992:83). As such, apart from merely recording the
transactions merchants conducted, double-entry bookkeeping produced, on the one hand, the
social effect that proclaims the honesty of merchants as a group. On the other hand, the
epistemological effects rendered the formal precision of the double-entry system, which drew
on the rule-bound system of arithmetic as a guarantee of the accuracy of the details it recorded
(Poovey, 1998:30). This necessitated the accountant to subject himself to a complexity of
demands such as ‘solitude, passivity and impersonality’ in order to access scientific truth
(Shapin, 1994:5).
Through scientific asceticism, the scientist can end up victorious in Bacon’s sexist imagination
of the struggle between Nature and the scientific mind. As Daston (1994a:41) argues, Baconian
facts depended upon the ‘freedom from theoretical bias’, by adhering to the principle of
mechanical objectivity as a means to ‘check the mind’s inborn tendency to refract all experience
through a theoretical lens’. Once again, scientific asceticism was best displayed by members of
the gentility (see Chapter Two), who were perceived to be strong enough to control their
passions and wilfully abnegate the self. Undistorted access to financial truth thus becomes
possible in double-entry bookkeeping as a function of a masculine demeanour that included
austerity, self-mastery, and the disciplining of the inner enemy of desire, luxury and wealth (de
Goede, 2000:70).
From gender to geography: Lady Credit and the geopolitical imagination
of emerging markets
Defoe’s gentleman parallels the identity of the colonial voyager who positioned himself on the
top of the hierarchy of human nature and progress, with a ‘geopolitical predestination…an
imperial mission to civilise the other’ (Slater, 1995:369). Indeed, we find evidence of this
imperial fantasy in his Robinson Crusoe (1719), which tells the story of a colonial voyager who got
stranded on an island near the coast of Venezuela after a storm wreaked his ship. This voyage
formed part of a series of adventures into the ‘new economic world’ located in the South Seas.
According to Watson (2018), Robinson Crusoe is typically treated as the originating moment of
the individualistic novel. The main character was animated by neither love nor honour, but
instead economic self-interest. Crusoe therefore shares significant similarities with neo-classical
homo œconomicus, as I will discuss in the following chapters. To this end, alongside Lady Credit,
Defoe’s texts serve as a cultural fable through which we can understand the historical and
material changes that constitute modernity, particularly those associated with the expansion of
55
the British Empire. As Brown (2001:4) points out, Lady Credit signifies the discursive and
imaginative constitution of modernity, in the eighteenth century, and that this ‘constitution is
circumscribed by alterity – by an imaginative negotiation with the figure of the woman or of
the non-European.’ Here, modernity entails a ‘master narrative’ that celebrates Western
reason, progress, and scientific rationality as the only way to know, interpret and be in the world
(Chowdry & Nair, 2002:16). This narrative is a mythical representation of Western history and
patterns of knowledge production that makes Western culture seductive. ‘Beyond repression’,
writes Quijano (2007:169), ‘the main instrument of all power is its seduction. Cultural
Europeanisation was transformed into an aspiration.’ For instance, whilst Crusoe is stranded
on the island, he rescues a prisoner from native cannibals, and makes this prisoner his servant.
Crusoe also names this servant Friday, teaches him English, and converts him to Christianity.
He also teaches him the tools and mechanisms that enabled him to survive on the island, and
attribute these ‘civilised’ skills to God’s deliverance. Because God did not leave him stranded
without these implements of civilisation, Crusoe was able to master the island, instead of being
subdued by it. Indeed, Christianity served as a primary justification for expanding the British
empire (Fleck, 1998). Christianity signified light, civilisation, morality, grace, contrary to the
darkness that beleaguered, for instance, the African continent. ‘The doors of this dark
continent’ writes Albert Lloyd, ‘are wide open for the reception of Christianity…which alone
shall drive away the darkness’ (Lloyd as cited in Jarosz, 1992:107). Here, Defoe’s gentlemen,
including Robinson Crusoe, blessed with Christian virtues and morals, can justify his colonial
conquests by framing it as a way to rescue the continent and its peoples, who ‘stagger on in the
dark without the light of Christ to guide them’ (Chapman as cited in Jarosz, 1992:107). Thus,
by converting the Other into a vision of its own, the colonial gentleman is able to not only
benefit from the wealth African territories offer, but also mitigate danger by normalising a
particular conception set of values. The threat is muted, as Said (2003:47-48) suggests, by
imposing familiar values upon an unknown entity: ‘This process of conversion is a disciplinary
one: it is taught, it has its own societies, periodicals, traditions, vocabulary, rhetoric, all in basic
ways connected to and supplied by the prevailing cultural norms of the West.’
Yet, there is a limit to this process of conversion. For instance, in Robinson Crusoe (1719), the
main character constantly doubts Friday’s belief and acceptance of Christianity (Fleck, 1998).
He experiences great difficulties in educating Friday about the nature of the devil, which leads
him to conclude that Friday is not a true Christian like himself. This revelation enables Crusoe
to maintain a difference between himself and Friday, which exemplifies how Britain’s colonial
56
conquests developed a sense of self through a process of negation with the Other. As such,
although Friday could attempt to adhere to the standards of civilisation and Christianity set out
by Crusoe, he will ultimately fail, which will ensure his difference vis-à-vis the colonial ‘master’.
Friday’s ‘failed’ Christianity embodies the ambivalence Bhabha (1994:86) identifies with
colonial mimicry:
[…] colonial mimicry is constructed around an ambivalence; in order to be effective,
mimicry must continually produce its slippage, its excess, its difference…almost the same,
but not quite…The success of colonial appropriation depends on a proliferation of
inappropriate objects that ensure its strategic failure, so that mimicry is at once
resemblance and menace (emphasis in original).
Thus, as long as Crusoe and the colonisers can claim that Friday and the colonial Other has
yet to receive the necessary revelation and become true Christians, imperial expansion can
continue unimpeded (Fleck, 1998:85). Modernity is therefore a story told through the
articulation of difference, but one that cannot exist without its darker side: coloniality (Mignolo,
2011). Coloniality and modernity are two parts of the same coin; they constitute each other
(Mignolo, 2011:42). As Mbembe states, ‘Africa still constitutes one of the metaphors through
which the West represents the origins of its own norms, develops a self-image, and integrates
this image into the set of signifiers asserting what is supposed to be its identity’ (cited in
Abrahamsen, 2007:114). In contemporary financial markets, relations of modernity/coloniality
are reproduced through the binary representation of investment destinations such as
‘advanced/emerging’ markets. Here, emerging markets are spaces located beyond ‘the West’
and can be seen as modern incarnations of Lady Credit and Friday: irrational, backward,
uncertain, yet potentially lucrative.
As an investment asset, ‘emerging markets’ appeared for the first time in the 1980s as the Cold
War came to an end (IFC, 2016). Coined by Antoine van Agtmael of the International
Financial Corporation (IFC), emerging markets – rather than ‘Third World’ markets – create
an equity investment fund for ‘developing’ countries in Latin America, Africa, and Asia.
Contrary to the term ‘Third World’, which connotes extreme poverty, shoddy goods, and
hopelessness, the idea behind ‘emerging markets’ is to cultivate a shared geographical
imagination that ‘suggested progress, uplift, and dynamism’ (Van Agtmael, as cited in IFC,
2016:47). Here, the rhetoric of salvation, newness, and progress that underpinned Defoe’s
colonial gentlemen’s fantasies reaffirms the seductive properties of the modernity narrative.
Texts about emerging markets are characterised by frequent references to geographic
57
metaphors of frontiers, pioneers and exploration (Sidaway & Pryke, 2000:196). Emerging markets,
like Lady Credit, are ‘ripe’ for private investment by Western actors (see for instance
Bartenstein, 2018; Yousuf, 2012). This rhetoric has often been accompanied by exotic-erotic
scripts of sex and violence. In 1996, for instance, the manager of global investment company
Schroder’s new ‘emerging markets unit trust’ informed readers of a British Sunday newspaper
that ‘sex and violence in emerging markets is in the wild frontiers – places such as Russia and
Peru’ (Hinde, as cited in Sidaway & Pryke, 2000:196). Managers of emerging market
investment vehicles often assume the role of explorers that ‘cross exotic frontiers in hunt for
returns’ (Valente, 2011). Franklin Templeton, an asset management firm that introduced the
first ‘emerging market fund’, likened its manager, Mark Mobius to Hollywood’s Indiana Jones.
In response, Mobius explains that emerging markets ‘can appear in exotic places’, they are
‘colourful and unpredictable, they thrive in the strangest places’ (Mobius, as cited in Sidaway
& Pryke, 2000:196).
At the same time however, investors should be cautious when considering emerging markets,
as promises of wealth can be elusive ‘bubbles’ that do not reflect ‘economic fundamentals’ (see
for instance Dupoux et al., 2016). These fears stem from the notion that advanced markets are
much more ‘efficient’, transparent, and reliable when it comes to conveying information.
According to the Efficient Market Hypothesis (EMH), an efficient market is one ‘where there
are large number of rational profit-maximisers actively competing, with each trying to predict
future market values of individual securities, and where important current information is almost
freely available to all participants’ (Fama, 1995:76). Assuming no interference from any
planning agency, free markets generate prices that accurately reflect market fundamentals
(MacKenzie, 2006; see also Chapter Three). The idea of ‘emerging markets’, akin to frontier
economies, the ‘Third World’, developing countries, and Dark Africa, suggests an intermediary
state, one that is distant from Western, ‘advanced’, developed, industrialised countries. There
is no singular set of requirements for ‘upgrading’ to advanced status and very few countries
have in fact received such a promotion (Liberto, 2019). This thesis, particularly chapters four
and six, explains how the governmentality and performativity of sovereign credit ratings
reinforces and reproduces this ambivalence between the global North and global South.
Derrida (1997) has termed this style of binary thinking as Logocentrism. Logocentric thinking
entails the production of identities through modalities of repression and exclusion that separates
countries, people, space and time into binary oppositions such as rational/irrational,
man/woman, civil/barbaric, advanced/emerging. Logocentrism assumes the priority of the
58
first term of the pair and the second term in relation to it as a compilation, negation, or
disruption of the first (Edkins, 1999:66, 2007:96). In financial markets, this style of thinking
appears, amongst others, in assumptions about the honesty of politicians and experience of
traders in the stock markets. Risk-averse investors also point to how emerging markets lack
market fundamentals found in advanced countries such as sophisticated financial
infrastructures, high levels of liquidity, meaningful regulatory bodies, large market
capitalisation and high levels of per capita income (NASDAQ, 2011). Consequently, according
to the EMH, all information about stocks is available and transparent, and prices reflect true
market fundamentals. This is not the case for emerging markets, where information about
stocks tend to be incorrect, ‘the flow of information is not rapid, or the price is not adjusted to
the information’ (Alam et al., 2007). Emerging markets are also beleaguered with inexperienced
traders, investors, and market regulators and are therefore characterised by low liquidity,
unreliable information and considerable volatility (Amadeo, 2017, 2016; Black et al., 2011:128;
Henisz & Zelner, 2010). These factors, as Morgan Stanley’s analysts point out, render emerging
markets ‘fragile’.
Fragility refers to a state of physical weakness, of being ‘easily broken’, or to be ‘of frail
constitution’ (Online Etymology Dictionary, 2020). Fragility stands in contrast to strength,
duration, and reliability. Morgan Stanley’s analysts argued that the fragility of the ‘fragile five’
economies became revealed when, amidst fluctuations in advanced markets, they were unable
to withstand changes in market sentiment. Following this report, a currency run on emerging
market took place, which sparked various policy interventions by governments in the fragile
five economies. Turkey’s central bank, for instance, raised its interest rates in response to
weakening investment in order to persuade foreign investors to hold on to their lira instead of
exchanging them for dollars (Thomas Jr., 2014). In many ways, the construction of ‘fragile five’
performed their weakening economic conditions into being. As a sphere marked by the creation,
buying, and selling of credit (Germain, 1997:17), financial practices involve an engagement
with the future to determine the risks and rewards of a particular investment. These
engagements are negotiations with uncertainty, political processes ‘of mediation and
calculation’ whereby an ‘insecure future is rendered actionable, as well as commercially
profitable, in the present’ (de Goede, 2012:xxi).
Emerging markets are also fragile as a result of their inability to act in an honest, rational, and
disciplined manner when engaging with Lady Credit. In the 1510s for instance, ‘fragile’
59
conveyed a sense of moral weakness, defined as ‘liable to sin, morally weak’ (Online Etymology
Dictionary, 2020). Here, Defoe’s preconditions for rational finance, that is, a duty to truth
through meticulous bookkeeping that enables the gentleman to practice self-control when
tempted with Lady Credit, resurfaces in the imagination of emerging market risk. These
countries are beleaguered with corrupt politicians and financial regulatory bodies that lead to
‘investor illusions’ as mentioned previously. For instance, the Brazil, Russia, India, China, and
South Africa (BRICS) grouping has been characterised by the Big Three CRAs as ‘hotbeds of
ideological temperaments’, necessitating a stricter application in the calculation of their
sovereign creditworthiness (Paudyn, 2014:18). Thus, contrary to the image of stability and
conformity to financial norms exemplified by advanced countries, emerging markets are much
more uncertain, dubious, and irrational. Even in instances where countries have experienced
significant economic growth that should, in theory, lead to a better credit score, the image of
uncertainty translates into higher risk. The following excerpt taken from Mosley’s (2003:102)
interview with asset management company, Investec, confirms this sentiment:
Politics are much more important [in developing countries] than in developed markets.
Every aspect of policy/performance generates politically related concerns. Who governs
matters in these markets…It’s hard to know what a government will do…There are not
necessarily clear priorities for these governments; there are so many issues; it’s hard to
know how they will prioritise…The problems experienced in the developing world are
totally non-existent in the developed world.
The geopolitical imagination of risk in emerging markets means that investment products are
priced at a lower rate and/or a substantial risk premium as compensation in order to create the
possibility of high reward (Lee, 2003:65). Favoured by risk-loving investors, investment flows
to emerging markets are often short-term and highly sensitive to market sentiment. In a context
where governments increasingly rely on liquid capital markets to finance, for instance, national
programmes of self-determination such as health care, education, or fiscal stimulus, the
geopolitical imagination of emerging markets prompt a set of policy reforms to improve their
creditworthiness. These include reforms to secure the efficient functioning of the marketplace,
such as an autonomous central bank to keep inflation rates low, privatisation, trade
liberalisation, and floating exchange rates. Such reforms signify a ‘favourable investment
environment’ (Fitch, 2015, 2016; S&P’s, 2020). Indeed, despite the absence of a definite set of
requirements, the IFC list as one of their conditions for ‘emerging markets’ to graduate to
‘advanced’ ones, capital market openness. Nations that introduce investment restrictions such
as capital controls, remain categorised as emerging, based on the view that ‘pervasive
60
investment restriction on portfolio investment should not exist in developed stock markets’
(IFC, as cited in Mosely, 2003:104). Capital market openness promotes investor sentiment
while minimal government interference enables for instance, the ease of doing ‘business’, access
to domestic markets and scant ‘red tape’ – regulatory requirements for commercial practices.
For the ‘Big Three CRAs’, attempts to enhance capital market openness signifies greater
creditworthiness as it shows a government’s willingness to conform to global ‘standards’ of
practice. For instance, in January 2016, S&Ps downgraded Poland’s creditworthiness as a result
of ‘weakening institutions’ (S&P’s, 2016). According to the rating agency, the newly elected
government initiated legislative measures that are more ‘interventionist’, like raising taxes on
foreign businesses and revising the autonomous operating powers of the National Bank of
Poland. These measures are linked to sovereign creditworthiness since, as S&Ps (2006:4)
explains: ‘A government that is unwilling to repay debt is usually pursuing economic policies
that weaken its ability to do so’. In essence, emerging markets are forms of othering and de-
othering: as well as being speculative geographies of profit, they must also be non-others; they
must conform to capitalist norms (Lee, 2003:73).
Negotiating sovereignty in a post-colonial context
The histories represented by Defoe’s colonial voyagers, coupled with the financial innovations
associated with Lady Credit, reveals a close nexus between the modern idea of sovereignty and
European imperialism (Anand, 2002:214). Although, as mentioned in the introductory chapter,
the governmentalisation of the State in IPE means that sovereignty is no longer understood to
be confined to the judicial powers of the nation-state, this history is nevertheless marked by
unequal degrees of agency in the articulation of sovereignty that continues to shape global
power relations. In the case of sovereign credit ratings, sovereignty is mediated by experts,
discourses, and technologies that are often located and/or connected to hegemonic financial
centres such as Wall Street and London. Although creditworthiness assessments are not the sole
mediators of sovereignty, they nevertheless play a crucial role in the State’s ability to fund its
own development needs and welfare projects. In other words, perform its identity as a ‘state’
(Paudyn, 2014).
J.M. Coetzee’s Foe (1986a), a rewriting of Robinson Crusoe, provides a powerful critique on the
privileged status of the colonial gentleman to speak for that which he identifies he is not: the
woman, the non-European. Through a process of negation, the people, places, and societies
outside the horizon of the West appears ‘as blank spaces waiting to be filled in by Western
61
writing’ as a ‘people without history’ (Doty, 1996:11). Foe tells the story of Cruso, spelled without
the ‘e’ in the original, which has been described as deliberate character castration (Washington,
1996). The story is told from the viewpoint of Susan Barton, who is on a quest to find her
daughter who has been kidnapped and taken into South Seas. After a prolonged struggle, she
caught a ship to Lisbon and lands on Cruso’s island, where she stays for one year before an
English ship comes by and rescue her and Friday. The latter, however, cannot speak. According
to Cruso, his tongue was removed by slavers; Susan, however, expresses doubt about whether
or not Cruso might have removed Friday’s tongue, a question whose answer is never revealed.
Nevertheless, she struggles to look at Friday after learning this, and throughout the novel, she
is anxious about what this untold story might mean to her safety. When she and Friday reach
England (Cruso died en route due to high fever), Susan searches for the novelist Daniel Foe,
wanting to persuade him to turn her story of the island into a book. Foe is evidently derived
from Daniel Defoe, yet ‘foe’ also means enemy, opponent (van der Russel, 2006). Foe, however,
expresses scant interest in Cruso and Friday, as he is focused on getting away from creditors as
a result of being buried in debt. Apart from this, he is also more interested in Susan’s adventures
in Bahia than the story of the island. As such, it is up to Susan to write the story of Cruso’s
island.
In a quest to hide from creditors, Foe abandoned his house and Susan and Friday moves in.
They start selling his belongings to buy food. Here, she also focuses on writing her novel and
frequently sends letters to Foe, asking for his advice on how to find out the truth about Friday’s
story. At one point, she tries to learn Friday how to write his story, but soon gives up. She also
gets confused about what she should do with Friday and decides to take him back to Africa.
Yet, once she reaches the ports in Bristol, she realises that there’s no hope, as he will get sold
back into slavery if she sends him out on any ship. Upon their return to London, Susan and
Foe debate about Friday’s story, and she becomes extremely uncomfortable with the silence
and otherness he represents. Yet, appropriating his story in her book would be to appropriate
it with the familiar and lose exactly that which makes it other: ‘To tell my story and be silent
on Friday’s tongue is no better than offering a book for sale with pages in it quietly left empty.
Yet the only tongue that can tell Friday’s secret is the tongue he has lost!’ (Coetzee, 1986a:67).
She articulates this process of appropriation in her debate with Foe as follows:
Friday has no command of words and therefore no defence against being re-shaped day
by day in conformity with the desires of others. I say he is a cannibal and he becomes a
cannibal; I say he is a laundryman and he becomes a laundryman. What is the truth of
62
Friday? You will respond: he is neither cannibal nor laundryman, these are mere names,
they do not touch his essence, he is a substantial body, he is himself, Friday is Friday. But
that is not so. No matter what he is to himself…what he is to the world is what I make of
him (Coetzee, 1986a:121-22).
Susan Barton therefore acknowledges the power she has to define Friday, but that this story
would be based on her imaginations and theories. Friday’s story is untranslatable. By rendering
the silence of Friday visible, this novel enables us to show how the idea of sovereignty has
historically been defined in relation to non-European territories, the relation to what it is not.
Until the first half of the twentieth century, the international community of states was, as Anand
(2002:214) points out, defined by a double standard. Whereas the ‘civilised’ world (Europe, US,
and Japan) had the right to sovereign statehood, the rest was open to forms of imperial control,
based on the assumption that they fail to meet a certain standard of civilisation that is ‘necessary
to maintain international relations’ and which serves as a condition for statehood (Hannum, as
cited by Anand, 2002:214). As formal instances of direct colonial control started to demise, the
ability of newly ‘independent’ states to define the standards of civilisation that have to be met
in order to participate in the international monetary system (IMS) remain limited. Solomon (as
cited in Oliver, 2005:108) defines an IMS as a ‘set of arrangement, rules, practices and
institutions under which payments are made and received for transactions carried out across
national boundaries.’ A state’s ability to participate in an IMS is determined by ‘standards of
civilization’ to which states should measure up to and conform if they are to be recognised as
legitimate and sovereign members of international society (Bowden & Seabrooke, 2006; Larner
& Walters, 2004; Oliver, 2006). Although the concept ‘civilisation’ has been replaced by more
sensitised, politically correct versions such as ‘development’ and ‘modernisation’, they
nevertheless imply a similar rationality that subjugates states to a set of particular, acceptable
standards. As I discuss in the following chapters, the standards of sovereign creditworthiness
have similarly been defined by the knowledge, history, and experiences of the global North,
characterising Latour’s (1993) notion of a particular universality: when one society extends to
all others the historically constructed values in which it believes. Here, quantitative risk
technologies such as credit ratings obscure the Logocentric differentiations, historical and
discursive contingency as well as normative directionality embedded in their making.
Moreover, risk technologies hold out the promise of taming of the uncertainty that comes with
the incorporation of uncertain, irrational, and chaotic spaces: threats to the stability of the
financial system and the ongoing circulation of profit. They do this in two ways. First, by
63
transforming uncertainties into calculable probabilities, risk technologies enable financial actors
to identify, predict, and mitigate potential threats in the financial system (Power, 2007). Risk
metrics resemble the ‘moral technologies’ (Ewald, 1991) referred to earlier, as they facilitate
rational, disciplined decision-making in the market place. The concept of risk thus implies a
domain of decision-making about the future and corresponding allocation of responsibility for
that decision (Luhmann, as cited by Power, 2007:5). Second, far from being objective, risk
metrics have embedded in them a set of norms that inform judgements about the
trustworthiness of a particular issuer, causes of danger, and instability. These judgements
normalise a particular set of conducts perceived to secure the reputation of Lady Credit,
creditworthiness. Akin to how, in Said’s terms, the threat of the Other is muted through a
process of conversion, sovereign credit ratings are imbued with power and knowledge that aims
to shape the conduct of states. Here, national economies, societies, and individuals become
subjugated to a particular form of governance by norms. This process of normalisation brings
five distinctions into play:
[…] it refers individual actions to a whole that is at once a field of comparison, a space of
differentiation and the principle of a rule to be followed. It differentiates individuals from
one another, in terms of the following rule: that the rule be made to function as a minimal
threshold, as an average to be respected or as an optimum towards which one must move.
It measures in quantitative terms and hierarchizes in terms of value the abilities, the level,
the ‘nature’ of individuals. It introduces…the constraint of conformity that must be
achieved. Lastly, it traces the limit that will define in relation to all other differences, the
external frontier of the abnormal […] (Foucault, 1977:182-183).
The normalisation of particular discourses of sovereign creditworthiness through the
deployment of de-politicised, rational language reifies the hegemony of a particular set of
values, knowledge, and ideals to govern the flow of capital in the global economy.
Conclusion
This chapter examined the sociality of credit instruments and financial practices, by exposing
how they depend on socio-cultural imaginations of trust and profit. Starting with a discussion
on the use of the trope ‘fragile five’, this chapter revealed the gendered, colonial vision that
underpins Morgan Stanley’s analysts’ framing of emerging markets as fragile. Fragile, as this
chapter showed, connotes a state of physical weakness, of being ‘easily broken’ and stands in
stark contrast to strength, durability, and reliability. Yet, fragility also refers to moral weakness
and a liability to sin (Online Etymology Dictionary, 2020). This image of emerging markets
resonates with the depiction of stock-jobbers in London’s St. James area during the eighteenth-
64
century: effeminate, evil, and corrupt individuals who cannot resist Lady Credit’s temptations.
It is these individuals, according to Defoe, that puts Lady Credit’s reputation in danger. Akin
to Machiavelli’s Fortuna, Defoe’s Lady Credit is characteristically capricious, fickle, and
potentially cunning. Yet, Lady Credit – as a personification of finance – is also potentially
lucrative for the English nation. This characterisation of Lady Credit should be read in a
context that saw not only the proliferation of financial practices, but also growing concerns that
this form of wealth ‘created out of nothing’ would corrupt the morals of society. By framing
finance as a female, Defoe argued that Lady Credit can be mastered through the masculine
demeanours of knowledge, foresight, and honesty. Framed in the image of the English
gentleman, these virtues enable financial actors to act in a moderate, rational, and calculative
manner. Of crucial importance here is the link Defoe establishes between rationality,
creditworthiness and the scientific method as a means to secure the honesty of financial actors.
This method requires the scientist to practice self-restraint and exclude their personal bias by
following a set of prescribed rules when accumulating knowledge. Rules ‘are a check on
subjectivity: they should make it impossible for personal biases or preferences to affect the
outcome of an investigation’ (Porter, 1995:4). It is through asceticism of the scientist, typically
displayed by members of the gentility, that we can gain access to transparent information, that
is, ‘true’ and factual reflection of affairs.
This chapter also positioned Defoe’s texts and the fable of Lady Credit alongside historical and
material changes that constitute modernity/coloniality. Indeed, England’s ‘Financial
Revolution’, manifested in the emergence of credit instruments as we know them today,
particularly sovereign debt, enabled the expansion of the British Empire through colonial
conquests, wars, and slave trade. These colonial encounters have significantly shaped global
power relations, and this chapter argued that financial markets are crucial sites where
modernity/coloniality becomes reproduced. Here, the mathematisation of creditworthiness in
the language of risk has enabled the de-politicisation of rational behaviour and erased its
gendered, Logocentric imagination.
The next chapter interrogates the ‘epistemic field’ that enabled the mathematisation of market
transactions. Here, we see how Defoe’s ‘gentlemanly science’ (Shapin, 1994) which tied
honesty, rationality, truth, and solvency to the European gentleman became absorbed in an
epistemological and methodological edifice for the study of economics and financial markets
for years to come. This is not to suggest a linear and unproblematic progression from Defoe’s
65
writings to the nineteenth-century marginalists. Instead, by looking at the lines of resonance
between these histories of rational thought, the goal of the next chapters is to expose not only
the geopolitical particularly of economic knowledge, but also the contingencies and ambiguities
that accompany the modelling of rationality.
66
Chapter Two
Assembling the technical economy
The previous chapter examined Defoe’s articulation of finance as a rational, scientific domain
that parallels the values and demeanour of the English gentleman. I also examined the
geopolitical imagination of this vision of rationality and how it underpins the conceptualisation
and measurement of creditworthiness in modern financial markets. Here the historical, spatial,
and masculine assumptions underpinning rational and creditworthy behaviour gets obscured
through complex risk metrics that hold out the promise of governing the ‘temporal and
uncertain’ (Foucault, 2007:35) in global capital markets. As outlined in the introduction, the
authority of risk metrics derives from their technical, mathematical appearance. From the
eighteenth-century, scientists believed that the numerical, and specifically mathematical,
representation of phenomena to be the most transparent, exact reflection of affairs. This
assumption postulates that quantitative analyses necessitate a special kind of scientific asceticism
and the ability to adhere to the principle of mechanical objectivity in the acquisition of
knowledge.
The current chapter explores how this portrayal of rationality, science and ‘truth’ became
absorbed and systematically theorised in economics. In other words, the processes and practices
through which the economy became conceived as a mechanism that can ‘be known’ through
the scientific method. I focus on the contributions of the ‘1870 Marginal Revolution’
6
and the
works of William Stanley Jevons and Leon Walras. These economists fervently campaigned for
the use of mathematics in economics to advance the field as a deductive, scientific discipline
(Mirowski 1989a; Morgan 2008; Schabas 1989). Mathematics, they believed, enhanced clarity
and the conciseness of theory that make economic arguments seem more rigorous (Weintraub
2002). They drew extensively on analogies from physics and rational mechanics to
mathematically articulate and scientifically justify their economic theories. These include the
neo-classical theory of value and the natural forces driving equilibrium price formation, namely
6
I recognise that the extent to which this movement represents a ‘revolutionary’ event in economic theory is contested, mainly
because the idea of utility as a source of valuation has multiple histories (Meek, 1972). Blaug (1972) for instance, opposes the
use of the word ‘revolution’ to refer to this movement and suggest that the word ‘process’ fits better. Streissler (1972) on the
other hand, along with Hart (2002), calls into question whether thinkers like Carl Menger and Alfred Marshall can be associated
with this ‘revolution’, implying that their intellectual endeavours significantly differ from the other marginalists. Due to time
and space constraints and since this debate does not contribute to my analysis, I prefer to not dwell on these arguments. Indeed,
such a focus contradicts the epistemological approach of this thesis, as it would require a focus on ‘who gets to be counted as
true marginalists’. Such an approach to history, to quote Foucault (1998:78) attempts “to capture the exact essence of
things…This search is directed to ‘that which was already there’, the image of a primordial truth fully adequate to its nature’
which ‘necessitates the removal of every mask to ultimately disclose an original identity”.
67
‘marginal utility’ – usefulness and pleasure – and scarcity. For the purposes of this thesis, these
discursive practices can be read as ‘political moments’ in the de-politicisation of the economy,
that is, moments that bring ‘about the forgetting of the political that installs politics’ (Edkins,
1999:126). They are discursive sites that offer a vantage point to examine how historical
processes, discourses, and actors are drawn together at a particular point in time, stabilised –
often with degrees of tension – in a way that might have been assembled otherwise (Anderson
et al., 2012). In other words, the epistemological conditions that rendered certain statements
about the economy possible, ‘them and none other in their place’ (Foucault, 1991:59).
The first section of this chapter explores the epistemological assumptions, theories, and
methodologies through which the nineteenth-century marginal school articulated the economy
into a mechanical structure, governed by natural laws that can be scientifically ‘known’ through
mathematical calculus. The scientific portrayal and analysis of economic phenomena entailed
a set of methodological assumptions and tools that enabled, in later years, the transformation
of uncertainty into calculable risk. This transformation is couched in a theory of probability,
the calculus of ‘chance’, that enables an inference ‘from the known and examined to the
unknown and unexamined’ (Mackenzie, 1981:200). In other words, a theory that calculates the
likelihood of a future event.
Classical probability theorists based this inference on the rational expectations of an elite group
of men: hommes éclairés. In contrast, the frequentist school base their projections of the future by
interrogating regularities that emerge, law-like, in statistical data (see Daston, 1981, 1988;
Porter, 1986). The second section of this chapter provides an overview of classical and
frequentist probability theory. I explore the statistical methods used in probability theory to
measure the causality between two variables in a sample and the likelihood of their realisation
in the future. However, statistical inferences, based on a theory of probability, is
characteristically indeterminist, and economists were hesitant to adopt these methods to their
analyses. Committed to the determinist programme, they expressed concerns about the
temporality and non-homogeneity of economic data that contradict laws of probability, the
difficulty of identifying variables and establishing parameters for forecasts, and the scientific
validity of statistical methods (see Morgan, 1990). The third section of this chapter provides an
overview of these debates as well as the discourses and methods through which statistical
inference became condoned and accepted as a valid scientific method in economics. This
chapter thus lays the groundwork for Chapter Three, which delves into the practice of risk
68
modelling in financial economics by exposing the discursive strategies that ‘yield justified truth
claims’ (Dreyfus & Rabinow, 1982:xx). The current chapter and Chapter Three get inside the
construction of risk metrics, ‘by developing an understanding of their normative assumptions,
as well as a wider reading of the historical and institutional sedimentation that makes
contestable numbers truth in the here and the now’ (de Goede, 2006:7).
On the road to scientific status: the 1870 ‘Marginal Revolution’ and the
emergence of neo-classical economics
Pioneered by the works of Carl Menger, Leon Walras, William Stanley Jevons Alfred Marshall
and Francis Ysidro Edgeworth, the scholars associated with the 1870 ‘Marginal Revolution’
sought to expedite the advancement of economics as a deductive, scientific discipline.
7
They
emphasised the importance of mathematics in this regard, arguing that calculus and algebra
would lead to clarity and conciseness in the expression of theories and that this process of
reasoning would make economic arguments more rigorous (Mirowski, 1989a, 1989b; Morgan,
1990:2; Porter, 1985; Schabas, 1989; Weintraub, 2002). This ambition should be read in the
context of the Scientific Revolution and the belief in the scientific method as the only way to
generate ‘true’ knowledge. In other words, the episteme of the period, the regimes of truth that
govern acceptable and appropriate statements about the economy. The scientific method
entails the search for universal laws through the empirical verification of logically deduced
hypotheses. This method assumes that knowledge can be gained through supporting theories
and operational measurements which are empirically replicated (Patton, 2002:92). Although
these methods of knowledge acquisition primarily existed in mathematics and physics, the
marginalists nevertheless incorporated them into their economic analyses to establish their
discipline as a ‘pure’ science, a sphere of activities distinct from society and politics (Ménard,
1989; Porter, 1985). The use of analogies with the natural sciences, especially physics, enabled
the interpretation of the economy as a mechanism that operates in close association with an
alleged natural order. It is through these analogies that marginalists were able to not only
articulate supposed causal laws at work in the economy but also justify the incorporation of
mathematical calculus to the study of economics.
Analogies are heuristic devices that enable scientists to determine forms of interaction between
diverse sets of disciplines or subjects (Cohen, 1994:12-15). These interactions are based on the
7
One exception here is Carl Menger, who resisted the mathematisation of economics (Otte, 2014:23). He did however
contribute to the neo-classical theory of value, as discussed later.
69
recognition that an idea, concept, theory, or method of investigation in one subject area
functions in a similar way to some element in another, thus enabling it to be introduced to that
other subject. Thus, contemporary understandings of, for instance, the law of supply and
demand is based the assumption that economic phenomena – specifically price formation –
operate analogously with physical laws of gravitation and energy (Le Gall, 2007:50). Although
similar forms of equivalence in the production of economic knowledge would be questioned in
modern times, the discursive contingency of these theories remain, by and large, unquestioned
in IPE and financial economics. Without invalidating the scientific validity of these analogies,
this chapter alludes to how they enabled the portrayal of the economy as a natural mechanism
that can be scientifically known through methods of observation and experimentation. The
following section explores how Jevons and Walras used analogies to investigate and scientifically
validate the marginal theory of value, the measurement of utility through demand analysis and
the theory of equilibrium price formation (see also Brush, 1967; Cohen, 1993; Ménard, 1989;
Mirowski, 1990; Morgan, 1990; Porter, 1981).
Away with the political
Central to the task of establishing the scientific character of economics was renouncing the
adjective ‘political’ to which the discipline had been appended since the seventeenth-century
(Dobb, 1973; Köhn, 2017; Ménard, 1989:81; Milonakis & Fine, 2009:98; Otte, 2014). For
example, in his Elements of Pure Economics (1954{1899}), Walras contested the interpretation of
political economy by classical economists’, claiming that their focus on aspects of distributive
justice had led analyses in the ‘wrong’ direction. Walras (1954{1899):71) insists that economic
theory is ‘pure’ science that resembles ‘the physio-mathematical sciences in every respect’.
Economics is therefore a science that ‘deals with phenomena originating in the play of natural
forces, the operations of which, being blind and ineluctable, are not amenable to anything else
but observation, description and explanation’ (Walras, 1954{1899}:62). Walras particularly
criticised Adam Smith’s articulation of political economy. Outlined in The Wealth of Nations
(1776), Smith depicts political economy as a science that deals with the following two questions:
first, how ‘to provide a plentiful revenue or subsistence for the people’ and second how ‘to
supply the state or commonwealth with a revenue sufficient for public services’ (Smith,
2008{1776}:557). While acknowledging the importance of these concerns, Walras
(1954{1899}:60) argue that they pertain to questions of ‘right and justice and with fairness in
the distribution of wealth’. As such, they belong to the moral sciences. To establish economics
as a ‘pure science,’ it is necessary to restructure the focus of the discipline away from moral
70
questions dealing with distributive justice toward analyses on the processes of exchange and the
determination of prices (Ménard, 1989; Milonakis & Fine, 2009:98). Central to this
demarcation of economic analyses is the development of the neo-classical theory of value and
the determination of market prices, for which the Marginal Revolution is arguably most famous
in economics (Blaug, 1985:299-327; Coats, 1972; Jaffé, 1976; Morgan, 1990:133-134; Murphy,
2016; Peart, 1996; Schabas, 1989;).
The classical theory of value, associated with Adam Smith, David Ricardo, as well as Karl
Marx, equates the exchange value of a commodity to the amount of socially necessary labour
costs in the production process. ‘The real price of everything’, according to Smith
(2008{1776}:50) ‘is the toil and trouble of acquiring it…[l]abour, therefore, is the real measure
of the exchange value of all commodities.’ Thus, insofar as prices reflect expressions of supply
and demand mediated by the market, classical economists argue that it is supply factors (such
as labour, technology or electricity) that ultimately enable products to be exchanged on the
market. In other words, it is only when products are made available (supplied) on the market
that demand can take place and market participants can negotiate value (price) (Blaug,
1985:328-370; Dobb, 1973; Eatwell et al., 1990).
The neo-classical theory of value diverged from this interpretation and emphasised marginal
utility as the primary determinant of value. From this perspective, the cost of a good or service
reflects subjective assessments of utility, its usefulness or pleasure. Although the notion of utility
is mainly attributed to Daniel Bernoulli, who introduced it as a solution to the notorious St.
Petersburg paradox,
8
the utilitarian philosophy of Jeremy Bentham provided the theoretical
groundwork for its consolidation in economics. Bentham’s utilitarianism proclaimed that
political decision-making should be based on an analysis of the utility or pleasure a certain
policy could provide to the public (Köhn, 2017; Mitchell, 1918; Morgan, 2012:146; Peart,
8
This paradox, originated by Daniel Bernoulli’s brother Nicolaus in a letter to Pierre de Montmort, entails the following
conundrum. Two players – in Nicolaus Bernoulli’s letter, Pierre and Paul – engage in a coin toss game with a fair coin, playing
until the coin lands on heads. If, in the first toss, the coin comes up heads, Pierre agrees to pay Paul $1, if heads do not come
up in the second toss, Paul receives $2; if not until the third toss, $4, and so on (Gigerenzer et al., 1989:14). The total number
of flips, n, determines the prize, which equals $1ⁿ. Thus, if the coin lands on heads with the first toss, the prize money would
be:
$1!=$1
and the game ends (Martin, 2004). Alternatively, if it comes up heads in the fourth round, the prize is
$1"=$4
,
and the game ends. This scenario conjured the following question: what would the rational price be for entering the game?
Given that there is a small, yet finite chance that the play will produce an unbroken run of tails, and since the pay-offs increase
in proportion to the decreasing probabilities of such an event (i.e., the probability of the coin never landing on tails), the
expectation is, at least theoretically speaking, infinite (Gigerenzer et al., 1889:14; Martin, 2004). According to Nicolaus and
other mathematicians at the time, no rational player will pay any price less than the expected payoff of $1, hence the paradox.
Daniel Bernoulli however, claimed that the decision-making behaviour of the player can be determined by referring to the
utility function. In this sense, a rational player – depending on his or her wealth – will pay as much as the expected utility
(satisfaction) the game may provide.
71
1996; Van der Pijl, 2009:30-58). With the ambition to become the ‘Newton of the Moral World’
(Mitchell, 1918), Bentham laboured over a method to measure utility, captured in his hedonic
calculus (also called felicific calculus), which sought to compute the sum total of pleasure and
pain produced by an activity (Köhn, 2017:22). According to Bentham, the laws governing
human nature has subjugated humankind to ‘the governance of two sovereign masters, pain
and pleasure’ (Bentham, 2000{1781}:14, emphasis in original). These two principles, ‘govern us
in all we do, in all we say, in all we think: every effort we can make to throw off our subjection,
will serve but to demonstrate and confirm it’ (Bentham, 2000{1781}:14).
9
By deducing human
behaviour to psychological laws about human wants, that is, the pursuit of pleasure and
avoidance of pain, Bentham’s hedonic calculus set out to measure the quantities of pleasure
and pain associated with certain activities (Stigler, 1950).
10
Pleasure, and the avoidance of pain,
are thereby ‘the ends that the legislator has in view; it behoves him therefore to understand their
value’ (Bentham, 2000 {1781}:31, emphasis in original).
The neo-classical movement was determined to consolidate Bentham’s hedonic calculus with
their theories of value (Bruni & Sugden, 2007:150). By doing so, they sought to move economics
down the royal road of science and incorporated a variety of methods, theories, and instruments
from the natural sciences to develop a mathematical calculus of utility (Ménard, 1989:81). They
particularly drew on a combination of analogies of rational mechanics and doctrines of energy,
which enabled them to interpret utility and value as energetic substances that govern economic
relations in the same way that laws of gravity and motion control tides in the ocean, planets
orbiting the sun, or the speed at which bodies of different weights fall (Cohen, 1994:17;
Mirowski, 1989b:193-275; Schabas, 2005). Jevons (1881:50) for instance, explicitly wrote that
‘[T]he notion of value is to our science what that of energy is to mechanics’. Based on
Bentham’s utilitarian view of human nature as being governed by the two laws of ‘pain and
pleasure’, Jevons emphasises that utility (the pursuit of pleasure and avoidance of pain) is the
determining factor of value. As noted in his oft-cited quote, ‘[r]epeated reflection and inquiry
has led me to the somewhat novel opinion, that value entirely depends upon utility’ (Jevons, 1881:1-
2, emphasis in original). To construct a ‘satisfactory theory of exchange’ – one that complies
9
Bentham (2000{1781}:31) identified four dimensions of pain and pleasure that can be used to measure utility, namely (1)
intensity, (2) duration, (3) certainty or uncertainty and (4) propinquity or remoteness.
10
Bentham devoted a lengthy chapter in his An Introduction to the Principles of Morals and Legislation (2000{1781:42-60), to outline
the ‘Circumstances Influencing Sensibility’, which listed approximately thirty-two circumstances (such as age, sex, education
and religious association) that must be considered when calculating utility (Stigler, 1950:309).
72
with the rigorous scientific standards of rational mechanics – economists have to ‘trace out
carefully the natural laws of the variation of utility’ (Jevons, 1881:1-2).
Jevons (1881) argued that it is the quantity of a commodity in our possession that influences its
utility. In other words, scarcity, a condition of nature. Walras similarly placed value in relation
to raretés, scarcity. Trained as an engineer, Walras displayed a great fascination with Newton’s
law of gravity, which also underpins his work on the causal relations governing scarcity,
demand, and price formation. Broadly conceived, the Newtonian law says that the force of
gravity between any two bodies is directly proportional to the product of the masses of the
bodies and inversely proportional to the square distance between them (Cohen, 1993:17;
Holzner, 2006:18). Thus, the higher the mass of the objects, the greater the gravitational
attraction between them. In one of his early works, titled The Application of Mathematics to Political
Economy (1860), Walras essayed the Newtonian law of economics, claiming that ‘the price of
things is in inverse ratio to the quantity offered and in direct ratio to the quantity demanded
(Walras, as cited by Jaffé, 1973:126-127). Two natural forces, therefore, mediate value: the
hedonistic psychology that governs human nature (pleasure, satisfaction) and scarcity.
11
The analytical foundation of the neo-classical theory of value is the law of diminishing marginal
utility, which argues that the amount of satisfaction derived from the consumption of every
extra unit of the same good or service will decline (Rutherford, 2000; Otte, 2014:24). For
instance, when going to a coffeeshop that serves bottomless coffee, the utility derived from the
first cup of coffee will be higher compared to the fourth or fifth one. As such, the same
commodities will vary in utility, depending on the amount we possess, and thus ‘when a man
has purchased enough, he would derive equal pleasure from the possession of a small quantity
more as he would from the money price of it’ (Jevons, 1881:13). Utility is, therefore, circumstantial
rather than an inherent quality of a commodity. Here, demand becomes the driving force in
economic relations rather than supply (Stigler, 1950). It is the demand for products (based on
their utility) that regulate supply factors, which ultimately generates a state of equilibrium. To
11
According to Cohen (1993:26-27), Newton’s law of gravity appears as an analogy in the sense that gravitational forces exhibit
the same importance for the functioning matter as scarcity, or marginal utility has for the functioning of commercial objects in
a market. Here, the use of analogies serves, as Nagel (cited in Cohen, 1993:26-27) describes, a ‘formal’ function in the sense
that it is based on a structure of abstract relationships rather than a ‘more or less visualisable set of elements’. The formal
function of an analogy is opposed to another, substantive function. A substantive analogy is one in which a theory is based on
the model of another system that contains known laws. An example of this would be the kinetic theory of gases, which is
patterned on the ‘established’ laws of the interaction of elastic spheres such as billiard balls (Cohen, 1994).
73
account for this position, Jevons and Walras again turned to the mechanics of energy for
scientific validity.
The law of the conservation of energy, developed (separately) by Joseph-Louis Lagrange (1736-
1813) and William Rowan Hamilton (1805-1865), proved particularly helpful for this task (see
Cohen, 1993, 1994:55-90; Ingrao & Israel, 1990; Mirowski, 1989b; Ménard, 1989; Schabas,
1990:85-87). The law of the conservation of energy is a mathematical expression of the
variations of energy involved in Newton’s law, that is, the calculation of mass and velocity in
the movement of objects (Allen, 2011:323-333; Mirowski, 1989b:11-98; Wulwick, 1990).
12
Here, energy refers to the ability of an object to perform work, derived from various sources
such as motion, chemical reaction, heat, or light. Physicists are typically concerned with two
sources of energy: kinetic energy and potential energy. The former refers to the energy of the mass of
a system due to its motion, which stays the same for a constant speed and only alters when a
change in velocity occurs. The latter is a measure of the energy stored in an object. For example,
when we hold something that weighs two kilograms in the air, the potential energy stored in
the object is the gravitational force acting on the mass multiplied by the height through which
the object is travelling before reaching equilibrium (when the object reaches the floor) (Allen,
2011:323). This dialogue between gravity and the conservation of energy similarly appears in
Jevon’s account of value, which translates marginal utility into the law of demand as a force of
energy:
Utility only exists when there is on the one side the person wanting, and on the other the
thing wanted…Just as the gravitating force of a material body depends not alone on the
mass of that body, but upon the masses and relative positions and distances of the
surrounding bodies, so utility is an attraction between a wanting being and what is wanted
(Jevons, quoted in Mirowski, 1989b:219).
Both Jevons and Walras referred to the mechanical workings of a lever to explain how they
assemble utility, scarcity, and demand into forces of energy. Jevons equates the ratios of
marginal utility of two goods and their inverted trading ratio to the law of the lever where, in
equilibrium, the point masses at each end are inversely proportional to the ratio of their
respective distances from the fulcrum (Mirowski, 1989b:218). In a similar vein, Walras’s
depiction of equilibrium in exchange, that is, a position of balance in the economy that occurs
12
This is a very rudimental account of both Newton’s law of universal gravity and the principle of the conservation of energy
as developed by Lagrange and Hamilton (for a more nuanced discussion, see Goldstein, 1950; Lanczos, 1949; Percival &
Richards, 1982). Indeed, Hamilton’s work on the conservation of energy principle is both a response to and an extension of
that of Lagrange. However, since these theories and principles do not constitute the focus of my thesis, my aim is merely to
highlight the resonances between these classical mechanics ideas and the nineteenth-century marginal utility account of value.
74
once all the ‘forces’ operating the economy ‘balance out’ in a final state, invokes the functioning
of a lever where equilibrium is reached through the inverse proportionality of forces with
respect to its arms (Black, 2011:133; Ingrao & Israel, 1990:4-5). The point of equilibrium in the
economy, the final state, refers to a situation where forces of supply are balanced by forces of
demand, reflected in the equilibrium price. Here, the image of the market as a ‘self-correcting
mechanism’ governed by the laws of quantity and utility appears. If a market is not at
equilibrium, market forces will drive the market toward equilibrium.
13
The analogy that
underpins Walras’s exposition of equilibrium in the economy conjures, as Ménard (1989) points
out, the idea of accelerated motion in celestial mechanics, particularly the equation of
constraint between mass and acceleration. He outlined this analogy in a letter to Henri
Poincare, where he explained how, just as celestial bodies attract each other in direct proportion
to their mass and inverse proportion to the square of their distances, goods tend to be
exchanged one against the other in inverse proportion to their raretés (Ingrao & Israel,
1990:168).
14
Although Walras’s equilibrium theory has been contested and adapted through
time, it remains a prominent starting point for economists to analyse how the market
mechanism operates, that is, price formation. As the following chapter illustrate, these analyses
have significant implications for policymaking. For example, although Walras argued that
equilibrium could be reached through a competitive, free-market economy, Keynesian-
inspired econometricians sought to model a situation that justifies governmental intervention
to ensure equilibrium (Morgan, 2008). In contrast, neoliberal economists such as Hayek used
Walras’s equilibrium theory to show that the presence of a central-planning agency like the
State in the economy, mitigates the market mechanism’s ‘natural’ equilibrating abilities, as it
prevents the efficient allocation of resources and ‘true’ price formation.
Studying marginal utility: methodological implications of neo-classical
economics
By making use of analogies, the marginalists aimed to establish the scientific character of their
discipline by making the theory of exchange the primary focus of economic analysis. ‘Pure
economics’, according to Walras (1954{1899}:40), ‘is in essence the theory of the determination
13
I am passing over a number of developments in equilibrium theory, for instance Nash equilibrium, Partial Equilibrium or
Multiple Equilibrium (see Mirowski 2002). For the purposes of this discussion, I am less interested in the range of theories
describing states of equilibrium in the economy, but rather to highlight how a position of balance in mechanics became adopted
to describe the workings of the economy.
14
Another prominent theorem derived from this analogy is known as the ‘Walrasian demand function’, which calculates market
prices as the ratio between the sum total of demands posed by a number of individuals in a commodity market, at a particular
point in time, and equating this amount to the quantities available (Davis, 2003:26; King & McLure, 2014; Morgan, 1990:133-
134; Stigler, 1950).
75
of prices under the hypothetical regime of perfectly free competition.’ Discarding concerns with
distributive justice, the theory of exchange not only becomes the focus of attention but also the
very template of the whole economic science:
Every component in the field knows that the theory of exchange based on the
proportionality of process to intensities of the last wants satisfied… which was evolved almost
simultaneously by Jevons, Menger and myself, and which constitutes the very foundation
of whole edifice of economics, has become an integral part of the science in England,
Austria, the United States, and wherever pure economics is developed and taught
(Walras, 1954{1899}:44, emphasis in original).
By focusing on value in exchange, the neo-classical theory of value de-emphasises the analytical
concerns that face classical, cost-of-production approaches that necessitates a focus on the
historical, social and environmental aspects involved in the production process. The neo-
classical emphasis on demand, with a focus on ‘what emerged from the production-line to
contribute to the satisfaction of the desires, wants, [and] needs of consumers’ (Dobb, 1973:167)
is interested in present conditions alone: problems of scarcity and choice (Milonakis & Fine,
2009:97-98).
The neo-classical theory of value consolidated methodological individualism in economics, that
is, a micro-theory of economic behaviour that explains macro phenomena (Davis, 2003; Dobb,
1973:167-168; Keen, 2001; Kirchgässner, 2008; Milonakis & Fine, 2009:97-98).
Methodological individualism articulates economic phenomena in terms of the beliefs,
attitudes, and decisions of individuals, i.e., homo œconomicus (Blaug, 1980:44; Dobb, 1973:168;
Milonakis & Fine, 2009:98; Zouboulakis, 2002). Homo œconomicus has a long lineage in the
history of political economy, and as a model of economic rationality, shares distinct similarities
with Defoe’s colonial gentleman (see Watson, 2018, 2018). In the works of Adam Smith
(2008{1776}:25), homo œconomicus is a ‘man of exchange’, an economic animal with the inherent
propensity to ‘truck, barter and exchange one thing for another.’
Whether this propensity be one of those original principles in human nature…or
whether, as seems more probable, it be the necessary consequence of the faculties of
reason and speech, it belongs not to our present subject to enquire. It is common to all
men, and to be found in no other race of animals, which seem to know neither this nor
any other species of contracts (Smith, 2007{1776}:25).
Thomas Malthus, while agreeing that homo œconomicus is ‘rational’ in the sense that he wishes to
engage in commercial activities, argues that his proclivity to create children, his sexual desires,
negate his ‘reasoning power’ (see Malthus 1798:03). John Stuart Mill (1836), on the other hand,
76
claimed that man’s rational motivation to generate wealth is overwhelmed by his dislike of work
and love of luxuries:
It makes entire abstraction of every other human passion or motive; except those which
may be regarded as perpetually antagonising principles to the desire of wealth, namely,
aversion to labour, and desire of the present enjoyment of costly indulgences. These it
takes, to a certain extent, into its calculations, because these do not merely, like [our]
other desires, occasionally conflict with the pursuit of wealth, but accompany it always as
a drag, or impediment, and are therefore inseparably mixed up in the consideration of it
(Mill, as quoted in Morgan, 2006:5).
In neo-classical economics, homo œconomicus assumes a specific form of ‘psychological
individualism’ in which the individual becomes a rational economic agent driven by the
utilitarian motive to maximise personal benefit under a set of constraints (Zoubouliakis,
2002:30). Committed to the goal of rendering economics a ‘pure science’, methodological
individualism, under the neo-classical movement, necessitated the measurement of individuals’
subjective experiences of pleasure and pain (Davis, 2003:27; Milonakis & Fine, 2009:97).
15
Despite the difficulties of such a task, Jevons, Walras and Marshall maintained that subjective
feelings are measurable psychological quantities, much like an individual’s weight and height.
While acknowledging that feelings and motives cannot be measured directly, these economists
argued that utility could be measured indirectly, for example by referring to the demand curve
(see Jevons, 1881:11-12; Marshall, 1920:65).
16
To scientifically validate the measurement of
utility, the marginalists, in a characteristic manner, resorted to the use of mechanical analogies.
Jevons, for instance, used the Newtonian law of universal gravity not only to help explain the
measurement of utility but also to make it seem ‘reasonable’:
A unit of pleasure or of pain is difficult even to conceive; but it is the amount of these
feelings which is continually prompting us to buying and selling, borrowing and lending,
labouring and resting, producing and consuming, and it is from the quantitative effects of the
feelings that we must estimate their comparative amounts. We can no more know nor measure
gravity in its own nature than we can measure a feeling; but just as we measure gravity
by its effects in the motion of a pendulum, so we may estimate the equality or inequality
of feelings by the decisions of the mind. The will is our pendulum, and its oscillations are
minutely registered in the price lists of the markets (Jevons, 1881:11-12, emphasis in
original).
15
The measurement of utility they put forward is known today as the ‘cardinal theory of utility’, which entails the calculation
of the amount/quantity of pleasure associated with a certain commodity and bringing this quantitative expression in ration to
other commodities (Davis, 2003:27-28; Katouzan, 1980; Moscati, 2015). The cardinal measurement of utility seeks to
enumerate just how much utility is derived from particular choices in specific contexts.
16
A demand curve is a graphical illustration of the relation between the price of a certain commodity and the quantity
demanded for a given time (Rutherford, 2002).
77
Marshall (1920:65) similarly explained in his Principles of Economics, that the subjective desires
and wants of individuals could be measured indirectly, by analysing the ‘outward phenomena
to which they give rise’, that is, ‘the price which a person is willing to pay for the fulfilment or
satisfaction of his desire’. Based on this explanation, prices congeal within them the quantitative
magnitudes of utility associated with a particular good or service, which consequently enables
the measurement of utility.
17
Both the conception and measurement of utility has been
haphazardly applied and amended in recent decades. Yet, the significance of the marginalists’
efforts lies in how they enabled the mathematisation of human behaviour in the market place.
As captured by Jevons (1881:4):
It is clear that Economics, if it is to be a science at all, must be a mathematical science…our
science must be mathematical, simply because it deals with quantities…The ordinary laws of supply
and demand treat entirely of quantities of commodity demanded or supplied, and express
the manner in which the quantities vary in connection with the price. In consequence of
this fact the laws are mathematical. If, then, in Economics, we have to deal with quantities
and complicated relations of quantities, we must reason mathematically… (emphasis in
original).
Thus, with the marginal revolution, the market becomes a delimited space that enables the
attainment of equilibria through exchange. Here, prices are quantitative expressions of utilities
– quantities of goods with a revealed ability to satisfy needs – and utility-maximisation a fact of
common experience, congruent with the most casual introspection (Stigler, 1950:316).
Watson (2018) documents the resemblances between the individualism of neo-classical
economics and Defoe’s Robinson Crusoe. Indeed, many economists associated with the marginal
revolution explained their theory of economic behaviour with reference to Crusoe’s situation
on the island. Here, the main character’s skills for survival, which included his unquestioned
ability to render Friday a slave, enabled the marginalists to portray the utility-maximising
economistic tendency of individuals to seek embedded in human nature. Within this
framework, Crusoe contracts Friday as a labourer on the island and their exchanges enable
equilibrium price formation. This theory of market exchange is most famously associated with
Francis Ysidro Edgeworth’s ‘Edgeworth Box’ (Karagöz, 2014; Watson, 2018). Although, in this
17
In the early twentieth-century however, the cardinal measurement of utility – especially its psychological undertones –
became scrutinized by a number of economists, most notably Pareto (1971{1909}). Pareto de-emphasized the psychological
dimensions of the cardinal approach and according to Dobb (1973:209), divorced the theory of demand from its hedonic roots
by rearticulating utility as solely the ‘desiredness’ – the quality of being desired by a consumer. He initiated the ordinal
measurement of utility, which maintains that individuals prefer one combination of goods to another, where ‘prefer’ in this
sense do not denote to human psychology, but merely suggest the ranking of combinations of good in a nomological order (see
Bruni, 2010; Bruni & Guala, 2001; Davis, 2003:28; Moscati, 2013, 2015). In other words, utility as a magnitude of pleasure
and pain gets replaced by in the ordinal approach by a mathematical ‘index of preferences’ (Bruni & Guala, 2001:23)
78
story, Crusoe and Friday are portrayed as equals, assembled by market institutions, Watson
(2018:550) cautions against such a conclusion. He alludes to the colonial imagination of
Edgeworth’s use of Crusoe and Friday to describe his theory of exchange when Edgeworth
(cited in Watson, 2018:550) writes: ‘The articles of contract: wages to be given by the white,
labour to be given by the black.’ In modern economic textbooks, the signifiers of Crusoe and
Friday frame the abstract behaviour of homo œconomicus, who is without a history, defined solely
by his individualist interest for utility maximisation. It is through this objective, apolitical,
ahistorical portrayal, Watson (2018) argues, that macro-economic policies based on the
theoretical behaviour of this rational agent becomes sedimented time and again.
The neo-classical portrayal of the economy is conceived in a methodological framework that
interprets it as a mechanism that can be ‘scientifically’ known through the use of mathematical
calculus (Reuten, 1996). To establish the scientific character of economics, the marginalists
emphasised the importance of adopting a uniform method of investigation as the natural
sciences, particularly axiomatic positivism (Dobb, 1973; Ménard, 1989; Milonakis & Fine,
2009; Schabas, 1990:80; Weintraub, 2002). Underpinning this methodological framework is
an idiosyncratic worldview that conceives various kinds of natural and social phenomena as
parts of a deterministic, unified paradigm (Le Gall, 2007:8). Axiomatic positivism enables the
deterministic study of the economy by manipulating theoretical propositions through the rules
of firstly, formal logic and secondly hypothetic-deductive logic (Lee, 1991). The former entails the
scientific explanation of phenomena exemplified by formal propositions, especially the
axiomatic systems of mathematics. This arithmetic language facilitates the application of rules
of ‘formal logic’, that is, the generation of consequences based on logical deductions that are
contained in the opening premises of the explanations. Thus, any proposition that cannot be
logically deduced from a set of mathematical axioms would be exposed as ‘groundless’ (Hanson,
cited in Lee, 1991:344). The latter, hypothetical-deductive logic, refers to the processes of
relating theory to observable phenomena by applying the logic of syllogism. This typically
involves starting from a major premise, like ‘all men are mortal’ to a minor premise, such as
‘Socrates is a man,’ to reach a conclusion which, in this case, would be: ‘Socrates is a mortal
being’ (Lee, 1991:344-345).
79
The methodological consolidation of axiomatic positivism in economics assembles the economy
into a ‘mathematical structure’ (Reuten, 1996; Weintraub, 2002:1-9, 110). According to the
Bourbaki mathematicians, the axiomatic method is primarily a concern with ‘structures’:
18
[…] to define a structure, one takes as given one or several relations, into which these
elements enter… then one postulates that the given relation, or relations, satisfy certain
conditions (which are explicitly stated and which are the axioms of the structure under
consideration). To set up the axiomatic theory of a given structure, amounts to the
deduction of the logical consequences of the axioms of the structure, excluding every
other hypothesis on the elements under consideration… (quoted in Weintraub, 2002:109-
110).
The composition of the economy as a structure in the sense described above implies the
possibility of uncovering the natural ‘laws’ governing socio-economic phenomena that enables
the quantification of uncertainty. Yet, as Jevons (1913:197-198) laments, it is impossible to have
perfect knowledge about all the underlying causes in action. ‘Perfect knowledge alone can give
certainty’, writes Jevons (1913:197), ‘and in nature perfect knowledge would be infinite
knowledge, which is clearly beyond our capacities.’ This is where probability comes in.
Probability theory and rational action in conditions of uncertainty
According to Jevons (1913), any statement about the future, based on an observation of causal
laws at work, rests ‘upon the theory of probability’. Probability theory enables the measurement
of uncertainty by calculating ‘how much we do and do not know’ (Jevons, 1913:199). Jevons
for instance, though claiming that it is impossible to know for sure that x will follow y, envisions
probability as a means of salvation to remedy man’s imperfect knowledge about the causalities
governing events. ‘In nature’, according to Jevons (1913:198), ‘the happening of an event has
been pre-determined from the first fashioning of the universe’. Here the idea of ‘chance’ is
rejected; some underlying cause governs everything:
[T]here is really no such thing as chance, regarded as producing and governing events…it
is merely an expression, as Laplace remarked, for our ignorance of the causes in action,
and our consequent inability to predict the result…In nature the happening of an event
has been pre-determined from the first fashioning of the universe (Jevons, 1903:198).
Against the background of imperfect knowledge, Jevons insist that any prediction or inference
based on probability theory is purely hypothetical knowledge that ‘does not measure what belief is,
18
Bourbaki is a pseudonym chosen by a group of French mathematicians at the École Normale Supérieure in Paris during the
1930s. Bounded by their shared admiration for the German mathematician David Hilbert’s application of the axiomatic
method, Bourbaki was convinced that through axiomatization, they would be able to uncover the unchanging structure of
mathematics (Buitenhuis, 2015; Weintraub, 2002:101-154).
80
but what it ought to be’ (Jevons, 1913:199, emphasis in original). According to Schabas (1990:69-
75), Jevons adopted this view of probability mainly because it enables the application of
numbers to virtually everything, particularly beliefs and actions. As such, although we can never
know for certain which combination of events will occur, we can assign a measure of rational
expectation to the belief that a specific outcome will occur and utilise this information to guide
future decisions (Schabas, 1990:69).
Modelling rationality: from homme éclairés to homme moyen
Jevons adopted the classical interpretation of probability that dates back to the Enlightenment
(Daston, 1988). Here probability is a measurement of ‘rational expectation’ that ‘teaches us to
regulate our actions with regard to future events in a way which will, in the long run, lead to
the least disappointment’ (Jevons, 1913:200). The classical probability theory evolved from a
branch of mathematics dating back to the seventeenth-century works of Blaise Pascal, Jakob
Bernoulli and Pierre Simon Laplace. According to Daston (1988:xi), this calibre of
mathematicians laboured over a model of rational decision-making, action and belief under
conditions of uncertainty. They approached the calculation of uncertainty from diverse angles,
and equate probability ‘to the number of ways the event can occur to the total number of
equipossible outcomes’ (McGoun, 1995). In other words, the calculus of expectations (Daston,
1981:288; Gigerenzer et al., 1989:7; Gillies, 2000:16-17). Nearly all of the problems they
addressed related in some way to the following questions: When is it rational to buy a lottery
ticket? Accept a scientific hypothesis? Purchase an annuity? Believe the testimony of a witness?
(Daston, 1988:xi; Gigerenzer et al., 1989:17).
Underlying this set of questions was the Enlightenment goal of deriving guidelines for human
conduct and social reform by drawing on scientific laws of nature, mechanics and especially
mathematics (Daston, 1988:52-56, 1981; Desrosières, 1998:30, 53). Even intellectuals
committed to the study of natural laws governing society, like the physiocrats, searched for these
laws so that social organisation could be harmonised with the order of nature (Daston,
1988:55).
19
By drawing a parallel between natural reasoning and mathematical probability,
classical theorists identified their theory with common sense (Gigerenzer et al., 1989:9; Gillies,
2000:22; Hacking, 1975:176-185). As Laplace famously stated: ‘the theory of probability is at
bottom nothing more than good sense reduced to a calculus which evaluates that which good
19
The Enlightenment fascination of codifying rational reasoning is also illustrated in the introduction of a moral sciences faculty
at Cambridge University during the mid-nineteenth-century. Following the footsteps of a number of French universities at the
time, the moral sciences faculty embraced economics, politics, psychology, metaphysics and ethics (Hacking, 1990:38).
81
minds know by a sort of instinct, without being able to explain how with precision’ (cited in
Daston, 1981:290). However, common sense was not inherent to all – an assumption that also
resonates with Defoe’s veneration of the gentility. Eighteenth-century probability theorists
studied the behaviour of a select group of hommes éclairés (elite men), identified as ‘rational’ in
the hopes of deriving a set of explicit rules to guide the hoi polloi, that were not so intuitively well
endowed (Daston, 1981:289; Gigerenzer et al., 1989:14-18; Hacking, 1990:38-4; Poovey,
1998:214-230; Porter, 1986:41; Shapiro, 1991:254). The homme éclairé, like Defoe’s colonial
gentleman, exemplifies the criteria of rational belief and action, which is codified in the
definition and comparison of probabilistic expectations (Daston, 1988:385). As such, classical
probability theory is typically associated with subjective probability, that is, our beliefs about
things, and in the case of homme éclairé, the reason of an elite few (Hacking, 1975:13-15). Classic
probability theory is, therefore, a description and prescription of common sense or
reasonableness. By codifying the principles that guided the decision-making of elite men,
classical probability theorists hoped to make good sense accessible to all.
However, alongside the social and political upheaval of the French Revolution, confidence in
the common sense of the elite few deteriorated and classical probability theory came under
attack (Daston, 1988; Porter, 1986). Cournot, for instance, argued that subjective probabilities
are the ‘cause of a crowd of equivocations [which] have falsified the idea that one ought to have
the theory of chances and of mathematical probabilities’ (cited in Daston, 1994b:21). Although
Cournot did not argue for the abolishment of classical probability, he criticised how subjective
probability varies from one intelligence to another. This debate is complex (see Baloglou, 2012;
Blaug, 1985:299-308; Gillies, 2000:80-89; Jaffé, 1976; Mirowski, 1990, 1991). For this chapter,
I focus how this polemic gave rise to the frequentist or ‘objective’ interpretation of probability
theory, that is, the determination of likelihood based on statistical trends (see Daston, 1988:190-
192, 1979; Gigerenzer et al., 1989; Hacking, 1975; Porter, 1986).
20
Several philosophers contributed to the frequentist interpretation, ranging from John Venn,
Robert Leslie, Simeon-Denis Poisson, and Adolphe Quetelet. Frequentist interpretations
underscore the importance of statistical data and argue that a model of rational behaviour can
20
Although, in line with the theoretical lens of this thesis, a precise distinction between the subjective and objective is highly
contested, it is nevertheless worthwhile to outline how these are distinguished and used by practitioners. According to McGoun
(1995:512), subjective probability equates the probability of an event with the quantitative degree of an individual’s belief in
the event’s occurrence. Hacking (2001) also terms this as belief-type probability. Objective probability, also known as frequency-
type probability (Hacking, 2001:132-133), reflects the probability of an event based on observing a number of repeated trials, ‘the
ratio of the number of times the event has occurred to the number of trials’ (McGoun, 1995:512).
82
only be derived by interrogating law-like regularities that emerge on a macroscopic level
(Daston, 1981:289; Desrosières, 1998; Gigerenzer et al., 1989; Porter, 1986). Here societies
become coherent units instead of aggregates of individuals, as was the case with classical
probability, and the likelihood of events calculated through an analysis of statistical regularities.
This is because, as Venn (1866) argued, probability statements do not follow the same logic as
do the hypothetical-deductive statements as mentioned earlier, namely the inference that
because ‘all men are mortal’, ‘Socrates is a mortal being.’ Probability theory concerns less
certain propositions. Take, for instance, the hypothesis that ‘some men are mortal’. From this
we cannot infer with complete certainty that one particular man is mortal. Whereas in classical
probability theory, inference about the mortality of a specific being would be based on the
reasoning of elite men, frequentists suggest we base our enumeration on statistics.
The unification between probability and statistics, according to Hacking (1990), should be read
in the context of an ‘avalanche of printed numbers’ that occurred during the nineteenth and
twentieth centuries in the US and Europe and marks the emergence of indeterminism.
Although in the field of economics, the erosion of determinism came about only in the mid-
twentieth century, in physics, biology and even astrophysics, scientists gradually came to realise
that the past does not determine precisely what happens next (Porter, 1986:193-219). In other
words, contrary to Jevons’s determinism, indeterminism recognises the role of chance. This is
not to suggest, as Hacking (1990) points out, an epochal transformation that led to some sort of
decay in knowledge, disorder, and ignorance. On the contrary,
[…] the more indeterminism, the more control… William Wundt, one of the founding
fathers of quantitative psychology, wrote as early as 1826: ‘It is statistics that first
demonstrate that love follows psychological laws’. Such social and personal laws were to
be a matter of probabilities, of chances. Statistical in nature, these laws were nonetheless
inexorable; they could even be self-regulating. People are normal if they conform to the
central tendency of such laws, while those at the extremes are pathological. Few of us
fancy being pathological, so ‘most of us’ try to make ourselves normal… (Hacking, 1990:2,
emphasis added).
Here we see the emergence of a new form of government that seeks to govern uncertainty based
on notions of statistical normalities. Deviance from this norm, as discussed in the previous
chapter, is problematised through a language of risk that shapes and constrains actions in the
present (Amoore 2013; Salter 2008). Causal determinism is subsequently replaced by statistical
laws, expressed in terms of probabilities. The following section looks at the development of this
epistemological framework by focusing on the contributions of Adolphe Quetelet, and
83
specifically his l’homme moyen (Desrosières, 1998:67-102; Kwa, 2011:197; Mirowski, 1990;
Mosselmans, 2005; Porter, 1986; Stigler, 1986:161-220).
21
Indeterminism and probability: Quetelet’s social statistics and the law of error
Quetelet’s contribution to probability theory began with an 1827 publication of French judicial
statistics in which he expressed his amazement at the regularities that prevailed even in terms
of crimes and suicides (Quetelet, 1829:30-35). This stability of statistical aggregates was the
foundation of the science of ‘social physics’ that Quetelet promulgated in 1831 (Gigerenzer et
al., 1989:42). Broadly described, Quetelet’s ‘social physics’ was constructed on a scientific
methodology that entails the application of statistical analysis to societal data in order to reveal
certain laws about human nature (Daston, 1988:381-382; Hacking, 1990:104-114;
Mosselmans, 2005; Porter, 1986:52; Quetelet, 1842{1835}; Stigler, 1986:161-169). This
embodied Quetelet’s unshakeable faith that regular patterns invisible at the individual level
would emerge at the societal level (Daston, 1988:382). To him, the prevalence of mass
regularity, ‘teaches us that the action of man is restrained in such a circle, that the great laws of
nature are forever exempted from his influence; it also shows that laws of conservation can exist
in the moral world, just as they are found in the physical world’ (Quetelet, cited in Porter,
1986:52).
Quetelet made the law of large numbers (LLN) the ‘fundamental principle’ of his social physics.
First explained by Jakob Bernoulli (1654-1705), the LLN is a mathematical demonstration that
the indefinite repetition of events must lead to stable mean values even if the underlying
probabilities are allowed to fluctuate (Desrosières, 1998; Gigerenzer et al., 1989:40; Stigler,
1986:65).
22
Bernoulli set out to determine the likelihood of a certain phenomenon a posteriori,
‘for it should be presumed that a particular thing will occur or not occur in the future as many
times as it has been observed, in similar circumstances, to have occurred or not occurred in the
past’ (Bernoulli, 1713:224; quoted in Stigler, 1986:65). Thus, the higher number of
observations, the less the uncertainty (for a detailed history on the Bernoulli’s theorem, see
Daston, 1988; Desrosières, 1998; Hacking, 1990:98-104; Stigler, 1986). Poisson coined the
term ‘law of large numbers’ in 1835 in his application of Bernoulli’s theorem, which was later
21
His full name was Lambert Adolphe Jacques Quetelet. The last name is often accented (Quètelet), which Hankins (as cited
in Stigler, 1986:126 f1) suggests originated with his Paris publishers.
22
Bernoulli never referred to his theorem as the LLN; Poisson was the first to do so in 1835. Thus, most probability texts used
the term Bernoulli’s theorem to refer to the same idea. Bernoulli’s theorem was discussed in his influential text, Ars Conjectandi
(The Art of Conjecture), published posthumously in 1713.
84
adopted by Quetelet. Similar to Bernoulli, Poisson argued that the frequencies of events should,
in the long run, conform to the mean of their probabilities when those probabilities fluctuate
randomly around some fixed, underlying value (Porter, 1986:12). For example, in an infinite
number of coin tosses, the empirical (observed) outcome of a probability and its theoretical
(expected) outcome would converge due to a uniform, constant cause. Poisson (2013{1837})
extended Bernoulli’s theorem to the whole of society: the birth rates of males to females, coin
tosses, shipwrecks, tax revenues, molecular intervals and even crime rates.
However, contrary to his mentor Laplace, Poisson did not speculate on the nature of the causes
that produce certain frequencies. His conception of the underlying causes generating
frequencies in both natural and moral observations was agnostic (Daston, 1988:288,381). To
him, the constancy of ‘ratios between the number of times that an event had occurred and the
very large number of trails…is a natural state of things belonging to physical and moral
categories and maintains all by itself without any aid by some alien cause’ (Poisson, 2013
{1837}:19). Laplace (1902{1894}) on the other hand, developed an elaborate analogy between
the physical and moral realms. He envisioned the science of man as a kind of societal
mechanics, in which causes governing the physical and moral realms are identical. Laplace
used mechanical and dynamical metaphors in his moral and physical analogues:
[H]esitation between opposed motives is an equilibrium of equal forces… An intense,
continuous effort of attention exhausts the sensorium, as a long series of shocks exhausts
a voltaic pile, or the electrical organ of a fish. Almost all of the comparisons which we
draw from material objects to render intellectual things palpable are at bottom identities
(Laplace, as quoted in Daston, 1988:381).
Quetelet’s social physics unites Laplace’s vision of societal mechanics with the featureless
regularity of Poisson’s LLN (Daston, 1988:381; Porter, 1986:52). This consolidation is
personified in Quetelet’s model of rational behaviour, namely l’homme moyen – the average man.
L’homme moyen is a statistical composite of the physical, moral and intellectual traits of an entire
society (Daston, 1988:384). According to Quetelet (1833:5-10), l’homme moyen could be read as
the ‘type’ of the nation, the representative of a society in social science that parallels the centre
of gravity in physics. As the axiom for his social physics, Quetelet (1833, 1835, 1846) used
records of height, weight, education, mortality, marriage and suicide to construct l’homme moyen,
endowing him with probabilistic tendencies to account for discrete acts like marriage and crime.
He maintained that these figures are subject to gradual change, allowing the social physicist to
calculate a trajectory over time, which Quetelet anticipated, would reveal simple laws of motion
85
and the prediction of the future (Gigerenzer et al., 1989:41; Porter, 1985:64). A model of
rational behaviour under conditions of uncertainty derives from the principle of statistical
regularity, instead of a criterion of rational belief and action associated with a select minority,
like hommes éclairés. Indeed, as mathematical portraits of rational behaviour, l’homme éclairé and
l’homme moyen seem strikingly different: whereas the former exemplified a criterion of rational
belief and action, codified in a comparison of probabilistic expectations, the latter personified
the uniform, constant laws of society (Daston, 1988:385). Yet, l’homme éclairé and l’homme moyen
are similar in the sense that they both embody a set of standards to be mathematically codified
and enforced. These standards are codified in conceptions of rational behaviours which, in both
cases, is a matter of calculation. In the case of l’homme éclairé, the individual constituted the proxy
for calculation, whereas the enumeration of l’homme moyen referred to societies as a whole.
Despite this divergence in foci, Daston (1988:385) points out that they nevertheless
‘presupposed the stable, orderly phenomena that made calculation possible’. The depiction of
society as an ordered stable domain resonate not only with Defoe’s portrayal of finance, but
also the marginalists’ naturalistic representation of the economy and economic man, homo
œconomicus.
Inspired by Victor Cousin’s concept of juste mileu, Quetelet (1842{1835}:100) idealised the
figure of the mean as the standard of beauty, goodness and intellect, claiming: ‘an individual
who should comprise in himself (in his own person), at a given period, all the qualities of the
average man, would at the same time represent all which is grand, beautiful, and excellent’.
Cousin’s juste mileu, as Porter (1985:64, 1986:101) explains, was a symbol of Louis Philippe’s
July’s monarchy, a caricature of the supremacy of the bourgeois class and constitutional
monarchy: precariously placed between divine-right kingship and radical democracy. This in-
betweenness embodied an ideal of moderation, especially in political behaviour, which
appealed strongly to Quetelet’s intellectual pursuits. Thus, Quetelet referred to juste mileu as a
frame of reference to endow the average man with moral attributes and emphasised, in a similar
fashion as Defoe, the eminence of moderateness. The average man’s qualities, according to
Quetelet (1842{1835}:100), ‘were developed in due proportion, in perfect harmony, alike
removed from excess and defect of every kind, so that, in the circumstances in which he is
found, he should be considered as the type of all which is beautiful – of all which is good.’
From the above, the question of how Quetelet accounted for peculiarities or deviations becomes
pertinent. The answer lies in his confidence in the principle of statistical regularity and the
86
LLN. To assemble l’homme moyen statistically, Quetelet (1842{1835}:5) argued it is necessary to
view society as an entity in its own right, independent of the whims and peculiarities of its
constituent individuals. Since individual peculiarities are infinite, a focus on the isolated
individual would lead to a generalisation of what is entirely accidental (Mosselmans, 2005:567).
As Quetelet (1842{1835}:96) argues in his Treatise on man and the development of his faculties:
All observations tend likewise to confirm the truth of this proposition, which I long ago
announced, that everything which pertains to the human species considered as a whole,
belongs to the order of physical facts, the greater the number of individuals, the more
does the influence of individual will disappear, leaving predominance to a series of
general facts, dependent on causes by which society exists and is preserved.
Thus, when considering social phenomena en masse, deviations tend to balance themselves out
and move closer to the norm. In cases where disparities persist, they should be regarded as
dangerous monstrosities and eliminated to secure stability (Mosselmans, 2005). To account for
deviations from the average or the true mean, Quetelet extended De Moivre and Laplace’s
notion of ‘error law’ (later known as ‘normal law’, the ‘bell curve’ or the ‘Gaussian
distribution’).
23
De Moivre and Laplace first used error law to assess the precision of mean
values to illustrate that in most cases, it is this law that governs the difference between a mean
calculated from many independent trials and the true underlying value (Desrosières, 1998:76;
Porter, 1985:66, 1986:76). For instance, following the LLN, in a trial of finite coin tosses, the
likelihood of distribution in excess of heads over tails is higher. This distribution deviates from
the true probability (i.e. 1/2). According to error law, in an infinite number of trials, this
distribution would converge and become identical with its true probability.
When Quetelet incorporated error law to his program of social physics, he applied it to natural
variation, making the ‘error curve’ an attribute of nature itself. As mentioned above, Quetelet
(1835:100) idealised the mean (embodied in l’homme moyen) as the standard of beauty, intellect
and goodness, thereby equating deviance from the mean as a product of error. ‘Deviations
more or less great from the mean constitute ugliness in the body, vice in morals, and a state of
sickness with regard to the constitution’ (Quetelet, 1833:16; quoted in Porter, 1985:65). To
account for such a position, Quetelet (1845:133-138, 1846:205-286) distinguished between a
23
Since these terms are used interchangeably in contemporary statistical practices, the term ‘normal distribution’ may be less
confusing. Field (2009:880) defines normal distribution as a ‘probability distribution of a random variable that is known to have
certain propensities. It is perfectly symmetrical…and has a kurtosis of 0’ (emphasis in original). A kurtosis refers to the degree in
which scores in a sample cluster around either the mean, or the tails. Whenever scores cluster around the tails, it is considered
as an abnormal distribution. Within the logic of LLN, whenever a large number of samples are used, standard deviations would
minimise and the scores would cluster around the mean, thus approximating a normal distribution (or bell curve) (Field,
2009:882; emphasis in original).
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‘true’ and ‘arithmetic’ mean. The arithmetic mean refers to an average taken from the most
disparate sets of objects, which reveals little or nothing about their collective character.
However, when the variation of a set of measurements conforms to the law of errors, then the
mean value (the most probable modal value) may be regarded as a ‘true mean’. He explained
this idea by referring to the example of measuring the average height of a miscellaneous
assortment of houses on a given street. The result would be an arithmetic or fictional mean
since the underlying distribution is unsystematic. However, should one measure a particular
house an infinite number of times, to account for deviations (errors) from faulty measuring
devices or inaccurate inferences from phenomena that occur in finite numbers, each
measurement would approximate the law of errors (a normal distribution) (Desrosières,
1998:75-76; Porter, 1986:107, 1985:67). Thus, taking a multitude of observations has the effect
of disposing of those circumstances due to chance (i.e. the variable or specific causes), and the
statistical regularity that emerges from the mass of data verifies that a causal law (or constant
cause) is at work (Morgan, 1990:8). Based on these observations, it becomes possible to
determine the tendency of a particular phenomenon and measure the probability that it will
occur in the future.
Quetelet’s statistical method attracted a diverse academic audience, ranging from the social,
natural, mathematical and eventually economic sciences. According to Mirowski (1991, 1994),
one reason behind the widespread appraisal of Quetelet’s work relates to his use of analogies
between nature and society in his ‘social physics’, which rendered the statistical method
extremely elastic. Émile Durkheim’s first two books, The Division of Labour in Society (1893) and
The Rules of Sociological Method (1894) uses the average statistical type to support the existence of
a collective type external to individuals (Desrosières, 1998:98). Quetelet’s assumption that
statistical regularities confirm the existence of order in society in a way that parallels the natural,
along with his application of error law to exalt the mean, laid the groundwork for James Clerk
Maxwell’s kinetic theory of gases (Gigerenzer et al., 1989:62; Kwa, 2011:207; Porter, 1981).
Maxwell portrayed the physical world as fledged together by molecules, rendering our
knowledge of it as characteristically statistical. In his 1873 paper Molecules, he wrote: ‘The data
of the statistical method as applied to molecular science are the sums of large numbers of
molecular quantities. In studying the relations between quantities of this kind, we meet with a
new kind of regularity, the regularity of averages’ (Maxwell, 1873:373-374). He conceived his
kinetic gas theory through an analogy with social statistics. He went so far as to compare the
laws of gases and the diffusion of heat with the uniformities of crime and suicide (Gigerenzer et
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al., 1989:62). In the field of eugenics, Francis Galton transformed Quetelet’s use of error law to
give an economic expression of the variability in a population (Desrosières, 1998:112-121;
Gigerenzer et al., 1989:55; MacKenzie, 1981:51-72; Porter, 1985). Although Galton greatly
admired Quetelet, he was less interested in studying regularities in society and focused on the
differences between individuals and the variability of their attributes, which he later defined as
natural aptitudes (Desrosières, 1998:113). He made extensive use of analogies in applying the
error curve to investigate the heredity sources of intelligence, particularly pertaining to the fields
of mathematics, science, statesmanship, law and religion. This enabled him to not only arrive
at the method of correlation, which proved to be an extremely influential statistical technique
in, amongst others, meteorology, education, biology, psychology, economics, and finance but
also serves as a substitute for explanation (Gigerenzer et al., 1989; MacKenzie, 1981; Porter,
1986:128-146; Stigler, 1986:266-299).
Debating indeterminism in economics: probability without statistics, statistics
without probability
Despite the proliferation of Quetelet’s statistical methods and the frequency interpretation of
probability in both the natural and social sciences, economists were ambivalent about
incorporating it into their work. Committed to the determinist programme, these economists
rejected the role of chance. They claimed that it is possible, in principle, to measure the
causalities at work in, for instance, the elasticity of demand,
24
business cycles or, as seen in
Jevons’s (1878:39) ‘sun-spot theory’,
25
the relations between commercial fluctuations in
agricultural products and the ‘varying power and character of the sun’s rays’ (see also Biddle,
2017; Desrosières, 1998:280-289; Louça, 2007:3; Mirowski, 1989a; Morgan, 1990:8, 10, 229-
238). For the neo-classical economists of the early twentieth century, the measurement of
uncertainty necessitated – as Desrosières (1998) points out – a methodological edifice that
possesses both the logical consistency of the axiomatic method but also the ability to be
amended and enriched indefinitely. In other words, an inference model that enables the
24
Elasticity refers to the ‘responsiveness of the value of an economic variable to a change in the value of another which is
related to it’ (Rutherford, 2002). In this sense, the ‘elasticity of demand’ entails the measurement of how a change in the price
of a commodity affects the quantity demanded in a particular point in time and space. In general, when the price for a certain
commodity rises whilst consumer income remains the same, there will be a decline in demand (Black et al., 2011). In this case,
elasticity will be negative.
25
Confident in the idea of causal determinism, Jevons sought to prove that ‘commercial fluctuations must be governed by
physical causes’ and lamented the fact that ‘no inquirer has been able to discover a clear periodic variation in the price of corn’
(Jevons, 1878:35-36). Observing a time series of decennial crises, Jevons (1878:36) calculated the interval of the periodic
commercial crises to be, on average, 10.466 years, and stated: ‘I am perfectly convinced that these decennial crises do depend
upon meteorological variations of like period, which again depend, in all probability, upon cosmological variations of which
we have evidence in the frequency of sun-spots, auroras, and magnetic perturbations’ (Jevons, 1879:588).
89
reduction, via the axiomatic method, of phenomena that are inherently contingent and
complex into a small number of laws that can be applied universally.
The scepticism amongst economists towards the incorporation of probability theory in their
work was therefore not rooted in doubts regarding the scientific validity of probability
mathematics, but rather what Desrosières (1998:281) refers to as ‘the problem of identification’:
how to scientifically establish a relationship between theoretical laws and observed data? On
the one hand, economists such as Warren Persons and Oskar Morgenstern problematised the
application of probability to economic data, since economic data did not conform to the laws
of probability: data observations were not independent of each other, and the underlying
conditions were not homogeneous throughout the time period (Desrosières, 1998:282; Morgan,
1990:237). Persons, founder of the Harvard Business Barometer, claimed for example that use
of probability theory is a ‘wholly untenable’ method of analysis ‘in the specific problem of
forecasting economic conditions’ (quoted in Morgan, 1990:235). Persons’ concerns were not
directed at probability theory per se, but rather the temporal dimension of economic data, i.e.
that every observation is linked to a previous one. Morgenstern (1928), writing on the practice
of business cycle forecasting, specified that in most cases, the forecasters have to deal with data
collected under conditions that do not conform to scientific requirements to make adequate
inferences. He stipulates that the underlying conditions in which data-collection takes place
lack homogeneity; that time-series observations are non-independent and that the limited
availability of data renders any forecast to be ‘false’ (Morgenstern, 1928; see also Marget,
1929:314-316).
Ragnar Frisch brings the problem of identification in dialogue with the use of statistical
methods. He refers specifically to the use of probability theory to calculate ‘probable errors’ in
statistical measures, for example the mean and the correlation coefficient (Keynes, 1921:371).
Here, probability theory is applied to verify inferences generated from a statistical sample, that
is, to calculate the plausibility of a hypothesis being tested (Biddle, 2017; Desrosières, 1998:282;
Howie, 2004:33-51; Keuzenkamp, 2004; Morgan, 1990:237). Frisch argued that the standard
method of regression assumed errors only in the dependent variable, without considering the
possibility that all variables are measured with error. In contemporary predictive modelling
practices, regression analysis is a method used to determine the relationship between a
dependent (target) and independent variable (predictor) (Ray, 2015). For instance, to establish
the relationship between a country’s fiscal and monetary policy and its economic growth levels.
90
This technique is commonly used for forecasting, time series modelling and finding the causal
effect relationship between variables, based on current and past information data sets.
However, according to Frisch (1935:6),
26
the data driving analyses can be problematic, and in
the case of social sciences, too many variables are at work that can influence the result:
When several variates are included in the analyses, the situation becomes of course much
more complex. We may here encounter a whole hierarchy where some of the variates
may form a set where a regression equation has a meaning, and other forming sets where
such equations have no meaning. The study of this hierarchy is what I call confluence
analysis…data will frequently obey many more relations that those which the statistician
happens to think of when he makes a regression study. If the statistician does not dispose
of an adequate technique…he will run the risk of adding more and more variates in the
study until he gets a set that is in fact multiple collinear and where his attempt to
determine a regression equation is therefore absurd.
Frisch’s concerns resonate with another strand of critique against the consolidation of
probability and statistical theory to generate inferences about the future, especially the work of
John Maynard Keynes. Alongside concerns about policymaking based on statistical inferences,
discussed in the following chapter, Keynes also sympathised with the methodological problems
raised by Frisch and Persons. For example, in one of his earliest manuscripts, Treatise on
Probability (1921), Keynes distinguishes between two functions of statistics: descriptive and
inductive. The descriptive function of statistics entails the use of numerical and diagrammatic
methods to describe, measure and summarise the ‘salient characteristics of large groups of
phenomena’ (Keynes, 1921:371). The inductive function ‘seeks to extend its description of
certain characteristics of observed events to the corresponding characteristics of other events
that have not yet been observed’ (Keynes, 1921:371). Keynes refers to this inductive function
as the ‘Theory of Statistical Inference…which is closely bound up with the theory of
probability’ and proceeds with a critical account of this union. He specifically argues that
statistical inference generates a ‘great deal of confusion’ for two reasons. One, because
statisticians struggle to ‘discover the precise conditions in which a description can be
legitimately extended by induction’ (Keynes, 1921:372). Two, these modes of reduction, based
26
Based on this concern, Frisch (1935:6-8) construes a model where all variables are composed of a systematic part plus a
measurement error, and an ‘exact’ relationship is said to hold between systematic (i.e. natural, ‘true’) variables. His solution to
the problem of measurement errors lay in the choice of weights for each variable in the relationship. By looking at the relative
size of the variance of the measurement errors, it is possible to choose the correct weights for each variable and thus the
measurement of the ‘true’ relationship of interest in each case (Morgan, 1990:234). Nevertheless, as the quote above indicates,
Frisch maintains that this analysis is solely applicable in instances where data is generated from a controlled experiment, instead
of complex socio-economic environments that are abound with an infinite number of dependent and independent variables
that are impossible to statistically verify.
91
on material ‘unanalysed in respect of the circumstances of its origin…can only lead to error
and delusion’ (Keynes, 1921:438).
Thus, despite the embrace of indeterminism in other sciences, including the natural sciences,
economists remained extremely divided on the application of statistical inference to economic
data. Although some economists such as Henry Moore, Wesley Mitchell and even Jevons made
use of statistics in their empirical work, it was mainly for descriptive purposes. On the other
hand, the so-called ‘mathematical economists’ argued that the compilation of statistics entails
a process of ‘jumbling together facts resulting from complex, unknown, and above all
uncontrollable interactions’ (Ménard, as cited in Desrosières, 1998:282). Here, Trygve
Haavelmo’s ‘The probability Approach in Econometrics’ (1944), which justifies the union
between mathematics, probability theory and statistics in economics represent a crucial turning
point in this debate.
The erosion of determinism: the future in probabilistic terms
Haavelmo (1944:iii) begins his defence of statistical inference by pointing out that probability
is the body of theory behind statistical methods:
27
So far, the common procedure has been, first to construct an economic theory involving
exact functional relationships, then to compare this theory with some actual
measurements, and, finally, to ‘judge’ whether the correspondence is ‘good’ or ‘bad’.
Tools of statistical inference have been introduced, in some degree, to support such
judgements, e.g., the calculation of a few standard errors and multiple-correlation
coefficients. The application of such simple ‘statistics’ has been considered legitimate,
while, at the same time, the adoption of definite probability models has been deemed a
crime in economic research, a violation of the very nature of economic data. That is to
say, it has been considered legitimate to use some of the tools developed in statistical theory
without accepting the very foundation upon which statistical theory is built. For no tool
developed in the theory of statistics has any meaning – except, perhaps, for descriptive purposes –
without being referred to some stochastic scheme (emphasis in original).
As noted in the concerns raised by Morgenstern and Persons, amongst others, problems of non-
homogeneous time periods and non-independence of observations were some of the main
arguments used to oppose the incorporation of probability theory to economic data. Haavelmo
(1944:iii) argued the opposite: these concerns were rooted in a very narrow conception of
probability theory, which does not prevent its application to economic data:
27
Due to reasons of space, I am passing over a number of theoretical developments in inference procedures: Tjalling
Koopman’s work on measurement errors, Frisch’s ‘rocking horse’ model and Jan Tinbergen’s econometric business cycle
research to name but a few (see Howie, 2004; Louça, 2007; Morgan, 1990; Qin, 2013; Stigler, 1962).
92
The reluctance among economists to accept probability models as a basis for economic
research has, it seems, been founded upon a very narrow concept of probability and
random variables. Probability schemes, it is held, apply only to such phenomena as lottery
drawings, or, at best, to those series of observations where each observation may be
considered as an independent drawing from one and the same “population.” From this
point of view it has been argued, e.g., that most economic time series do not conform well
to any probability model, “because the successive observations are not independent.” But
it is not necessary that the observations should be independent and that they should all
follow the same one-dimensional probability law. It is sufficient to assume that the whole
set of, say n, observations may be considered as one observation of n variables (or a “sample
point”) following an n-dimensional joint probability law, the “existence” of which may be
purely hypothetical. Then, one can test hypotheses regarding this joint probability law,
and draw inference as to its possible form, by means of one sample point (in n dimensions)
(emphasis in original).
Thus, as Morgan (1990:243) points out, Haavelmo effectively reversed the usual argument that
probability theory has a very narrow domain of application. Instead, probability theory is
generally very applicable if we conceive it as a way to make inferences that are not necessarily
exact or ‘true’, ‘but merely have a certain chance of being true’ (Haavelmo, 1944:2). Here,
Haavelmo’s probability model takes on a distinctively indeterminist nature. Indeed, with
regards to the ‘problem of identification’ referred to earlier, i.e., the determinist struggle to
establish an ‘exact’ relationship between economic theory and observed data, Haavelmo
(1944:1) argues that when a set of theoretical assumptions gets transferred to “facts, the question
of ‘right’ or ‘wrong’ becomes more ambiguous.” The gap between a theoretical model and a
set of inferences generated from its application to data will usually, according to Haavelmo, be
contradictory. One reason for this is that economists when dealing with issues like ‘national
income, output of certain commodities, imports, exports, etc.,’ – notions that have a definite
quantitative meaning and accurately measured – often do not have the financial means or time
at their disposal ‘to carry out the counting and measurement in a way we should really like to
do it’ (Haavelmo, 1944:5). As such, scientists working in the field of economic statistics
continuously find themselves in a situation where ‘we almost always know that we could do
better, if we could only find the necessary time and money’ (Haavelmo, 1944:5). Moreover,
contrary to the scientific experiments conducted by physicists that take place in a controlled
environment, economists have to be satisfied with results which, ‘Nature has produced in all
their complexity’, laboured with the task of constructing ‘models that explain what has been
observed’ (Haavelmo, 1944:7).
To remedy this uncertain state of affairs, Haavelmo develops his probability model as an
alternative form of experimental design, in which economic theory could be constructed to
93
meet the conditions of the data (Morgan, 1990:259). To recall, the deductive style of reasoning
associated with the determinist programme, meant that in cases where the data did not confirm
a set of axiomatic assumptions (theory), economists were forced to discard those observations
(Daston, 1988; Mirowski, 1989a; Morgan, 1990). Indeed, the idea behind a scientific
experiment is to reproduce the conditions required by a theory and then to manipulate the
relevant variables in order to take measurements of a particular scientific parameter or to ‘test
the theory’. However, as many economists have pointed out, when the data is not collected in
a controlled environment, the relationship between the observations and theoretical laws can
neither be direct or clear cut. This was not only a problem in economic sciences, but as
Mirowski (1989a) points out, even physicists’ faith in the determinist programme started to
erode. In 1926, Max Born interpreted the formalisms of the new quantum mechanics as
explicitly and irreducibly stochastic. Haavelmo (1944:3) embraced this style of reasoning by
encouraging economists to be sceptical about their theories, since “whatever ‘explanations’ we
prefer, it is not to be forgotten that they are all our own artificial invention in a search for an
understanding of real life; they are not hidden truths to be ‘discovered’”. Here, Haavelmo
acknowledges that our understandings about how the economy works are based on theories
constructed by economists themselves: they do not exist outside human actions. This liberates
the economists from the deterministic programme and the axiomatic method and enables the
interpretation of the relationship between economic theory and data in probabilistic terms.
Within this framework, relations can be interpreted as ‘statistical laws’, that reflect ‘average
behaviour…descriptions of covariation without causal interpretation’ (Morgan, 1990:260).
According to De Marchi and Gilbert (1989:5), this framework has, at its core, the following
elements:
(a) that the economy maybe be characterised as a set of autonomous and simultaneous
behavioural (causal) relations with structural features captured by the parameters of
these relations; and
(b) that these relations are essentially stochastic.
As such, Haavelmo’s probability approach enabled the construction of the economy in a model
form.
28
Models signify not only the embrace of indeterminism but also its corollary: techniques
to manage uncertainty. As mentioned earlier, the fall of determinism did not lead to chaos: it
opened the way to ‘managing uncertainty’ by expressing the future in statistical probabilities.
Indeed, models enabled the preservation of the economy as a mathematical structure, as Jevons
28
I am passing over a number of debates that ensued following Haavelmo’s probability model. See Christ (1994), Epstein
(1987) Louça (2007), Morgan (1990), Qin (2013).
94
and Walras intended. Model-making facilitated the use of their ideas in experiments to
determine the socio-political conditions that enable, for instance, equilibrium in the market
place, economic growth, or to consider the role of government vis-à-vis the market place. As
Morgan (2012:2) observes, economics seminars in the twenty-first-century are characterised by
how their attendees draw equations or diagrams to illustrate and explain a particular
phenomenon in the economic world and, more importantly, generate a set of solutions based
on these models. Indeed, models constitute the starting point for most economic research
activities: they are used for theorising, hypothesis testing and are an essential input in simulation
technologies that generate future scenarios (Baccini, 2001; Boumans, 2005; Mirowski, 2002;
Morgan, 2012; Qin, 2013; Weintaurb, 2002). Models are therefore central to contemporary
economic and financial risk analyses, as they enable the quantification of uncertainty into
mathematical probabilities: risks. In this way, the concerns about the quality of data
observations, assumptions, and analogies become obscured, which renders the modelled
depiction of the economy certain, scientific, and transparent.
Conclusion
This chapter provided an analysis of the historical processes that de-politicised the economy
and assembled it into a structure that can be ‘scientifically’ known through the appropriate
methods. The goal was to interrogate the ‘regimes of truth’ that enabled the framing of the
economy as a mechanism that operates analogously to laws of gravity and motion. I focused
specifically on Jevons and Walras’s use of analogies: discursive strategies that enabled them to
represent the economy as a system that operates in the same way as the physics of energy.
Although in the twentieth-century this deterministic view of the economy was replaced by a
stochastic view, the mechanical framework through which economic phenomena is interpreted
and analysed has remained intact. Indeed, the economy is now interpreted in the form of a
model: ‘small mathematical, statistical, graphical, diagrammatic…physical objects that can be
manipulated in various different ways’ (Morgan, 2012:2). Central to this process is the
incorporation of probability theory and statistical methods to the investigation and portrayal of
the economy. This chapter examined how probability theorists laboured over a model of
rational behaviour in conditions of uncertainty in order to mitigate chaos or societal disorder.
In the case of classical probability theorists, rational behaviour was based on the codification of
‘reason’ of hommes éclairés. Much like Defoe’s conception of the English gentility, it was believed
that these elite men are blessed with a type of intuition that is not accessible to others. Quetelet’s
homme Moyenne codifies rational behaviour on the basis of the statistical average, derived from a
95
significant number of observations. The significance of Quetelet’s statistical methods for the
purposes of this thesis is not only the assumption that the statistical average reveals some truth
about the causal laws governing phenomena, but also that this average can always be uncovered
if the scientist has sufficient data to make mass observations. Here, Haavelmo’s probability
approach opened the way for economists to generate inferences about causal relations in
instances where there is a lack of data. In other words, to model the real-world phenomena they
are trying to investigate.
Chapter Three delves into the methodology of model-making in financial economics. This
chapter discusses how models assemble the visions of the economy examined in this chapter, as
well as the appropriate ways to study it, into an ideal form that can be used to inform socio-
economic policymaking. I will focus on how this form of knowledge production brings various
visions of the economy, society, individuals, discussed in this thesis so far, into a mediation with
the future that shapes and constrains the actions of actors in the present. More importantly,
the following chapter investigates the socio-economic and political ‘ideals’ that underpin the
modelling of sovereign credit risk. Here, we see how the epistemological assumptions and
methodological approaches associated with the scientific method and incorporated into
economics laid the necessary groundwork for the authority of numbers is financial markets, and
thus also the actors that produce them, like CRAs. To this end, modelling is a form of story-
telling, a mediated discourse, that not purely descriptive or prescriptive, but one that forms part
of the process it is claiming to describe and analyse. Narratives, stories, discourses, according
to Koritz and Koritz (1999:346), ‘is the most important tool we have for making sense of our
experience; as such it not only represents reality, but also helps constitute it.’
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Chapter Three
The economy in model form
In the previous chapter, I discussed how the erosion of determinism justified the incorporation
of statistical inference to economic analyses as an appropriate, ‘scientific’ method through
which probabilities can be assigned to future events. By acknowledging that economic
phenomena are inherently stochastic, ‘chance’ became accepted as an explanatory force in itself
(Hacking, 1990; Reddy, 1996:225). The embrace of indeterminism, however, did not abandon
the nineteenth-century quest to solidify the scientific character of economics. Nor, as discussed
in Chapter Two, did it lead to chaos. Instead, a range of methods and technologies developed
through which uncertainty can be ‘tamed’. Given the erosion of causal determinism and the
growing popularity of Haavelmo’s probability approach, economists began to ground their
work on another foundation: small mathematical models that depict artificial worlds (Le Gall,
2007:17; Morgan, 2012).
Models are quasi-material objects that are independent of both theory and the real world
(Morrison & Morgan, 1999:10-17). As such, they open up ways of mediating uncertainty, to
construct ‘artificial economic systems that can serve as laboratories in which policies that would
be prohibitively expensive to experiment with in actual economies can be tested out at much
lower cost’ (Lucas, 1980:696). The goal of these experiments, according to Haavelmo, is to
ultimately ‘become the master of happenings of real life.’ Adopting a governmentality analytic,
this chapter explores how models enable the ‘taming of uncertainty’ in the global political
economy. I will focus on the political rationalities of financial and economic modelling from
the 1940s, mainly in Western ‘spaces of hegemony’ (Lee, 2011), particularly the universities of
Cambridge and Chicago. Models have embedded in them a political rationality that not only
describes how the economy works, but how it should work. Models are discursive devices that
provide a ‘domain for the formulation and justification of idealised schemata for representing
reality, analysing it and rectifying it’ (Miller & Rose, 2008:30; Rose & Miller, 1992:178).
Contrary to their technical and objective appearance, this chapter illustrates the intimate
connection between economic models and ideology. As mentioned, ideology refers less to the
conscious distortion of truth to advance class interests. Ideology and discourse refer to similar
aspects of social life: ‘the idea that human individuals participate in forms of understanding,
comprehension or consciousness of the relations and activities in which they are involved’
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(Purvis & Hunt, 1993:474). Not only are ideas, knowledge, and theories of the economy
discursively mediated, the realms of politics and economics are inherently discursive.
Furthermore, as mentioned in the introductory chapter, the government of uncertainty is not
merely a matter of representation. It involves a distinct technical dimension as well. Economic
and financial risk discourses need to be instrumentalised and made operable in a technical form.
This is where models also become technologies of government. By mathematically representing
phenomena, models render the economy knowable, in a calculative form, and problematised
with a corresponding set of interventions (Miller & Rose, 2008:33). From the 1940s, these
mathematical representations became tools through which economists provided policy advice
to governments on how they should, firstly, ‘spend’ their way out of the Great Depression and
then, in the 1960s, implement austerity measures to address stagflation (Louça, 2007; Morgan,
2008). In this sense, models hold out the promise of managing uncertainty by not only
‘measuring’ and producing knowledge about the economy, but also providing (and normalising)
a particular way of acting in the present.
I will focus on two traditions of economic models—first, the Keynesian-inspired econometric
models of the Cowles Commission. Second, the ‘new-classical’, rational, individualist models
associated with the economic ideas of Milton Friedman and Robert Lucas. The goal here is to
demonstrate the role of economic theory in the model-making process and how it influences
fiscal and monetary policymaking. These ‘new-classical’ models are of particular interest for
this thesis, specifically, in the ways they relate to the governmentality of sovereign credit ratings.
In this sense, this chapter explores how new-classical economic models resonate with the
governmentality of financial markets. This includes not only the regulatory activities of
institutions traditionally associated with global governance like the IMF, World Bank or CRAs
but rather an apparatus of heterogeneous elements, placed strategically, to manage uncertainty
in financial markets (Foucault, 2007, 1980). The elements in an apparatus, according to
Foucault (1980:194-195), are a diverse and multifaceted ensemble of discourses, institutions,
regulatory decisions, laws, scientific statements, ‘in short, the said as much as the unsaid’. This
concept shares many similarities with Deleuze and Guattari’s (1987) assemblage theory, as
acknowledged by Deleuze himself (1992). However, for Foucault (1980:194-195) this apparatus
is geared more towards security, ‘a sort of – shall we say – formation which has as its major
function at a given historical moment that of responding to an urgent need. The apparatus thus
has a dominant strategic function’ (emphasis in original). For this chapter, the concept of
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apparatus is specifically useful for an exegesis on how models fit into this arrangement, not only
as instruments to ‘explore’ and ‘know’ the world, but also how these representations make
spheres amendable to a particular kind of governance, based on notions of the norm (Salter,
2008). In this sense, they represent the stabilising forces in the sovereign creditworthiness
assemblage.
The first section of this chapter provides a brief conceptual outline of models. Here the goal is
to show how the process of model-making is not purely mechanical, logically driven but
requires creativity and imagination in the selection and integration of a set of items that are
considered relevant for a particular task. It shows the extent to which model-making depends
on subjective assessments, which helps us re-politicise the discursive field of sovereign credit
rating. The second section looks at the emergence of econometric model-making in the mid-
twentieth century. Inspired by Keynes’s General Theory (1936), economists associated with the
Cowles Commission developed elaborate models to represent his ideas mathematically. The
goal here was to provide sound policy advice to governments on how to spend their ways out
of the depression (Morgan, 2008). By the 1960s however, the Keynesian economic system as
well as the econometric models used to justify it came under attack. Pioneered by scholars
associated with the Chicago School of Economics such as Milton Friedman, Robert Lucas and
Edmund Phelps, Keynesian macro-economic models gave way to radically individualist models
of the economy. The third section looks at how Chicago School economists revived the
methodological and theoretical ideas of Jevons and Walras by re-centring homo œconomicus as the
principle actor in the economy. These models of rational individual behaviour, equilibrium and
efficient markets have come to dominate financial discourse and are central to the modern
expansion of capital markets on a global scale. The final section discusses these developments
in financial economics. It contextualises the historical and political events that led to not only
the expansion of the credit rating industry, but also the political imagination of societies,
markets and states embedded in sovereign ratings.
Models as mediators
A model is an experimental frame that enables scientists to conduct ‘pen-and-paper
experiments’ (Le Gall, 2007:210; Morgan, 2002:43).
29
As forms of ‘experimentation’, models
29
Here, ‘experiment’ refers ‘to the combination of the external and internal dynamics, the activity of asking questions about a
circumscribed and limited model world and deriving answers about that world. This is a process in which scientist and model
are jointly active participants, neither is passive’ (Morgan, 2002:43-44).
99
are formed in a probabilistic framework. They represent artificial worlds that can be controlled,
manipulated and upon which model-makers can experiment. By creating, in the words of Lucas
(1980:697) ‘a mechanical, imitation economy’, the model-maker explores the mechanisms
(expressed mathematically) that relate a set of variables in a controlled environment, ceteris
paribus (Le Gall, 2007:210). The model-maker can actively use and manipulate the relations
and structure she designs, which enables her ‘to answer some questions about the real world,
about the world defined by the model, or about some aspects of the underlying economic
theories’ (Le Gall, 2007:211). As stated by Haavelmo (1944:14), models refer to “experiments
that we should like to make to see if certain real economic phenomena – when artificially isolated
from ‘other influences’ – would verify a certain hypothesis” (emphasis in original). Models are
therefore not only instruments that can be used to represent and explain economic phenomena
but are also methods of inquiry: autonomous agents that are partially independent of both
theories and the real world (Morrison, 1999:40-65).
Models are abstractions and idealisations of economic processes (Hamminga & De Marchi, 1994;
Morgan, 2006, 2012; Morrison, 1999:40-42). Abstraction refers to the selection of the most
salient elements for study and creating a portrait based on these abstractions (Cartwright,
1989:187; Morgan, 2006:10). As a representation of economic phenomena, this portrait does
not include all the real-life properties involved: it only embodies the features identified in the
abstraction process. The selection of these features is based not only on economic theory but
also an idealisation of economic processes (Morrison, 1999:38). Idealisation, according to
Morgan (2006:10), involves a process of choosing and focusing on one idea or concept to create
the most complete version of the object of study. This dimension of model-building is similar
to Weber’s (1949{1904}:89-90) notion of ‘ideal types’ – a frame of reference to define and
comprehend economic realities (see Morgan, 2006:6-7). Weber (1949{1904}:89-90) depicts the
free market economy as an embodiment of ‘ideal type’:
It offers us an ideal picture of events on the commodity-market under conditions of a
society organised on the principles of an exchange economy, free competition and
rigorously rational conduct…Substantively, this construct in itself is like a utopia which
has been arrived at by the analytical accentuation of certain elements of reality. (emphasis
in original)
Weber (1949{1904}:90) argued that despite this utopian vision of the economy, which is at
most based on a partial relation to reality, the concept of ‘ideal types’ could be useful in
theorising and, though not directly applicable, provides a lens into the world of the model-
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maker (Morgan, 2006:7). In other words, ‘ideal-types’ enables an exploration into the political
imagination of the model-maker, as it acts as an ‘archetype’ that allows a comparison and
explanation of reality:
The ideal typical concept will help to develop our skill in imputation in research: it is no
“hypothesis” but it offers guidance to the construction of hypotheses. It is not a description
of reality but it aims to give unambiguous means of expression to such a description…An
ideal type is formed by the one-sided accentuation of one or more points of view and by the
synthesis of a great many diffuse, discrete, more or less present and occasionally absent
concrete individual phenomena, which are arranged according to those one-sidedly
emphasised viewpoints into a unified analytical construct (Gedankenbild). (Weber,
1949{1904}:90, emphasis in original).
Economists tend to obscure how these processes of abstraction and idealisation take place, as
this would reveal the extent to which their models rely on subjective assessment. Yet, as the
following discussions illustrate, these representations cannot be divorced from the regime of
power and knowledge in which they are formed. They are discursive instruments based on a
political imagination of society, individuals, and markets (Gibbard & Varian, 1978; Ingrao,
2001:7-40; McCloskey, 1990:59-73; Ménard, 1989). Model-making depends on what
Heinzelman (1980:11-12) refers to as ‘imaginative economics’ which elucidates how “economic
systems are structured, by means of imagination, upon what are essentially fictive concepts –
including… ‘the economy’ itself”.
Negotiating with Keynes, idealising equilibrium
This section looks at how model-makers identify and measure relations in the economy, and
specifically the role that theory and ‘ideal-types’ play in this regard. The econometric work of
the Cowles Commission, significantly influenced by Haavelmo’s ‘probability approach’
provides an insightful starting point (Morgan, 2008, 1990). Econometrics is a branch of analysis
that, in the words of an IMF economist, makes ‘economic theory useful’ (Ouliaris, 2017),
because it enables the quantification of phenomena. The Cowles Commission was established
in 1932 by Alfred Cowles with the following vision in mind: to ‘advance the scientific study and
development…of economic theory in its relations to mathematics and statistics’ (Christ,
1994:31).
30
Many of the Cowles affiliates like Oskar Lange, Jakob Marschak and Tjaling
Koopmans were European émigrés with left-wing tendencies and a strong training in
mathematics and engineering. Their structural models sought to:
30
The Cowles Commission was originally located in Colorado Springs and moved to the University of Chicago in 1939.
However, due to growing methodological and political disagreements with economists associated with the then-emerging
Chicago School, relocated to its current home at Yale University in 1955 (Madara & Adaman, 2014:699).
101
[P]rovide accurate general economic forecasts and to guide government policies intended
to control the business cycle…They held high hopes that similar aggregate linear
difference equation models could be estimated to yield convincing scientific solutions to
the difficult technical and political problems of devising actual economic policy (Epstein,
1987:9).
Writing in the midst of the Great Depression and the socio-economic problems facing
governments during the interwar period, Keynes’s General Theory (1936) significantly influenced
these economists’ research projects (Boumans, 2005; Epstein, 1987; Louça, 2007; Morgan,
2008).
31
Keynes himself vehemently opposed econometric modelling, claiming that
‘mathematical economics is such risky stuff’ with ‘all kinds of unexpressed unavowed
assumptions’ (Keynes to Frisch, quoted in Louça, 2007:186). Yet, the Cowles econometricians
argued that, in order to generate a sufficiently accurate representation of the economic world,
primarily to provide sounder policy advice to governments, it is necessary to make use of
statistics and mathematics in macro-economic modelling (Louça, 2007:188; Morgan,
2008:287). Many economists also viewed Keynes’s General Theory (1936) as a complicated text
and suggested that econometric models would provide an accessible framework into his macro-
economic ideas (Morgan & Boumans, 2004). Marschak and Lange (1940:390) for instance,
claimed that econometric modelling is the only way to develop a Keynesian programme:
Since we are both in profound agreement with the economic theories of Mr. Keynes, we
are anxious to prevent the readers of EJ [Economic Journal] getting from Mr. Keynes’s
review the impression that his theories are not capable of empirical and statistical
verification.
Likewise, in Frisch’s inaugural lecture at Oslo University, he emphasised the necessity of
developing mathematical, scientific representations of the economy – perceived as the only way
to provide sound policy advice to governments:
quantitative formulation of laws and concepts is very nearly as important in
economics…This can be seen most clearly if we consider the final goal of economic
theory, which is to clarify the interrelationship between the various factors, and to do so
in such a way as to secure a basis for evaluating what practical measures are most suitable
to promote socio-economic aims (Frisch, as quoted in Louça, 2007:188).
To represent the ‘interrelationship between the various factors’, the Cowles econometricians
made use of structural estimations to generate simultaneous equation models of the economy
31
I am passing over an important debate that ensued between Keynes and Jan Tinbergen, which played a crucial role on the
methodology of the Cowles Commission. For a detailed analysis, see Epstein (1987), Hendry and Morgan (1995), and Louça
(2007).
102
(see Boumans, 2005; Christ, 1994; Epstein, 1987; Louça, 2007). Simultaneous equations are
stochastic situations where relations between variates are expressed by a set of simultaneous
equations containing them (Kendall & Buckland,1970:139). These equations estimate the
relationships between phenomena (variables in the economy) such as foreign direct investment
(FDI), technology, government spending and economic growth or between fiscal and monetary
policy, aggregate demand, and economic development (for examples of structural equations
models, see Fielding & Torres, 2006; Ford et al., 2010; Low & Meghir, 2017).
The selection of variables and the measurement between relations in the economy derives,
especially in the case of structural equation models, from economic theory (Everitt, 2002;
Ouliaris, 2011). Cowles econometricians especially drew on economic theories, which not only
outlined the amount of the equations, but also:
[…] what variables appear in each one, which variables are endogenous and which are
exogenous, what lagged endogenous variables (if any) appear in the model, what is the
form of each equation, and what is the form of the joint distribution of the disturbances
(normality is often assumed, for example) (Christ, 1994:36).
32
Economic theories, therefore, provide information about the potential causality between
variables in the economy. This is also called a ‘parametric hypothesis’, i.e., an assumption or
statement concerning the parameters of a distribution in a data sample (Everitt, 2002:2780).
33
A parameter describes the relationship between variables in a population – the collection of
‘units’ in a data sample. The next step in the modelling process is the specification of a statistical
model that captures the essence of the hypothesis the model-maker is testing, which proposes a
32
Endogenous (dependent) variables are those that from an inherent part of a system, whose value is determined by the states
of other variables in the system. Exogenous (independent) variables are those that impinge on the system from the outside. The
value of these variables are fixed or independent from the states of other variables (Wooldridge, 2003:802-803). Consider, for
example, a causal system in the economy like aggregate demand, where the outcome we are interested in explaining (i.e. the
endogenous variable) is the employment level. Here, cause can be conceived as ‘a critical part of one of the possibly numerous
alternative combinations of circumstances that imply an effect’ (Hoover, 2008:298). In reduced-form or single-equation models,
the employment rate will be determined by a selection of exogenous variables that causally interact with the dependent variable,
such as literacy rates, population growth, labour regulations, wage levels, inflation, and technology. In mathematical form, the
dependent variable (
𝑦
) will be on the left side of the equation and independent variables (x) on the right. However, in simulation
equation models, the demarcation between endogenous and exogenous variables are interpreted in a dynamic manner and
additional dependent variables can form part of the independent variables identified (Baretto & Howland, 2010). For instance,
a simultaneous-equations model of aggregate demand will not only take employment rate as an endogenous variable, but also
its dynamic interaction with inflation, price levels or interest rates. In other words, simultaneous equation models utilise a data
generation process that depends on more than one equation interacting together to produce the observed data (Baretto &
Howland, 2010:730).
33
I recognize that the descriptions on statistical inference methods and probability theory in this chapter do not fully capture
all of the real-life processes and technologies involved in econometric modelling. However, the goal here is to emphasize the
role that imagination, assumptions, and ideals play in the construction of econometric models. In other words, despite their
technical appearance, the process of model-making is inherently political, that is, they are influenced by the subjectivities of
their makers. These assumptions inform the model-maker of how economic phenomena operates, the variables in operation
and the parameters between them, the measurement of these elements and their implications for policy making.
103
specific mathematical relationship between the different variables. What follows is the
estimation of ‘unknown parameters’ of the model. Estimations are informed by economic data
and in contemporary econometric modelling, software packages such as Eviews and Matlab.
Finally, the parameter becomes estimated, which requires the model-maker to determine ‘if the
estimated model makes economic sense – that is, yield meaningful economic predictions?’
(Aldrich, 1989; Boumans, 2005:51-73; Ouliaris, 2017). The answer to this question is inherently
political and reflect the regimes of power and knowledge of the actors that produce these
models.
In the case of the Cowles Commission, parameter estimations got integrated into structural
models of the ‘macro-economy’, to justify expansionary fiscal policies. Most of their models
presented an argument in favour of economic control and the necessary policies to alleviate the
miseries caused by the Great Depression. Indeed, many of the early econometricians were
convinced activists (Louça, 2007:188). Their ideas in favour of direct economic control, or a
‘planned economy’, derive from Keynes’s General Theory of Unemployment, Interest and Money (1936),
in which he postulated aggregate demand as driving force behind economic growth. Keynes’s
(1936) emphasis on demand however, did not share the methodological tendencies associated
with the work of Jevons and Walras discussed in Chapter Two. Although he argued that a lack
of demand, not supply, caused the depression, his analyses were neither based on the
methodological individualism nor mathematical formalism of the 1870’s Marginal Revolution.
As mentioned, Keynes vehemently opposed the use of mathematics in economics and accused
Jan Tinbergen’s econometric modelling as a practice of ‘black magic and alchemy’ (see
Keuzenkamp, 2004:vii).
Furthermore, contrary to Jevons and Walras’s ‘naturalistic’ view of the economy as a self-
correcting mechanism that always tends towards equilibrium, Keynes argued that disequilibrium
is the norm. As such, the welfare of society cannot be left to the assumed self-equilibrating
capacities of the market (Keynes, 1936:Chapter 23; Louça, 2007; Wunder, 2010). Central to
this stance is Keynes’s disdain towards the assumption that individuals in the market place act
‘rationally’. Instead, Keynes (1936:161-162) insists that investors are driven by ‘animal spirits’:
irreducibly psychological tendencies that shape their levels of confidence about business
prospects. Economic activities are therefore based on decision-making processes that are
inherently social and intersubjective, thus not amenable to prediction and calculation:
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Actually, however, we have, as a rule, only the vaguest idea of any but the most direct
consequences of our acts […] By ‘uncertain’ knowledge, let me explain, I do not mean
merely to distinguish what is known for certain from what is only probable […] The sense
in which I am using the term is that in which the prospect of a European war is uncertain,
or the price of copper and the rate on interest twenty years hence, or the obsolescence of
a new invention, or the positions of private wealth-owners in the social system in 1970.
About these matters there is no scientific basis on which to form any calculable probability
whatever. We simply do not know. Nevertheless, the necessity for action and for decision
compels us as practical men to do our best to overlook this awkward fact and to behave
exactly as we should if we had behind us a good Benthamite calculation of a series of
prospective advantages and disadvantages, each multiplied by its appropriate probability,
waiting to be summed (Keynes, 1937:213-214).
As such, governments should actively ‘manage’ the economy by stimulating aggregate demand
through fiscal policy tools that increase the disposable income of individuals, such as tax cuts to
induce investment and spending or direct increases in government spending (Black et al.,
2011:338; Niggle, 2010:307:309).
34
This would generate a ‘multiplier effect’, whereby an
increase in the disposable income of individuals leads to more spending, job creation to meet
higher demand levels and thereby increase overall output (economic growth).
Despite Keynes’s scepticism towards the Cowles Commission’s methodologies,
econometricians like Frisch, Marschak, Lange and Klein recognised the ‘urgent need’ to
provide suitable economic advice amid economic crisis (Louça, 2007; Morgan, 2008). While
conceding that disequilibrium is the central enigma for real-life economics, they were
nevertheless driven by a desire to avoid such a state of affairs. As such, their models idealised
equilibrium conditions (Louça, 2007:190). In particular, ‘equilibrium’ as defined by conditions
of Pareto optimality. Pareto optimality refers to a situation in which one actor cannot increase
its utility through further exchanges without making at least another actor worse off. Contrary
to free-market economists, the Cowles econometricians argue that a socialist planned economy
could reach as good an outcome as the free-market economy in terms of ensuring Pareto
optimality (Morgan, 2008:292). By doing so, they sought to reclaim a space for Welfare
Economics in their models, that is, the study of how economic activity affects the overall welfare
of a society (Black et al., 2011:439).
35
34
This particular amalgamation of theory and methodology is commonly known as the ‘neo-classical synthesis’ and dominated
economic and fiscal policymaking from the 1940s to the 1970s (Wunder, 2010)
35
The first Theorem of Welfare Economics, typically associated with the work of Arrow and Debreu (1954), states that
‘competitive equilibria are Pareto-optimal, if individual preferences are monotonic and if there are complete markets’ (Baujard,
2013:7). The second theorem asserts ‘that every Pareto-optimal allocation of resources is an equilibrium for a perfectly
105
A prominent model in this regard is the IS/LM (investment-savings and liquidity-money)
model, developed by John Hicks. The IS/LM model demonstrates that when an increase in
government spending occurs, aggregate demand rises in both commodity and money markets,
stimulating economic growth. The IS curve stands for the combination of national income and
interest rates that ensure equilibrium in a commodity market (the institution through which
commodities are traded). The LM curve is the combination of national income and interest
rates that ensure equilibrium in the money market (the market for short term loans). The
intersection of IS and LM determines the simultaneous equilibrium in the product and money
markets (Black et al., 2011:223; Niggle, 2010:307-309; Rutherford, 2002). To represent the
interaction between government spending, economic growth, and aggregate demand, the
IS/LM model incorporated the famous Phillip’s curve, which expresses the inverse relationship
between unemployment and wage levels in an economy (Rutherford, 2002). This curve is based
on A.W.H. Phillips’s hydraulic machine to explain the macro-economic work of Keynes
(Boumans, 2005; Morgan & Boumans, 2004). In the design process, Phillips incorporated ideas
and metaphors from other economists and brought them in dialogue with hydraulic principles.
The goal was to ‘represent the circular flow of national income, the relationships between
elements in the economy, and stocks and flows in terms of the tanks of hydraulic fluid with in-
and out-flows and governing valves’ (Boumans, 2005:12). Consequently, the machine
represents the aggregate economy and enable the modelling of Keynesian ideas about the
economy.
Model-making is therefore more than a mechanical, ‘scientific’ exercise: it also requires
creativity and imagination in the selection and integration of a set of items that are considered
relevant for a particular task. Boumans (2005:4) compares the process of model-making to
‘baking a cake without a recipe’. Without guidance on the ingredients required and the
preparation process, how does one proceed in making a cake? Assuming that most people have
some knowledge about, for example, making pancakes and the main ingredients that goes into
it (flour, butter, sugar, baking powder), we have an idea of how to go ahead. Thus commences
the trial-and-error process until the result approximates some form of a cake. Modelling
similarly takes place (Boumans, 2005, 1999). The IS/LM model, for instance, integrated a set
of theoretical ideas, policy views, some empirical evidence and a metaphor – Phillip’s curve –
competitive economy, provided a redistribution of initial endowments and property rights is permitted’ (Blaug, 2007:185).
Echoing Keynes, the Cowles econometricians argued that this redistributive function cannot be left to the devices of the market
and that governmental intervention, specifically via fiscal expansion, can ensure Pareto-optimal equilibrium.
106
which guided the way the model was conceived and assembled. Similar to a cake, when these
elements are integrated into a mathematically expressed system (model) – the end product – it
becomes difficult to distinguish the separate ingredients; ‘they become blended and
homogenous’ (Boumans, 2005:5).
Model-based analyses of Keynes’s work provided useable advice to governments on how to
address social crises brought by the Great Depression and Second World War (Morgan,
2008:293). These approaches to economic governance also dominated the policies and
programmes of the Bretton Woods Agreement, which saw the establishment of the IMF the
World Bank.
36
Determined to stabilise the global financial system and prevent the disastrous
effects of financial market instability brought by the Great Depression, the Bretton Woods
conference laboured over the arrangement of a fixed-exchange-rate system. This system
entailed that the US pegged its currency to the gold standard; all other states in the agreement
fixed their parities in terms of dollars and intervene to monitor exchange rates within one per
cent of parity with the dollar (Oliver, 2006:112).
Keynes was a prominent intellectual leader of this monetary arrangement, and also led the
British delegate at the conference. His idea of a ‘planned economy’, underpinned many of the
policy documents of the Bretton Woods institutions (Best, 2008; Reddy, 1996). Crucially,
Keynes’s emphasis on the social aspect of economic activity and his insistence that the future is
radically indeterminate, enabled governments to ‘manage their economy’ and establish a set of
mechanisms to protect citizens against the potentially destructive forces of the market. Keynes’s
emphasis on uncertainty resonates in the ambiguity of some of the trading agreements
established at the Bretton Woods conference, which allows for discretionary policymaking, that
is, when policy-makers decide on fiscal and monetary policy measures, their extent, and timing
(Rivot, 2012). In contrast, rule-based policy making – discussed in the section below –
necessitates states to follow a fixed set of rules in terms of monetary policymaking, to prevent
government interference (Kydland & Prescott, 1977; Phelps, 1968; Sargent & Wallace, 1975).
Lucas and the revival of homo œconomicus: new-classical economics
Rule-based monetary policymaking became standardised in the late 1970s, as Keynes’s
economic programme and the modelling practices of the Cowles econometricians came under
36
The Bretton Woods agreement was undertaken by 43 countries at the United Nations Monetary and Financial conference,
which took place between the 1 – 22 July 1944, in Bretton Woods, New Hampshire.
107
attack (Morgan, 2008). The anti-Keynesian sentiments appeared as many countries who
adopted Keynesian economic policies suffered from ‘stagflation’ – a combination of high price
inflation, high unemployment, and low economic growth (Cerny et al., 2005:13; Morgan,
2008:294; Rutherford, 2002). The problem prompted several diagnoses that developed into a
paradigm called ‘new-classical economics.’ This paradigm is based on a vision of society, the
economy, and individuals in the marketplace put forward by, amongst others, the political
philosopher Friedrich Hayek (1944, see also Plehwe, 2009; Rankin, 2004).
Hayek developed his philosophy amid the events of the Second World War that revealed the
‘intrinsic defects’ of the State (Foucault, 2008:116). He likened a planned economy, that is, one
that seeks to secure ‘a common good’ to a totalitarian exercise that aims ‘to organise the whole
of society and all its resources to this unitary end, and [refuses] to recognise autonomous spheres
in which the ends of individuals are supreme’ (Hayek, 1944:60). Planning suffers from a
‘division of knowledge problem’ (Hayek, 1944:52) that prevents the optimal allocation of
resources. To know where resources should be directed the State, as a central planning agency,
needs to know what goods individuals want to buy and the most efficient way for producing
them. However, this knowledge only exists in the minds of individuals and businessmen and
the only way for customers and firms to communicate this information to each other, is through
a system of market-determined prices. In other words, like Jevons, Walras and Marshall
discussed in Chapter Two, Hayek believed that prices provide information about the utility and
quantity of a commodity in a market. The presence of a central planning agency, Hayek
believes, cast doubt about the accuracy of the information congealed in a price, which leads to
disequilibrium. Thus, equilibrium price formation can only take place in a regime of free
competition, which ‘enables entrepreneurs, by watching the movement of comparatively few
prices…to adjust their activities to those of their fellows’ (Hayek, 1944:52).
Yet, Hayek is not the only intellectual influence behind ‘new-classical economics’. Instead, this
paradigm signals an assemblage of economic methods, theories and assumptions discussed in
the thesis so far. First, following the theories of classical economists like Adam Smith, Milton
Friedman argued that Keynesian demand-side policies caused stagflation as they created a
cycle of excessive wage demands and government spending that ‘crowded out’ private
investment. These interventions contributed to the ‘fiscal crisis of the State’, a situation where
the budgetary costs of social policies, public services, nationalised industries, and bureaucracies
supposedly grew faster than the tax base (Langley, 2002:15). According to Friedman, money
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supply is the most important determinant of aggregate money income, something he believed
demand-side economics neglect (Morgan, 2008:294). Instead of using fiscal and monetary tools
to target aggregate demand, governments should instead focus on sustaining price stability,
rather than restoring the economy to full employment (Clift & Tomlison, 2012:482). This policy
measure is based on the monetarist assumption that in a stable, non-inflationary environment,
the economy tends towards a ‘natural’ rate of employment and output, as discussed later
(Epstein & Yeldan, 2008; Rutherford, 2002; Setterfield, 2006). To this end, Inflation Targeting
(IT) became (and still is) a dominant monetary policy prescription in the international political
economy. Inflation targeting entails the public announcement of an inflation target set by the
central bank, coupled with a credible and accountable commitment on the part of government
authorities to the achievement of these targets (Boughton, 2004; Clift & Tomlison, 2012).
Moreover, when making these policies, states should follow a fixed set of rules, instead of
exercising discretion as mentioned earlier. Rule-based policymaking limits government
interference and secure market participants’ trust in the ability of the financial system to secure
equilibrium prices and, in the long run, prevent stagflation.
Second, while critiquing the Cowles Commission’s econometric models, new-classical
economists sustained the mathematisation of economics and also revived the methodological
individualism of Jevons and Walras. According to Robert Lucas (1972a, 1972b, 1976), the
structural econometric models of the Cowles Commission assumed causality between relations
in the macro-economy, without taking into account non-observable variables such as individual
expectations (Hoover, 2008:300). As such, the statistical relationships in these econometric models
are not autonomous, i.e., the observed causality will not hold when relations alter (Aldrich,
1989; Hoover, 2008; Morgan, 1990:125). Based on the central assumption among new-classical
economists – that individuals use all available information to make their decisions in the
marketplace – Lucas (1976) argues that this invariance problem in econometric modelling will
always persist (Hoover, 2008:300). Thus, influenced by Friedman’s (1953) seminal paper on
‘The Methodology of Positive Economics’, Lucas (1980) claims that the ideal rational behaviour
of homo œconomicus should inform macro-economic planning. Friedman’s (1953:3) paper outlines
the goal of positivist economics (the study of ‘what is’), that is, ‘to provide a system of
generalisations that can be used to make correct predictions about the consequences of any
change in circumstances.’ Questions about the ‘assumptions’ of a theory, according to
Friedman (1953:15), should not focus on “whether they are descriptively ‘realistic’, for they
never are, but whether they are sufficiently good approximations for the purpose in hand (emphasis added).”
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In other words, like Karl Popper’s falsification standard, if the theory does not yield accurate
predictions, the assumptions can be assumed false, and should be discarded (Blaug, 1992;
MacKenzie, 2006).
Lucas (1980) similarly claimed that ‘as if’ assertions allows for counterfactual experiments and
re-centred the neo-classical homo œconomicus as the principal actor in the economy (Alter, 1982;
Baccini, 2001; Starmer, 2009). Since macro-economic models will always face the problem of
non-invariance, mainly due to its inability to account for individual expectations, Lucas (1976)
argue that reference to the behaviour of rational economic actors is the only way to explain the
aggregate economy. This saw the revival of methodological individualism as discussed in
Chapter Two, that is, the principle that ‘explanations of social, political, or economic
phenomena can only be regarded as adequate if they run in terms of the beliefs, attitudes, and
decisions of individuals’ (Blaug, 1992:44). From this, Lucas explained that stagflation occurred
as a result of people getting used to the amount of inflation in the economy and modifying their
behaviour based on an expected amount of inflation, which ended up worsening stagflation
(Morgan, 2008:294). By implication, Keynesian demand-side policies caused the stagflation
crisis by exacerbating the ‘supply shock’ spawned by the 1973 oil crisis. Labour regulations,
wage demands, and uncontrolled inflation undermined private-sector investment, which led
many business-owners to close their shops, causing unemployment to rise. This also generated
significant uncertainty about the government’s actions in the economy. As such, attempts to
address stagflation through money supply worsened the problem, as increased spending did not
stimulate productive investment, but instead prompted individuals to save their earnings
(Morgan, 2008; Niggle, 2010; Vahaly, 2010). Hayek (1944:38) similarly claimed that attempts
to control macro-economic functions limits the ‘power of competition’ to generate an efficient
market as prices no longer ‘register all the relevant changes in circumstances and no longer
provide a reliable guide for the individual’s actions’. Disequilibrium occurs as a result of
governmental interference that produce uncertainty about whether or not prices accurately
reflect market fundamentals (Best, 2008:366). Thus, as discussed in the following section, the
macro-economy should be structured in a way that harnesses the rational decision making of
individuals in the market.
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The return of methodological individualism: Jevons and Walras in the twentieth
century
Lucas’s ‘rational expectations hypothesis’ (REH) builds on Friedman (1968, 1969) and Phelps’s
(1967, 1968) notion of ‘adaptive expectations’. The idea of ‘adaptive expectations’ suggests that
agents gradually adjust their current expectations of inflation based on past rates of expected and
actual inflation (Keen, 2011:224). Friedman (1969) created a hypothetical scenario to illustrate
the causality between expectations, the employment rate and inflation through an analogy that
likens a helicopter throwing money on the ground with the FED’s monetary policy during the
Keynesian era. He then considered the consequences of this sudden increase in money supply
for money prices:
Let us suppose now that one day a helicopter flies over this community and drops an
additional $1,000 in bills from the sky, which is, of course, hastily collected by members
of the community. Let us suppose further that everyone is convinced that this a unique
event which will never be repeated (Friedman, 1969:4-5).
Friedman concedes that this injection of money supply could have an impact on relative prices
(value compared to other goods or services), employment and output-levels in the short-term.
However, in the long run, it would only lead to an increase in nominal prices (value in terms of
currency) (Friedman, 1969:6; Keen, 2011:244). Friedman extended the hypothetical situation
to explain inflation rates by proposing that this ‘helicopter drop’ of money becomes a
continuous process:
Let us now complicate our example by supposing that the dropping of money, instead of
being a unique, miraculous event, becomes a continuous process, which, perhaps after a
lag, becomes fully anticipated by everyone. Money rains down from heaven at a rate
which produces a steady increase in the quantity of money, let us say, of 10 per cent per
year (Friedman, 1969:8).
The anticipation of money supply is what Friedman termed ‘Adaptive Expectations’. By
assuming that the 10 per cent per annum increase in money supply becomes a permanent
situation, Friedman (1969:10) argues that the short-term consequences will dissipate into a long-
run equilibrium where relative prices, output and employment are the same as before. This
occurs not because markets are in disequilibrium with demand exceeding supply, but because
of the expectations all agents have formed that prices will rise by 10 per cent annually (Keen,
2011:245). The assumption of long-run equilibrium stands in stark contrast to Keynes’s
(1923:80) argument that, ‘In the long run we are all dead’. Focusing on the short-term, Keynes’s not
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only undermines the self-equilibrating abilities of the money market but also suggests that a
long-run focus is useless during times of economic distress.
Nevertheless, the political moment of the 1970s was decidedly anti-Keynesian and the
assumption of long-run equilibrium facilitated the development of the ‘Natural Rate
Hypothesis’ (see Friedman, 1968; Phelps, 1968). This hypothesis assumes the existence of a
‘natural rate of unemployment’ which occurs when the labour market is in equilibrium: when
market mechanisms have mediated real wages and when the aggregate supply of labour equals
the aggregate demand for labour (Agarwal, 2017). The Natural Rate Hypothesis refutes the
‘Phillip’s curve trade-off’ in Hick’s IS/LM model, which posits a trade-off between inflation
and unemployment along a negatively sloped curve that could be exploited by policymakers
(Gordon, 2018:1). In other words, governments could ‘manage’ the unemployment rate by
expansionary demand policy at the sacrifice of a finite and stable extra amount of inflation
(Gordon, 2018; Keen, 2011:241). However, based on the causality between expectations and
the inflation rate as outlined above, Friedman (1968) and Phelps (1968) argued that, in the long-
run, no such trade-off exists as the economy has a natural rate of unemployment to which it
tends. Any attempts at interference would only increase the rate of inflation, without altering
employment.
Lucas (1972a, 1972b, 1973), together with Sargent and Wallace (1975) claimed to have
overturned the short-run trade-off by arguing that expectations are ‘rational’. Economic agents
can anticipate in advance any demand expansion policy based on a predictable monetary rule.
Within the ‘adaptive expectations’ framework, there exists the possibility that actual inflation
(driven by the rate of money supply) might differ from expected inflation (based on agents’
experience of past inflation that adjusted ‘after a lag’ to the current rate of inflation). For Lucas
(1972b:53), this systematic error of agents is not compatible with the Natural Rate Hypothesis
because a gap between actual and expected inflation would imply the possibility of controlling
(planning) employment and output through ‘a well-chosen inflationary policy.’ In other words,
‘adaptive expectations’ could oppose the fundamental new-classical axiom of long-run
equilibrium, as it undermines the rational behaviour of homo œconomicus. Indeed, Lucas’s REH
asserts that expected inflation will always equal actual inflation:
[…] the hypothesis of adaptive expectations was rejected as a component of the natural
rate hypothesis on the grounds that, under some policy [the gap between actual and
expected inflation] is non-zero. If the possibility of a non-zero…is taken as an essential
feature of the natural rate theory, one is led simply to adding the assumption that [the
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gap between actual and expected inflation] is zero as an additional axiom […] (Lucas,
1972b:54, as quoted in Keen, 2011:247).
This portrayal of rationality derives from John Muth’s (1961) theory of price movements.
Contrary to the claim that the assumption of rationality in economics leads to theories that are
inconsistent with observed phenomena, Muth’s (1961:316) hypothesis assumes the opposite
view, that is, ‘that dynamic economic models do not assume enough rationality.’ Information
is scarce, and the economic system generally does not waste it. By implication, economic agents
use all available information capable of maximising the accuracy of price forecasts. Speculators
instantaneously incorporate information into their decisions, generating predictions and
expectations that are ‘rational’ in this precise sense. This effectively dissolves any version of a
trade-off between inflation and unemployment that can be exploited by policy-makers:
[…] economic agents form their expectations on the basis of exactly the same information
that is available to policy makers, and, hence, act to neutralise every systematic attempt
to intervene in the economy. In effect, economic agents mimic the market by forming
forecasts of prices and hence expectations of price changes in the same way that the
market determines actual prices (Blaug, 1985:687).
In other words, any policy that assumes knowledge of how the economy works and how the
government can interfere in its workings, is entirely predictable and private economic agents
will incorporate the effect of these policies into their pricing forecasts. Thus, when the policy
becomes applied, it will have no impact on real variables because it will already have been
discounted for and will merely appear as nominal adjustments to wages and prices (Blaug,
1985:868). The REH approach leads to the radical anti-Keynesian conclusion that any attempt
from the government to manage demand via fiscal policy will ultimately not affect output and
employment, leaving no scope whatsoever for countercyclical stabilisation policies.
This model of rationality resonates with Defoe’s gentlemen, as well as homme éclairé and homme
moyen in three important ways. First, the rationality of homo œconomicus relates to his calculative
ability to use current information such as declared policy intentions, announcements of money
growth targets, exchange rate movements to make his decisions in the market place. Second,
this calculative ability illustrates his cognitive and technical skill to not only access relevant
information, but also interpret it optimally. Third, ‘rational expectations’ re-inscribe Defoe’s
portrayal of finance in the image of the English gentleman which, much like homme éclairé and
l’homme moyen presupposes ‘the stable, orderly phenomena that [make] calculation possible’
(Daston, 1988:385). Indeed, Muth (1961) ‘rational expectations’ hypothesis fuses the subjective-
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and objective theory of probability: “expectations of firms (or, more generally, the subjective
probability distribution of outcomes) tend to be distributed, for the same information set, about
the prediction of the theory (or the ‘objective’ probability distributions of outcomes).” As such,
it becomes possible to eliminate almost all forms of uncertainty in the market place, by creating
a policy-environment conducive to rational functioning of homo œconomicus.
Rational expectations and financial markets
The significance of these resonances, that is, between rationality, calculability and economic
policy relates to how they enabled the triumph of risk over uncertainty in financial economics
in the late 1960s (Köhn, 2017). Before this, economists primarily worked with Frank Knight’s
distinction between risk and uncertainty outlined in his seminal text, Risk, Uncertainty and Profit
(Knight, 1921). Knight (1921:233) defines conditions of risk as ‘measurable uncertainty’, that
is, situations where actors can calculate the probability of certain consequences following from
their actions. In these situations, the decision-maker calculates expected outcomes (defined in
a statistical sense) rather than outcomes per se (Carruthers, 2013:526). Uncertainty on the other
hand is immeasurable, ‘agents cannot anticipate the outcome of a decision and cannot assign
probabilities to the outcome’ (Beckert, 1996:804). Unlike risk, uncertainty is not quantifiable,
‘because the situation being dealt with is in a high degree unique’ (Knight, 1921:226).
The REH obscures this distinction by treating every situation as a form of measurable risk.
Based on the assumption that individuals in the marketplace make decisions based on a cost-
benefit analysis of utility – usefulness or pleasure – reflected in market prices, it becomes
possible to assign probabilities to any scenario. The widespread adoption of Friedman’s ‘as-if’
methodology especially aided the transformation of uncertainty into risk. This method,
according to MacKenzie (2006:12), became consolidated as vital aspect of the ‘epistemic
culture’ in modern ‘financial economics’, despite Friedman’s doubts as to whether finance
theory is a contribution to economics. Before the 1960s, finance was a mainstream subject
located in the business schools of academic institutions; many economists viewed finance
‘relatively unimportant’ to their discipline (MacKenzie, 2006:5).
37
Indeed, elite students at the
Harvard Business School shunned Wall Street, with only 3 per cent of them taking jobs there
in the early 1950s. However, by the 1970s, financial economics emerged as a distinct academic
37
For instance, in examining Harry Markowitz’s PhD dissertation, which dealt with a topic that proved to be extremely
influential in finance theory – portfolio selection – Friedman said to Markowitz: ‘Well, Harry, I’ve read your dissertation and
I don’t find any mistakes in the math, but this isn’t a dissertation on economics and we can’t give a Ph.D. in economics for a
dissertation that’s not economics’ (quoted in MacKenzie, 2006:50).
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speciality which had, at its core, sophisticated mathematical models of markets. Many of these
models are based on or are in some way affiliated with the REH (Köhn, 2017; MacKenzie,
2006). Eugene Fama’s (1970) influential EMH shares many assumptions of the REH. To recall
from Chapter One, the EMH states that financial markets are ‘efficient’, because prices always
“‘fully reflect’ available information” (Fama, 1970:383). The EMH is an application of REH, as
it assumes that market participants use all available and relevant information to make their
decisions. The more accurate previous information records reflect current prices, the more
efficient the market. Market efficiency varies between three different forms: weak, semi-strong
and strong (Fama, 1970). Based on the level of efficiency, and the rational expectations of
market actors, the EMH states that the current price of an asset allows for the best possible
prediction of future values (Köhn, 2017:83). As such, it becomes possible apply probability
mathematics to estimate the future value of a stock and potential return.
Although, according to Popper’s falsification standard, most financial models should be rejected
because their predictions are empirically false, financial economists did not discard them.
Indeed, as Sargent (1986:76) notes, they continue to use REH not as a school of thought, but
‘as a ubiquitous modelling technique’. Economists and financial scholars use this model of
rational behaviour as an instrument to ‘enquire into and enquire with’ (Morgan, 2012:137, emphasis
in original). They enquire into these models ‘to explore the content and full implications of their
ideas about man’s economic behaviour. They explore with these models of economic
man…[how] his behaviour has all sorts of consequences in other economic models and thus
the rest of economics’ (Morgan, 2012:137, emphasis in original).
Models of rationality and efficient markets are also central to the rapid expansion of modern
financial markets on a global scale, as they enable the identification, calculation, pricing, and
packaging of risk (de Goede, 2004; Langley, 2013; Paudyn, 2014; Power, 2004). For example,
the EMH informs many of the assumptions of the Capital-Asset Pricing Model (CAPM), which
calculates the relationship between risk and return under conditions of market equilibrium
(Köhn, 2017:89; O’Sullivan, 2018). Per the EMH and REH, the CAPM assumes that
equilibrium prices reflect all available and relevant information and therefore incorporate risk
and uncertainty correctly. Pioneered by William Sharpe and John Lintner, who built on
Markowitz’s (1952) seminal paper of portfolio selection, CAPM generates a set of predictions
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about the structure of returns in a portfolio, based on the market risk of underlying assets.
38
Market risk or systemic risk refers to the potential losses to a portfolio of assets due to the
collapse of an entire system, as witnessed in the 2008/09 GFC (Black et al., 2011:398). Market
risk has a mutually constitutive and reinforcing relationship with credit and operational risk,
despite being relegated into separate categories. Market risk is an aggregated measure of
‘economic capital’ (Mikes, 2011). Credit risk, as mentioned in earlier chapters, measures the
probability that an issuer will default on its debt obligations at some point in the future.
Operational risk refers to the risk of loss resulting from inadequate or failed international
processes, people, systems or external events (Mikes, 2011:5). The consolidation of these
separate categories into economic capital to price risk takes place through a model known as
Value-at-Risk (VaR). VaR is rooted in the frequentist probability theory that shares Quetelet’s
belief in statistical regularities as indications of the ‘natural laws’ governing social phenomena.
39
As discussed in Chapter Two, Quetelet captured these regularities in a probability distribution
termed ‘error law’, but which also became known as the Gaussian- or normal distribution, as
seen in Figure 1 below:
38
The essential theoretical insight of CAPM can be expressed in the following equation. It assumes that a rational investor,
when considering assets to buy in the process of portfolio choice will seek an expected return on an asset a defined as follows:
r𝑎𝑒 = r𝑓 + ,𝛽𝑎𝑒(r𝑚𝑒 − r𝑓
where
r𝑎𝑒
equals the expected return on asset
𝑎
, which determines the market price that the investor will be prepared to pay
for the asset. r
𝑓
equals the return on a risk free asset;
𝛃𝑎𝑒
the expected potential volatility of the price of
𝑎
in relation to the
volatility of asset prices in the market as a whole; and r
𝑚𝑒
the average overall expected return of the market as a whole
(O’Sullivan, 2018:227).
39
VaR is not the only model used to calculate potential loss, the other one being ‘risk-adjusted return on capital’ (RAROC)
(see Dunbar, 2000:139). Like VaR, RAROC is a statistical analysis that compares returns on assets in a portfolio based on
their exposure to risk and adjusting downwards the returns on riskier assets (Black et al., 2011:357). Nevertheless, VaR is by
far the most used model, and one that has been incorporated into global financial regulatory frameworks like Basel Capital
Accord, which determines the capital reserve requirements to be held by financial institutions like banks (de Goede, 2004). As
such, this chapter concentrates on the use of VaR in financial risk modelling.
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Figure 1: Normal Distribution
Source: Khan Academy (n.d.)
In financial markets, most banks and firms use VaR to measure the potential for loss in a certain
entity and the probability of occurrence for the defined loss in a specific timeframe (Kenton,
2019). The VaR provides daily calculations of broad, aggregate figure of potential losses, and
was first calculated by a team from the investment bank JP Morgan in reaction to the 1987
stock market crash. Calculating VaR entails assigning probabilities to future events, such as
price changes and market fluctuations, as well as forecasting the volatility of the markets and
the correlations between various financial instruments held by a firm (de Goede, 2004:210). In
terms of the CAPM, VaR enables the calculation of an expected return on an asset, based on
a given level of market risk (Chen, 2019). Particularly, VaR enables the calculation of beta, a
measurement of a stock’s relative volatility, that is, how much a stock jumps up and down
compared to how much an entire stock market fluctuates (McClure, 2019).
The CAPM influenced several pricing models, most notably the Black-Scholes-Merton model
for option pricing (Köhn, 2017; MacKenzie, 2005, 2001). An option is a contract between a
buyer and a seller that gives the buyer the right, but not the obligation, to buy or sell an
underlying asset in a particular period at a pre-determined price (Köhn, 2017:89, see also Bryan
& Rafferty, 2006). Developed by Fisher Black, Myron Scholes and Robert Merton, the Black-
Scholes-Merton equation is based on a model of equilibrium in financial markets with
continuous trading (Black et al., 2011:37). In other words, prices can vary at every instant in
time. The current market price of the underlying asset, the exercise price of the option, or the
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maturity date of the option can determine the pricing of an option. If the underlying asset
follows a continuous-time random walk, then the pattern of returns on an option could be
replicated exactly by a continuously adjusted portfolio of the asset and government bonds
and/or cash (i.e. hedging) (Köhn, 2017:89-90). In an efficient market, the price of the option
thus equals the cost of the replicating portfolio. If prices diverged, an arbitrage opportunity
emerged: ‘in other words, there was risk-free profit to be made by buying the cheaper and
selling the dearer of the two’ (MacKenzie, 2001:120). The model is central to derivatives
trading, which allows a separation of the asset itself from volatility in that asset’s price:
[…] it turns out the best way to deal with price risk is often not through actual ownership,
but through a separate transaction – this is what derivatives are for. So if you what you
want to address is the volatility of an asset price, why not acquire (or sell) products that
directly address the volatility, rather than the underlying asset itself. Hence, in a volatile
world, derivatives are useful: they are used to trade risk (Bryan & Rafferty, 2006:11).
Derivatives are complex and difficult to define. Broadly described, a derivative is a financial
contract that derives value from an underlying asset, like agricultural commodities, currencies,
or structured finance products like collateralised debt obligations (CDOs) (Amadeo, 2019).
CDOs and mortgage-backed securities (MBS) are structured finance products. These products
involve the pooling of economic assets like loans, mortgages, bonds, and the subsequent sale of
a priorities structure of claims, also known as tranches, on the cash flows backed by these
collateral pools (Coval et al, 2008; Fender & Mitchell, 2005). Tranches are the pieces, portions
or slices of a financial product separated by their level of credit risk, assigned by CRAs. The
2008/09 GFC revealed exactly how pervasive derivatives trading is (see Lee et al. 2009; Lindo,
2017; LiPuma & Lee, 2004). Governments, international organisations like the IMF and World
Bank, and activists blamed CRAs for assigning high investment ratings to toxic sub-prime
backed securities. Mortgage bonds conventionally rated ‘B’ and ‘C’ were packaged into CDOs,
which distorted the differentiation of their multiple tranches of risk valuations and facilitated
‘the laundering of triple-B-rated binds into triple-A-rated bonds’ (Langley, 2010:81; Lewis,
2010:69). As rising defaults in the US sub-prime mortgage market began to feed through
international securities markets, the complex entanglements between a diverse constellation of
actors (investors, governments, cities, banks and private financial institutions) became evident
(Aalbers, 2009; French et al., 2011; Knorr Cetina & Preda, 2012). Derivatives ‘bind’ the future
to the present and ‘blend’ different forms of assets into a single measurement (Bryan & Rafferty,
2006:12). According to Lindo (2017:2), one barometer that measures the growth of only ‘over-
the-counter’ (OTC) derivatives, namely the ‘notional outstanding amount’ grew from almost
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nothing in 1989 to over US$700 trillion in 2014. As such, derivatives feature prominently in
the current bout of financialisation and the growing influence of capital markets, their
intermediaries and processes in contemporary economic and political life (Pike & Pollard,
2010). Indeed, in theoretical terms, it seems almost implausible to separate the ‘real’ economy
from the ‘financial’ economy (Clark et al., 2009:2). Public infrastructure, pension funds, health
schemes, education, and the environment are incorporated into specialist investment portfolios
and in some cases, traded on stock exchanges (Torrance, 2008). Models, by transforming
uncertainty into risk, feature prominently in this regard. However, it is not only Friedman’s as
if methodology that led to the triumph of risk over uncertainty in financial economics. As the
following section outlines, the historical and ideological context of the 1960s significantly
facilitated the widespread adoption of models in financial markets. Here, the REH and EMF
become more than just representations of ideal phenomena. Instead, as discussed earlier, they
are form part of an apparatus of governing that aims to secure the rational, efficient functioning
of global financial markets. Sovereign credit ratings, alongside the myriad of other financial risk
instruments, hold out the promise of securing these ideals by not only ‘informing’ market
participants of potential dangers. They also work through a range of mechanisms that create
conditions that encourage, reinforce, and necessitate particular conducts by making them seem
more normal than others (Joronen, 2013:362). Foucault (2007:20) distinguishes this form of
government from other disciplinary mechanisms in three ways. First, as security apparatuses,
risk inserts phenomena ‘within a series of probable events’; second, that ‘the reactions of power
to this phenomenon are inserted in a calculation of cost’; and third, ‘instead of a binary division
between the permitted and the prohibited, one establishes an average considered as optimal on the
one hand, and, on the other, a bandwidth of the acceptable that must not be exceeded’
(Foucault, 2007:20-21, emphasis added). In this way, uncertainty – generated from distrust of
information – becomes tamed by normalising a set of policy requirements conducive to the
rational and efficient functioning of the marketplace.
Financialisation and new-classical economic models
Towards the end of the 1960s, the US government required an increasing amount of credit to
fund Vietnam War operations and deficits in its current account. Printing more dollars at a
time when the currency is pegged to the gold standard ($35 an ounce) rendered the perceived
difference between the formal and substantive validity of the dollar to increase. In 1971, US
President Richard Nixon suspended the convertibility of the dollar into gold (Langley, 2002:86;
Oliver, 2006; Seabrooke, 2006a). During this time, Lucas and Friedman developed their attacks
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on the Keynesian economic system and its inability to address the problem of stagflation. These
accounts served as the theoretical justification for the adoption of a floating exchange rate
system, where national currencies ‘float’ against each other and their value determined by
market forces (Peterson, 2003:114). Pioneered by the US (it became known as the ‘Nixon
shock’) and backed by IFIs like the IMF and WB, a significant number of governments pursued
macro-economic restructurings based on the micro-economic theory of behaviour embedded
in the REH. These restructurings emphasised the importance of supply factors in the economy.
They encouraged the deregulation of financial markets, minimal governmental interference in
the economy, and the implementation of fiscal and monetary ‘stabilisation policies’ that target
inflation, reduce government spending and budgetary deficits (Best, 2008; Cerny et al. 2005:13;
Scholte, 1997). This was also accompanied by the disintermediation and securitisation of
capital markets, supported by the US’s desire to create credit through private US financial
institutions operating in the Euromarkets.
40
Disintermediation replaces the use of traditional
forms of lending like bank loans with the use of debt securities such as bonds and notes or
investment in stocks (Seabrooke, 2006b:198-199). Relatedly, securitisation enables the
packaging of debt instruments into ‘bundles’ and selling them to investors. As the discussion on
derivatives indicates, securitisation turns notoriously illiquid bank loans into marketable
securities. Instead of holding a loan until it reaches maturity, securitisation enables banks to
pool loans together and sell them as ‘new debt to a third party,’ thus recovering capital (when
securitised loans are sold) rather than later (when borrowers complete repayment) (Carruthers
& Kim, 2011:243; Seabrooke, 2006a:155). Securitisation facilitates the transfer of risk by
rendering future income streams into tradeable instruments.
The implementation of floating-exchange rates, the disintermediation and securitisation of
capital, and the deregulation and liberalisation of financial markets enabled a massive
expansion of private capital through credit creation, which became transferred unrestrictedly
with the help of sophisticated information technologies (Kruck, 2011:32; Seabrooke, 2006;
Sylla, 2002:34). Although this signals an increase in profit opportunities, it also intensifies
uncertainty in financial markets. This sense of uncertainty has been met with a proliferation of
40
Euromarkets are markets dealing in Eurobonds and Eurocurrencies, i.e. debt securities issued via an international syndicate
of banks or securities firms in a currency other than the country in which the bond is issued (Seabrooke, 2001:234). The
currency denomination of the bond is indicated by the name such as Eurodollars. These bonds are issued in bearer form, and
the interest payments are free of withholding taxes, making them attractive to investors wishing to remain anonymous (Black
et al., 2012:136). During the 1960s, Euromarkets encouraged direct financing through the trading of a legion of dollar-
denominated securities that could be customised to investors’ needs, enabling the freedoms of low transaction fees and an
immediate source of liquidity (Seabrooke, 2001:60). As stated by Susan Strange (as cited in Seabrooke, 2001:60) Eurocurrency
transactions ‘were untaxed, anonymous and profitable’.
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risk instruments such as sovereign credit ratings to anticipate, prevent and mitigate danger in
capital markets (Best, 2008; Kruck, 2011; Paudyn, 2014). In other words, apparatuses that aim
to secure the rational and efficient functioning of market mechanisms; to secure the reputation
of Lady Credit. According to neo-classical finance theory, informed by the EMH, credit ratings
assumedly mitigate problems of ‘information asymmetry’ in capital markets (Kerwer, 2001;
Kruck, 2011). This is a situation where some agents in a transaction have access to more
relevant information than others, which can lead to adverse selection and moral hazard.
Adverse selection refers to a situation where one party has more accurate and relevant
information than the other party, which makes it difficult to efficiently price a commodity. For
instance, if a government does not disclose important information regarding future monetary
policy pursuits that could influence the profitability of an investment as it obscures the risks
involved. Moral hazard on the other hand refers to a behavioural change of one party after a
transaction has taken place in way that increases the risk of the transaction. This is particularly
relevant in the insurance industry when, for example, a homeowner whose house is insured
changes her behaviour after buying insurance. Before this, the homeowner was prudent and
subscribed to a home security system that helps prevent burglaries. After her house is insured,
she becomes less attentive, leave doors unlocked and cancels her home security system. Here,
several risks face the insurance company that weren’t calculated previously (Nickolas, 2019).
Information asymmetry therefore reduces the efficiency of the market by undermining the
ability of agents to make ‘rational’ expectations about the future, effectively price risk and
ultimately promote the optical allocation of resources (Ross, 2009). As stated by S&P’s (2019)
a credit rating ‘can help you gain knowledge of – and access to – new markets, enhance
transparency, serve as a universal benchmark, and assess and demonstrate
creditworthiness…Credit ratings hold the key to an efficient capital marketplace’ (emphasis added).
In order to comprehend how CRAs have come to occupy this position, the following section
provides a brief historical overview on their emergence in IPE.
A brief history of ratings and CRAs in the global economy
Contrary to how creditworthiness was assessed in eighteenth century England, that is, via
gentlemen’s clubs that gathered in London’s St. James area, ratings as we know them today are
largely a US phenomenon that emerged alongside the country’s rise to world hegemon. As
such, akin to how Lady Credit is inseparable from the rise of the British Empire, the business
model of contemporary credit ratings reflect the conditions and values that gave rise to them
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in the early twentieth century. First and foremost, unlike the personal knowledge and network
connections of information sharing that constituted credit assessments via gentlemen’s clubs,
ratings are third-party providers of information. They transform data into a commodity that
could be appraised, bought and sold to anyone willing to pay the agencies’ prescription fees
(Olegario, 2003:118; Poon, 2012; Sinclair, 2005:23; Sylla, 2002:22-23). By contrast,
information sharing via London’s gentlemen clubs was restricted to members and weren’t sold
for a profit.
Originally, ratings did not have a business decision built into them and fulfilled more of a
reporting function instead of making a judgement about credit quality. One of the first reporting
agencies is The Mercantile Agency, founded by Lewis Tappan in 1841.
41
As the name suggests,
the purpose of credit reporting was to facilitate mercantile exchange – trade credit – rather
than cash lending. At the time, trade credit was alarmingly unsecured: legally, their claims
ranked behind those of banks and other secured lenders and were among the last to be paid in
the event of legal proceedings (Olegario, 2006:9). It was therefore extremely important to
carefully select one’s trading partners before entering any mercantile exchange agreement. At
first, letters of recommendation from someone known sufficed (Sylla, 2002:23). The
recommender might be a character reference from previous transactions or a respected, well-
known individual of the borrower’s community like a banker or lawyer.
The information assembled in these credit reports reveals the sociality of financial transactions.
Although payment histories were highly valued sources of information about a borrower’s
creditworthiness, they were difficult to obtain and often unreliable (Olegario, 2003:124-125).
Credit reporters therefore obtained financial information by interviewing the individual in
question, consulting newspapers and county and state tax and property records or through local
gossip. Yet, these information sources provided limited financial data and as a proxy, reporters
conveyed their assessments about a borrower’s ‘character’ (Olegario, 2003:126). Here,
character is linked to a borrower’s willingness to repay debt and entailed the following
characteristics: honesty (honour), punctuality, extravagance, energy, drinking and gambling
habits, and ethnicity (Olegario, 2003:127).
The main purpose of credit reporting agencies like the Mercantile Agency was to amplify the
amount of information to traders in an era of intensifying financial activities. Henry Varnum
41
In 1859, Robert Graham Dun bought The Mercantile Agency and evolved the company, through a range of mergers and
acquisitions, into what is known today as Dun & Bradstreet (Sylla, 2002:23).
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Poor’s American Railroad Journal appeared in the mid-1850s, followed by the History of the Railroads
and Canals of the United States of America in 1860. The latter entails a detailed analysis of, inter alia,
the length of railroads, enumerated investors’ share capital and provided a record of the profits
and loss of railroads (Sinclair, 2005:23). Among the names that survive today, John Moody
(1868–1958) released Moody’s Manual of Industrial and Miscellaneous Securities in 1900, which
provided ‘information and statistics on stocks and bonds of financial institutions, government
agencies, manufacturing, mining, utilities, and food companies’ (Moody’s Corporation, 2017a).
Similarly, Luther Lee Blake founded the Standard Statistics Bureau in 1906 which issued 5-by-
7 inch cards with information on industrials beyond railroads, and John Knowles Fitch
published The Fitch Stock and Bond Manual in 1913 (Poon, 2012:276; S&Ps, 2009).
42
According
to Poon (2012:276), the statistics these agencies published involved descriptive data on
companies instead of probabilistic predictions of their performance.
From reports to ratings
Sinclair (2005:24) positions the transition in issuing compendiums of information and officially
making judgements about the creditworthiness of debtors between the 1907 financial crisis and
the Pujo hearings of 1912. The 1907 financial crisis was initiated by a stock manipulation
scheme to corner the market in United Copper stock, a copper mining business based in New
Jersey and owned by mining magnate F. Augustus Heinze (Bruner & Carr, 2007:121).
43
The
corner failed, as Otto Heinze (Augustus’s brother) who proposed the corner, overestimated the
family’s share ownership – a miscalculation that eventually led to numerous runs on banks and
trust companies (Bruner & Carr, 2007; Friedman & Schwartz, 1963:156; Tallman & Moen,
1990). Upon declaring the bankruptcy of United Copper, investigations into Heinze’s financial
interests revealed ‘an intricate network of interlocking directorates across banks, brokerage
houses, and trust companies in New York City’ (Tallman & Moen, 1990:4). These
investigations were known as the Pujo hearings and were commissioned by Congressman
42
In 1941, Standard Statistics Bureau merged with Poor’s Publishing, forming what is known today as Standard & Poor’s
(S&Ps, 2009).
43
Cornering markets was particularly common at the time. It involves the acquisition of a particular stock, commodity or asset,
sufficient for the price to be manipulated (Black et al., 2012:85). In October 1907, Otto Heinze devised a scheme to corner
United Copper, his brother, Fritz Heinze’s company. Otto was convinced that a considerate amount of Heinze’s shares had
been borrowed and sold short by speculators betting that the stock price would drop, which will enable them to repurchase the
borrowed shares at a low price and pocket the difference (Bruner & Carr, 2007:121). Otto proposed a short squeeze, whereby
the Heinze family would purchase as many shares as possible, and then force the short sellers to pay for their borrowed shares.
The increasing amount of share purchases would drive up the share price and since the Heinze assumed they owned the
majority of shares, the short sellers would have little option but to turn to the family to sell their shares. However, the Heinzes
overestimated their control over the company’s shares and the short sellers were able to sell United Copper shares to alternative
sources, causing the share price to fall. Since many banks at the time used the stocks of copper industries as collateral, the
corner brought down many banks and trusts at the same time (Sinclair, 2005:24; Tallman & Moen, 1990:1).
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Arsene Pujo of Louisiana in 1912 to determine the existence of a money trust that allowed a
group of Wall Street financiers and bankers to exert significant control over the country’s
financial resources. The crisis severely changed citizens’ attitudes towards financiers and
destroyed public confidence in how American finance was regulated, especially in a context
where the rhetoric of fairness, transparency and opportunity became to characterise US politics
– evinced by Woodrow Wilson’s election for presidency in 1913 (Olegario, 2003:120; Sinclair,
2005:24).
In 1909, anticipating demands for more transparent information, John Moody published his
Analysis of Railroad Investments, in which he introduced the mercantile credit rating schema
modelled after R.G Dun and Company (Sinlcair, 2005:24). In contrast to credit reporting, that
is, collecting information ‘on the property, capitalisation and management of companies’, his
Analysis of Railroad Investments (1909) offered investors an analysis of security values. This
publication offered concise conclusions about the relative investment quality of railroads and
their outstanding securities, expressed in the letter grading scale (Aaa, Bbb, C, D) as we
recognise them today (Moody’s Corporation, 2017a). Following Moody’s, Poor’s Publishing
Company issued their first rating in 1916, the Standard Statistics Company in 1922 and Fitch
Publishing Company in 1924. According to Poon (2012:276), interagency emulation led to
isomorphism in ratings. By 1930 for example, each CRA’s rating symbol could be matched
individually with that of another’s (Partnoy, 2006:642).
For the first part of the twentieth century, sovereign credit ratings were a fledging activity. The
Great War (1914-1918) played an important role in this regard, as it turned the US into the
world’s greatest creditor nation – the so-called ‘banker of the victorious allies’ (Sylla, 2002:34).
The US’s participation in the war led to massive amounts of public debt creation along with
the mass-marketing of bonds to a growing class of investors. During the war, Great Britain lost
nearly one quarter of their global investments, mainly those in the US, which they had to sell
to buy war supplies; France about half of theirs due to a combination of revolution and
European deterioration (Hobsbawn, 1994:97). Germain (1997:63) notes for example that
between 1921 and 1924, the value of new issues in New York totalled $2, 373 million, compared
to $917 million in London.
The institutionalisation of ratings in global financial governance
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With the passing of the 1933 Glass-Steagall Act, which enforced a legal separation and
institutionalisation of the securities business, credit ratings became a standard requirement for
selling any issue in the US (Poon, 2012:277; Sinclair, 2005:26). The Office of the Comptroller
of the Currency (OCC) pioneered the regulatory use of ratings by creating a distinction between
investment and non-investment grade securities and, together with the Federal Reserve Board,
prohibited banks from holding bonds not rated investment grade by at least two agencies (Poon,
2012:277; Sinclair, 2005:26). However, due to a host of European (including Germany, Greece,
Hungary and the UK) and developing Latin American economies (i.e. Brazil, Columbia,
Mexico) defaulting during the Great Depression of the 1930s; the ratings industry entered a
period of rating conservatism (Sinclair, 2005:26; Toffler, 1990).
The dismantlement of the Bretton Woods monetary regime and the deregulation and
disintermediation of capital markets generated a shift towards the market-based financing for
states (Kruck, 2011:33). This is especially the case for emerging economies targeting global
capital markets to finance their development needs, instead of relying on Official Development
Assistance (ODA) or World Bank and IMF loans as they did during the 1970s and 1980s
(Armijo, 1999:17). To this end, many governments have requested a rating to signal, on the
one hand, their willingness to conform to a set of market standards that seek to secure the
rational and efficient functioning of the global financial system. Consider for instance the
following statement of a US state official, commenting on a credit rating initiative for sub-
Saharan Africa, established by the United Nations Development Programme (UNDP) and
S&Ps in 2003:
With sovereign credit ratings, the governments of sub-Saharan Africa can signal to the
international market their readiness to participate in the global economy by opening their
books to public scrutiny, maintaining transparency, and adhering to liberalisation policies
and reform efforts (US Department of State, 2007).
Thus, from the 1980s, the number of sovereign ratings skyrocketed. Before the 1980s for
instance, Moody’s produced around 10 sovereign credit ratings. By the turn of the twenty-first
century, this number rose to above 110 and currently stands at 120 sovereign nations (Moody’s
Corporation, 2017b). A similar trend can be seen in the expansion of S&P’s. By 1986, the
agency had only 40 employees working in the industrials group. In 2017, S&P had 1700 credit
analysts, employ nearly 10 000 people, maintain a presence in 28 countries and have produced
128 sovereign ratings – up from only 15 in the 1980s (Cantor & Packer, 1995; S&P’s, 2017b).
To obtain a favourable credit rating states, from the 1980s, are encouraged to pursue the
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necessary economic and political reforms that would secure the rational and efficient
functioning of markets. Here, new-classical economic models act as a ‘point of resonance’
(Connolly, 2005) to determine the extent to which issuers deviate from the norm, that is, from
the ‘ideal’ conduct that would ensure the optimal allocation of resources in global capital
markets. These economic discourses, particularly the REH and EMH, play a crucial role in
rationalising neoliberal government, that is, normalising the calculative behaviour of homo
œconomicus as a model for governing human life and, by extension, the stability of the financial
system. Here, the new-classical models of Friedman and Lucas serve as a regime of truth that
informs how the global governance of financial markets could take place. As mentioned
previously, this entails a set of techniques and programmes that ensures an optimal
arrangement for the rational functioning of homo œconomicus. Amongst others, these
arrangements include policies like inflation targeting to secure a stable monetary environment,
trade liberalisation, the deregulation of financial markets and, if possible, the privatisation of
public enterprises (Brenner & Theodore, 2001; Gane, 2012). This particular ‘disposition of
things’, it is assumed, ensures a competitive, transparent and efficient market that produces all
relevant information for market actors to choose among commodities or bundle of commodities
which are perfectly divisible (see Fama, 1998). Here, social aggregates have no independent,
ontological standing (Best, 2008:365). Homo œconomicus, as a model of rational individual
behaviour, becomes extended to the realm of civil society in general. They are transactional
realities, according to Foucault (2008:296):
Homo œconomicus and civil society are therefore two inseparable elements. Homo œconomicus,
is, if you like, the abstract, ideal, purely economic point that inhabits the dense, full and
complex reality of civil society. Or alternatively, civil society is the concrete ensemble
within which these ideal points, economic men, must be placed so that they can be
appropriately managed.
By implication, the contemporary bout of financialisation did not imply a ‘withering of the
state’ as many have put it (Ohmae, 1995; Strange, 1997). The State has to show ‘permanent
vigilance, activity, and intervention’ through processes of surveillance, monitoring and audit to
achieve legitimacy in the face of the market. Here, sovereign credit ratings are technologies of
neoliberal government. On the one hand, as the following chapter discuss, their rating models
have embedded in them a set of parameters that assumes a positive correlation between a
neoliberal policies and the creditworthiness of a sovereign. Second, by transforming these
judgements into an alphanumerical form via the rating scale, they provide a means of
comparing performance over time and space. In the process, they help define the object of their
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calculation – the performance being monitored – and make such performance the object of
scrutiny (Rydin, 2007:612). In this sense, sovereign credit ratings are both standardising and
individualising. They are standardising in the sense that they codify and visualise a set of
standards that states ‘ought to’ follow to secure their access to global capital markets (Fougner,
2008). Ratings are also individualising: by disciplining abhorrent behaviour, states that do not
conform to the criteria of sovereign creditworthiness is given the means and tools for self-
improvement. Thus, as technologies of government, the principal achievement of sovereign
credit ratings is to link together responsibility and calculation: ‘to create responsible and
calculating’ governments.
Conclusion
This chapter sought to explain how, with the embrace of indeterminism, models enable the
‘taming of chance’. As quasi-material objects, partly independent from theory and the real
world, models enable scientists to conduct experiments that estimate the causality between
variables that govern real-world phenomena. These descriptions however, are not atheoretical,
and this chapter aimed to illustrate the discursive, or ideological, aspect of model-making,
especially in economics. Indeed, this chapter showed how models are descriptive and
prescriptive. In this way, they hold out the promise of managing uncertainty through complex
mathematical formalisms that calculates the relations between variables in the economy and
the proper policy interventions for governments. For the Keynesian-inspired Cowles
econometricians, an equilibrium between economic growth, employment and inflation can be
reached through fiscal expansion policies that aim to stimulate aggregate demand.
On the contrary, new-classical economists, also associated with neoliberal thought, claims that
the Keynesian, ‘planned economy’ fails to take into account the rational expectations of
individuals in the economy. This generates uncertainty and negates the ability of the market
mechanism to generate equilibrium prices due to the presence of a central planning agency. As
such, it is only in a free, competitive system that market functions efficiently, information is
transparent and resources optimally located. Despite numerous financial crises that may
disprove these ‘ideal’ assumptions of the market and rational behaviour, they nevertheless
remain the dominant governmentality in financial markets. This chapter briefly discussed how
credit ratings feature in this apparatus of government that aims to secure the rational functioning
of global finance. In the following chapter, I delve into more detail on the issue of sovereign
credit rating by not only contextualising them within this apparatus, but also, by focusing on
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their rating models, ‘re-politicise’ their technicist aura by considering how REH and EMH
resonate in their risk judgements.
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Chapter Four
Modelling sovereign creditworthiness: CRAs and the
translation of risk
The previous chapter explored how, with the erosion of determinism in economics, models
became tools to ‘master the happenings of real life’ (Haavelmo, 1944:14). As mediators –
between theory, the real-world, and the future – models enable economists to translate the
confusion of social phenomena into a written form and as such, gain some understanding of it
(Boumans, 2005; Gibbard & Varian, 1978; Lucas, 1980; Morgan, 2012, 2002, 1990; Morgan
& Morrison, 1999). This translation, according to Latour (2005:39), transforms and ‘modify the
meaning or the elements they are supposed to carry’. This is not to suggest that model-makers
consciously distort the ‘truth’ to achieve some political end. Instead, translation aims to make
a set of statements relevant – transferrable – from one domain to another. Translation
establishes ‘relationships of equivalence between ideas, objects, and materials that are otherwise
different’ (Best & Walters, 2013:333). It enables the transformation of data and information
into knowledge – about the economy, community, firm, or, especially in financial markets, the
future.
This chapter reveals how the translation of socio-economic and political phenomena into a
sovereign credit rating assembles the histories, identities, spaces, imaginations, and
governmentalities discussed in this thesis so far. It is necessary to position this translation in the
discursive framework of the IFA, discussed in the introductory chapter. To recall, the IFA refers
to the ‘collective governance arrangements for promoting the stability of the international
financial system’ (Elson, 2010). These agreements tend to come into sharper focus amidst
financial crises, whereby the 1997/98 Asian Financial Crisis and the 2008/09 GFC have
particularly influenced its current form. In both cases, financial market instabilities were said
to be caused by a lack of adequate and accurate information – a diagnosis that is clearly
informed by new-classical depictions of the economy as an ensemble of homo œconomicus, using
all information at their disposal to make rational, calculative decisions. Yet, in the case of the
Asian financial crisis, the cause of inaccurate information was seen as a result of inefficient
monetary policies that led to the misalignment of exchange rates pegged to the US dollar and
enabled the irresponsible cronyism and corruption of Asian governments that prevented the
discipline of market forces to determine efficient and productive development strategies (Kelly,
2000; Langley, 2004; Soederberg, 2005). The ‘new’ IFA (NIFA), launched in the aftermath of
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the Asian Crisis, entailed a series of initiatives, codes of conduct, standards, benchmarks of ‘best
practice’ and observation committees to improve transparency in emerging markets (IMF,
2001; Langley, 2004; Soederberg, 2005). National economic policy is also central to
transparency, and the NIFA encourages emerging markets to liberalise their capital accounts,
implement floating exchange rates, stabilise inflation and minimise capital controls. These
reforms, it is assumed, ‘serve as a framework that can help focus policy decisions, highlight
potential vulnerabilities, and provide information to enhance market discipline’ (Nsouli & Le
Gall, 2001:5). Especially in the case of ‘less developed’ countries, mostly located in Africa,
measures to increase transparency will assumedly help African countries attract investment and
reap the development benefits of globalisation. According to Nsouli and Le Gall (2001:2),
African governments’ excessive interference in their economies makes their integration into
global capital markets problematic. Thus, for ‘African countries to reach the standards and
practices prevailing in the industrialised countries, they will need considerable amounts of
technical assistance, both from the IMF and other bilateral and multilateral institutions’ (Nsouli
& Le Gall, 2001:12). By increasing transparency, market participants are better able to
‘distinguish between competing opportunities, thereby contributing to better-informed
investment and lending decisions. In this way, standards and codes serve to reduce the potential
for market volatility’ (Nsouli & Le Gall, 2001:5-6). Adherence to the standards and codes of
conduct outlined in NIFA, and the transparency of state institutions themselves, are monitored
by IFIs such as the IMF, World Bank, regional development banks and, importantly, private
regulators like CRAs. On the other hand, in the case of the 2008/09 GFC, which originated in
‘advanced markets’, financial leaders recognised that risks to the stability of the financial system
also lie within the credit practices of the global North (Best, 2010). Yet, this did not translate
into a lack of trust in the assumption that greater transparency, better risk modelling, and
improved regulations as the most appropriate response to the crisis.
Geared toward the prevention of crises, of which the production of transparent information is
central, this chapter draws on Bueger’s (2015) work on international knowledge creation and
approach the IFA as an ‘epistemic infrastructure’ made up of different sites and practices of
knowledge production, that is, ‘epistemic practices’ (Knorr-Cetina, 2007, 2001). It is an
epistemic infrastructure in the sense that ‘it rests on the architecture of observation rules and
strategies, of the units that generate and process the observations (e.g. statistical offices, rating
agencies, research departments of banks), and of the information flows that circulate between
these units’ (Knorr-Cetina, 2007:369). This infrastructure operates within a finance/security
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nexus through the deployment instruments – risk technologies, standards, ‘best practices’ – that
work to tame the uncertain future by governing the present (de Goede, 2017b:166). At the same
time, the focus on the prevention of crises is inseparable from the stable circulation of capital
(profit). To this end, the epistemic infrastructure assembled through the IFA seeks to ensure the
optimal arrangements for the circulation of financial capital, where circulation refers not only
to ‘this material network that allows the circulation of goods and possibly of men, but also the
circulation itself…the set of regulations, constraints, and limits, or the facilities and
encouragements that will allow the circulation of men and things’ (Foucault, 2007:240). Social
science work on ‘infrastructure’ enables us to investigate how circulation is discursively
mediated; to explore how financial flows are based on forms of mobility and immobility and
intricately linked to knowledge-power. Infrastructures ‘are matter that enable the movement of
other matter…They are the things and also the relation between things’ (Larkin, 2013:329).
Yet, in the same way public transport systems enable us to travel to a myriad of destinations,
often at high speeds, infrastructures also define where it is possible to go (Edwards, 2003:191;
Pickren, 2018).
Knorr-Cetina’s (2007, 2001, 1996) work on epistemic practices and cultures enables a focus on
the mundane, nebulous process of knowledge production in financial markets. As a form of
knowledge creation, the rating of sovereign default risk does not exist in isolation. Epistemic
practices exist within specific scientific communities and entail the socially organised ‘ways that
members of a group propose, communicate, evaluate, and legitimise knowledge claims’ (Kelly
& Licona, 2019:140). These practices, according to Knorr-Cetina (2007:362), have certain
cultural specificities that are manifested in the arrangements and principles that not only serve
knowledge but also ‘unfold with its articulation’. An epistemic culture is the ‘interiorised
processes of knowledge creation…the sets of practices, arrangements and mechanisms bound
together by necessity, affinity and historical coincidence which, in a given area of professional
expertise, make up how we know what we know’ (Knorr-Cetina, 2007:363). Here, ‘culture’
refers not to a general description of society, but rather the broader referential contexts of
knowledge production. These contexts are temporal, ontological and spatial structures that
come to define an epistemic culture with a ‘tendency to impose and expand their own structures
and concerns’ (Knorr-Cetina, 2007:364).
In finance, geography plays a formative role in defining and linking cultures of knowledge
production. This is evident not only in the dominance of Western ‘regimes of truth’ in the
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production of financial knowledge but also the discursive authority of ‘spaces of hegemony’
(Lee, 2011) like Wall Street and the City of London. Here, the significance of colonial discourses
about race, irrationality, and backwardness and their connection to the reproduction of modern
capital arrangements become clear. Not only are assumptions about creditworthiness and
rational economic behaviour rooted in colonial, racist, and masculine imaginaries of the Other,
but the global connections forged through colonialism significantly influence power relations
between the global North and the global South. The de-politicisation of this history in
economics and, to a large extent, IPE, has rendered invisible the racialised values embedded in
modern capital flows. Former United States President Donald Trump’s remarks about
Mexican immigrants being ‘rapists’, for example, and Central America and African countries
being ‘shithole’ countries have brought these racialised values in the global economy to the fore
(Singh, 2021). Although Trump’s statements have been quite explicit, they nevertheless have a
long history that continues to play a significant role in shaping relations between the global
North and global South.
This chapter shows how the epistemic practices of the Big Three CRAs stabilise the de-
politicised discourses of financial and economic knowledge discussed in previous chapters. The
first section explains how they function as ‘macro-epistemic’ institutions that create and warrant
knowledge and are therefore crucial nodes within this infrastructure. The second section looks
at the micro-processes of indicator production. Here, the goal is to explore, on the one hand,
the multiple translations involved in the production of knowledge. On the other hand, to
investigate the power regimes shaping the interests and agenda of individuals and institutions
that execute epistemic practices. The third section looks at the series of translations involved in
the rating of sovereign creditworthiness. Far from being objective, the production of credit
ratings is a political process shaped by the subtle and unconscious assumptions, motivations,
and concerns of those who carry them out (Merry, 2016a:20). I examine the rating
methodologies of the ‘Big Three’ CRAs and consider the range of political considerations that
shape the collection and presentation of data. The final section explains the performativity of
ratings, which works through a mode of government that recast the subjectivities of market
actors, particularly investors, CRAs themselves and governments in line with a particular
conception of sovereign credit risk.
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CRAs as macro-epistemic actors: power, agency, and the politics of
translation
Given the centrality of information to the transparent, rational, and efficient functioning of
financial markets, the problem of the quality and validity of knowledge gives rise to certain
institutions which verify knowledge. By rating the creditworthiness of a government,
municipality, corporation or individual, CRAs validate the knowledge that circulates about that
entity (Knorr-Cetina, 2007:367). As macro-epistemic actors, they resemble what Latour
(2005:178) refer to as ‘centres of calculation’, the ‘nodal’ or ‘passage points’ through which
knowledge has to pass (Bueger, 2015:2). These centres ‘exert control’ and are crucial for
maintaining the overall structure of an epistemic system. They exist in a space of density,
‘characterised through multiple connections, groupings, and hybridisation of different
understandings of the world and order’ (Bueger, 2015:7-8). They are sites where information is
created, collected, assembled, transcribed and translated: they render visible everything that
should be considered relevant (Law, 2003:8). CRAs, for instance, assemble data and
information from various sources: politicians themselves, investors, news media, governance
indicators, and statistical datasets, translate these packets of knowledge into stylised objects that
can travel. In this way, epistemic practices ‘perform’ new-classical theories of finance into being.
Indeed, epistemic practices like risk and valuation metrics, stock indices, ‘expert’ commentaries
and analyses, economic indicators, and other performance measures do not exist in addition to
‘real’ material financial and economic structures. They are precisely how financial markets
materialise (de Goede, 2005:7). For instance, by downgrading a government’s credit rating due
to political interference in the economy which, based on new-classical economics, negates the
transparency of information and efficiency of marketplace, CRAs ‘perform’ this depiction of
finance into being. As central coordinating devices, the rating judgements of CRAs do more
than just measure creditworthiness; they also determine what it should mean, how it should be
interpreted and acted upon (Leyshon & Thrift, 1997:294). By implication, the ‘rational
expectation’ that expansionary fiscal policies reduce market efficiency is not the product of
‘natural’ human instincts. Instead, it is the product of complex socio-technical and discursive
practices that encourage, reinforce, and necessitate a particular set of conducts by making them
appear more rational and normal than others (Joronen, 2013:362).
Keynes’s (1936:chapter 12) beauty contest analogy similarly captures the discursivity of
financial practices and the sociality of behaviour in the marketplace. The contest invited
competitors to select the six prettiest faces from 100 photographs, the prize being awarded to
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the competitor whose selection approximates the average preferences of the competitors as a
whole (Keynes, 1936:156). Keynes suggested that the choices here are not ‘a case of choosing
those which, to the best of one’s judgement, are really the prettiest, nor even those which
average opinion genuinely thinks is the prettiest.’ Instead, the adaption of what the average opinion
expects the average opinion to be drives decision-making behaviour in financial markets. This means
that, although many investors might not agree with the judgements of CRAs, they assume that,
on average, most market participants will consider their ratings and adjust their behaviour
accordingly. The hegemony of particular meanings is therefore created and maintained
through institutionalised practices that reiterate, re-establishes and sediments certain
interpretations over others (Butler, 2010:152). Finance, in this sense, is not a technical system
defined by undeniable economic realities. It is a discursive domain, made possible through
performative practices that have to be articulated and rearticulated on a daily basis. Here, the
concept of translation enables an interrogation into the processes, technologies, and series of
interpretations through which data and information become transformed into a sovereign
credit rating. This is a process of distortion: when data becomes transferred from one domain
to another, ‘they are not simply moved but also modified: they acquire new meanings, new
combinations with other data, and new capabilities’ (de Goede, 2017a:6). Translation moves
beyond transfer, ‘because it does not simply replicate its source, it does not just ‘transport’
meaning, but also creatively produces it, it rewrites, rearticulates, re-represents something in new
terms’ (Freeman, as stated by Stritzel, 2011:344).
In the following section, I analyse the series of translations involved in the production of
sovereign risk ratings. Latour (1999) examined how the creation of scientific ‘facts’ takes place
through a ‘chain of translation’. In this chain, objects are identified, collected, registered,
transferred, and interpreted in a scientific context (de Goede, 2017a). He followed a group of
scientists in a research project that set out to determine whether the Amazonian forest is
advancing or retreating. Inspired by de Goede’s (2017a) appropriation of this chain, in this
chapter, I investigate the series of translations through which the budgetary relations of a
government becomes transformed into a calculation of credit risk. The production of
knowledge, according to Latour, involves neither a flawless correspondence between the world
and the word nor an unbridgeable gap of representation. Instead, the translation of the world
into words is a practice of circulating reference (Latour, 1999). Each stage in the production of
scientific ‘facts’ refers back to previous inscriptions: classifications, codes and meanings. Indeed,
‘reference’ comes from the Latin referre, which means ‘to bring back’ (Latour, 1999:32). Yet,
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contrary to the production of knowledge about epistemic objects like soil, the creation of
financial knowledge is speculative (Knorr-Cetina, 2007). Although CRAs make their rating
methodologies and decisions public, in an attempt to improve transparency and accountability,
the translation process nevertheless involves a great deal of interpretation that is highly
secretive. To this end, the construction of financial knowledge, in an attempt to secure the
rational functioning of the market, is characterised by a ‘lack of completeness’: they are open,
question-generating, and complex (Knorr-Cetina, 1996:190,193). Epistemic practices
continuously unfold across time and space. The construction of objects like a rational market is
never complete and requires ongoing maintenance through the reiteration of norms and
practice to temporarily stabilise social structures of meaning (Bueger, 2015:4). The incomplete
and transient ontology of epistemic objects, which ‘have the capacity to unfold indefinitely’
(Knorr-Cetina, 1996:190), can nevertheless be subjugated to epistemic practices that produce,
albeit temporally, ‘stable thinghood’ (Knorr-Cetina, 1996:193; see also de Goede, 2017a).
Navigating the chain of translation in the calculation of sovereign credit risk
Although each rating agency deploys its methodology in rating sovereigns, there is nevertheless
significant organisational isomorphism between the ‘Big Three’ CRAs (Paudyn, 2014; Poon,
2012:276). This is mainly a result of the shared historical context and institutional sites in which
they emerged and continue to operate. They exist in the same epistemic community and culture
in the production and justification of knowledge claims. In other words, they do not stand
outside regimes of power-knowledge and governance but exist within them, both in their
creation and ongoing functioning (Merry, 2016a:21). As mentioned in Chapter Three, for most
of the twentieth century, sovereign rating coverage was limited to a small number of states.
However, alongside the dismantlement of the Bretton Woods monetary regime associated
reforms in the organisation of capital markets, which led to increased complexity and
uncertainty, demand for sovereign ratings skyrocketed (Kruck, 2011). The ideological and
historical forces that underpin these reforms significantly influenced the articulation and
measurement of sovereign creditworthiness. These forces entailed the emergence and
dominance of neoliberal discourse in the post-Cold War era, which replaced Keynesian
economic programmes in the global political economy. Here, apart from factors like payment
history and fiscal health, a ‘creditworthy sovereign’ is also one that is willing to adhere to free-
market reforms like trade liberalisation, the deregulation of markets, privatisation, and
monetary policies targeting inflation. These articulations furthermore took place in the context
of ‘financial globalisation’. Shared by politicians, multinational corporations and IFIs like the
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Bank of International Settlements (BIS), IMF and World Bank, financial globalisation is
understood as a teleological process that gradually evolved in the background of the world
economy. However, as the Keynesian system became dismantled, the expansionary ambitions
of the market accelerated financial globalisation and the political-economic and cultural
integration of individuals, societies, and countries across the globe (Clark et al., 2009:3). ‘Like
a phoenix risen from the ashes,’ Cohen’s (1996) metaphor goes, ‘global finance took flight and
soared to new heights of power and influence in the affairs of nations’. This vision leaves little
choice for states, societies, and firms but to conform and compete amidst the process of change
that occurs above and beyond them, embracing convergent forms of organisation (Amoore &
Langley, 2002:60). Attempts to resist ‘integration into the global economy’ writes Horst Köhler
(2002), managing director of the IMF between 2000-2004, ‘will not solve the problems of the
world…globalisation requires cooperation, along with institutions to organise many of its
forms’. Financial globalisation is depoliticised and cast as a process that responds to the
objective workings of the market. The best way for governments to respond to this ‘undeniable
reality’ of financial globalisation is to enable, not limit, the natural operation of the market by
implementing new-classical economic reforms to promote transparency, equilibrium price
formation and thus the efficient allocation of capital. As stated by Langley (2002:113), ‘as a
consequence of the claims to universalism made by neoliberalism, market institutions are
deemed ‘apolitical’ and … the most appropriate loci for governance.”
Thus, one of the most significant translations in the articulation and measurement of sovereign
creditworthiness is the epistemic practices through which these discourses became ‘fixed’ and
quantified into metrics of default risk. This took place through a network of experts that defined
what sovereign creditworthiness should mean, and how it should be measured. These experts
are individuals with connections to prominent universities located in the US and UK, revealing
once again the centrality of geography in the configuration of power and knowledge (Merry,
2016a; Paudyn, 2014). Indeed, although the offices of the Big Three CRAs are scattered across
the globe, the rating process is nevertheless marked by inequalities in power and expertise.
Individuals and governments from the global South have been denied agency in both defining
sovereign creditworthiness and how it should be measured (Lee, 2003, 2011; Leyshon & Thrift,
1997; Merry, 2016a, 2016b). Over time, as ratings became settled in the international financial
architecture, they become less open to change (Merry, 2016a:7). Indeed, although their
authority is often contested, especially in times of crises, they remain central coordinating
devices in the marketplace. They are established indicators of, to borrow from Keynes’s beauty
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contest analogy, what the average opinion expects the average opinion to be. Thus, while a
change in circumstances may necessitate a revision in the measurement of sovereign
creditworthiness, the underlying concepts and epistemic practices become gradually more
established and certain (Merry, 2016a:8).
The translation of complex socio-economic phenomena into a single measurement requires a
significant amount of interpretive work in the selection of data sources, categories, weightings
and the use of proxies to measure a phenomenon when specific data are unavailable (Merry,
2016a:20). These interpretations and compromises reflect the social and cultural worlds of the
rating agencies who create them and the regimes of power that create them. For example,
CRA’s decision to measure sovereign creditworthiness using probability models instead of
ethnographic accounts reveals an epistemic culture that assumes the primacy of numbers in the
acquisition and representation of ‘the truth’. However, as I discuss in the following section, their
alphanumerical appearance strips away complexities such as flawed or missing data, human
error, inferences, and uncertainties that underpin their production. The resulting number
appears objective and unambiguous. The following section re-politicises the production of
knowledge in financial markets by exploring the series of translations involved in the production
of ratings. The goal here is to problematise the use of indicators like Gross Domestic Product
(GDP) estimates, ‘good governance’, and competitive indexes in the measurement of sovereign
credit risk. In the case of sub-Saharan Africa, the statistical datasets embedded in indicators
are often outdated and unreliable. Moreover, they are based on Western conceptions of what
the economy is and what the economy is not, and proper methods for measuring the economy.
In this way, they produce knowledge that is oversimplified, decontextualised and remote from
local systems of meaning (Merry, 2016a:3). This not only normalises existing hierarchies of
power and agency in the production of meaning but also produce potentially misleading
knowledge.
The politics of translation: the messy world of data collection and interpretation
Ratings are typically requested and paid for by the issuer being rated, or in some cases by an
outside institution (Mühlen-Schulte, 2009; S&P’s Rating Services, 2014).
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Moody’s has rated
‘without request’ in the past, which led to an investigation by the US Justice Department
44
For example, in 2003, the United Nations Development Programme (UNDP), partnering with S&P’s, established a credit
ratings initiative for sub-Saharan Africa that aims to assist countries to obtain a rating so as to boost foreign investment and
get access to global capital markets (Mühlen-Schulte, 2009). In this case, the rating was paid for by the partnership.
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(Sinclair, 2005:30). For first-time security issuers, rating officials typically arrange a meeting to
with an issuer to discuss the agency’s information requirements, although S&P’s and Moody’s
organise public seminars with the same intent. This meeting takes place between the issuer and
an analytical team appointed by the agency tasked with the research process. The information
they require typically entails a mix of quantitative and qualitative data that may come from a
variety of sources, including confidential information provided by the issuer (S&P’s, 2019).
S&P’s (2019) includes in their analysis ‘historical and projected financial
information…economic data, peer comparisons, and details of planned financings’, supported
by a qualitative assessment of the institutional or governance framework, financial strategies
and the credibility of government officials.
Quantitative data include GDP measures, economic growth measures, inflation trends and
population size. Although each CRA use tests to determine the reliability of data sets, it is
essential to point out that data are never complete and, in many cases, misleading (Mügge &
Linsi, 2020). The collection of statistics is an expensive process, and many countries do not have
the necessary resources to fund the operations of an official statistics office (Jerven, 2013). In
sub-Saharan Africa, the economic crisis of the 1970s resulted in a stark discontinuity between
colonial and post-colonial data collection (Jerven, 2013). By implication, statistical measures of
GDP and economic growth rates are either outdated or based on significant guesswork (Beguy,
2016; Pilling, 2019). For instance, in 2014, Nigeria surpassed South Africa. It became Africa’s
biggest economy by changing the method of calculating GDP – rebasing – to include previously
uncounted industries like telecoms, information technology, music, airlines and film production
(Beguy, 2016). In general, these revisions should take place every three or five years, but in this
case, rebasing has not been done for decades.
Furthermore, statistical datasets compiled by colonial governments are typically based on
discriminate categories and estimates. For instance, when accounting for national income, the
apartheid government used a classification system that provided different methods for
estimation for the ‘Bantu Homelands’ and the ‘Black States’. Creating these categories is a
political process of deciding what gets to be counted, ‘where to lump and split, what to include
and what to leave out’ (Merry, 2016a:14). Categories reflect the major preoccupations of a
society at a particular point in time, which ultimately determines the outcome of their
measurements. The re-use of these historical datasets thus becomes problematic, not only
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because they are misleading and unreliable, but also because they risk reproducing the racial
and class discriminations embedded in them.
Additionally, much of the categories used in the collection of statistical data are based on
Western concepts of the economy, production, and standards for estimating GDP (Jerven,
2013). National income and economic growth inform GDP measures. The central issue in
national income accounting is deciding which economic activities and actors should be included
in official accounts. This decision is based on a distinction between the ‘formal’ and ‘informal’
sector, recorded and unrecorded economic activity. In ‘developed’ economies, the informal
economy refers to illicit economic activities and economic activities within the family
household. In most African economies, however, the informal sector is so large and therefore
so economically significant that its exclusion from national income accounts is problematic.
The availability of data has constrained the inclusion of informal activities into national
accounts. Apart from a lack of financial resources to fund statistical offices, the lack of available
data in sub-Saharan Africa is also because individuals and businesses in these countries are less
likely to be officially registered and keep formal records of their economic activities (Jerven,
2013). As such, there is little to no information on large shares of the economy, which means
that the database for aggregating measures of income and growth is weak. Indicators such as
national income are therefore based on a lot of guesswork and a range of discretionary and
sometimes arbitrary decisions (Jerven, 2013:2-4,8). Once assembled into a numerical metric,
the drawbacks and complexities in the data-collection process, the use of proxies, and the
uncertainty of flawed or missing data become stripped away. Or, in cases where these concerns
are recognised, typically relegated to carefully phrased caveats in footnotes (Espeland &
Stevens, 2008; Jerven, 2013:8; Merry, 2016b).
Nevertheless, when the data-collection process comes to an end, the analytical team translate
their findings into a report containing a rating recommendation and rationale (Sinclair,
2005:33). Here, the underlying assumptions, discretions, manipulations, and interpretive
decisions made by the team during the data-collection process becomes stripped away. This
results in what Espeland and Stevens (2008:421-422) refers to as ‘uncertainty absorption:
information appears more robust than it actually is…inferences are drawn from a body of
evidence, and the inferences instead of the evidence itself, are then communicated.’ Thus, as
the task team present their findings to the rating committee – the senior officials in the agency
who makes the final determination based on a majority of votes – the decision may seem more
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obvious than what it might have been otherwise. This decision is, however, highly secretive.
Despite being criticised for being biased, unfair and fraudulent, CRAs justify the secrecy of
their analytical determination as a way to retain their competitive edge in the rating industry
(Mosely, 2003:137).
Moreover, this may reveal the extent to which informal and subjective assessments inform the
rating process, thereby limiting the ability of CRAs hide behind the objectifying cloak of
numbers to justify their decision to a potentially hostile public (Sinclair, 2005:34). In the
following section, I look at the rating methodologies of the ‘Big Three’ CRAs. The goal is not
to provide an empirical overview of the determinants influencing rating analyses, as this has
been covered extensively (see Bhatia, 2002; Tennant & Tracey, 2016). Instead, building on the
‘chain of translations’, this discussion exposes the many informal judgments that go into ratings.
Secondly, given the messy process of data-collection, I problematise how ratings quantify
complex social phenomena into a single measure that can be ranked and compared. They are
inevitably stripped of their context, history, and meaning, side-lining local vernacular
knowledge in favour of more global, ‘technical knowledge’.
Standard & Poor’s Rating Analysis Methodology Profile (RAMP)
Standard & Poor’s (2017:1) defines sovereign creditworthiness as the ‘ability and willingness to
service financial obligations to nonofficial (commercial) creditors’ and seeks to estimate the
probability of default (p(d)) and not necessarily the severity of default. They also do not provide
an assessment of the expected time of default, mode of default resolution, or recovery values
(Bhatia, 2008:5). This definition furthermore excludes obligations to other governments like
Paris Club debt or supranational institutions such as the IMF and World Bank. Moreover,
sovereigns seldom fail at a higher incidence of corporates, but when they do face difficulties in
servicing their debt obligations, this rarely entails completely reneging on all payments. Despite
suffering severe humanitarian, political and economic crises, Venezuela’s government is still
paying out to several creditors. The government has made a point of servicing its debt to Russia
and many key energy companies based in the US (Smith, 2019). S&P assigns ‘selective default’
(SD) in these cases.
In calculating a government’s sovereign creditworthiness, S&P’s (2017) disassemble nations into
five analytical categories:
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1) Institutional assessment, based on two analytical categories. First, the effectiveness,
stability, and predictability of policymaking, political institutions and civil society.
Second, the transparency and accountability of institutions, data, and processes.
2) Economic assessment, determined by income levels, growth prospects and economic
diversity and volatility.
3) External assessment: the country’s ability to obtain funds from abroad to meet its
obligations to non-residents
4) Fiscal assessment, which determines the ‘sustainability of a sovereign’s deficits and its
debt burden’ (S&P’s, 2017:18)
5) Monetary assessment: the monetary authority’s ability to fulfil its mandate while
sustaining a balanced economy and attenuating any significant economic or financial
shocks.
The analytical team then grades each factor along a six-point numerical scale ranging from ‘1’
(the best) to ‘6’ (the weakest). The institutional and economic assessment is then combined and
calculated from adding those respective scores. At the same time, the external, fiscal, and
monetary estimates are combined to produce a ‘flexibility and performance profile’ (S&P’s,
2017). These scores are based on a series of quantitative and qualitative assessments, which
ultimately becomes translated into a forward-looking opinion (S&P’s, 2009). Despite its
technical, numeric appearance, qualitative analysis is central to the rating process. From
assessing the ‘transparency and accountability’ of datasets to the selection of proxies in the case
of missing data, subjective interpretations creep into the final product at each step along the
way. Indeed, S&P’s (2009) acknowledge that ‘creditworthiness is a multi-dimensional
phenomenon’ and although ‘quantitative measures and models are useful in assessing credit
risk, we do not believe they capture all the nuances of the real world’ (S&P’s, 2010:4). It is,
therefore, necessary ‘to balance quantitative measures with qualitative analysis’ instead of using
‘a purely quantitative, automated or model-driven approach’ (S&P’s, 2010:4). How this
synthesis between the qualitative and quantitative takes place is never revealed, erasing the
inherent socio-political complexity of sovereign creditworthiness.
For the purposes of this discussion, it is the calculation of a sovereign’s ‘institutional and
economic profile’ that is of particular interest. This assessment seeks to determine ‘how a
government’s institutions and policymaking affect its credit fundamentals’ which is central to
the sustainable delivery of ‘public finances, promoting balanced economic growth, and
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responding to economic and political shocks’ (S&P’s, 2017:5). In other words, credit stability.
Contrary to other factors in a sovereign’s debt profile, this assessment involves socio-political
factors that elude quantitative analysis. Here, S&P’s (2009:7) criteria officers use hypothetical
stress scenarios to determine the likelihood that an issuer will keep its credit quality during times
of ‘moderate stress’. Scenario analyses are narrative exercises, driven by ‘what if’ questions to
determine the shock-absorbing capacity and resilience of a sovereign. This assessment both
deploys and exceeds the formal logic of risk. It involves (though to a limited extent) the self-
conscious deployment of creativity and imagination to translate past events into a narration of
‘whether and why it may or may not happen again today’ (Rebonato, 2010:28; see also de
Goede, 2008). In the security industry, scenario planning emerged as a solution to the inability
of VaR models to factor in the likelihood of extreme and unprecedented events. To recall, VaR
models share Quetelet’s belief that statistical averages reveal the causal laws governing events,
which enables the prediction of the future (Gigerenzer et al., 1989:41). These statistical averages
are expressed in a normal distribution (the bell curve) and are dependent on the input of
historical datasets. Leaving aside concerns about the availability and validity of historical data,
these models fail to consider scenarios associated with the tail end of the curve (de Goede, 2004;
Langley, 2013; Rebonato, 2010). Stress-tests, therefore, accompany traditional risk models like
VaR to account for unexpected events in the calculation of default probability. S&P’s Rating
Services (2014:2) use these stress scenarios as benchmarks for calibrating their criteria to further
rating comparability. These scenarios are historical recessions and financial crises like bank
panics, the Great Depression, World War One and Two, Oil crises and the Asian Financial
Crisis, with each scenario corresponding to one of the rating categories ‘AAA’ through ‘B’.
Frequently, especially in emerging markets, the assessment of credit quality would require
‘greater adjustments…because such economies may experience pronounced swings in GDP
and unemployment at fairly frequent intervals’ (S&P’s, 2009:14). Indeed, domestic socio-
political elements such as the ‘cohesiveness of civil society’, ‘social inclusion’ and challenges to
political institutions such as ‘demands for increased political and economic participation’
(S&P’s, 2017:9) are crucial to a sovereign’s credit quality. In many cases, especially in post-
colonial states, patterns of social interaction and cohesion have been shaped by a violent history
of exploitation, dispossession, and the systematic subordination of racial groups. South Africa
being a prime example, as the following chapter also explores, neoliberal economic reforms in
the post-apartheid era has, by and large, sedimented these power structures. CRAs have
undoubtedly been central to the normalisation of new-classical economics, which limits the
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government’s ability to address, via fiscal expansion, for instance, historical forms of social and
spatial inequality. These realities are furthermore extremely complex, messy and unable to
quantify, specifically in attempts to come to terms with the resilience of a sovereign ‘to respond
to societal properties’ (S&P’s, 2017a:6). Issues relating to social cohesion and domestic conflict
are dynamic, spatially dispersed, uncountable, and unpredictable. As such, attempts to quantify
and translate societal dynamics into statistical estimates are not only misleading, but also
problematic, and tends to rework and realign social relations and identities in uneven and
unequal ways.
Once an initial assessment on the institutional and economic profile of a sovereign has taken
place, the score becomes adjusted based on ‘sovereign debt payment culture’ and exposure to
‘external security risks’. This assessment considers the willingness of a sovereign to repay its debt,
the likelihood of default even when a government ‘possesses the capacity for timely debt service’
(S&P’s, 2017a:9). In the absence of a higher legal authority compelling payment, sovereigns
can, and sometimes do choose to default on their obligations. Based on factors like a ‘public
discourse that questions the legitimacy of debt contracted by a previous administration’,
amongst other things, S&P’s (2017a:9), cannot assign a score higher than ‘6’ for institutional
assessment. However, as is visible in South Africa and, as Paudyn (2014:124) also points out,
the eurozone, citizens very often criticise (and protest) government policy and social burden of
austerity.
Nevertheless, even if a government’s debt payment culture, along with economic data indicates
a robust debt-bearing capacity and a willingness to repay, governments can always choose to
renege on their debt obligations. Willingness, contrary to ability, is thus considerably more
uncertain, and its assessment involves attempts to come to terms with the trustworthiness of a
government. This assessment is radically indeterminate and would require, to a certain extent,
what Grusin (2004) terms ‘premediation’, to ‘think the unthinkable’.
Premediation is driven by an anticipatory logic that seeks ‘to imagine or map out as many
possible futures as could plausibly be imagined’ (Grusin, 2004:28). According to Amoore
(2013:9), this logic is not focused on the prevention a particular course of action, but instead to
‘pre-empt an unfolding and emergent event in relation to an array of possible projected futures’.
It is therefore not about ‘getting the future right’, but rather based on a constant readiness to
identify ‘the unthinkable’ to enable action in the present (Anderson, 2010:782). Grusin (2004)
draws attention to how the cultural work performed by news media and entertainment
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industries, specifically Hollywood disaster films, in the post 9/11 landscape premediated the
2003 US invasion of Iraq. A logic of premediating the next terrorist attack and a sense of
inevitability that furnished the Bush administration’s doctrine of pre-emptive warfare
dominated these cultural representations. This is not to suggest some form of causation between
Hollywood films and reality but, at least for this discussion, draws attention to how cultural
narratives of uncertainty, threat, and disaster resonate with imaginations of the future. In other
words, it enables us to consider how cultural narratives of African governments as corrupt and
violent dictators, who subjugate their societies to war and famine in news media, American and
European cinemas, and policy experts, mediate imaginations of trustworthiness and willingness
to repay debt. Although the appraisal of willingness becomes factored into an aggregated grade,
which is a highly secretive process, premediation nevertheless emphasises how financial risk
assessments always involves some form of imagining the future to secure and make profitable
the present.
Moody’s Sovereign Rating Methodology: Key Factors and Steps
Whereas S&P’s ratings reflect the probability of a default event, Moody’s ratings are, as
described by Tennant & Tracey (2016:17) ‘a bit more involved’ as they measure expected losses,
which is a function of both the probability of default and the expected recovery rate after the
default has occurred (Moody’s, 2008, 2018:2). However, contrary to corporations and
structured finance products, sovereigns have ‘special’ features that make the calculation of
expected loss more difficult. These features include the ability to curb expenditures or modify
the taxation regime to generate revenue to service outstanding debt; freedom from a higher
authority to compel debt resolution; and the high probability of survival even after default –
countries rarely disappear (Moody’s, 2018:2). As such, Moody’s (2008:5) concedes that:
[I]t is difficult to deconstruct what is ‘pure’ probability of default and what is pure ‘loss
severity’ at times of default. In fact, this is almost impossible for countries that are high in
the rating spectrum (unless there is a clearly discernible, yet unlikely, default scenario).
As a result, Moody’s (2008:5) explains that in some cases governments may remain in the low
B range – above ‘junk’ – even though the likelihood of a credit event is high, based on their
assessment that the ‘loss-given-default will likely be mild’. Alternatively, in countries where the
banking system is highly vulnerable to exchange rate devaluation, ratings will remain in a low
B range even though, from a pure default risk perspective, they may warrant a higher rating
based on the devasting impact of a default. From the outset, this appraisal would require
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extensive imagination to consider the adverse consequences of a default and how the expected
loss affects the other components of the assessment (Paudyn, 2014:126). While the agency,
similar to S&P’s (2010), recognise that ‘a mechanistic approach based on quantitative factors
alone is unable to capture the complexity…between political, economic, financial and social
factors that define the degree of danger…of a sovereign credit’ (Moody’s, 2008:1), they
nevertheless use an Expected Default Frequency (EDF) to provide an ‘objective, non-
judgemental’ forward-looking default prediction (Moody’s, 2011). The EDF is an extension of
the Black-Scholes-Merton model of credit risk, a structural credit risk model that measures
default probability through a filtering technique that separates underlying credit components
into quantitative variables. These components include market capitalisation, macro-economic
volatility, and historical default data. A ‘narrow rating range’ is then compiled, which
constitutes a starting point for the agency’s analysis ‘whereby national political economies are
synchronically standardised through an ordinal ranking of credit risk and then compared’
(Paudyn, 2014:126).
Like S&P’s, Moody’s has updated its sovereign rating methodology in the aftermath of the
2008/09 GFC, ‘in response to market needs for clarity around the components of credit risk’
(Moody’s, 2019:2). This entailed a range of refinements to ‘increase the transparency and
forward-looking nature’ of their approach, based on four factors: economic strength,
institutional strength, and susceptibility to event risk (Moody’s, 2012:1). The refinements entail
an increase in ‘the usage and collective weight of quantifiable sub-factors that drive each factor’s
scoring’, reflected in a revised ‘scorecard’. Scorecards are the reference tools through which
factors and sub-factors are weighed in the effort to determine their importance for rating
decisions (Moody’s, 2019:31). Scorecards accompany an analytical framework and are ‘based
on expert judgement of our rating analysts and codified using techniques that standardise the
analysis of individual factors’ (Moody’s Investors Service, n.d.). Of particular importance for
this discussion is Factor 4: Susceptibility to Event Risk, as it is here where qualitative, socio-political
factors – ‘political risks’ – are enumerated. This analysis seeks to measure the factors that may
convince a government to renege on its debt obligations, that is, influence its willingness, and
receives renewed attention in Moody’s updated methodology.
In calculating ‘political risk’, Moody’s focus on ‘domestic political risk’ and ‘geopolitical risk’.
Geopolitical risk is determined by ‘an overall qualitative assessment of relevant circumstances
affecting the country’ (Moody’s, 2018:24). Domestic political risk, which much more difficult
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to quantify, is based on two leading indicators: the World Bank’s Voice and Accountability
index, and GDP per capita, which serves ‘as a proxy for the potential of low income-related
social unrests’ (Moody’s, 2018:24). Yet, Moody’s (2018:28) emphasise that these scores
[…] do not constitute an exhaustive treatment of all the considerations that are important
for sovereign bond ratings… Ratings may consider additional factors that are difficult to
measure or that have a meaningful effect in differentiating credit quality only in some,
but not all cases. While these are important considerations, it is not possible to express
them precisely in the rating methodology scorecard without making it excessively
complex and significantly less transparent. Ratings may also reflect circumstances in
which the weighting of a particular factor will be substantially different from the
weighting suggested by the scorecard.
Thus, akin to S&P’s, Moody’s exercise a tremendous amount of discretion in assigning their
ratings. Furthermore, disclosure of any kind is not necessary, as it is often based on ‘confidential
information that we cannot publish or otherwise disclose’ (Moody’s, 2018:28). This disclosure
immunises CRAs and the rating process from public scrutiny and reform (Paudyn, 2018:162).
Yet, to address concerns of ‘subjective biases’ in rating decisions, levelled by the European
Commission in the aftermath of the crisis, Moody’s (2012:2) revised methodology claims to
treat qualitative sub-factors ‘more systematically’ as ‘adjustment factors’ that can modify an
assessment of each sub-factor upwards or downwards. In this way, qualitative factors can affect
‘factor scores without unduly altering the balance between quantitative and qualitative
elements’ (Moody, 2012:2). Although Moody’s never reveal how they achieve this balance, the
agency nevertheless promises to integrate the quantitative and qualitative elements in a
disciplined way so limit subjectivity (Moody’s, 2008:2). To this end, Moody’s rely extensively
on governance indicators like the World Bank’s Worldwide Governance Indicators, along with the
World Economic Forum (WEF), the IMF, and BIS, specifically in their appraisal of Factor 2:
Institutional Strength. This analysis overlaps significantly with political risks and considers whether
a country’s institutional features ‘are conducive to supporting its ability and willingness to repay
its debt’ (Moody’s, 2018:13). One such indicator is the World Bank’s ‘Government
Effectiveness Index’, which captures perceptions of the following factors: the quality of public
services; the quality of the civil service and the degree of its independence from political
pressures; the quality of policy formulation and implementation; and the credibility of the
government’s commitment to such policies (Kaufman et al., 2010). These perceptions are
scored on an aggregate indicator, in units of standard normal distribution, i.e. the ‘bell curve’
and range from approximately -2.5 to 2.5. A prominent critique against this indicator, and
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many others in the World Bank’s governance indicators series, is that they are based on a ‘one-
size-fits-all’ conceptual definition that mostly favours Western perspectives (Iqbal & Shah,
2008). As such, they neglect local citizens’ evaluations of governance outcomes reflecting
impacts on the quality of life. Instead, development indices produce easily accessible country
rankings. Although Moody’s claim to incorporate expectations about future metrics and risk
developments, the World Bank and IMF’s normative (political) rationalities are nevertheless
implicated in their ratings. Apart from issues concerning data availability and quality, as Jerven
(2013) has made clear, the World Bank’s governance indices are furthermore composite or
‘mash-up’ indicators, made up from a ‘large number of moving parts’ (Ravallion, 2010). They
are composites of other indicators, a blending and weighting of established indicators into a
new bundle (Merry, 2011:S86). A set of underlying theories and inferences about the
parameters of the population distribution, including deviation (abnormality) are embedded in
these indicators. Once compiled into an aggregate score to measure sovereign creditworthiness,
these ‘moving parts’ and the political, cultural work embedded in their construction, along with
complexities such data constraints and measurement errors are erased and merged into a single
measure.
Finally, to secure ‘Greater Granularity of Factors’ Moody’s use three additional gradients
(‘plus’, ‘neutral’ or ‘minus’) for each of the five-factor scores (‘Very Low’, ‘Low’, ‘Medium’,
‘High’, ‘Very High’). The reason for this refinement is that it increases the scope for analytical
differentiation between sovereign credits, enabling a ‘more refined determination of the
scorecard-indicated rating’ (Moody’s, 2012:3). Yet, as Paudyn (2014:128) makes clear, greater
granularity arguably complicates the rating process by making it much more dependent on
individual discretion in differentiation between different degrees of separation in national
political economies. Factor 4, ‘Susceptibility to Event Risk’, which concerns the complex socio-
economic elements that influence a sovereign’s willingness to pay, is the final step in the rating
process and determines the ‘government bond rating range’. It is here where geopolitical
representations of ‘emerging markets’ factor into the analysis, as CRAs tend to assume an
unwillingness to repay:
Countries as diverse as Poland, Argentina, South Africa and the Philippines have
defaulted on or have rescheduled their foreign debts to commercial banks for other than
strictly economic or financial reasons. Very often, a mixture of political, social and
cultural considerations – such as the inability to impose austerity, radical or political
uprisings, or lack of public confidence in the central authorities – were at the root of a
country’s liquidity crisis (Moody’s, as cited in Mosely, 2003:141).
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Convinced that these defaults were a result of an unwillingness, rather than the ability to pay,
Moody’s recognise their significance by assigning them higher weight in determining a
sovereign’s bond rating range. Despite Moody’s emphasis on the complexity of this analysis,
this has not been accompanied by an enhanced conceptual clarification on what types of
political and economic factors are privileged, why, and how they become incorporated into the
final assessment. Furthermore, once assembled into a rating, the significance of this final
assessment diminishes in visibility and reduces the explanatory burden of CRAs. It is this
secretive element in the rating process that creates room for bias (Tennant & Tracey, 2016) and
through which neoliberal rationalities of budgetary rectitude becomes translated and
normalised.
Fitch’s Sovereign Rating Methodology (SRM) and Qualitative Overlay (QO)
Like S&P’s and Moody’s, a ‘synthesis of quantitative and qualitative judgements that capture
the willingness as well as the capacity of the sovereign to meet its debt obligations’ informs
Fitch’s sovereign ratings (Fitch, 2018a:1). Compiled into a forward-looking judgement, Fitch
uses a hybrid approach by rating issuers on a default probability basis and differentiating based
on expected recovery rates after default has occurred (Bhatia, 2002:4). Of all three the CRAs,
Fitch relies extensively on quantitative indicators from the World Bank, IMF, and BIS in their
SRM, which ‘allows for very limited judgement analyst input…and aims to provide a
transparent, coherent framework for comparing sovereigns across regions and through time’
(Fitch, 2018a:7). The SRM is a multiple regression model, estimated from the application of
Ordinary Least Squares (OLS). This probability model assumes a linear relationship between
the rating (dependent variable) and explanatory variables (independent). Although the agency
acknowledges that ‘the evolution of default probabilities is thought to be non-linear’ (Fitch,
2018a:36), the justification for the OLS is based on the ‘Central Limit Theorem’ – the law of
large numbers. To recall from Chapter Two, this theory assumes that the distribution of errors
will approximate normality in light of the large sample size (Fitch, 2018a:36). Alternatives to
the OLS specification, according to Fitch (2018a:36) ‘would lead to more subjectivity in the
SRM’ and as such, reduce the consistency and comparability of ratings as it would require a
different specification for each country. This not only reflects an epistemological culture that is
confident in the ability of statistical averages to reveal correlation but also draws attention to
how ideological assumptions about the economy creeps into the selection of variables, weights
accorded to each, and their influence on sovereign creditworthiness.
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Four analytical pillars regulate Fitch’s rating process:
1. Structural features of the economy that influences its resilience to withstand shocks,
including financial, political and governance risks;
2. Macroeconomic performance, policies, and prospects, that is, growth prospects,
economic stability and the coherence and credibility of policy
3. Public finances, including budgetary balances and the sustainability of public debt
4. External finances, like the sustainability of current account balances and capital flows
and levels of external debt (Fitch, 2018a:1).
Structural features refer to those socio-political factors which, in general, elude quantitative
analysis. Like Moody’s, these are given the highest weight in the overall analysis. Structural
features are furthermore divided into four criteria: governance quality; wealth and flexibility of
economy; political risk; and banking sector. Here, it is the calculation of ‘governance quality’
and ‘political risk’ that requires problematisation.
Firstly, ‘governance quality’, which depends on an aggregation of World Bank Governance
Indicators, seeks to capture the capacity and willingness of authorities to repay debt ‘and the
risk that this might be disrupted by civil unrest, political instability or conflict’ (Fitch, 2018a:11).
These indicators are supposed to serve as proxies for the many intangible factors that determine
debt tolerance, or what S&P’s calculate as ‘debt payment culture’. Having discussed just how
problematic these indicators are, not only in terms of data quality but also the Western-
dominated conceptions of social organisation embedded in them, Fitch’s (2018a:11) confidence
in their ‘comprehensiveness, methodological transparency…and completeness of coverage
geographically’ becomes alarming. Indeed, in terms of ‘structural features,’ this score carries
the highest weight (19.6%) of the SRM variables. Yet, akin to their peers, Fitch (2018a:7)
[…] recognises that no model can fully capture all the relevant influences on sovereign
creditworthiness [and as such] the agency also employs a QO designed to adjust for
factors that are not reflected or not fully reflected in the SRM output for any individual
rating. The QO is used to provide a subjective assessment, consistent with criteria, of key
factors within these rating criteria that are not fully quantifiable…The QO is a
formalisation of the qualitative elements that Fitch applies in assessing sovereign
creditworthiness.
The analytical team tasked with the research process recommend these adjustments to the
rating committee. To deliver on their promise to minimise ‘subjective assessment’, Fitch’s
notching range allows for two upward and downward notches to be applied, the overall
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maximum adjustment relative to the SRM output is capped at three (upward and downward).
These measures enhance the oversimplification and homogenisation of ratings.
Commensuration, as mentioned previously, ‘transforms qualities into quantities, difference into
magnitude. It is a way to reduce and simplify disparate information into numbers that can easily
be compared’ (Espeland & Stevens, 1998:316). However, by transforming the buzzing
confusion of social life into neat countable categories that can be and compared, meaning,
context, and history become stripped away. Fitch’s (2018a) confidence in global governance
indicators leaves little room to incorporate the complexities and concerns of the surrounding
social structure that is being quantified.
Moreover, the measuring process ignores the political effects of methodological compromises,
such as missing data or the use of proxies, which is so prevalent in sub-Saharan African
development indices. Fitch’s ratings, and the other CRAs in general, therefore suffers from
what Merry (2016a) terms ‘experience inertia’ and ‘data inertia’. The former refers to how the
calculation of sovereign credit risk builds on existing models and approaches, which means that
insiders with skills and experience – typically located in the ‘spaces of hegemony’ of global
finance – has greater agency in determining how the different factors that make up sovereign
creditworthiness are measured. For instance, in the measurement of perceptions of corruption,
CRAs use existing World Bank indicators instead of collecting data from local populations.
This problem also relates to ‘data inertia’, which draws attention to how the measurement of
sovereign creditworthiness depends on existing datasets and inhibit new measurement
approaches. Both forms of inertia tend to exclude inexperienced and resource-poor actors in
deciding what and how something gets measured.
Yet, when it comes to more fluid, socio-economic elements, Fitch (2018a:13) argues that ‘a
country that is riven by divisions along the lines of income distribution, race, religion or regional
differences’ face higher political risks as the government’s authority may encounter many
challenges. Thus, while World Bank Governance Indicators reflect some of the quantitative
variables included in the SRM, political risk factors can reduce a sovereign’s administrative
capacity and will to honour their debt obligations. Given the radical indeterminacy of
willingness, Fitch (2018a, 2018b) follows S&P’s and Moody’s by measuring this analysis through
the use of proxies that indicate a government’s shock-absorbing capacity. Embedded in the
selection of these proxies are neoliberal logics of economic growth, fiscal and monetary
rectitude, and central bank autonomy. For instance, the QO stipulates that original SRM scores
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for structural features may be adapted based on an analysis of a country’s ‘business environment
and economic flexibility’ (Fitch, 2018a:13). This enumeration uses the World Bank’s Ease of
Doing Business Survey and the United Nations’ Human Development Index to determine the
relative strengths and weaknesses of the business environment and the quality of human capital.
The quality of the business environment, according to Fitch (2018a:14), is paramount, and
‘typically a prerequisite for sustainable economic growth’. To improve ‘competitiveness’,
developing countries are particularly encouraged to ‘open up’ their domestic industries,
deregulate their labour markets, and minimise ‘red tape’ (Collier & Benjamin, 2015:301). This
assessment alludes to the tenuous relationship between sovereign and country risk, specifically
in Fitch’s case.
Despite being closely related, country risk refers to risks associated with doing business in a
particular country, such as weak property rights, unpredictable tax and legal regimes as well as
a volatile operating environment. One of the most specific country risks is transfer and
convertibility (T&C) risk, that is, the ‘risk of controls being imposed by sovereign authorities in
the conversion of local into foreign currency and on its transfer abroad to meet external debt
service obligations’ (Fitch, 2018a:3). A product of Fitch’s (2018b) Country Ceiling Model
(CCM) country risk determines the highest credit rating achievable on a foreign-currency rating
of entities operating in a particular sovereign’s jurisdiction. The CCM assumes that countries
‘that are open in terms of international trade and capital, including the absence of restrictions
on trade and capital flows…with flexible exchange rate regimes’ are less likely to impose capital
control restrictions (Fitch, 2018b:2). Conversely ‘closed, less developed economies’ with fixed
exchange rates, capital controls (protectionism, the opposite of trade liberalisation) and a record
of high inflation (i.e. not pursuing an inflation targeting monetary policy) score poorly under
the CCM model (Fitch, 2018b:4).
In the case of emerging market economies, the gap between country ceilings and sovereign risk
is often narrow, as country risks come to dictate a government’s capacity and willingness to
repay its debt obligations (Paudyn, 2014:115). To recall, emerging markets like South Africa
are typically framed as ‘less efficient’ in line with the EMH, which implies that they are
characterised by unreliable information, potentially uncompetitive markets, and low liquidity.
Additionally, systemic corruption, volatility, fragile currencies, social inequality, and the lack of
transparent regulatory frameworks increases country risk. This increase occurs even though
many of these markets, particularly China, India, and Brazil, have shown significant economic
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growth that diminishes the threat of a sovereign default. Moreover, as discussed below, this
neoliberal programmatic embodied in ratings often worsens existing socio-economic
inequalities. As ‘macro-epistemic’ institutions in the epistemic infrastructure of finance, CRAs
translate these assessments of sovereign creditworthiness into knowledge-objects disposed of by
market participants, including governments. They are therefore not only crucial nodes in this
infrastructure, but also establish important links between the various actors, institutions, and
place that constitute it, which coordinates market behaviour in a particular way.
The performativity of ratings
The performativity of ratings refers to how the rating judgements of CRAs not only describe a
state of affairs but actively create the conditions for it to realise. In line with a Foucauldian
perspective of power and agency, the performative agency of CRAs is based not on a restriction
or coercion of certain activities, but rather a mode of government that works through processes
of subjectivation and subjectification that recast the subjectivities of market actors so that they
internalise a particular set of norms (see introductory chapter). As crucial nodes in the epistemic
infrastructure that constitutes global financial flows, CRAs are linked to a range of discursive
and material devices that create the conditions and subjectivities that help to validate the new-
classical discourses and norms advanced through them.
This epistemic infrastructure engineer three principal subjectivities underpinning the
performative agency of ratings, namely CRAs, investors, and governments. Firstly, the
epistemic practices and cultures of knowledge communities in global finance tend to have self-
generating/self-validating effects on CRAs. In general, CRAs use a ‘through-the-cycle’ (TTC)
rating methodology when rating sovereigns. They model the parameters over a longer period
that contains the entire business cycle, based on the assumption that it would produce less
volatile estimates of risk measures over time (Haung et al., 2016:2). The alternative is a ‘point-
in-time’ (PIT) approach. This approach uses current information when computing the default
risk metrics (Kiff et al., 2013). In recent years, the TTC has been attacked for its procyclical
bias and weak default prediction as it does not capture the translation of political movements
into credit risk adequately (Kiff et al., 2013; Paudyn, 2014:117; Varsanyi, 2007). The long-term
horizon of TTC arguably suffers from a lag as it ‘waits to detect whether the degradation is
more permanent than temporary and larger than one notch’ (IMF, 2010:xiii) which creates a
procyclical effect by accentuating the already negative movement in credit quality. For
example, as mentioned previously, during the 1997/98 Asian crisis, CRAs were criticised for
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being too slow initially to downgrade East Asian sovereigns, and only adjusted their credit
scores once the downturn had already begun (IMF, 2010:105). As such, during economic
‘booms’, governments would increase their expenditures, banks would lower interest rates, and
consumer spending would increase. The opposite of procyclicality is counter-cyclicality. That
is, the Keynesian argument that during economic crises, governments should ‘spend their way’
out of recession by stimulating demand instead of saving or implementing budgetary cuts. The
new-classical model of creditworthiness that underpins sovereign ratings intensifies their
procyclicality by encouraging fiscal austerity to assure investors that a government will not
default on its payments. This procyclicality tends to reinforce the self-validating effects for
CRAs as downgrades, and ‘negative outlooks’ create the deteriorating conditions for further
rating cuts, which is compounded by the feedback loops from market participants (Paudyn,
2014:71).
Thus, secondly, ratings have constitutive effects on investors in that they embody a prominent
reference point ‘to evaluate a security or issuer’s potential eligibility for the inclusion of that
investment in a portfolio’ (BlackRock, as cited in Paudyn, 2014:160). These feedback loops
from the investment community tend to enhance the self-fulfilling prophecies of risk ratings,
thereby consolidating their discursive authority and underling rationalities in the face of a
consistent stream of failures and lacklustre performance (Paudyn, 2014:149). This circulation
and engagement with knowledge in financial markets is not a linear, one-sided affair. Instead,
there is a circular flow out from the centre, according to Latour. This flow takes the form of
commands or demands, and returns to the centre, in the form of representations and other
returns. CRAs incorporate into their calculations the reactions of the investor community not
only to their ratings, but also news media, commentaries, and stock indices. The infrastructure
of flows emanating from centres of calculation assumes a star-like formation, where the offices
of CRAs and Wall Street trading rooms,
[…] does connect to the ‘whole world’ through the tine but expeditious conduits of
millions of bits of information per second, which, after having been digested by traders,
are flashed back to the very same place by the Reuters or Bloomberg trading screens that
register all of the transactions and are then wired to the ‘rest of the (connected) world’ to
determine someone’s net worth (Latour, 2005:178).
This continuous dialogue between CRAs and investors consolidates new-classical
understandings of sovereign creditworthiness, which limits the possibilities of budgetary
rectitude for national governments, specifically in a context of intensifying financialisation.
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Especially in the case of emerging markets governments that have come to increasingly rely on
liquid capital markets to fund their development projects, pressures to conform to this political
economy of creditworthiness mounts. For the sake of their market credibility, and the better
financing terms it affords them, governments submit to these risk measures (Paudyn, 2014:176).
By opening themselves to forms of external scrutiny, governments signal their willingness to
adhere to a prescribed set of standards and rules regulating financial flows, which may enhance
their reputational capital and attract investment (Paudyn, 2014:176). The fact that states
‘choose’ to be rated illustrates how governmentality works to encourage particular forms of
conduct that are, in this case, ‘creditworthy’. Here, a credit downgrade gets defined as a
negative outcome – an inevitable consequence of the inability of the State to perform in a
creditworthy manner. Key to this portrayal is that the State is deemed responsible not only for
the negative classification but also for future improvement (Löwenheim, 2008:259). Donzelot
(as cited in Burchell, 1993:276) describe this technique of governing as a procedure of
‘contractual implication’. This entails ‘offering’ states active involvement in action to resolve
the problem of sovereign creditworthiness, instead of delegating this responsibility to an
external agency. However, the price of participation is that states must assume active
responsibility for the activities pertaining to their creditworthiness, both for carrying them out
as well as for their outcomes. This is what Burchell (1993:276) refer to as the ‘responsibilisation’
of states in global government. Here, government takes place ‘at a distance’ by making use of
various technologies to create locales, governments and individuals able to operate a regulated
autonomy (Rose & Miller, 1992:184). Risk metrics, as technologies of the future, seeks to govern
the actions of actors ‘on the very basis of the imagination of those possibilities’ (Amoore,
2013:9). Responsibility becomes linked to calculation: to affect the conduct of states in such a
way that they act freely, yet following specified policy norms (Miller, 2001:380). This is a
precarious achievement, contingent upon discursive practices that generate specific effects
anew time and again (Butler, 2010:148). An investigation into the mundane and processual
character of knowledge production enables us to consider the sites and practices through which
particular meanings become normalised and the power regimes within they operate.
Conclusion
This chapter examined the regimes of power-knowledge and epistemic cultures involved in the
translation of diverse socio-political phenomena into the rating of sovereign credit risk takes.
This translation is marked by an unequal politics of power and agency for actors outside the
global North to determine how sovereign creditworthiness should be defined and measured.
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The politics of representation, ‘is not only a matter of speaking about but also of speaking for. That
is, it concerns politics and hegemony (and the limits of politics and hegemony)’ (Beverly,
1999:3). Yet this chapter also revealed how an investigation into the micro-processes of
indicator production enables a space for contesting their authority. Since their authority is
intricately linked to an epistemic culture characterised by a large degree of trust in numbers,
this chapter revealed not only that the datasets upon which CRAs depend are potentially
extremely misleading, but also that ratings are based on a great amount of subjective
judgements. Indeed, the rating of sovereign creditworthiness requires a large amount of
interpretative work, which is inherently political. The selection of measurement approaches,
the construction of categories, the use data sources and proxies to measure a concept when
specific data are unavailable, ‘are all matters of choice and interpretation’ (Merry, 2016a:20).
By navigating the sequence of translations involved in the rating of sovereign creditworthiness,
this chapter revealed the messy world of financial knowledge production.
The following chapter considers how the materialisation of asymmetrical agency between the
global North and global South tends to rework existing social relations and identities in highly
unequal and uneven ways. Financial markets are therefore important sites where power
relations between nations, individuals and societies are mediated. The uneven development of
capital circulation reveals how, although formal, direct colonialism has come to an end, the
‘post’ in post-coloniality serves as a “salutary reminder of the persistent ‘neo-colonial’ relations
within the ‘new’ world order and the multinational division of labour’ (Bhabha, 1994:6). The
‘post’ in post-colonialism is not a dividing temporal marker, but an indication of continuity that
seeks to capture the continuities and complexities of any historical period (Abrahamsen,
2007:114; Chowdry & Nair, 2002).
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Chapter Five
The political economy of sovereign creditworthiness in South Africa
27 July 2011
The 27th, the day everyone has been waiting for. Hoping our lawyer Sheldon would at
least get the judge to say we are allowed to put up a structure, but sadly that didn’t
happen.
It has been 75 days. We survived rain, cold, wind and daily harassment of the police.
Our structures and other possessions have been confiscated and many nights we have
been forced to sleep in the open. But our spirit of defiance remains strong and we are
determined not to be moved (Benson & Meyer, 2015a:72).
The above extract comes from the dairy of Faeza Meyer, who formed part of a group of
backyard shack dwellers that occupied land in Tafelsig in the township of Mitchells Plain, Cape
Town in May 2011.
45
46
Starting at 5,000 people, the group dwindled to about 30 families who
fought for their right to erect structures. To many, this was the only option. The
accommodation provided by the City was a dumping ground located miles away from their
families and support networks. Over 18 months, the group faced a series of raids, evictions, and
court cases, which eventually led to a Constitutional Court judge reprimanding the City to
devise a plan for the homeless. In October 2012, Faeza and the rest of the group were relocated
to Siqalo in Mitchells Plain (Benson & Meyer, 2015a, 2015b).
Like most metropolitan areas in post-apartheid South Africa, the City of Cape Town faces a
significant housing crisis. The official waiting list for low-cost housing is more than 450 000
families, while the City delivers about 11,000 units per year (Benson & Meyer, 2015a; Mongwe,
2010). This problem is undeniably a remnant of apartheid’s socio-spatial engineering, which
reserved city centres and the suburbs around them, as well as those close to major roads, for
whites. As I discuss later, the apartheid era brought race, class, and space together in violent
ways (Hunter, 2010:109). Despite numerous promises and attempts to undo these socio-spatial
injustices, South Africa’s urban areas remain highly segregated.
45
Shacks are informal housing structures built from sacks, wood, corrugated iron, and cardboard (Thompson, 2001:178).
Linked to apartheid’s segregated spatial planning, which reserved access to cities for the white population, informal settlements
are built on the outskirts of urban areas, also known as townships. Approximately 14 per cent of South Africa’s households live
in informal dwellings and although townships are highly segmented spaces, with formal and informal housing arrangements,
they have nevertheless almost always suffered from inadequate municipal service delivery, in particular water, sanitation, and
garbage removal (see Hart, 2014; Hunter, 2010; Robins, 2014).
46
In alliance with Koni Benson, a feminist historian and housing crisis ally, Meyer kept a diary of the events and her experiences
on a computer. Benson tracked the unfolding of the events by piecing together chronologies, collecting newspaper articles,
statistics, photos, flyers, letters and other resources documenting the struggle (Benson & Meyer, 2015b:104).
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At the same time of their occupation in Tafelsig in 2011, community activists from the
Khayelitsha informal settlement on the outskirts of Cape Town were throwing portable toilet
containers filled with faeces onto the N2 highway, in the departures section of the Cape Town
International Airport, and on the steps of the provincial legislature (Robins, 2014). Grievances
with the City’s provision of portable toilets to shack dwellers, rather than ‘proper’, permanent
flush toilets, led to these protests. According to Sithembele Majova, leader of the protests, the
portable toilets ‘cause a smell in the houses. It’s unhygienic to live with poo inside the house…It
remains in that container and that’s why it causes that smell’ (quoted by Robins, 2014:1). He
added that they wanted to show ‘the people who are living in those nice [upper middle class]
areas like Constantia to feel how poo can damage your life when it is next to you’ (Majova,
quoted in Robins, 2014:1). Here, the unequal politics of power inherent to infrastructures
become apparent, as mentioned in Chapter Four. In wealthy neighbourhoods like Constantia,
sanitation infrastructures are ‘black-boxed’ – part of an ‘invisible background’ that moves
matter from one place to another (Bowker & Star, 2000; Edwards, 2003).
47
The modern
porcelain flush toilet ‘is a sign of modern citizenship in a democracy in which the disposal of
human waste becomes the problem of state infrastructural systems; at the moment of flushing,
shit then becomes matter out of sight and out of mind’ (Robins, 2014:3).
Far from being invisible, infrastructure always foregrounds the lives of more precarious social
groups (McFarlane & Rutherford, 2008:374). Approximately 2.8 per cent of South Africans use
bucket toilets, which equates to 1.7 million individuals (Stats SA, 2019:50). Even more
households (13.4 per cent) rely on unventilated pit latrines that are located outside houses and
shared by others in a particular community (Stats SA, 2019:49). A report compiled by the South
African Human Rights Commission (SAHRC) shows that these sanitation structures are often
poorly maintained, unhygienic, poorly lit, and pose a significant safety risk to many women and
girls, particularly at night (SAHRC, 2014).
48
In 2014, a five-year-old boy, Michael Komape,
died when using the pit latrine at his school in Chebeng village in the Limpopo province. The
47
Although, in terms of electricity provision or ‘load shedding’, in adequate water supply, and poor road conditions are shared
by wealthy groups in South Africa as well. According to Graham (2010:9), this is the case for most parts of the global South,
and have often prompted city boosters to invoke major infrastructural edifices and massive demolitions of informal settlements
as they strive to overcome infrastructural disruptions and so become ‘more global’.
48
The SAHRC (2014) investigation was dedicated to Michael Komape and several other children who died as a result of
unsafe sanitation structures at their schools. These include six-year-old Siyamthanda Mtuni, who died on the 11th of
September 2007, when the walls of his school toilet collapsed on him at Dalasile Primary School in the Eastern Cape. In
March 2013, seven-year-old Lister Mgongwa died in a similar way, and in 2018, five-year-old Lumka Mketwa fell into a pit
latrine at her school in the Eastern Cape and drowned (Africa Check, 2019a; Saba et al., 2018).
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dilapidated structure atop the pit toilet could not hold the weight of his body, and he fell in and
drowned in human waste (Rabkin, 2019).
These are not isolated cases: the stories of Faeza Meyer, the ‘poo protesters’, and Michael
Komape capture the social realities of millions in post-apartheid South Africa. Twenty-six years
after the official abolishment of apartheid, these forms of socio-spatial injustice remain
predominantly racial (Hunter, 2010; Samara, 2010; Van Riet, 2020). In her ethnographic study
in the informal settlement Chris Nissen Park (The Park) in Cape Town, Fiona Ross (2005,
2015) describes everyday life in such contexts as ‘rou’ (Afrikaans for raw), which ‘denotes a form
of exposure to life’s violence and pain’ (Ross, 2015:S98). Raw life is precarious, incomplete,
humiliating and characterised by a daily struggle for survival amidst extremely harsh conditions
(Ross, 2005, 2010).
49
The opposite of raw life, for residents in The Park, is ‘ordentelikheid’
(decency, respectability), where access to decent housing and sanitation offers a sense of privacy,
and therefore, dignity:
In particular, people spoke about their hopes that the new houses might restore some
dignity to daily lives too often undermined by poverty, violence, mobility and everyday
humiliations, allowing them to become ‘ordentlike mense’ (respectable people) (Ross,
2005:633).
The concept of ordentlikheid, Ross (2015:S101) argues, offers a way of critiquing the erosions of
dignity by interrogating the historical processes and practices that give rise to the production of
social life in contemporary South Africa.
This chapter explores how Lady Credit, Defoe’s rational gentleman, apartheid and the
sovereign credit ratings are entangled in the rawness of everyday life for many South Africans in
the post-apartheid era. Entanglement is a complicated situation, a set of social relationships ‘in
a tangle’, with intricate overlaps between the past, present, and future. The ‘post’ in post-
apartheid is not a dividing temporal marker but draws attention to the continued relevance of
historical structures and relations of power (Chowdry & Nair, 2002). This means that
49
The conceptual lineage of ‘Raw Life’ can be traced to Agamben’s (1998) seminal work on two forms of life in ancient Greece,
zoé and bios (Ross, 2010:5). Zoé is bare life, biological life common to animals and humans, it is life itself. Sovereign power,
according to Agamben, is constituted through the production of a political order based on the exclusion of bare life. The
sovereign enacts an exception in which the legal status of human beings is stripped away. Bare life is without rights. By contrast,
bios is political life; a life shaped by and recognised politically, ‘a qualified form of life’ (Agamben, 1998:1). Despite obvious
similarities between ‘raw life’ and ‘bare life’, Ross (2015) explains that in the context of post-apartheid reforms, many residents
in Chris Niessen Park have used their political rights to resist forms of state abandonment. This enables them to attract and
receive state care, especially in the form of state-sponsored housing grants, and access to life-saving medicines like anti-retroviral
(ARVs). Raw life therefore captures the agency of residents to challenge modalities of abandonment in post-apartheid South
Africa, which complicates the binary distinction between zoe and bios as depicted by Agamben.
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meaningful, large-scale social change that was promised in the democratic transition has yet to
be produced for many South Africans that suffered under apartheid. Indeed, as I will show in
this chapter, should one remove the date from Faeza Meyer’s diary entry, one could be forgiven
for thinking this story took place during apartheid’s forced removals. This is not to suggest a
direct continuity with the past; far from it. Nevertheless, apart from a small group of black elites
with close connections to the ANC, there are numerous continuities and new modes of suffering
that gets transferred over generations. The goal of this chapter is to provide an overview of the
political economy of South Africa: the complex realities that gets stripped away during the
rating process. This background is particularly necessary for an analysis of how sovereign
ratings are entangled in the erosion of ordentelikheid for many South Africans. Of course, there
is a myriad of reasons beyond the sovereign creditworthiness assemblage that stymies
meaningful social change in post-apartheid South Africa, most notably weak political
leadership. For the purposes of this thesis however, I am focusing on how governing practices
enacted in the name of sovereign creditworthiness reinforce historical inequalities in South
Africa.
The first section of this chapter looks at the historical erosions of ordentelikheid through
colonisation and apartheid. In order to capture the delicate and intricate emotions that
accompany the humiliation associated with raw life, I draw on a number of literary works
produced by South African writers and film makers. These works function as a ‘midwife’ or
entre-deux according to Prieto (2007), in that their freedom from the scientific test of falsifiability
enables us to document the intimate experiences and forms of being in certain places. Given
that inequality in South Africa is characteristically spatial, works of literature and films enhance
our understanding of life in contexts of raw life by granting us access to the ‘intimate familiarity
of the insider’ (Prieto, 2007:9). Akin to Feaza Meyer’s diary entry, these literatures enable us to
draw ‘everyday life’ into analyses of IPE, especially in post-colonial spaces as important site of
power and resistance in the global political economy (Davies, 2006). Although this chapter
approaches the site of everyday life as a critique of how colonial and apartheid histories of
violence have transformed everyday life, it is important to recognise how actors like Feaza
Meyer respond to ‘global processes’ and how these interactions have the potential to generate
change in the global economy. Yet, such a focus is beyond the scope of this project and for the
purposes of this chapter, my analysis of ‘everyday life’ seeks to map out the different ways in
which South Africa’s history of colonialism and apartheid becomes entangled in the
governmentality of sovereign creditworthiness. The second section of this chapter shows how
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the neo-classical assumptions that inform sovereign credit ratings enable an erasure of this
violent history in the assessment of a government’s creditworthiness. Indeed, the dominance of
rule-based monetary policy-making enables CRAs to discard questions of economic injustice
and historical violence to their assessments of creditworthiness. This erasure sediments the
discursive boundaries defining sovereign creditworthiness, that is, it limits possibilities of
broadening the democratic content of ratings in line with the socio-economic needs of a society.
Geographies of history: raw life, and erosions of ordentelikheid
Although apartheid became officially institutionalised from 1948, modalities of racial
subjugation, exploitation and land dispossession can be traced back much further (Schultz &
Van Riet, 2018). The first form of ‘official colonisation’ dates back to the seventeenth-century
when Dutch employees of the then ‘largest trading enterprise’, the Vereenigde Oostindische
Compagnie (VOC) established a refreshment station at Table Bay, located at the Northern end
of the Cape Peninsula (Oliver & Oliver, 2017). In 1652, upon realising the fertility of the land,
Dutch navigator and commander Jan Van Riebeeck released some of the employees from their
contracts. The company gave them land with the status of ‘free burghers’ to start full-time
farming to the eastern side of Table Mountain (Thompson, 2001). Within a decade, the Cape
Colony became a complex, racially stratified society. There was a great deal of sexual activity
across status and colour lines, especially between European men and slave women. As a result,
the ‘black’ population of the colony became considerably lighter, and the ‘white’ population
darker (Thompson, 2001). Today, this population is known as Coloureds (of mixed race), a
racial category formalised during apartheid. They make up nearly 10 per cent of the population
and constitute the majority of Afrikaans speakers (Khan, 2009). The company imported slaves
from Asia, Madagascar, and Mozambique. It used the labour of indigenous pastoralists, whom
they had deprived of their land and livestock and who had been decimated by smallpox. The
linguistic mixture of this environment – Dutch, Portuguese, Khoikhoi, and Malay – developed
into a language called Afrikaans, one of post-apartheid South Africa’s official languages.
50
As
the colonisers expanded north and east of the Cape region, they destabilised indigenous
pastoral and mixed-farming communities, using their labour for hunting, herding of livestock,
domestic chores, and slave work. To the east, however, they entered Xhosa chiefdoms and
came into numerous battles, the results of which were indecisive. By the end of the eighteenth-
50
It is a simplified form of Dutch, also called ‘Kitchen Dutch’, which had dropped certain inflections and vocabulary items,
incorporated loan words from other languages and modified many vowel sounds (Thompson, 2001:52). There is a large degree
of mutual intelligibility with standard Dutch – with approximately 95 per cent of the vocabulary having Dutch origin. It is the
first language for an estimated 7 million South Afrikaans, and is widely spoken and understood as a second or third language.
161
century, the solvency issues facing the VOC signalled the rise of Britain as the new imperial
power. Britain founded the British East Company and decided to take control of the Cape as a
halfway station to the East (Lowe et al., 2020; Thompson, 2001).
Initially, South Africa was of little interest to the British government. Until the country’s vast
mineral wealth was revealed in the late 1860s, main exports included wine, wool, and elephant
ivory. Between 1806 and 1819, the British troops, assisted by colonial commandos and
Khoikhoi units, ruthlessly expelled Xhosa inhabitants from their land. In 1820, the British
government sent nearly four thousand Britons to occupy and cultivate farmland in the Cape
region, land that was owned by Xhosa communities. Unlike the Dutch settlers, social mixing
was rare amongst British immigrants, who referred to the former as Boers with stark derogatory
overtones. Conflicts with the British colonists and Xhosa kingdoms prompted the Boers to
migrate to the country’s interior in a movement that came to be known as the ‘Great Trek’.
Facing unprofitable conflicts with the Boers and land disputes with the Basotho, Britain granted
independence to the Boers, which established the Orange Free State and Transvaal at the Sand
River and Bloemfontein conventions in 1852 and 1854, respectively. Both conventions
prohibited slavery, which the Boers did not observe. Additionally, earlier British treaties with
African chiefdoms that protected their lands were cancelled, creating an enabling environment
for the Boers to carry out the conquest of the Southern African interior (Thompson, 2001:31-
69).
With the discovery of diamonds in Kimberley and gold on the Witwatersrand in the late 1860s,
South Africa transformed from being a geopolitical asset for British colonialists into a lucrative
source of capital expansion. However, these areas were part of the Boer republics and conflict
for control of the area led to the Anglo Boer War (1899-1902), which Britain eventually won.
To consolidate British rule in Southern Africa, the high commissioner to the region,
conservative leader Sir Alfred Milner, drafted the terms of what became known as the Peace of
Vereeniging, which detailed the conditions under which the region could become a self-
governing dominion. Milner looked to de-nationalise the Boers (hereafter Afrikaners). The
treaty, therefore, included no concessions to Afrikaner demands that might undermine his
plans. However, the Peace of Vereeniging included one major concession to Afrikaner and
British colonial sentiment: ‘The question of granting the franchise to natives will not be decided
until after the introduction of self-government’ (Milner, as cited in Thompson, 2001:144).
White inhabitants of the Transvaal and the Orange River Colony were themselves to decide
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whether to enfranchise the black fellow subjects, which decided to do. Especially in the gold-
mining industry, which Milner nourished as a magnet for white immigration and a source of
profit, he tightened the pass laws to restrict the mobility of African labourers. At the same time,
the mining companies cut Africans’ wages by importing labourers from China. By 1910, with
the formation of the Union of South Africa, Whites had conquered the indigenous inhabitants
of South Africa. During the ensuing years, the new state implemented a comprehensive
program of racial segregation and discrimination and gained control over the African peasantry
(Schultz & Van Riet, 2018). One significant event in this regard was the passing of the Natives
Land Act in 1913, which prohibited Africans from buying or leasing land outside the reserves
from people who were not Africans. The goal was to transform tenants into wage workers, by
forcing African families – formerly independent farmers on sharecropped land – to accept wage
labour and give up their equipment (Mbongwa et al., 1996:43). In an attempt to ensure
sufficient labour for the emerging mining industry, the Act also limited the area where blacks
could establish farming operations to the reserves which, in 1936 when it was passed, totalled
a mere 13 per cent of the country’s area (Alden & Anseneeuw, 2009:78). Additionally, the Act
prohibited blacks from sharecropping, cash rentals, and buying land from whites.
Volkekunde, Segregation and apartheid
The significance of the 1913 Natives Land Act in terms of consolidating racial and spatial
segregation was that it laid the work for the apartheid government’s Bantu Authorities Act of
1951. According to Greenberg (2003), the Act eliminated agricultural competition from black
farmers. It consolidated a system of migrant labour that forced the black rural population to
live in racially defined areas and migrate to white-owned farms, mines and industrial areas for
employment. The Native Authorities Act of 1951 and the Bantu Self-government Act No. 46
of 1959 established 10 ‘independent’ homelands/Bantustans, namely: Bophuthatswana, Ciskei,
Gazankulu, KaNgwane, KwaNdebele, KwaZulu, Lebowa, Qwaqwa, Transkei and Venda
(Cahoon 2015). These boundaries were confined to the land allocated to Africans by the 1913
Natives Land Act and aimed to promote ‘self-determination’ and ‘independence’ (Wolpe 1972).
Intellectually, this form of spatial governance hinged on a particular brand of applied
anthropology, namely Volkekunde (which roughly translates into the study of ‘a people’ or volk).
Volkekunde is rooted in Ethnos Theory and the assumption that humankind is divided into volke
(nations, people), each with its own particular culture, which may change but remains authentic
to the group in question (Sharp, 1981). As such, with their own biological and cultural traits,
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ethnic groups should have the space to flourish ‘in its own way’ (Van Riet, 2014:118). These
anthropologists were mainly based at Afrikaans-speaking universities which, along with the
findings of various commissions of inquiry, sought to justify the state’s socio-spatial governance.
In this sense the central tenet of Volkekunde was not Ethnos Theory, but instead Volksdiens (service
to the Afrikaner volk). This included, amongst others, addressing the Arm Blanke Vraagstuk (The
Poor White Problem) in the form of the Carnegie Commission of 1932.
The Arm Blanke Vraagstuk appeared for the first time in the late nineteenth-century, as many of
the Afrikaner population were dispossessed of their land, especially in the Cape and Transvaal
(Freund, 2011). This led to forms of racial integration in urban areas, which attracted concern
amongst the political elite. In the 1870s, a colonial visitor to Grahamstown wrote that
‘miscellaneous herds of whites and blacks lived together in the most promiscuous manner
imaginable’ (Roos, 2003:646). Likewise, in 1893, the Cape Labour Commission reported with
distinct alarm that whites were increasingly ‘mixing with coloureds, marrying coloured women
and assimilating more to the black race’ (Roos, 2003:646). This spurred fears that poor whites
would form alliances with poor blacks and undermine the foundations of the colonial order. As
the majority of poor whites were Afrikaners, social scientists like G.D. Scholtz expressed
concerns that ‘multi-racial slums’ could threaten the future of the Afrikanerdom and white rule
itself. In his book, Het die Afrikaanse Volk ‘n Toekoms? (1954) (Is there a future for the Afrikaner
nation?) Scholtz notes that racial mixing would ‘foster social intimacy and eventually limit race
consciousness’ (cited in Roos, 2003:648).
As a response, the state embarked on a series of social protection mechanisms to tackle the
multiple dimensions of white poverty. The Carnegie Commission report was hugely influential
in this regard. Although the report did not make a case for white superiority,
51
some argue that
it laid the platform for apartheid by maintaining discourses such as ‘separate but equal’ and
‘social scientific practices’ like Volkekunde (Van Riet, 2014:119, f43). The report asserted that
industrial expansion, rather than ‘back to the land’ ideals, considered ‘anti-modern’, is
necessary to lift poor whites out of poverty. A recurring theme in commission reports was that
Africans are rooted in rural, collectivist lifestyles, and seek ‘the bare requirements of the
necessities of life as understood by barbarous and undeveloped peoples’ (Hertzog, as cited by
51
On the contrary. The commission was saturated with eugenic reasoning that described the economic situation of poor whites
as a result of genetic factors. The report cautioned against the extension of social welfare, because there are some ‘psychological
traits’ and a ‘type of mentality’ among poor whites that would intensify dependence on the state (Bottomley, 2016; Seekings,
2006). Although the state chose to ignore these conclusions, the commission described poor whites as having an inherent
tendency to be ‘lazy, untidy’ and elderly people spend their old-age pension on alcohol or callous children (Seekings, 2006).
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Thompson, 2001:168). Whites, by contrast, are civilised people, ‘whose standard of living
conforms to the standard generally recognised as tolerable from the usual European standpoint’
(Hertzog, as cited by Thompson, 2001:168). This provided a ‘scheme of legitimation’ for the
Civilised Labour policy, which required industries, specifically mining and public works to not
only give preference to whites but also pay them higher wages. The state furthermore
implemented substantial tariff protections for manufacturing industries, provided that they
maintained a satisfactory ratio between ‘civilised’ and ‘uncivilised’ workers. By 1939, well over
100 000 whites found sheltered employment and earned 5.3 times as much as African workers
in the manufacturing and construction industries (Bottomley, 2016; Roos, 2003; Thompson,
2001).
As the Second World War broke out, anti-British sentiments mobilised a plethora of Afrikaner
nationalist organisations that sought to secure the ‘purity’ of the Boerevolk at all costs. In his
Rasse en Rassevermenging (Races and Race Mixing), G. Eloff resorted to Ethnos Theory and
emphasised the urgency to preserve ‘the pure race tradition of the Boerevolk…as a holy pledge
entrusted to us by our ancestors as part of God’s plan with our People’ (cited in Thompson,
2001:184). Likewise, Afrikaner Nationalist and sociologist, Geoffrey Cronjé, deemed the racial-
mixing between blacks and whites as the biggest threat to the Afrikaner nageslag (descendants),
as this will produce a bastervolk (a population of bastards) (Coetzee, 1991:7; see also Hyslop,
1995). Looking at Cronje’s work, Nobel laureate J.M. Coetzee argues that this obsession with
racial mixing was emblematic of apartheid’s collective insanity.
Around mixture his mind obsessively turns. What is mixture? [...] It is mixture and the desire
for mixture that is the secret enemy of Geoffrey Cronjé and the knights of apartheid, the
baffling force that must be thwarted, imprisoned, shut away. Apartheid is many things, a
mixture of things; one of the things it is is a scheme to make it impossible for the desire to mix to find
fulfilment (Coetzee, 1991:3, my emphasis).
Here, the racial mixing and sexual activities between the VOC employees and the native
population is conveniently obscured. This was the case with most Volkekundiges, who saw it as
their duty to preserve the volk, instead of asking uncomfortable questions.
52
52
Yet, it is estimated that approximately 6 per cent of modern Afrikaner genes originated outside Europe, and that this occurred
mostly during the company period (Hesse, 1971). These forms of racial mixing and hybrid communities of the Afrikaner’s
ancestors symbolise what Noel Mostert (1993:237) calls ‘a lost route of Afrikaner history’. Referring to Coenraad de Buys and
his descendants, Mostert notes: ‘on the one hand he represented the interracial intimacy and familiarity, on the other the
ruthless self-interest, peremptory will and desire and brutality, of relations between those forerunning Boers and the indigenous
inhabitants’ (Mostert, as cited in Nuttall, 2010:27).
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Apartheid’s dream geographies
Dedicated to preserving the ‘purity’ of the white race, and particularly the Afrikaner volk,
apartheid’s engineers saw it imperative to segregate races in South Africa. To this end, the
apartheid government implemented the Immorality Act of 1927 and the Prohibition of Mixed
Marriages Act of 1949. These two pieces of legislation made it illegal for whites to get married
or have sexual intercourse with non-whites. This legislative space was accompanied by a state
apparatus that socialised white and black South Africans into believing that they were
fundamentally different. Amongst others, the idea of racial purity inherent to Afrikaner
nationalism was propagated by Afrikaans-language schools and universities, Dutch Reformed
church, books, radio, television, and newspapers (Thompson, 2001; Van Riet, 2014). Not only
did this political mythology made whites believe that they are superior to the black race, but
the socio-economic consequences that accompanied the institutionalisation of apartheid
performed this racial hierarchy into being. The materialisation of racist discourse took place
through, among others, ‘petty apartheid’. Petty apartheid refers to the racist laws that governed
the daily lives of South Africans in racially segregated offices, businesses, schools, beaches,
restrooms, park benches, restaurants, theatres, and sports fields (Beck, 2000:125-126). The
country was riddled with plaques in public spaces that read: Whites Only.
This obsession with mixture – specifically managing desires to mix – became institutionalised
through numerous pieces of legislation that separated South Africa’s population into four races:
Whites, Coloureds, Indians, and Africans. These include the Group Areas Act of 1950 which,
as mentioned, consolidated the spatial segregation set out by the 1913 Native Land Act, by
assigning racial groups to different residential and business sections in urban areas. Should non-
whites travel to white spaces, the Pass Laws Act of 1952 required them to carry a passbook at
all times. The book held personal details and the name of the individual’s white employer and
the duration of his/her employment, which served as a valid reason for being in the white area
(Van Riet, 2014:122). Additionally, the Bantu Homelands Citizenship Act of 1970 determined
that black Africans were no longer South African citizens, but rather citizens of ‘their’
‘independent’ homelands which, not surprisingly, the international community never
recognised. Rationalised through the quasi-scientific principles of Volkekunde, the apartheid
government described these segregation policies as ‘good neighbourliness’. According to
Hendrik Verwoerd, widely referred to as the mastermind of apartheid, good neighbourliness
entails the acceptance ‘that there are differences between people…and you have to
acknowledge them, at the same time you can live together, aide one another’ (Verwoed, 1961,
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cited in Burgett, 2015). Yet, differentiation between white and black, as mentioned throughout
this thesis, does not entail a ‘peaceful coexistence of a vis-à-vis, but rather…a violent hierarchy.
One of the two terms governs the other…or has the upper hand’ (Derrida, 1981:4).
Far from being biologically or culturally determined, the apartheid state (and colonial
governments before it) brought racial differences into being through a rigid form of spatial
governance that limited the areas where blacks, coloureds and Indians can live, work, or obtain
an education. Under the Group Areas Act (1950) and its subsequent amendments, the zoning
exercises that identified certain urban spaces to whites in many cases included areas that had
previously been occupied by Blacks (Beck, 2000:127; Thompson, 2001:193). These zoning
exercises led to numerous forced removals, even in cases where Africans owned land before the
Urban Areas Act of 1923 put an end to African purchases. Some of the notorious examples
include Sophiatown, located approximately 10 kilometres from Johannesburg’s city centre and
District Six, adjacent to the centre of Cape Town. Entire communities were forcibly relocated
to achieve the idealised apartheid urban geography. These forced removals were not confined
to urban areas alone. In rural areas, forced resettlements also became known as the clearing of
‘blackspots’ or fertile land occupied by blacks for use by whites in rural areas (Lipton, 1985:74).
Forced removals formed part of the government’s attempt to relocate the ‘surplus’ natives to
homelands. According to the Surplus People Project, approximately 3.5 million people were
forcibly resettled between 1960 and 1980 (Mbonwa et al., 1996:53). In a short time, Homeland
areas became extremely overcrowded, making Africans dependent on the labour needs of
farmers, or migrant work in urban areas. In cities located outside Homelands, the government
transferred large numbers of Coloureds, Indians, and Africans from the land they previously
occupied to new segregated satellite townships. These informal settlements served, and
continue to serve, as labour dormitories to meet the labour requirements of the town
(Bezuidenhout & Buhlungu, 2015). As the stories of Faeza Meyer and the poo protesters
illustrate, the apartheid and post-apartheid governing of spaces reiterate inequalities by keeping
‘raw lives’ out of sight and mind. In his denunciation of apartheid’s political geography,
Coetzee’s essay Into the Dark Chamber: the writer and the South African State (1986b) provides a glimpse
into this spatial governmentality:
If people are starving, let them starve far away in the bush, where their thin bodies will
not be a reproach. If they have no work, if they migrate to the cities, let there be
roadblocks, let there be curfews, let there be laws against vagrancy, begging, and
squatting, and let the offenders be locked away so that no one has to hear or see them. If
the black townships are in flames, let the cameras be banned from them…Certainly there
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are many lands where prisons are used as dumping-places for people who smell wrong
and look unsightly and do not have the decency to hide themselves. In South Africa the
law sees to it as far as it can that not only such people, but also the prisons in which they
are held, become invisible (Coetzee, 1986b).
South African writers have captured the consequences of apartheid’s spatial governing in ways
that reveal the delicate and intricate meanings and emotions accompanying these forms of
exclusion, oppression, and humiliation. One such example can be found in Adam Small’s Kanna
hy kô hystoe
53
(Small, 1999 edition), a play that deals with the misfortunes of being coloured in
apartheid South Africa. The play’s main character, Kanna, is expected to return home after
many years abroad, and during much of the play, it is unclear when and if he returns. He does
eventually return, but only to attend the funeral of his adopted mother, Makiet, and returns to
his overseas home shortly after the funeral. This sense of an unfinished journey resonates with
the incompleteness of raw life: the constant threat of displacement, of being placeless, of trying
to carve out a sense of ordentelikheid amidst the harshness of everyday life. Having once lived in
District Six, Kanna’s story captures the socio-economic and emotional impact of forced
resettlements. Victims always conveyed a devastating sense of loss to the researchers of the
Surplus People’s Project (Platzky & Walker, 1985). This entailed depictions such as leading ‘the
life of a bird’ and never being able to get used to one place. One study reports on how resettled
communities lamented the fact that the apartheid policies prevented them from living like ‘men
with souls’ (Barnard, 2007:73; Desmond, 1971).
Recognising Kanna’s intellectual potential at an early age, Makiet sought to enhance his
chances for professional success by spending much of her family’s limited income on his
education. This success he did achieve, overseas, where he became an engineer. Having spent
time away from the modes of social life apartheid produce, Kanna develops a growing
consciousness of his own and his family’s marginalisation due to their race and the associated
forms of humiliation this brings about. These emotions get illustrated in the following scene
early in the play (Small, 1999:24)
Kanna: Hy het op die reling gaan sit (he went to sit against the rails)
Armoede en euwels. (poverty and evils).
Dag in, dag uit. (Day in, day out).
Jaar in, jaar uit die vernedering. (Year in, year out the humiliation).
53
This is a particular dialect of Afrikaans, spoken mainly by Coloureds, but also other communities living in the Western Cape.
The history of what has been termed ‘Afrikaaps’ reveals the mutual entanglements between white Afrikaners and the non-
white population. It is this history that has been strategically overlooked by the Afrikaner nationalists to differentiate themselves
from the Other. An insistence on uniqueness, according to Nuttall, represses ‘precisely what draws together, what links, the
oppressor and the oppressed, black, white and coloured’ (2010:28).
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Geslag op geslag. (Generation after generation).
This scene is followed by a series of recollections of instances of torment. One such instance is
the scene where Diekie, Kanna’s younger brother, is brought in front of a magistrate as he is
sentenced to death by hanging, for taking revenge upon his sister Kietie’s husband, Poena, who
sold her into prostitution. Kietie has been raped multiple times, the first time when she was
seven. The first rape was a gang rape that dislocated her hip and left her crippled. During
another rape, Kietie falls pregnant and conceives a child, which drives her to insanity. It was
during this second pregnancy when Poena, under the influence of drugs, slashed Kietie’s
stomach with an axe, hit her over the head, and kills her. Diekie sees this and decides to take
revenge, an act for which he gets hanged. It is the death of both Kietie and Diekie that
eventually kills Makiet. The theme of death emerges early on in the play when Makiet says to
Kanna, ‘Alles waai hier doot, Kanna’ (everything is blown to death here, Kanna; Small, 1999:11).
Although the wind in Cape Town does kill much of the plant life, Makiet here draws attention
to the precarity of life in these settings. Commenting on the play, Adam Small (1976) explains
that Kietie’s story reveals the fate of many people living in townships, who continuously deal
with a sense of purposelessness and entrapment. When the judge reads Diekie’s sentence, the
line ‘as hulle vir Dieke versagting gevind het, moet hulle vir duisende versagting vind’ (if they found mitigating
circumstances for Diekie, they would have to find mitigating circumstances for thousands), is
subsequently repeated (Small, 1999:57). Here, the judge recognises that Diekie’s behaviour is a
symptom of his social circumstances, where the socialisation into a violent and uncertain
existence often force people ‘to adopt violent measures as a matter of survival, and in the
process, losing their sense of right and wrong’ (Wilson & Ramphele, 1988:51).
Ellen- Die Storie van Ellen Pakkies (Ellen – The Story of Ellen Pakkies, Joshua, 2018) illustrates the
alarming continuities in the modes of suffering we see in Kanna, years after the play was written.
Based on real-life events, this film reveals how the production of raw life creates a breeding
ground for substance abuse and gangsterism as an alternative form of social security in a context
of limited employment opportunities. As Ross (2010:7) notes in her study of residents in The
Park, one of the ways in which people deal with the humiliations associated with raw life is
through drug use and alcohol dependence (Ross, 2010:7). In the Cape Flats region, the use of
crystal methamphetamine – locally known as ‘tik’ – has increased significantly from the mid-
2000s (Goga, 2014). This is a highly addictive psychostimulant that is relatively easy and
inexpensive to manufacture. The drug produces an extreme dopamine boost that generates
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feelings of euphoria and happiness. Long-term usage destroys the brain’s ability to naturally
produce dopamine, often causing memory loss, psychotic behaviour, and aggression (Masters,
2017). It is these behavioural changes that led Ellen Pakkies to strangle her tik-addicted son,
Abie, to death in 2007. Like Kietie, Ellen Pakkies has been a victim of rape in the Cape Flats
since she was four years old, and during one rape as an adult, she fell pregnant with Abie. She
tried to carve out a decent living for him and her family in the Cape Flats, but Abie struggled
to deal with the fact that he was born out of such an atrocity and gives into tik. Like many
others, he started engaging in criminal behaviour to pay for his next fix, stealing from his
mother numerous times. During withdrawal episodes, he assaults his mother and tries to burn
down her house (see McKaiser, 2018). When Ellen Pakkies stood trial for the murder of her
son, the reasoning for her actions reveal the stark similarities to Kanna’s (Small, 1999:24)
observations of life in the Cape Flats, cited above. She explains to the prosecution that she
wanted to escape fear and evil: ‘Net vir een dag, wou ek nie vir my lewe gevrees het nie. Nie elke dag te
worry oor watse evil ek nou weer gaan sien nie. U verstaan nie daai vrees nie’ (Just for one day, I didn’t
want to fear for my life. Not worry about what evil I’ll see today. You don’t understand that
fear) (Ellen- Die Storie van Ellen Pakkies, 2018). She explained to the prosecution that she tried
alternative avenues: she got an interdict against Abie, tried to take him back to school,
approached doctors and rehabilitation centres, but was unable to get the help she needed (for
coverage of the court case, see Jones, 2008a, 2008b; Samodien, 2008). In reading her sentence,
the magistrate presiding over the case, Amanda von Leeven (much like the magistrate
sentencing Diekie), notes that her circumstances drove her to take her son’s life and decides to
give her a three-year suspended sentence and 280 hours of community service (Valentine,
2018).
54
I don’t believe the accused is aggressive, or violent, by nature. I also believe that she
pursued every avenue available to her. In this regard, the state, as well as her community,
failed her. This is a tragedy that didn’t need to happen…I don’t believe imprisonment is
appropriate here. The system has failed your Mrs. Pakkies (Ellen- Die Storie van Ellen
Pakkies, 2018).
55
Another literary work that captured the unjust nature of apartheid – a story with stark
similarities to Faeza Meyer’s struggle to find permanent housing – is Elsa Joubert’s Die Swerfjare
van Poppie Nongena (The Wandering Years of Poppie Nongena), first published in 1978. Based
54
In 2012, it was reported that Ellen Pakkies lost her grandson to tik and a gang-related shootout, and that she is battling
with her eldest son who also fell victim to the drug (Prince, 2012).
55
This passage is taken from the film, Ellen – Die Storie van Ellen Pakkies (2018), but the real life reading is very much the same
(see Jones, 2008a, 2008b; de Klerk, 2019; Holm, 2017:75-77).
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on true-life events, this book tells the story of an Afrikaans-speaking Xhosa woman born in the
Northern Cape in 1936. Married at the age of 16, she and her husband start a family; however,
as the apartheid government’s Volkekunde-inspired policies became enforced in the 1950s, she
and all other African women are forced to leave the area. They relocate to the Nyanga township
in Cape Town, but struggle to find accommodation and waged employment. In fact, like many
others, Poppie gets sent from pillar to post by the apartheid bureaucracy and finds herself in a
constant struggle to obtain permission to stay, moving from house to house, applying for
permits, monthly extensions of permits, fortnightly extensions of extensions (Dyer, 1980). This
trapped her in a state of liminality, resonating with the depiction of a ‘life as a bird’, mentioned
earlier. Neither she, nor her children, were able to escape the modalities of raw life apartheid
produced, and this sense of entrapment – unemployment and a lack of opportunity to carve
out a decent living (ordentelikheid) – remains a reality for many South Africans even after 1994,
as the stories of Ellen Pakkies and Faeza Meyer attest.
Raw life in democratic South Africa: the governmentality of credit ratings
The systemic violence of apartheid makes the task of distributive justice in democratic South
Africa an extremely complicated one.
56
As the preceding sections made clear, there are many
continuities in the forms of suffering produced by apartheid. This is not to suggest, as is often
the case, a direct continuity with the past. Indeed, the political elite of contemporary South
Africa has arguably never been more diverse, specifically in terms of race, gender, and ethnicity.
In 2010, South Africa’s black middle class, for example, emerged for the first time as larger
than its white middle class, a statistic that contests a stasis in the social structure of the country
(Brulliard, 2010; Nuttall, 2010:2). Instead, post-apartheid South Africa is an age that encloses
multiple durées. It is ‘made of discontinuities, reversals, inertias, and swings that overlay one
another…envelope one another: an entanglement’ (Mbembe, 2001:14, original emphasis).
The governmentality of sovereign credit ratings entangles South Africa’s violent past with the
post-apartheid present in two important ways. First, categorised as an emerging market with a
potentially fragile, uncertain, and volatile economy, the post-apartheid government has been
encouraged to act in a ‘creditworthy’ way through the adoption of neo-classical policies like
central bank autonomy, inflation targeting, and the removal of trade barriers (Aguir, 2018;
56
I recognize that concepts such as redistributive justice and democracy has a lot of conceptual baggage (Hamilton, 2019).
Due to space and time constraints, I will not delve into these debates. For the purposes of this discussion, what I mean here is
that the question of how to deal with the socio-economic and racial hierarchy left by this violent past in a representative
democracy is extremely complicated and a cause of frequent debate (see Habib, 2013; Hamilton, 2014b).
171
Grabel, 2000). These policies have enabled the financialisation of South Africa’s economy and,
in particular, the transition away from a Fordist regime to a service-based economy, with
financial services becoming increasingly important (Makhulu, 2017). However, the dominant
sectors in a service-based economy – finance, insurance, and real estate – produce little material
value in terms of job opportunities as they depend more on speculation and the potential of
capital and credit in circulation real productive sectors. As such, South Africa has experienced
‘jobless growth’ in the late 1990s and early 2000s as job shedding shrank agricultural,
manufacturing and mining industries. Second, the financialisation of South Africa’s economy
has been accompanied by new forms of precarious labour, informal livelihoods, and often high
levels of individual indebtedness (Makhulu, 2017). These changes have often been explained as
the result of the ANC’s embrace of neoliberalism and policies like the privatisation of public
goods, fiscal austerity, and trade liberalisation (Bond, 2002; Marais, 2011). Yet, one should be
careful not to fall prey to polemic generalisations of neoliberal projects that provide a singular,
universalising account of governance arrangements (Barnett, 2005:9). Instead, it is necessary to
build a nuanced account of how neoliberalism as a logic of governing migrates and is selectively
taken up in diverse political contexts. For instance, although the ANC has stringently adhered
to prescriptions like inflation targeting and central bank autonomy, it nevertheless spends a
significant amount of its budget on social protection (Ferguson, 2009). Indeed, the country has
the largest unconditional grant transfer programme on the continent and also provides public
health care and has progressive labour laws (Devereux, 2011).
However, these social protection mechanisms are by and large inadequate to prevent the
intergenerational transmission of poverty. To a large extent, as the following chapter also
explains, the governmentality of sovereign creditworthiness limits the redistributive capacity of
the post-apartheid government, as deficit spending in the short-term inevitably leads to
inflation, uncertainty, and economic collapse in the long-term. This entrenches, on the one
hand, the public transmission of poverty, which occurs when there is a lack of transfer of
resources from one generation to the next through, for example, non-inclusive economic
growth policies that reduce the ability of one generation to support the education of the
youngest (Harper, et al., 2003:536). However, the intergenerational transmission of poverty
also has a ‘private’ dimension, which occurs between older generations of individuals and
families to younger generations. As the rest of this chapter shows, the intergenerational
transmission of poverty significantly entangles the post-apartheid present to the colonial
histories of European expansion.
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The political economy of post-apartheid South Africa: exploring the continued
relevance of history in contemporary inequalities
By any measure, South Africa is the most unequal society on the globe. Consider, for instance,
the May 13, 2019, international cover of TIME magazine, which examined South Africa as
‘the world’s most unequal society’ (Pomerantz, 2019). The cover photo, which compares two
adjacent areas in Johannesburg, was taken by Johnny Miller as part of his ‘Unequal Scenes’
project that utilises drone footage to visualise inequality. This image captures the extent of
inequality in South Africa. On the left, in the Primrose suburb, properties have ample green
space, swimming pools, and houses/office parks are much larger than the structures on the
right, in Makause. Here, roads are untarred, houses are built very close to each other and with
very limited green space, if any at all. These areas are also much more likely to struggle with
poor service delivery such as water and sanitation infrastructure, electricity, and refuse disposal
(Hart, 2014; Hunter, 2010).
South Africa has more luxury-car dealers than any country outside the industrialised north
(Marais, 2011:1), yet 30 per cent of its working-age population cannot find waged work (Stats
SA, 2020). Despite significant progress, many households in townships do not have access to
safe drinking water and sanitation, which often cause diarrhoea, anaemia, and other nutrition
requirements. Approximately 27 per cent of children under five years of age are stunted
(Mboweni, 2019). The cognitive damages of stunting are irrecoverable, which puts millions of
children at a disadvantage when it comes to learning. What complicates this situation is that
the post-apartheid South Africa education system is characterised by stark inequalities,
undoubtedly rooted in the legacy of apartheid, as well as the continued failure by the current
government to address these inequalities (Amnesty International, 2020; Hunter, 2010:105-
129). The apartheid government’s Bantu education policy provided different forms of
education to students according to their separate cultural identities. For Whites, this meant
compulsory attendance at public schools, but optional for Coloureds and Indians in their
schools. Until 1953, African schools fell under the Department of Education but were run by
church missions (Beck, 2000:132). This troubled the apartheid state, as it feared that the mission
schools could disseminate ‘false’ ideas about equality, human and civil rights. In a notorious
speech, Verwoerd made clear that the education of Africans
[…] should have its roots entirely in the Native areas and in the Native environment and
Native community…The Bantu must be guided to serve his own community in all
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respects. There is no place for him in the European community above the level of certain
forms of labour…For that reason it is of no avail for him to receive training which has as
its aim absorption in the European community while he cannot and will not be absorbed
there (Verwoerd, as seen on SAHO, 2016).
In other words, Africans should not be educated for jobs they will never be able to hold in
White-ruled South Africa. Nkondo’s (1979) comparison between Bantu and white syllabi shows
the immense differences of depth, time allocation and resourcing. The government spent nearly
ten times as much per capita on white students as on African students, while African classes
were more than twice the size white ones were. Teachers in white schools were far more
qualified than African schools, who were paid less, and had to teach schoolchildren from
textbooks that expressed the government’s racial views.
These material disparities, despite some progress, persist. Many schools catering for households
in township areas lack basic facilities like electricity, sanitation facilities, libraries, and sports
facilities (Amnesty International, 2020). A study conducted by Amnesty International (2020) on
the state of education in South Africa showed that township schools in Gauteng and the Eastern
Cape, attended solely by black Africans from low-income households, were in a severe state.
School buildings are poorly maintained and put the safety and security of learners at risk; classes
are often overcrowded and without basic equipment such as furniture and textbooks. Learners
in these schools are much more likely to drop out from Grade 6. Out of 100 learners, 50 to 60
would reach Grade 12 and only 40 to 50 learners will pass, while 14 would go to university
(Amnesty International, 2020:32). Reasons for dropping out include a lack of financial
resources, poor academic performance, and family commitments (i.e. getting married, caring
for children, and teenage pregnancy) (Stats SA, 2019:14). This diminishes the likelihood of
enrolling into university and finding employment in the formal sector. In cases where students
from low-income, black households enrol into university, they tend to drop out at a much
higher rate, with 32.1 per cent leaving their first year (Gumede, 2017). The 2015/2016
#feesmustfall protests, which brought South African universities to a standstill, drew attention
to how the fee structure of tertiary institutions prohibits many families – predominantly black
African – to obtain a degree.
By contrast, formerly classified ‘white’ schools in wealthy suburban areas, apart from state
funding, have income streams that are unavailable to township schools. These include high
school fees that many low-income households cannot afford and fund-raising campaigns where
wealthy parents donate funds and other school materials, such as computers, printers,
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laboratory resources – including sufficient financial resources to hire additional teachers
(Ndimande, 2016). As a result, these schools tend to produce better academic results, with more
students completing high school with a ‘bachelor’s entry’ that allows them to go to university.
Upper-middle-class households, or particularly gifted children, have access to elite private
schools. These schools often have exorbitant fee structures that are out of reach for most South
Africans.
57
The post-apartheid government’s ‘willing buyer willing seller’ policy to redistribute land has
undermined attempts to address the socio-spatial injustices of apartheid. Although the
constitution allows for expropriation without compensation, the government has been reluctant
to use this principle in its land reform programmes (see Borras, 2003; Hall, 2004). Instead, it
has often paid exorbitant prices for agricultural land, the redistribution of which has been slow,
and seems to favour applicants who want to engage in commercial farming (Lahiff, 2007). This
approach to land reform has also complicated urban housing delivery, as Faeza Meyer’s story
shows. The ANC’s commitment to building thousands of low-cost houses has been rolled out
through the colloquialism of ‘RDP houses’, named after the party’s flagship Reconstruction
and Development Programme. Yet, with a few exceptions, these housing projects work through
apartheid’s geography rather than providing a basis for its transformation (Hunter, 2010:110).
The market mechanism for delivering RDP houses means that many are still on the outskirts
of towns, where land is cheaper. Despite having a new house, many Africans continue to have
limited access to the urban labour market.
Residents in the middle- and upper-class residential areas near city centres often oppose low-
income housing delivery near their neighbourhoods, raising concerns about the market value
of their properties and fears of crime and other social ills (Mongwe, 2010; Samara, 2010; Van
Riet, 2014:130). In fact, with a few exceptions, white-only neighbourhoods are still racially
exclusive, often gated and social interaction among different race and ethnic groups are
alarmingly limited (Goebel, 2007). There is a myriad of reasons for why apartheid’s spatial
inequalities, as depicted in the images above, persist in democratic South Africa. These range
from economic policy and financialisation processes (discussed in Chapter Six), poor and
57
Hilton College in Kwa-Zulu Natal cost R321,890 (€16,126) per student, followed by Michealhouse, R303,600 (€15,210).
On the list of top ten most expensive schools, the least expensive one was St. Alban’s college, with R264, 900 (€13,271) annual
tuition fees (de Villiers, 2020). In comparison, semi-state public high schools cost R29,500 (€1477) (“Top private and public
schools in South Africa”, 2018) per student per year, while state-only funded schools are free. Some of the benefits of private
schools include the teacher-to-student ratio, which is 1:15, compared to 1:30, and even higher in public schools; highly qualified
staff, professional sport academies, libraries, and music education. Most matriculants pass with a ‘bachelor’s entry’ (88 per cent
in 2017) that allows them to go to university. Conversions completed on 9 September 2020.
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exclusive economic growth accompanied by high rates of unemployment and
underemployment, and limited opportunities for historically disadvantaged groups to break the
intergenerational transfer of poverty (Hunter, 2010; Van Riet, 2017). The situation is worsened
by weak political leadership that undermines policy implementation (Habib, 2013). While
recognising that the ANC – or any political party stepping into power after apartheid – faced
an enormously difficult task, the governing party has been racked by corruption scandals with
limited accountability for those that have been found guilty (Corruption Watch, 2020; Gevisser,
2019; Hamilton, 2014b). In fact, it is difficult to keep track of these scandals, let alone determine
just how much they have taken from South Africans. Nevertheless, coupled with a dysfunctional
state bureaucracy, it is safe to say that large sums of money have been lost to corrupt dealings
meant to improve the lives of South Africa’s poor; the impact of corruption is indeed significant
(Lowman, 2017).
The combination of these factors enabled the formation of a security infrastructure that has
furthermore entrenched historical spatial inequalities. This infrastructure consists of private
security companies (PSCs) and their 24-hour armed response services, alarm systems,
surveillance cameras, neighbourhood watches and Facebook and Whatsapp ‘crime watch’
groups (Van Riet, 2020). These security practices emerged alongside growing fears amongst
white South Africans that the relaxation of influx control measures will lead to an increase in
crime. Although crime did indeed grow, this security infrastructure and its accompanying
anxieties facilitate a mode of spatial governing that reiterate apartheid geographies (Anciano &
Piper, 2019; Robins, 2002; Samara, 2010; Spinks, 2001; Van Riet, 2020). For instance, Samara
(2010) documents how, in the City of Cape Town, policing practices by a PSC sought to secure
the inner-city by taking care of potential crime elements. The targets here are generally street
children, unemployed/homeless persons, street vendors and informal workers, as well as
unlicensed performers. They are virtually all black and coloured men, women, and youth from
the townships or migrants and refugees from neighbouring states. Akin to Faeza Meyer’s
struggle to secure a place to sleep without coming into conflict with law enforcement, the
policing practices in Cape Town’s inner city had striking similarities with apartheid’s spatial
governance. Some of these activities were characterised by violent beatings and harassments,
mainly of street children. According to one respondent, the police has ‘had reports of children
being picked up by security firms in Cape Town and dumped in Camps Bay and then being
picked up in Camps Bay by police there and then being dumped back in town’ (Jackson as cited
by Samara, 2010:648). Similar stories have been reported elsewhere in the country (Anciano &
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Piper, 2019; Buur, 2008; Van Riet, 2020). Even in the midst of the COVID-19 pandemic,
despite the state’s issuing of a moratorium on evictions, the City of Cape Town’s Anti-Land
Invasion Unit (ALIU) continued evicting people occupying unused urban land or buildings
(EWN, 2020). This occurred at a time when many households not only saw their incomes shrink
due to COVID-19 mitigation measures but also extremely harsh winter conditions (Kiewiet,
2020). Although the Western Cape High Court found these actions illegal in a context of a
national state of disaster, such forms of spatial governing are otherwise legally allowed, which
reveals the problematic legal apparatus governing spaces in post-apartheid South Africa.
Moreover, as Ellen Pakkies’s testimony demonstrates, fear is something that most South
Africans experience, especially women and girls. Limited employment opportunities, coupled
with high levels of poverty and inequality, have created a breeding ground for crime. In
2018/19, a total of 2,771 women were murdered in South Africa, which means that a woman
is murdered every three hours. South Africa also has the highest cases of rape per 100,000
citizens which is at 132,4. In 2018/19, the total cases of reported rape were 41,583 (AfricaCheck,
2019; World Population Review, 2020). There is also a proliferation of gang activity, organised
crime, and drug trafficking, particularly in the Cape Flats region on the outskirts of the City of
Cape Town. The Cape Flats region is mainly inhabited by Coloured and African households
– a relic of apartheid’s forced removals – where gangsterism and drug trafficking foregrounds
the lives of residents. For many (especially young males, often as young as nine years of age),
gang membership presents a source of protection, income (from drug sales) and self-esteem
(Dziewanski, 2020). At the same time, gangsterism puts the safety of millions of South Africans
at risk: gang initiations, for instance, often require prospective members to rape and/or murder
innocent civilians, conduct armed robberies, housebreakings or other forms of theft (Cooper,
2009; see also Rossouw, 2019). The proliferation of gangs is accompanied by ‘turf wars’, and
stray bullets have killed many children and residents in shootouts. In 2019, these turf wars killed
an unprecedented number of people, amongst others, a 30-year old pregnant woman and a
seven-year-old boy, named Emaan Solomons (Fisher, 2019). By June, more than 900 people
were killed in gang-related wars in the Cape Flats region alone, prompting the government to
deploy the South African National Defence Force (SANDF) to help provincial police officers
address gang-related crime and violence in the area (Davis, 2019). These SANDF troops
patrolled the area for three months, the success of which is yet to be determined.
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Just a few kilometres away, in the wealthy suburbs of Hout Bay, Rondebosch, and Bishop’s
Court, one is confronted with a strikingly different reality. Although the threat of violent crime
persists, it is not nearly as high or as violent as in township areas. For instance, between 2013-
2017, in the Delft neighbourhood of the Cape Flats, there were 446 murders per 100,000
residents, compared to 72 per 100,000 in the neighbouring, affluent, Camps Bay (Bax et al.,
2019). At the same time, in 2018, Delft, had 169 police officers per 100, 000 people. By
comparison, the wealthy suburb of Rondebosch had 556 police officers per 100,00 people
(Payne, 2018). As such, those who reside in townships are primarily left to their own devices in
dealing with their security. Police stations servicing wealthy suburbs are more resourced, albeit
still inadequately so, and cater to a smaller population (Van Riet, 2020).
Frustrations with the government’s failure to address the many injustices of apartheid manifest
in frequent, and often violent protests across South Africa. Mostly directed at municipal
government, these protests typically deal with a lack of service delivery in terms of water and
sanitation, housing, safety, electricity, and refuse disposal (Hamilton, 2014b; see also Marais,
2011). Local government, as Hart (2014:5) explains, has become the key site of contradictions
in post-apartheid South Africa. It has become ‘the official terrain of official efforts to manage
poverty and deprivation in a racially inflected capitalist society marked by massive inequalities
and increasingly precarious livelihoods for the large majority of the population’ (Hart, 2014:5).
Although protests are complex and eclectic phenomena, at the very least, they have bundled
into them numerous grievances that symbolise the ANC’s failure to deliver on its promises
during the democratic transition (Marais, 2011:458).
Disillusioned with the promise of democracy, South Africa’s traumatic past remains intricately
entangled in its present. A pivotal event that captured the violent entanglement between the
past and present is the Marikana Massacre of 16 August 2012. Amidst escalating violence
between striking mineworkers and security officers at a Lonmin platinum mine in the North
West province of South Africa, in a reportedly calculated move, the South African Police Force
(SAPS) opened fire and killed 34 mineworkers (Bruce, 2016:7). This event evokes images and
memories of police brutality in the 1960 Sharpeville massacre and 1976 Soweto Uprising, when
the apartheid police force fired on a crowd of people protesting against the apartheid system
(Hart, 2014:2). Whereas the latter massacres sought to protect a racist system, the Marikana
Massacre occurred against a backdrop of eroding investor confidence, prompting authorities
to restore stability (profitability) at the Lonmin mine. This event, alongside others discussed
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throughout this chapter, can be thought of as apartheid’s ‘ghosts’, sites of memory that ‘resist a
complete erasure of the past’ (Segall, 2005:42).
Conclusion: South Africa as a haunted society
This chapter sought to contextualise the socio-economic and political histories that are stripped
away in sovereign credit ratings. By drawing on Ross’s (2015, 2010, 2005) notion of ‘raw life’,
this chapter interrogated how South Africa’s traumatic past continues the haunt the present.
Through the use of novels and films, this chapter exposes the many ways in which the
intergenerational transmission of poverty takes place in post-apartheid South Africa. This takes
place on both a private and public level, that is, on a household level and through the inability
of the state substantially address historical injustices through, for instance, the provision of
adequate housing, water, education, and nutrition.
In the following chapter, I consider how the sovereign creditworthiness assemblage interacts
with apartheid’s ghosts, that is, how it complicates the task of ‘putting these ghosts to rest’
through large-scale social change. The governmentality of sovereign creditworthiness interacts
with local social histories in complex and contradictory ways. From an assemblage framework,
Chapter Six shows how sovereign credit ratings bring together the ideas, histories, methods,
models, and technologies discussed in the previous chapters, and how this assemblage unfolds
in the governing of spaces and people in post-apartheid South Africa.
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Chapter Six
Assembling the creditworthy sovereign
On the 27th of March 2020, Moody’s downgraded South Africa’s sovereign creditworthiness to
Ba1 from Baa3 (Moody’s, 2020a). Thus, more than two years after both S&P’s and Fitch rated
the government’s debt as ‘junk’, Moody’s finally followed suit. The key driver behind the
downgrade, according to the agency, is the ‘continuing deterioration in fiscal strength and
structurally very weak growth’, both outcomes reflecting ‘weaker economic and fiscal policy
effectiveness’ (Moody’s, 2020a). This downgrade had been anticipated for months (see Brand
& Naidoo, 2019; Tayob, 2020). In November of 2019, the agency changed South Africa’s
outlook to negative from stable, suggesting that unless the Minister of Finance, Tito Mboweni,
presents a ‘credible fiscal strategy to contain the rise in debt’ in the 2020 budget speech, a
downgrade is inevitable (Moody’s, 2019). The Budget Speech, which took place on the 26th of
February 2020, sought to convince the agency of the government’s commitment ‘to fiscal
discipline’ with ‘prudent fiscal policy’ measures (Mbonweni, 2020). This entailed several
spending cuts to areas such as education, much needed human settlements development, and
municipal infrastructure, amongst others (National Treasury, 2020:50). Although the agency
welcomed these reforms, one day into the nationwide lockdown, Moody’s proceeded with the
much anticipated downgrade, followed by further downgrades in November. Many
governments across the globe took this decision: by April 2020, around half of the world’s
population was in some form of lockdown (Sanford, 2020). According to World Bank (2020)
projections, these measures are expected to plunge the global economy into the deepest
recession since World War II.
Acting in a characteristically procyclical manner, Moody’s has released several issuer comments
that express concern about the government’s creditworthiness, mainly rising debt levels. In
particular, the agency cautioned that the government’s COVID-19 support programme would
not only prevent a sharp economic contraction, but also weaken the country’s public finances
(Moody’s, 2020b). On the 9th of September 2020, Moody’s released another issuer comment
that cast a dark shadow on the country’s future: according to Moody’s, the economy will not
return to pre-COVID-19 levels before 2023 (Moody’s, 2020c).
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South Africa’s relationship with CRAs captures a controversial aspect of macro-economic
policymaking in the post-apartheid era, that is, to stringently adhere to the criteria of policy
credibility laid out by new-classical economics (see Grabel, 2000). First, the ANC government
agreed to settle billions of dollars of foreign debt incurred by the apartheid state. Second,
instead of refinancing existing debt with more debt from international institutions to address
urgent issues of wealth redistribution and economic transformation, it adopted an austere fiscal
programme to reduce public debt (Hamilton & Viegi, 2009). This policy approach differed
significantly from the socialist-democratic ideals set out in the ANC’s Freedom Charter, which
entailed the nationalisation of key industries – including land – to create jobs and promote
social equality (Nattrass, 1994). Even the Reconstruction and Development Programme (RDP),
a Keynesian, basic-needs programme that the ANC adopted shortly before the 1994 election
entailed many compromises on socially progressive macro-economic policy (Marais, 2011).
The ANC sought to portray an image of sound fiscal management to potential creditors, which
would make it less expensive for them to finance the transformation of the economy (Hamilton
& Viegi, 2009). However, as Chapter Five revealed, post-apartheid South Africa has yet to be
substantially transformed: the ghosts of apartheid stubbornly haunts the present. How are
sovereign credit ratings implicated in this story?
The goal of this chapter is to examine how the sovereign creditworthiness assemblage governs
macro-economic policymaking in South Africa, and the political economic implications
thereof. Building on previous chapters, I approach the governing powers of the sovereign
creditworthiness assemblage through the concept of governmentality. This concept is
particularly suited to analyse the sovereign creditworthiness assemblage, as it enables an
investigation of the governing powers of ratings beyond their institutional form.
Governmentality, as mentioned throughout this thesis, does not see power as a commodity
owned by one entity to exercise over another. Instead, the governing power of sovereign credit
ratings is based on an assemblage of discourses, datasets, technologies, vocabularies, expert
opinions, and modes of assessments that establish a space of normal budgetary conduct for
states. These policy norms are typically described as ‘neoliberal’ by critics, that is, an ideology
that serves the interest of the capitalist class at the expense of the poor (Bond, 2013; Fine, 2013;
Soederberg, 2013). The ANC’s abandonment of its socialist-democratic principles has similarly
been framed as the party’s ‘embrace of neoliberalism’, and the main reason for persisting racial
and class inequalities (Bond, 2005; Magubane, 2004; Narsiah, 2002; Williams & Taylor, 2000).
These analyses often impose the following conclusion according to Ferguson (2009:166):
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‘neoliberalism is bad for poor and working class people, therefore we must oppose it.’ Ferguson
(2009) terms such accounts of neoliberalism as a kind of ‘anti’ politics that solely generates
denunciatory analyses of government. Instead, a progressive politics, according to Ferguson
(2009:167), must ask: ‘what do we want’? This is a different question than: ‘what are we
against?’ and demands a nuanced account of how neoliberalism as a logic of governing migrates
and is selectively taken up in diverse political contexts.
As outlined in the introductory chapter, in this thesis I draw on Foucault’s explanation of
neoliberalism as an ‘art of government’, or political rationality, which seeks to govern not
through command or control, but the calculative choice of ‘free’ actors. In this final chapter, I
consider how the neoliberal governmentality of sovereign credit ratings unfolds in post-
apartheid South Africa. As I will show, the governing powers of this assemblage fails to secure
a ‘creditworthy sovereign’, as it creates and, in many ways, punctuates ‘historically entrenched
configurations of uneven spatial development’ (McFarlane, 2011a:381). This leads to frequent
and often violent instances of social unrest, coupled with widening poverty and inequality that
continuously undermine the creditworthiness of South Africa, rendering the servicing of public
debt expensive (Hamilton & Viegi, 2009).
The first section of this chapter explores the neoliberal (global) governmentality of sovereign
credit ratings and how it is implicated in the making of post-apartheid macro-economic policy.
This section reveals the centrality of ‘expert advice’, scenario planning and scientific evidence
played in the ANC’s decision to abandon the Keynesian, state-led policy recommendations of
Macro Economic Research Group (MERG). The second section looks at key changes in South
Africa’s sovereign credit rating over the past 26 years alongside macro-economic growth trends.
Here the goal is to explore the socio-economic consequences of the sovereign creditworthiness
assemblage by focusing on how the governmentality of ratings intensifies the financialisation of
the economy. To this end, I focus on the Marikana Massacre and the financialisation of mining
conglomerates in the post-apartheid era. Lastly, this chapter concludes by revealing how the
neoliberal governmentality of sovereign creditworthiness fails, that is, how this rationality in
many ways undermines the government’s creditworthiness by facilitating economic conditions
that lead to social unrest and capital flight.
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Neoliberalism and the State: a governmentality approach
In Chapter Three, I briefly outlined Foucault’s explanation of neoliberalism as a rationality of
government that saw the question of state-formation as a ‘commercial opening’. Compared to
the role of the State vis-à-vis the market in Classical Liberalism, where the State assumed a
regulatory position to ensure the legitimacy of the market, in neoliberalism it is the market that
produces legitimacy for the state (Foucault, 2008:120; Gane, 2012). Here, as Chapter Four
made clear, CRAs occupy an important role. As ‘centres of calculation’ in an epistemic
infrastructure of financial knowledge flows, their rating judgements validate the knowledge that
circulates about a sovereign government and a country’s economy. This validation, in the form
of a risk rating or ‘issuer comment’ signals the extent to which a government conforms to this
rationality. Conformity here refers to the adoption of ‘rationalist’ new-classical economic
policies that aim to create an optimal space for homo œconomicus and ensure market efficiency
and transparency. To recall, the EMH assumes that the market is made up of rational economic
agents that use all available information when forming expectations about the future. Amongst
other things, these agents assess the credibility of an announced policy when forming
expectations, the effectiveness of the policy, policy-makers’ commitment to sustaining it and,
therefore, the likelihood of reversal or collapse (Gabriel, 2000:3). These questions are especially
pertinent for emerging markets: as modern incarnations of Lady Credit, they generate
significant uncertainty for potential creditors. In order to garner trust among rational agents, it
is necessary to insulate financial policy from the vagaries of political processes where short-term
political goals dominate (Aguir, 2018; Gabriel, 2000:5).
Discussed in Chapter Three, this entails the adoption of rule-based-policy making, granting
autonomous powers to the central bank, and the adoption of anti-inflationary policies. In South
Africa, financial policy credibility was furthermore sought through the ‘importation’ of outside
experts including the World Bank, IMF, as well as domestic academics, corporate leaders, and
public intellectuals (see Davie, 2015; Peet, 2002). Indeed, the idea that knowledge is somehow
necessarily to be found outside of the State remains a central feature of neoliberal governing in
post-apartheid South Africa. This creates an authoritative space for what Peet (2002) terms an
academic-institutional-media (AIM) complex. Akin to the epistemic infrastructure of
knowledge production discussed in Chapter Four, Peet (2002) explains that the AIM governing
post-apartheid macro-economic policy is made up of discourses and theories elaborated by
academics in elite institutions, usually leading universities in ‘spaces of hegemony’. These ideas
get translated into policy prescriptions, position papers, press releases, commentaries in
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prominent business newspapers, expert interviews, programmes, books, and research reports.
It is the functioning of this AIM, according to Peet (2002), that disciplined the ANC’s macro-
economic policy ambitions in accordance with hegemonic new-classical prescriptions.
Peet’s (2002) article is one of many documenting South Africa’s macro-economic policy during
the transition period (Adelzadeh, 1996; Habib, 2004, 2013; Marais, 2011; Nattrass, 1994;
Padayachee & Sherbut, 2007). A prominent theme in this research is accounting for the
processes, actors, and influences behind the ANC’s decision to abandon its leftist policy ideals.
Authors like Terreblanche (2002, 2012) and Esterhuyse (2012) refer to numerous secret
meetings between ANC leaders and influential corporate figures such as Harry Oppenheimer,
Chairman of Anglo-American as well as verligte (enlightened) Afrikaner academics from the
University of Stellenbosch. Other secret meetings over economic policy involved US and
British ambassadors, the National Party (NP), the IMF and World Bank at the Development
Bank of South Africa (DBSA), often during nights (Marais, 2011; Padayachee, 2013). It was
during these behind-the-scenes talks where an ‘elite compromise’ was brokered (see Bond,
2005; Terreblanche, 2002).
The ANC decided to reject the recommendations of its research group, MERG, which
consisted of international and domestic economists and funded by Scandinavian, European
and the US governments. The MERG report, Making Democracy Work (1993), presents a
Keynesian-inspired model that saw the reconstruction of the labour market (improved training,
education, and skills-building and higher wages) as a central pillar for economic growth and
transformation. In other words, ‘growth through redistribution’. The report centred on a two-
phase growth plan, comprising of a ‘public-led phase’ and a ‘sustained-growth phase’ that
reserves a robust role for the state, including:
State intervention in output and pricing decisions in the minerals sector; regulation of the
housing and building supplies market; tightening and extending controls on mergers and
acquisitions; monitoring the behaviour of participants in oligopolistic markets; and
creating supervisory boards […] for larger companies, and developing greater decision-
making power from powerful shareholders to managers and workers (Nattrass,
1994:525).
On the 3rd of December 1993, at the Rosebank Hotel, the ANC decided to dump the MERG
report and a few days later, approached the IMF for a US$850 million five-year loan to be
spent on balance-of-payment issues. When negotiations for the democratic transition started in
the early 1990s, the economy was in a deep recession. The apartheid state was an extravagant
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one, with fourteen departments of education, health, and welfare, large military establishments,
and financially dependent Homelands. Isolated by sanctions, high inflation rates and growing
unemployment, the economy was inefficient. Although, as mentioned, the ANC did not have
to take responsibility for odious apartheid debt, it feared that defaulting would undermine their
creditworthiness and investment attractiveness (Kremer & Jayachandran, 2003). The ‘letter of
intent’ for the loan, akin to the notorious Structural Adjustment Programmes (SAP’s), entailed
conditions that prohibit “increases in real wages…and stressed the need to control inflation,
promised monetary targeting, trade and industrial liberation and repeatedly espoused the
virtues of ‘market forces’ over ‘regulatory interventions” (Padayachee as cited in Marais,
2011:87). It is this policy-shift, according to Bond (2005) that enabled an ‘elite transition’ where,
despite the change in government, society remains divided among racial and class lines.
Other scholars such as Marais (2011) argues that it was the ANC’s lack of economic expertise
that left the ANC vulnerable to ‘neoliberal orthodoxy’. When the negotiations commenced in
the early 1990s, the Cold War was unravelling. The Soviet Union has collapsed and Francis
Fukuyama (1992) famously proclaimed it the ‘end of history’. Fukuyama’s thesis takes the
demise of the Soviet Union as a confirmation that humankind has reached its ‘ideal state’ and
a particular form of political economy, namely free-market capitalism. Fukuyama’s thesis
particularly celebrates the ‘triumph of the West, of the Western idea’, evinced ‘in the total
exhaustion of viable systematic alternatives’ (Fukuyama, 1992). Here, the econometric models
of new-classical economics, as discussed in Chapter Three, plays an important role in the
triumph of neoliberal policies, despite often being overlooked. In particular, new-classial
econometric models that developed as a critique of the then-dominant Keynesian programme,
created a ‘scientific’ argument in favour of free-market economics. This numerical
representation of the market-place as an ensemble of rational agents creates an aura of
objectivity whereby certain courses of action seem more ‘natural’ and rational than others. In
other words, new-classical economists’ methodologies enabled the de-politicisation of
neoliberal ideas. In his obituary of Nelson Mandela, J.M. Coetzee (2014) laments how much
this thesis weighed in the making of post-apartheid macro-economic policy:
By the time he became president in his own right, he was already an old man. His failure
to throw himself more energetically into the urgent business of the day – the creation of
a just economic order – was understandable if unfortunate. Like the rest of the leadership
of the ANC, he was blindsided by the collapse of socialism worldwide; the party had no
philosophical resistance to put up against a new, predatory economic rationalism.
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Attempts to ‘rationalise’ new-classical economic policies entailed, among others, the use of
modelling and scenario exercises. These exercises exemplify attempts to manage uncertainty
through risk, as discussed throughout this thesis. Risk technologies in this case followed an
anticipatory logic that created a set of ‘as if’ scenarios about economic growth, employment,
inequality, and poverty following different macro-economic pathways. Based on speculative
knowledge, risk became reoriented ‘to action on the very basis of the imagination of those
possibilities’ (Amoore, 2013:9).
The first modelling exercise took place in 1992, shortly after the release of Nelson Mandela,
and was organised by two companies: Nedcor (from 2003, Nedbank) and Old Mutual. Prospects
for Successful Transition (Tucker & Scott, 1992), asked forty senior executives to describe the future
of the South African economy. The worst nightmare for these participants was ‘African
socialism’, followed by economic Armageddon. Contrary to subsequent scenario exercises, they
could not envision a successful growth path. Based on this pessimism, the report called for ‘a
shift away from reliance on South Africa’s traditional areas of comparative advantage (minerals
and mineral beneficiation) and towards exploiting market opportunities’ particularly export-
based manufacturing (Tucker and Scott, as cited Davie, 2015:244). While encouraging the post-
apartheid government to participate in the globalising economy, the report criticised the idea
that ‘equality of opportunity’ would suffice in uprooting poverty. By doing so, it conceded that
some form of state intervention would be necessary to address the legacy of apartheid.
The IMF (Lachman et al., 1992) and World Bank (1994) modelling exercises in subsequent
years prioritised investor confidence over basic needs. While recognising that redistribution
would be central for democracy, these modelling exercises nevertheless called for a gradual
approach to transform the quality of life to groups disadvantaged by the apartheid system. The
‘social backlogs’ left by apartheid could be financed through private-sector-led investment, but
this would require some socially progressive compromises in the short-term to enable long-term
equilibrium (Lachman et al., 1992:1).
The home-grown Mont Fleur scenarios were, arguably, the most influential modelling exercise
(Davie, 2015:245). Organised by Pieter le Roux, then Professor at the University of the Western
Cape and funded by Shell Oil and other corporations, this scenario exercise included ANC
leaders such as Tito Mboweni and newly appointed head of the party’s Department of
Economic Policy (DEP), Trevor Manuel, as well as business and labour leaders. Although the
discussions started at around thirty possible futures, participants soon agreed that there were
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only two paths open to South Africa (Davie, 2015:245). The first, captured in the scenario ‘The
Flight of the Flamingos’ is where ‘an initially slow but sustainable economic and social take-off
becomes possible’ (Le Roux et al., 1996). Akin to the scenarios of the IMF and World Bank,
the creation of confidence in the economy would be key, which entails the adoption of ‘sound
social and economic policies and …macro-economic constraints’ (Le Roux et al., 1996).
Amongst other things, fiscal and monetary discipline was listed as a prerequisite for the
attainment of this scenario, which would enable economic growth, access to world markets,
create conditions for good governance, and inclusive democracy. Although long waited
promises will not be delivered immediately in this scenario, ‘once people are convinced that
there is light at the end of the tunnel, their demands become tempered with reason’ (Maphai,
as cited in Le Roux et al., 1996:19). Here, the idea of market interaction facilitating the
rationality of less civilised people becomes evident. First, individuals are thought to be governed
by the reactions of those with whom they interact, or at least in ‘established’ liberal democracies
these interactions are expected to be peaceful – the market itself being the most obvious
example. Second, it is assumed that in the long term these interactions will influence the internal
standards, ‘subjectivities’ that shape individual behaviour, for example by influencing their
sense of good and bad, rational or irrational and so forth. At this level, market interaction can
inculcate the ‘rational’ virtues embodied, for instance, in Defoe’s colonial gentleman:
[…] prudence, diligence, punctuality, self-control, and so on. This view suggests that, if
only suitable forms of property can be set securely in place and nonmarket forms of
economic activity reduced to a minimum, then market interaction itself may function as
a means of improving the character of less civilised peoples (Hindness, 2005:396).
This governmentality underpin the Mont Fleur scenarios exercises and particularly the
rationalisation of the Flight of the Flamingos narrative. For instance, this scenario was
contrasted with Icarus, the Greek mythological figure who escaped from prison by flying with
wings his father, Daedalus, made from wax and feathers (de Vries, 2019). His father told him
not to fly too close to the sun, as this would cause the wax would melt. He also cautioned against
flying too low, as the feathers would get wet in the sea. Yet, Icarus got intoxicated by the
experience of flying and went higher and higher, causing his wings to melt and tumbling in the
sea where he drowned. This nightmarish image of the future was likened with large-scale state
intervention to transform the material lives of the poor. Echoing both Lucas and Friedman’s
exegeses of the stagflation problem in the 1960s, the Icarus scenario depicts the following:
The government embarks on a massive spending spree to meet all the backlogs inherited
from the past. It implements food subsidies, price and exchange controls, and institutes
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other ‘quick fix’ policies…after a year or two the programme runs into budgetary,
monetary, and balance of payments constraints. The budget deficit well exceeds 10 per
cent. Depreciations, inflation, economic uncertainty, and collapse follow (Le Roux et al.,
1996).
This story is accompanied by references and comparisons to similar pathways and failures
followed in Latin American countries, suggesting that South Africa’s experience would
inevitably mirror these countries experiences with nationalisation. These comparisons fulfil a
similar function as Jevons and Walras’s analogies with physics and rational mechanics, which
enabled the rational, scientific portrayal of their economic ideas. Yet, this portrayal assumes
relations of equivalence between these diverse spaces and societies that imply a particular
unfolding of events in the future. As such, the Mont Fleur scenario exercises enabled the
portrayal of the ‘The Flight of the Flamingos’ the only ‘rational’ pathway for South Africa.
Those involved in these practices convinced many members in the ANC against the dangers of
‘macro-economic populism’ associated with the policy recommendations of MERG. Thus,
days after the 1994 election, Nelson Mandela assured investors that ‘not a single reference to
things like nationalisation’ remained in ANC economic policies, which have been cleansed of
anything ‘that will connect us with any Marxist ideology’ (quoted in Marais, 2011:78).
Towards the end of the 1990s, the policy prescriptions of new-classical economics became
furthermore enshrined in post-apartheid macro-economics. Central bank independence was
granted in the 1996 Constitution, against the recommendations of MERG, which suggested
that the South African Reserve Bank (SARB) be made subordinate to the National Treasury
(Padayachee, 2016). This would have enabled a type of discretionary policymaking as discussed
in Chapter Three, which allows the government to use fiscal tools to stimulate aggregate
demand and address under-full-employment (Padayachee, 2019). Mandela justified this policy
move on the basis that it would illustrate the ANC’s commitment to sound economic
management of the country and ‘send out a strong signal to the international and local business
and financial communities that we are serious about this commitment’ (cited in Marais,
2011:105). To further demonstrate its commitment to financial policy credibility, the ANC in
1996 adopted a new fiscally conservative and ‘business-friendly’ framework: Growth,
Employment and Redistribution (GEAR). Crafted in private by Nelson Mandela’s successor,
Thabo Mbeki and then Minister of Finance, Trevor Manuel, GEAR placed government policy
between stringent policy prescriptions (Marais, 2011:114). This growth plan hinged on
significant increases in private investment and non-gold exports and was coupled by policy
measures such as strict fiscal austerity (evinced in a determination to drive the budget deficit
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down to 3 per cent of GDP by the year 200); the liberalisation of financial controls and
eventually, the complete removal of all obstacles to the free flow of capital; privatising ‘non-
essential’ state enterprises; keeping the exchange rate stable and at a ‘competitive’ level;
inflation targeting; tax incentives to stimulate new investment (Marais, 2011:113-114). GEAR
was opposed by many within the tripartite alliance, which consists of the ANC, the Congress
of South African Trade Unions (COSATU), and the South African Communist Party (SACP)
(Davie, 2015:258; Gevisser, 2009:250). COSATU leaders complained that they had not been
adequately consulted. One senior bureaucrat claimed that people were frightened into
compliance: ‘Don’t forget how intimidating economists can be…If Thabo, Trevor, and Alec
agree on something to do with economics nobody argues’ (cited in Davie, 2015:258). Mbeki
identified potential critics of GEAR and sought to sway them with ‘reason’ and ‘back-of-the-
envelope calculations’ during ‘under the tree’ meetings about the dangers of deficit spending
(Davie, 2015:258). Kgalema Motlanthe, who would become interim president after Mbeki’s
resignation in 2008, recalls that ‘Mbeki did the sums for us, he used logic to convince us, and it
worked. Once I listened to him, my position changed. And I was not the only one’ (cited in
Gevisser, 2009:251).
GEAR was furthermore accompanied by an export-led economic growth model, instead of
inward industrialisation as recommended by MERG. This growth strategy became popular in
the 1970s alongside the demise of Keynesian economics in the global political economy. It
represents a development strategy that aims to grow the productive capacity of a certain sector
in the economy by focusing on foreign markets (Palley, 2011). Export-led economic growth
requires trade liberalisation and capital market openness which, according to orthodox
economists, generates a ‘win-win’ outcome for developing countries. Not only would trade
openness encourage technology diffusion and knowledge spillovers, productivity will also be
boosted by encouraging best practice adoption, promoting product development, and exposing
firms to competition (Palley, 2011). Here the success of the four East Asian Tiger economics
(South Korea, Hong Kong, Singapore, and Taiwan) often appear as empirical evidence to
support these assumptions. Yet, as Marais (2011:93) makes clear, contrary to the Asian Tigers,
post-apartheid South Africa did not have the authoritarian regime able to suppress labour, but
instead a comparatively powerful labour movement. It also does not have a homogeneous
population, but a highly diverse, separated, and unequal one. In other words, in terms of labour
competitiveness, South Africa lags behind many countries. As discussed later, the adoption of
an export-oriented growth strategy, coupled with new-classical policy prescriptions came at the
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cost countless labour-intensive, low-skilled jobs, and also make the South African economy
more vulnerable to global economic slowdowns that reduce demand (Hirsch, 2005).
Although GEAR has formally been scrapped, the main tenets of this framework remain in
place, especially with regards to financial policy. This has rendered, according to Ansari (2016),
the National Treasury dependent on portfolio inflows as a means to stabilise long-term
government bond prices above a certain threshold in order to access capital on favourable
terms. The financialisation of the domestic economy, coupled with global liquidity, is a crucial
driver of South Africa’s current account, as the export sector also depends on portfolio capital
to purchase vital imports, where the depreciation of the currency has emerged as an important
generator of trade surpluses. Finally, the inflation-targeting regime appeases investors’ fears of
inflationary outbreaks, which is intricately linked to the geopolitical imagination of emerging
markets as ‘ideological hotbeds’ as mentioned in Chapter One (Ansari, 2016). The adoption of
heterodox policies that involve deficit spending will prompt asset managers and bond traders
to reallocate their portfolio assets or charge a higher yield on long-term government bonds.
This siphons away state funds that could otherwise be channelled into productive activities or
social welfare programmes, such as housing, health care, and education. Indeed, the
government’s ‘junk’ status has significantly increased costs of borrowing, and according to
Ramaphosa, mean that debt repayments could exceed the government’s spending on
healthcare (Magubane, 2020).
The rise and fall of South Africa’s sovereign creditworthiness
The ANC received its first credit rating in 1994, from Fitch, which placed the government’s
debt on level ‘BB’ (two notches below investment grade) whereas Moody’s rated the
government’s debt at ‘BBB-’ (just above investment grade). Standard & Poor’s (S&P’s), like
Fitch, placed the government’s debt below investment grade at ‘BB+’ (one notch into junk
status) (see Anon, 2019). This situation remained unchanged for much of post-1994. The
economy grew substantially during Mandela’s presidential term, especially in comparison with
the extremely low levels at the end of apartheid. In 1994, GDP grew at 3.2 per cent, 3.1. per
cent in 1995, and 4.3 per cent in 1996 (World Bank, 2018). However, the 1997/98 Asian
Financial Crisis caused GDP to plummet, and the economy only started to grow at the turn of
the new millennium. From 1999 to 2006, GDP grew significantly, and nearly reached its aim
of 6 per cent (Applebaum & Bernstein, 2014). Much of the growth during this period took
place on the back of a global commodity boom, especially in platinum, driven by a demand for
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industrial metals generated by Chinese industrialisation (see Schultz, 2020). South Africa’s
Bushveld Igneous Complex (BIC) in Rustenburg, in the North-West province is home to the
world’s largest concentration of Platinum Group Metals (PGM). During this time, export-led
growth proved to be working, in the sense that it created employment, attracted capital inflows,
and reduced the number of people living on less than US$2 per day (Bhorat et al., 2016).
Between 2001 and 2008, South Africa’s sovereign credit rating was upgraded to investment
grade by all three the CRAs, and up to three notches above junk (Anon, 2019). The agencies
especially lauded the government’s progress in consolidating government debt, keeping
inflation on target, growing the economy, and undertaking financial and trade reforms
(Moody’s, 2004). This revealed the government’s commitment to ‘strengthen its track record
of sound economic management’ which, especially during the Mbeki-led era, generated
certainty that the ANC will not ‘deviate from its course of orthodox economic policies’ (Reuss,
as cited in S&P’s, 2002). Although CRAs recognise the need for the South African government
to address historical socio-economic inequalities, they caution that state-led, Keynesian
programmes would ‘crowd out’ private sector investment, increase public debt, and undermine
the government’s ability to repay its debt obligations (see Davie, 2015).
Yet, when the 2007/08 GFC pushed the global economy into recession, the precarity of this
surge of growth, and the employment it created, became exposed. The ANC’s GEAR policies
intensified the financialisation of the South African economy and its largest conglomerates,
specifically in the mineral-energy complex (MEC) (Fine & Rustomjee, 1996). To recall from
previous chapters, financialisation entails the growing influence of capital markets, their
intermediaries, and processes in contemporary economic and political life (Pike & Pollard,
2010). Literature on this topic is diverse, but can nevertheless be divided along three recurrent
themes (see French et al., 2011; Pike & Pollard, 2010). Critical accounting perspectives explore
how financialisation has been accompanied by a new regime of capital accumulation, driven
by speculative practices in the market. The hypermobility of money puts pressure on
governments, municipalities, and firms to meet the demands of institutional investors in order
to avoid their assets being devalued (Froud et al., 2000). The ease in which shareholders are
able to withdraw their money from investments has engendered uncertainty and volatility
within the economic geographies of the financial system (Aitken, 2013; Pike & Pollard, 2010).
This hypermobility has been aided by sophisticated communication technologies, which feeds
the voracious appetite of market actors in search for profit. Socio-cultural accounts of
financialisation emphasise the malleability of finance capital, which can be packaged into
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complex financial instruments that have come to permeate our daily lives like pension schemes,
mortgages, public transport and services, bank accounts and savings (Langley, 2008). These
accounts explore how the retreat of Keynesian welfare policies have reconfigured people’s
positions, practices, and articulation within the financial system by forcing them ‘to accept risks
into their homes that were hitherto the provenance of the professional’ (Martin, 2002:12).
Finally financialisation tends to rework and realign existing socio-spatial relations and identities
in highly unequal and uneven ways (Ashman & Fine, 2013; Bateman, 2019; James & Rajak,
2014; Langley, 2008).
The financialisation of mining conglomerates towards the turn of the millennium has been
accompanied by the emergence of a corporate governance strategy, known as ‘shareholder
value’ capitalism (Lazonick & O’Sullivan, 2000). Contrary to the ‘retain and reinvest’ corporate
strategy, associated with Fordist-Keynesian capitalism, the rise of shareholder value in the
1980s entailed a shift towards the ‘downsize and distribute’ logic. The goal behind this logic is
to discipline corporate managers who allocate company resources and returns for their own
benefit, or at least to pursue objectives that were contrary to shareholder interests. Shareholder
value encourages managers of diversified conglomerates, the dominant form of twentieth-
century capitalism, to downsize and restructure their corporations, with a specific emphasis on
cutting the size of the labour forces they employ to increase return on equity (Lazonic &
O’Sullivan, 2000). In 2012, for instance, nearly a third of Lonmin’s workforce was employed
through contract labour, which implies not only lower wages, but also no access social security
benefits required by law for full-time employees (Forslund, 2015). Shareholder value therefore
takes the maximisation of profit as the raison d’etre for managers, both through dividends paid
and the appreciation in the value of the shares, with managerial remuneration schemes being
structured accordingly to reflect their ability to achieve these goals (French et al., 2011:803). In
the mining industry especially, this governance strategy has prompted many companies to hold
on to large amounts of cash on their balance sheets instead of investing them into productive
industries (Karwowski, 2015). This is called over-capitalisation, when a company issues more
debt and equity than its assets are worth (Kenton, 2020). The rationale here is to hedge against
uncertainty by enhancing liquidity and ensuring a continuous return to shareholders.
According to Karwowski (2015:16), 14 out of the top 20 over-capitalised firms listed on the
Johannesburg Stock Exchange (JSE) during the period 1994-2013 were engaged in mining.
These cash volumes are held within the financial system of a country, generating liabilities on
the balance sheets of banks and other financial institutions. This led banks to extend more
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credit, backed by corporate deposits held in South African bank accounts. However, because
these cash holds were used as a source of liquidity instead of being reinvested into the economy,
an unsustainable credit-financed consumption boom developed between 2000-2008, followed
by a severe tightening of monetary policy and the loss of nearly one million jobs (Karwowski
2015:25-27). Furthermore, especially when it comes to ‘risky’ emerging markets, investment
strategies are increasingly short-termist, which means that governments, corporate managers,
and organisations are pressured to deliver value over a short time horizon (Bowman, 2018).
According to one analyst, the majority of PGM investors are geared towards a three-month
view, except for a marginal few holding assets for three years or more (ING Fin Markets, cited
in Bowman, 2018:396). Thus, the hope for an influx of capital investment that the ANC pinned
its hopes on largely failed to arrive, and when it did, it was short-term and volatile. In fact, the
removal of capital controls towards at the turn of the millennium enabled mining
conglomerates (amongst others) to move their primary listings to the London Stock Exchange
(LSE), presenting an extraordinary case of capital strike (Bond, 2013:576). Vast amounts of
wealth became transferred out of the economy, engendering the government’s reliance on
mobile finance capital to fund its growth strategy.
South Africa’s GDP in 2008 contracted by 1.5 percentage points, exports fell by 24 per cent in
the first quarter of 2009, as demand dried up and commodity prices fell. This added pressure
on the current-account deficit, which swelled to 9 per cent of GDP in early 2009. Output in
the mining sector shrank by 33 per cent and 22 per cent in the manufacturing sector (Marais,
2011:146). The government, this time headed by Jacob Zuma, responded by expanding the
public-works programme, interest-rate cuts, and emergency food and other relief for distressed
households. Zuma also made modifications to the GEAR plan, by expanding public-
infrastructure investments to create jobs. Though GEAR’s main tenets remain unchanged,
Zuma’s Accelerated and Shared Growth Initiative for South Africa (AsgiSA) and the National
Development Plan (NDP) carved a way for greater state intervention. However, with a
presidency racked with scandals and an increasingly unaccountable bureaucracy, many of these
projects were compromised and the social development benefits have, by and large, yet to
accrue. In addition, with waning trust in government authorities, the government’s credit rating
was downgraded in 2012 amidst the labour unrest at Lonmin’s Marikana mine in Rustenburg.
The financialisation of the mining industry is intricately linked to these unrests, which reveals
the contradictory ways in which the governmentality of sovereign credit ratings actively
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undermine the ANC’s creditworthiness by limiting large-scale economic transformation
through the adoption of heterodox policies.
First, as mentioned, shareholder value capitalism pressured mining conglomerates such as
Lonmin and Anglo-American to reduce its workforce and close its most labour-intensive shafts
in order to deliver returns to shareholders (Bowman, 2018; Forslund, 2015). Amongst other
things, mining companies made use of contract labour, as mentioned earlier, to reduce their
operating costs, which introduced a new form of precarity reminiscent of historical erosions of
dignity and raw life associated within the compound.
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Second, rising unemployment has
increased the burden on mineworkers to support their families in labour-sending areas through
remittances (Makgetla & Levin, 2016:35). Evidence has shown for instance that each wage-
earning miner is supporting a wider range of kinsmen than previously, meaning that salaries
must stretch further (James and Rajak, 2014). These household pressures occurred alongside
an exponential proliferation of credit sources and hence a sharp increase in the indebtedness of
mineworkers taking up loans (Bateman, 2019; James, 2014; James & Rajak, 2014). As the PGM
mining boom took shape, the government embraced a market-driven microcredit initiative
(MCI), which sought to provide lines of credit to previously disadvantaged communities in
order to spur economic development (Aitken, 2013; Bateman, 2019; James, 2014). Such loans
are unsecured, meaning they are granted without a form of collateral that provides the lender
a lien for capital recovery in the event of default. In order to hedge against default risk,
unsecured loans are typically charged at high interest rates.
The MCI was embraced by financial institutions in the formal and informal sector (Bateman,
2019; Bond, 2013; James & Rajak, 2014). Presented as a ‘development model’, these loans often
form part of micro-credit investment vehicles (MIV), that link investors with investment
opportunities in the global South through, for instance, fixed income mutual funds, blended
value funds or private equities (Aitken, 2013:487). While this may seem promising, the
58
Also termed mining hostels, compounds emerged as a solution to the housing and control of black workers following the
discovery of diamonds in Kimberley in 1867 and gold in Johannesburg in 1886 (Turrell as cited in Bezuidenhout and Buhlungu
2010:244). Constructed for low paid employees, compounds are single-sex dormitories and highly regimented spaces, located
close to mine shafts and often fenced off from neighbouring townships (Crush, 1994). Men had to leave their families and travel
to mining centres and their movements were tightly controlled by the pass system. Mining companies also restricted visits from
family members, including dependants and wives; controlled miners’ intake of food, alcohol, and forms of association
(Badenhorst & Mathers 1997). Although mine managers were not allowed to forbid mineworkers to visit neighbouring areas,
with the exception of ‘white’ commercial and residential spaces, they nevertheless aimed to incarcerate workers for the entire
period of a contract in order to deliver a disciplined workforce for greater efficiency (Bezuidenhout & Buhlungu 2010).
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financialisation of micro-credit integrates individuals into volatile and uncertain markets that
often intensify their already precarious economic position. South Africa’s largest banks offered
lines of unsecured credit in the form of credit cards, house loans, vehicle finance, mobile money
transactions and retail cards for clothing and food to individuals that were previously denied
these facilities (James, 2014:20). Another form of unsecured lending came from registered
microlenders, mostly run by Afrikaans-speaking former civil servants who invested their
redundancy packages in these businesses. Finally, mashonisas or ‘loan sharks’, translated from
Zulu as ‘one who impoverishes’ (Krige as cited in James, 2014:20), are unregistered lenders,
which means that they can charge interest rates well above the official rate set by the National
Credit Act (NCA), namely 44 per cent. Indeed, informal loans are notoriously expensive:
mashonisas often charge up to 50 per cent per loan, regardless of the term of the loan (Wonga
Finance SA, 2017). The MCI therefore enabled a process of ‘banking the unbanked’, creating
bank accounts for members of society historically prevented from gaining access to financial
markets (see James, 2014). Yet, in a context of poor economic growth and growing
unemployment, bank accounts have also reiterated older forms of economic inequalities. First,
they create a surveillance platform for the collection of credit scores, which exclude many low-
income households, predominantly black Africans, from getting the necessary financing to buy
a house outside the township (Migozzi, 2020). Second, as discussed below, they enable lenders
to extort borrowers through exorbitant interest rates and aggressive debt collection practices.
Two principle technologies of debt-collection exist amongst microlenders. The first, used by
banks and registered microlenders entails the use of garnishee or emoluments attachment
orders (EMOs). Granted by a magistrate, EMOs are legal notices that allow the creditor to
collect his/her money from the debtor’s wages, bank account or other people who owe the
debtor money (James & Rajak, 2014:455). The second system, used by informal moneylenders,
involves keeping borrowers’ ATM cards to withdraw money owed to them plus interest at
month-end before returning them to their owners (James, 2014). A study conducted by the
SAHRC (2017:21) on the impact of debt collection practices in South Africa, pointed out that
the mining sector constitutes the highest percentage of employees with garnishee orders
attached to their salaries. Indeed, miners have especially been targeted by formal and informal
lenders, as they are comparatively well paid, often displaced from their families and have few
social connections on a local level (Bateman 2019). This is evinced in the number of ‘Cash
Loans’ and other microlenders in the Marikana area and the mine premises itself (Bond, 2013).
African Bank, for instance, had the highest number of branches in the Rustenburg area – four
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of them located on the Marikana mining complex. Similar trends can be seen for Capitec,
Nedbank and Stanbank, each having at least one branch operating on the mine’s premises (Citi
Bank Research, 2012). The official trade union for mineworkers, the National Union of
Mineworkers (NUM) is also implicated in this story. In its joint venture with the Chamber of
Mines – Ubank – NUM leveraged its proximity to, and knowledge of, individual constituents
in a way that transformed members into clients/customers (James & Rajak 2014:459). This
gave credence to the Association of Mineworkers Union’s (AMCU) narrative amid the
Marikana strike that the NUM abandoned workers’ interests in favour of their own capitalist
interests, which intensified the militance amongst striking mineworkers (Harvey, 2013).
Alongside many South Africans plunging deeper into debt, Marikana mineworkers’ actual
monthly pay began to decline precipitously as a percentage of the total salary earned in any
month (Bateman, 2019; Bond, 2013). As such, many mineworkers took on multiple loans, paid
back to a series of creditors as soon as payday arrives, which typically left them impoverished
for the rest of the month (James & Rajak, 2014). This sense of over-indebtedness, combined
with other forms of economic inequalities and frustrations, set in motion the destabilisation of
sovereign creditworthiness assemblage that centred around the mine. The massacre resulted
not only in over 100 casualties, of which 34 mineworkers were dead and 78 wounded, but also
large-scale wildcat strikes that unfolded across the country, resulting in a prolonged slump in
the mining industry (Schultz, 2020). Here the financialisation of the economy, which forms part
of the government’s efforts to improve its creditworthiness, coupled with attempts to stabilise
labour unrest at the Marikana Mine to secure confidence in the eyes of investors, ironically
created the conditions for the deterioration in creditworthiness.
In the aftermath of the Marikana Massacre, Moody’s downgraded the country’s credit rating
from A3 to BAA1 in September 2012, based on the agency’s ‘view of the South African
authorities’ reduced capacity to handle the current political and economic situation’ (Bond,
2013:572). Just a few days earlier, as business confidence started to dwindle, Moody’s threated
to downgrade not only the government but also the big mining houses’ credit ratings:
If the [Lonmin wage raise] agreement were to spur calls for similar wage hikes at other
mines, it would be credit-negative for rated miners with exposure to South Africa, that
are facing other event risks, including potential increased taxes as an alternative political
response to calls for nationalisation and ongoing exposure to lawsuits arising from
medical claims (quoted in Bond, 2013:572).
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In October of 2012, S&P’s followed suit, and in January the next year, Fitch downgraded South
Africa, citing weak economic growth, as a result of ‘structural rigidities, declining
competitiveness, policy uncertainty and labour unrest’ (Anon, 2013). This was followed by
consecutive downgrades in years to come, a massive decline in foreign direct investment (FDI)
between 2012-2017, a recession in the first quarter of 2018, and a continuous increase in the
government debt to GDP ratio (Leon, 2013; Trading Economics, 2019). Although this by no
means suggests some form of linear causality between Moody’s downgrade in 2012 and the
adverse economic consequences that followed, it did act as a ‘catalyst’ that created deteriorating
procyclical conditions for further rating cuts, which is furthermore empowered by the feedback
loops from market participants (Paudyn, 2014:71). By the end of 2017, both S&P’s and Fitch
had downgraded South Africa to ‘junk’, with Moody’s following suit earlier this year (World
Government Bonds, 2020).
Conclusion
Akin to the modelling exercises during the transition period, amidst the COVID-19 pandemic,
a public policy firm called Eunomix warned that South Africa would become a ‘failed state’ by
2030 if the government does not address economic decline ‘immediately’ (Sguazzin, 2020).
While recognising the necessity of harnessing domestic manufacture industries, similar to the
MERG’s import-led industrialisation, Eunomix emphasises the need to generate a favourable
investment environment and prioritising ‘economic restructuring that ensures socioeconomic
and political stability rather than abrupt, painful reform…even if growth remains slow initially’
(Bisseker, 2020). Although, in this scenario forecast, a ‘middle way’ for the state is envisioned,
the influential role of financial capital markets remains unchallenged. In other words, the
stringent criteria of financial policy credibility – inflation targeting, rule-based monetary policy
making and capital account liberalisation – is still likely to influence macro-economic
policymaking. Central to the continued dominance of these policy ideas, as this chapter and
thesis in general sought to illustrate, is the scientism of new-classical economics that de-
politicises neoliberal rationalities of macro-economic policy making. The mathematical
formalism of these models obscures analyses of how they enable the reiteration of austere fiscal
politics, especially for emerging market governments. For instance, regardless of the continued
failure of new-classical macro-economics to stimulate redistribution through economic growth,
the government’s recent ‘letter of intent’ for an IMF loan amidst the COVID-19 pandemic
includes spending cuts in key areas mentioned in the introduction, coupled with prudent fiscal
management (see IMF, 2020). Without suggesting that a Keynesian economic programme
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would necessarily lead to more inclusive economic growth, the unquestioned authority of new-
classical policy prescriptions cements the authority of financial market actors in determining
the ‘legitimacy’ of emerging market governments in the market place. This reinscribes volatility
and fragility into lives of many precarious communities, again opening the space for apartheid
ghosts to haunt the present.
The goal of this chapter was to reveal how the neoliberal governmentality of sovereign credit
ratings is entangled in post-apartheid South Africa’s macro-economic policymaking. Here the
scientism of new-classical economics, coupled with modelling exercises and ‘expert advice’
played a crucial role in rationalising (normalising) policies such as inflation targeting, central
bank autonomy, and fiscal consolidation instead of redistribution. These processes have
intensified the financialisation of the economy, as discussed in the second section, which has
introduced new forms of labour precarity and economic inequality for many South Africans
that suffered under apartheid. Taking the Marikana Massacre as an example, this section
sought to reveal how the sovereign creditworthiness assemblage exceeds beyond its technical
form and is entangled in macro- and micro-processes of financialisation. This, in turn, creates
conditions for its own demise. By intensifying the economy and society’s integration into the
logics of financial markets, the government’s ability to embark on state-led programmes to
transform the socio-economic legacy of apartheid remains limited. The ‘postponed’
transformation engenders frustration and unrest in civil society which, ironically, alienates
investors and reduces the government’s ability to repay its debt obligations. Here Deleuze and
Guattarri’s (1987) exegesis of assemblages as temporal, contingent, and unstable becomes
pertinent. This assemblage exercises power at multiple sites and through diverse elements:
transnational laws, institutions, investment vehicles, communication technologies, and
comparative indices, domestic policies and, as Faeza Meyer’s story made clear, law
enforcement. This chapter revealed how the territories the sovereign creditworthiness
assemblage created in South Africa encountered historical assemblages of economic, social,
spatial, and racial inequality that continuously creates the conditions for its own demise. Yet,
as Deleuze and Guattari (1987) points out, these lines of flight in a rhizome might signify a
rupture in an assemblage, they nevertheless always tie back to each other:
You may make a rupture, draw a line of flight, yet there is still a danger that you will
reencounter organisations that restratify everything, formations that restore power to a
signifier, attributions that reconstitute a subject […] (Deleuze & Guattari, 1987:10).
The re-territorialisation of an assemblage therefore does not necessarily entail a complete
transformation of the status quo. Instead, as the South African government’s response to recent
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downgrades – which entails severe budgetary cuts attest – the sovereign creditworthiness
assemblage constantly finds ways to stabilise itself. In the conclusion chapter, I outline three
ways in which the re-politicisation of sovereign credit ratings offers ways of resisting the
authority of this discourse.
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Chapter 7
Conclusion: Re-politicising sovereign credit risk
The aim of this thesis was to re-politicise the discourse and rating of sovereign credit risk. This
entailed, firstly, a genealogy of the knowledges, theories and methodologies that underpin both
the conceptualisation and measurement of government default risk. Second, this thesis
considered how the governmentality of sovereign creditworthiness spatialises in the political
economy of South Africa. Influenced by Deleuze and Guattari’s (1987) philosophic description
of the relations between diverse things – knowledge, objects, events, spatial-formations, histories
– as rhizomic, this thesis explored how the governmentality of sovereign credit ratings are
entangled in the political economy of South Africa. This was not to argue that sovereign credit
ratings are the determining cause driving the government’s macro-economic policy decisions
and, by implication, the reason why historical forms of suffering persist. This is the claim made
by a number of structural Marxist scholars in IPE, who ground their analyses on a linear causal
assumption that neoliberal economic policies, such as privatisation, trade liberalisation or
monetarism always lead to growing inequality and poverty (see Bond, 2012; Fine, 2013;
Soederberg, 2005). It was not the imperative of this thesis to disprove this argument with ‘better’
and more ‘scientific’ evidence, but to unpack the political and ideological tenants underpinning
rational economic discourses.
Chapter One analysed the gendered, colonial imagination of rational finance that emerged in
eighteenth-century England. The chapter then explored the lines of resonance between these
gendered representations of rationality/irrationality and modern geographical imaginations of
emerging and frontier markets. These resonances are bound up in a violent history of colonial
conquest and slave trade, which were funded by the institutionalisation of credit instruments as
we know them today, including national debt. Chapter Two examined how Defoe’s portrayal
of the rationality in the image of the English gentleman, who bases his actions on knowledge
derived from the scientific method, became absorbed in the field of economics associated with
the 1870 Marginal Revolution. This chapter maps out how economists such as Jevons, Walras,
and Marshall sought to de-politicise their discipline via the adoption of methods used in the
natural sciences. Chapter Three explored the world of model-making in economics and
finance. It showed that modelling is not a technical, mechanical exercise, but depend
significantly on the political imagination and creativity of the model-maker. This chapter also
revealed how models emerged as tools through which economists could advise governments on
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how to manage their economies in the aftermath of the Great Depression and the fiscal crisis
of the State in the 1960s. Chapter Four navigated ‘the chain of translation’ involved in the
production of sovereign credit ratings. Akin to Laclau’s explanation of sedimented knowledges,
this chapter examined how the histories, theories, methods, and Western-centred epistemic
cultures discussed in the previous chapters unfold in the rating of sovereign credit risk. Chapter
Five spatialises the governmentality of sovereign credit ratings in South Africa by examining
the historical and political processes involved in the production of raw life. These processes
include the colonial conquests conducted by European powers via joint-stock companies such
as Holland’s VOC in the seventeenth century and Britain’s East India Company in the
eighteenth century. This was accompanied by not only large scale dispossession, but also,
especially in the case of Britain, the introduction of racist scientific reasoning that played an
influential role in apartheid ideology. This reveals close entanglements between Lady Credit,
the colonial gentleman, and the post-apartheid present. Chapter Six examines how the
governmentality of sovereign credit ratings unfolded the making of South Africa’s macro-
economic policies post-1994. This entailed the use of scenario planning exercises that worked
to rationalise new-classical policy prescriptions, such as inflation targeting, austerity, and
central bank autonomy. The remainder of this chapter considers how the analyses of de-
politicisation conducted in this thesis enable us to challenge the authority of sovereign credit
ratings by re-politicising the stabilised knowledges contingent in their production.
From a governmentality framework, these re-politicising moves can be thought of as ‘counter-
conducts’, that is, a ‘struggle against the prosses implemented for conducting others’ (Foucault,
1978:268). This understanding of resistance differs markedly from Marxist or structural
traditions grounded in a binary between the rulers and the ruled. Here, resistance tends to be
primarily located in the poor, the working class, the ruled and the governed, who oppose power
through revolutions, counter-capitalist struggles, or numerous acts of foot-dragging opposition
(Death, 2008:47-48). Bond (2012, 2001), for instance, argues that resistance to the hegemony
of neoliberal financialisation in South Africa which, according to him, was single-handedly
enabled by former finance minister Trevor Manual, is primarily located in labour unions, social
movements, and political leaders that are authentically leftist and opposed to capitalism. The
task for critics of financialisation, according to Bond (2012:131), ‘is to prepare the ground with
sound analysis that stretches as far as does the problem – i.e., far beyond Johannesburg bank
headquarters, to the core dynamic of world capitalism.’ A Foucauldian governmentality
perspective destabilises the binary between power and freedom that Bond’s project of resistance
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relies on in two important ways. The first has to do with the idea that a single ‘pure’ form of
resistance can exist, or that there is a theoretical basis for the notion of complete liberation. As
Foucault (1984:282) explains in an interview when asked about processes of liberation:
I have always been somewhat suspicious of the notion of liberation, because if it is not
treated with precautions and within certain limits, one runs the risk of falling back on the
idea that there exists a human nature or base that, as a consequence of historical,
economic, and social processes, has been concealed, alienated, or imprisoned in and by
mechanisms of repression. According to this hypothesis, all that is required is to break
these repressive deadlocks and man will be reconciled with himself, rediscover his nature
or regain contact with his origin, and reestablish a full and positive relationship with
himself.
Here, Foucault calls into question the assumption made by Bond that, when financial
capitalism becomes abolished, the oppressed will be liberated from capitalist structures of
domination. To recall from the introductory chapter, no subject escapes the workings of power.
Power has an omnipresent character that circulates through a net-like organisation where
individuals function as the vehicles of power, producing new subject and simultaneously, new
power relations (Foucault, 1980:98). As such, broad-scale emancipation from a single form of
domination – capitalism – has no place within a Foucauldian approach. This is because power
exists in a network: ‘there is no single locus of great refusal, no soul of revolt, source of all
rebellions, or pure law of the revolutionary’ (Foucault, 1978:95-96). Yet, this does not mean
that resistance is impossible, on the contrary. ‘Where there is power, there is resistance’,
according to Foucault (1978:95), emphasising that resistance does not exist outside power
relations. Power works through freedom, and this freedom includes the agency to resist, to
counter-conduct, to be governed otherwise. Opposing a binary view of politics as either
domination or resistance captures the messiness and complexity of contemporary politics.
Amoore and Langley (2004) for instance reveals the contradictions, ironies and limitations of
the emancipatory/transformative aspirations coupled with resistance movements of global civil
society. Here, Foucault’s assertion that resistance is ‘never in a position of exteriority in relation
to power’ enables us to think about:
[…] the individual who is a member of Amnesty International while simultaneously
holding portfolio investments in a number of large multinational corporations; the
alliance between the United Nations World Food Programme and Benetton’s advertising
campaigns; the Visa cardholder who joins Reclaim the Streets; or the report from the
Seattle protests that asked: ‘did the protester who was filmed kicking lumps off the Nike
sign while wearing Nike shoes see the irone?’ (Amoore & Langley, 2004:106).
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Instead of seeing these contradictions as lapses in acts of authentic resistance, they reflect the
unescapable status of resistance within governmentality where power operates through freedom
and at a distance. Thus, instead of looking for acts of absolute resistance and revolution, a
governmentality analysis enables us to focus on how practices of NGOs, social movements, and
states are simultaneously both expressions of power and resistance (Death, 2008:48). Given that
power exits in a network or assemblage of relationships, multiple points of resistance exist, ‘each
of them a special case: resistances that are possible, necessary, improbable; others that are
spontaneous, savage, solitary, concerted, rampant, or violent…’ (Foucault, 1987:96).
A second way in which a Foucauldian approach differs from Marxist traditions is its emphasis
on discourses as sites of resistance. Discourses produce power relationships, yet these systems
of meaning are socially and historically contingent, ambiguous, and fragile. They are unstable
grids that require work to ‘articulate’ and ‘rearticulate’ their knowledges, and it is through this
reiteration that meanings become sedimented and structures appear stable. Instead of the
market behaving ‘rationally’ for instance, it is an assemblage of regulations, risk analysts, index
trackers, price models, news media, academic curricula, and governments that perform
normalised ideas of rational conduct into being. Thus, as Butler (1997:17) points out: ‘If a
structure is dependent upon its enunciation for its continuation, then it is at the site of
enunciation that the question of its continuity is to be posed.’ In other words, by interrogating
the gaps, flaws and inconsistencies of a discourse, it becomes possible to expose the vulnerability
of certain statements and their claims to truth that are grounded in, for instance, ‘what if’
simulations and questionable datasets. Based on this formulation, I will discuss three avenues
for re-politicisation and resistance against the authority of sovereign credit ratings: genealogy,
the radical indeterminacy of the future, and the politics of everyday life as a site of resistance.
Genealogy: interrogating the fragility of rational financial economics
This thesis investigated the phenomenon of sovereign credit risk by adopting a genealogical
analysis. As discussed in the introductory chapter, a genealogy entails a historical investigation
into the uncertainties, contestations, and ambiguities that accompany the rational, stable, and
unproblematic representation of phenomena. To this end, I investigated the ‘epistemological
field’ that have rendered certain discourses about sovereign credit risk possible and focused on
finding the insecurities and uncertainties underlying the certain, and scientific appearance of
ratings. Chapter One for instance revealed how the articulation of ‘rational’ finance took place
through a process of other that identified irrationality in the form of not only a female, but also
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the Colonial Other. This articulation of rationality was modelled on the image of the English
gentleman, endowed with virtues of knowledge, self-discipline, and honesty in the acquisition
of scientific truth. The goal was to create a moral space for finance in British society, which
entailed that Lady Credit should only be engaged with rational, disciplined gentlemen.
However, the quest to secure the rational and stable functioning of finance is far from being
achieved, and the chapter showed how the masculine, colonial imagination of rationality
informs contemporary representations of spaces and peoples located outside the horizon of the
West as uncertain, volatile, and mysteriously attractive. This is accompanied by a plethora of
risk instruments – of which sovereign credit ratings occupy a prominent role – global
governance indicators and regulatory bodies such as the FSB and BIS which, through their
surveillance, seek to modify the behaviour of global South governments through the articulation
of norms and standards of rational financial conduct. The lines of resonance between, for
instance, Defoe’s depiction of Lady Credit and the geopolitical imagination of the global South
should not be seen as being solely a textual representation. Instead, as mentioned, the
institutionalisation of finance in eighteenth-century England enabled the state to fund war
efforts and conduct colonial conquest and profit from the ‘virgin’ territories located beyond the
European continent. These imperial encounters constitute a critical historical juncture in which
post-colonial national identities are defined in opposition to European ones (Chowdhry & Nair,
2002:2).
Focusing on South Africa, this thesis argued that the governmentality of sovereign credit ratings
is entangled in webs of power and knowledge that accompany this imperial encounter by
attaching their discourse to a regime of truth that rationalises a particular politics of fiscal
rectitude. Yet, I also argued that this discourse of sovereign credit risk is performative, which
means that the authoritative capacity of CRAs in the marketplace is not based on their ability
to reveal the ‘truth’ about a government’s fiscal profligacy. Instead, the authority of this
discourse is constituted through the institutionalised practices of investors, governments and
IFIs that act upon rating judgments and thereby reinforce and re-establish the conditions for it
to materialise (Butler, 2010:152). By approaching sovereign credit risk as a performative
practice, contingent upon the ‘mundane and repeated acts of delimitation that seek to maintain
a separation among economic, social and political spheres’ (Butler, 2010:150), it becomes
possible to observe flaws or tears in the fabric of financial authority.
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In the rating space, this occurs on a regular basis, and increasingly among traditional
proponents of austere fiscal politics. Paudyn (2014:180) refers to how the economic struggles
caused by the European Sovereign Debt Crisis for the Netherlands ‘tested the resiliency of its
prudent fiscal culture which…helped facilitate its adherence to such policies; plus promote
them across Europe’. Alongside increasing unemployment and pressure from Brussels to
decrease its fiscal deficit destroyed the country’s ‘social accord’ and led to growing discontent
with the European project. Although resistance if often ephemeral and extremely costly for
countries who choose to defy the expectations and demands of financial markets, especially for
the global South, signs of growing antagonism with CRAs are showing. These criticisms are
not only coming from Europe. In 2016, Indian Prime Minister Narenda Modi criticised
Moody’s ratings and methods for assigning the government’s debt rating (Kalra & Singh, 2016).
The ministry of finance wrote a series of letters and emails to Moody’s, asking the agency why
it failed to account for a decline in the country’s debt burden since 2004. Moody’s dismissed
this observation, claiming that the country’s debt situation was not as rosy as the finance
ministry thought, due to limited revenue collection. The finance ministry dismissed these
concerns as ‘unwarranted’ and launched another attack on the agency’s assessment of ‘political
risk’, asking Moody’s ‘for a better appreciation for the factual position’ (Kalra & Singh, 2016).
India has criticised the Big Three CRAs’ rating decisions on emerging market debt on a
number of occasions and have been one of the main proponents for the formation of an
alternative, BRICS rating agency that is ‘unbiased’ towards the developing world (Klomegah,
2018). Other voices of dissent include Nigeria, Zambia, Tanzania and South Africa. In 2017,
the Nigerian government pointed out that CRAs contradicted their previous rating rationale
which highlighted certain areas in the government’s budget that needs improvement. Despite
addressing these concerns, which included the return of business confidence, reaching
economic growth targets and inflation continuing to trend downwards, Moody’s nevertheless
downgraded the countries debt rating (Anon, 2017). Zambia’s government called on investors
and the public to ignore Moody’s credit downgrade in 2015, ‘because the grading is unsolicited
and against best practice’ (Anon, 2015). Likewise, South Africa’s former minister of finance,
Pravin Gordhan criticised CRAs for treating Africa as a country, echoing concerns expressed
by policy-makers in other parts of the global South (Gumede, 2014). Most recently, amidst the
COVID-19 pandemic, the UN criticised Moody’s decision to put five countries on review for
a downgrade that formed part of a G20-backed debt suspension scheme (Hodgson, 2020).
Moody’s justified their rating decision on the basis that ‘debt standstills’ qualify as default, and
therefore pose a risk to private investors. The UN’s response exposes how CRA’s authority in
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the market-place is based not on their ability to reveal the truth about a government’s budgetary
realities, but the performative effect of their speech acts. The UN contested Moody’s claim: the
scheme should improve countries’ debt sustainability, not undermine it. This contestation also
reveals the normativity and value judgements embedded in ratings. Whereas CRAs articulate
participation in the scheme, although doing so in the context of a pandemic-induced financial
crisis, as a credit risk, the UN sees it as precisely the opposite.
While it is unlikely that these criticisms would radically challenge the epistemic authority of the
Big Three CRAs, they nevertheless provide a small tear in the performance of CRA’s authority.
These sources of dissent enable counter-conducts that could lead to incremental rather than
revolutionary change. Foucault’s formulation of counter-conducts, for instance, derives from
his historical analysis resistances towards pastoral power during the Middle Ages which, over a
long period of time resulted in new forms of governing. These acts of resistance emerged in
relation to various tactics and arts governance. Counter-conducts were not necessarily a ‘face-
off by the opposite affirmation’, but instead revolved around the following questions in the
search for ways to govern:
[…] “how not to be governed like that, by that, in the name of those principles, with such
and such objective in mind and by means of such procedures, not like that, not for that,
not by them” (Foucault, 2007:44, original emphasis).
Over a long period of time, Foucault (2009:271-275) observes, counter-conducts to pastoral
power, which entailed new forms of self-government to salvage one’s soul for Christ, instead of
placing that power in the hands of a pastor through submission and obedience a new ‘way of
doing things and being…relating to God’ emerged.
However, CRAs and the discourse of sovereign creditworthiness do not exist in isolation, and
the abovementioned forms of dissent are not the only possible sites of resistance. This thesis
revealed that the articulation and rating of sovereign credit risk takes place through an
epistemic culture that has been defined by the regimes of knowledge and truth, history, and
experiences of the global North. Here, the de-politicisation of economics in the nineteenth
century played an important part in establishing their discourse as rational, stable, and ‘true’.
This de-politicisation hinged upon the use of mechanical analogies to explain the workings of
value exchange (price formation) – positioned as the sole purpose of inquiry for economists –
in mathematical terms. Walras’s equilibrium model, for instance, is based on an analogy of a
mechanical lever that naturally ‘balances itself out’. My goal here is not to question the validity
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of this specific analogy, but rather to reveal how contemporary understandings of the economy
and the market hinge on analogies with astrophysics and rational mechanics, seen as the most
objective form of knowledge. The mathematisation of these theories, enabled by the
proliferation of modelling, has erased the analogies, metaphors, and philosophies embedded in
them. Here, genealogy enables an investigation into the historical, socio-cultural, and
institutional context inscribed in financial and economic models and indicators. This opens a
space for political conversation and alternative ways for imagining how the economy works,
and should work. In other words, to broaden the democratic content of economic and financial
discourse. At this point, I want to return to J.M. Coetzee’s letter to Paul Auster presented in the
beginning of this thesis.
To recall, Coetzee asks why we accept and act upon a specific set of financial numbers, implying
that their political economic constitution can be altered so that the arrangement of markets
align with the social welfare and just needs of society (Auster & Coetzee, 2012:21). Coetzee
recalls how his suggestion that we replace numbers with better ones have been considered
‘naïve’, based on his limited understanding of how the system works. Coetzee then proceeds
with an analogy that highlights how contemporary injustices are rooted in modalities that limit
investigations into how the economy could be structured otherwise:
In Book 7 of The Republic Plato asks us to imagine a society in which people spend their
waking hours sitting in rows inside a dark cave, staring at screens on which various
flickerings are taking place. None of them have ever been outside the cave, none of them
are acquainted with anything beyond the flickerings on their screens. All accept without
question that what they see on the screens is all there is to see.
One day one of these people happens to get up and stagger outdoors. His eyes, unused
to the light, are blinded, but he does catch glimpses of trees, flowers, and a multiplicity of
other forms that do not in the slightest resemble the flickerings he is used to.
Shielding his eyes, he returns to his fellows. This place where we live is actually a cave,
he says, and the cave has an outside, and outside the cave it is quite different from inside.
There is real life going on out there.
His fellows snigger. You poor fool, they say, don’t you recognise a dream when you see
one? This is what is real (they gesture toward the screens) (Auster & Coetzee, 2012:21-
22).
My thesis sought to investigate how the myopia of mainstream economics is produced through
rationalist discourses and scientific methods that enable particular interpretations at a
particular point in time while excluding others. Through the use of genealogy, the goal was to
show that these rationalist discourses are instead uncertain, fragile, and ambiguous. By exposing
207
the central aspects of the authority of numbers, alternative ways of representation becomes
possible.
Merry (2016a) for instance, conducts a genealogical investigation into the production of
indicators that measure human rights, gender violence, and sex trafficking. She investigated
how these indicators developed, the actors involved, who financed it, and the regime of power
and knowledge in which it is formed. This analysis revealed how global indicators are shaped
by inequalities in power and expertise, whereby experts in the global North have been able to
define the phenomenon in question, but also how it should be measured. However, this is not
a straight-forward process. Creators of indicators grapple with questions on how to translate
broad terms of a standard in global governance into a series of measurable and named
phenomena. Measurement typically builds on existing models and approaches, thereby
reinscribing and sedimenting their built-in assumptions of objectivity. Ultimately, this is a
political, interpretive process that involves the creation and naming of categories, determining
the data-collection necessary for measurement, and the weights that will be accorded to
different categories. Merry (2016a) reveals how this form of quantitative knowledge is not only
built on questionable data-collection practices, but that they are extremely misleading. By
excluding local, vernacular knowledge, they produce knowledge that is ignorant of context. As
such, she calls democratic indicator creation, the incorporation of qualitative knowledge into
indicator production, and increasing indicator literacy to de-mystify the aura of objectivity of
quantitative numbers (Merry, 2016a, 2011). This would also open a space for those who were
have been denied agency to participate in the production of knowledge that affect them.
The radical indeterminacy of the future
This thesis has shown that the authority of ratings is particularly rooted in their assumed ability
to transform the unknowable future into calculative risk. Chapter Two and Three examined
how the use of models in economics and finance, particularly aided by Haavelmo’s probability
approach and Friedman’s ‘as if’ methodology, enabled the quantification of almost everything.
These methodological devices however, obscure the extent to which they are based on
speculative knowledge: simulations, hypotheses, theory, and limited statistical datasets. Yet,
once they are assembled into a single numerical form, they generate the idea of having
uncovered an exogeneous truth about the likelihood of an event occurring at some point in the
future. The triumph of risk over uncertainty in modern finance is rooted in the mathematisation
of rational choice and efficient markets, as Chapter Three of this thesis shows. This, however,
208
has subjugated governments, corporations, and societies to the epistemic governance of
numbers, enabled by what has been termed ‘indicator culture’ (Merry, 2016a). In finance, this
culture entails:
[…]a body of technocratic expertise that places a high value on numerical data as a form
of knowledge and as a basis for decision making. Its characteristics are trust in technical
rationality, in the legibility of the social world through measurement and statistics, and in
the capacity of numbers to render different social worlds commensurable…It assumes
that all things can be measured and that those measures provide an ideal guide to decision
making.
Numbers give the impression of being devoid of idiosyncrasies such as human discretion or
subjective bias. As such, they appear as the epitome of technical, disinterested analyses:
objective facts that cannot be disputed. Yet, the frequency in which CRAs, for instance, fail to
either predict financial crises or act procyclical once a downturn has started, exemplifies the
radical indeterminacy of knowledge. Unfortunately, in the aftermath of these rating failures,
critique has focused on enhancing the regulation of the rating industry, promoting competition
in the rating space (Pollock, 2005), or the lack of transparency in rating decisions (White, 2010).
There are also an array of financial economists scrutinising the methodologies, timing, and
business model of CRAs (Cantor & Packer, 1995; Lowe, 2002; Partnoy, 2001). These analyses
criticise the credit risk models CRAs use (Kiff et al., 2013; Lowe, 2005); the timing and accuracy
of sovereign credit rating actions (Pennartz & Snoeij, 2012); the problem of conflict of interest
in the issuer-pay model (Krall, 2016), and document why ratings are procyclical (Ferri et al.,
1999). While asking some important questions, these analyses nevertheless assume that financial
markets, and the economy in general, are pre-existing material realities that exist outside or
prior to their representations. By implication, sovereign credit risk is an exogenous reality that
can be unearthed with the proper – typically quantitative – methods and improved regulation
to limit rating failures (Paudyn, 2014:7). This not only reifies the idea that what we know about
financial markets and the economy is based on unambiguous accumulation of knowledge, that
can only be improved with the correct methods, but also leaves the assumptions and theories
of sovereign credit risk unquestioned.
Moreover, calls for greater regulation of the rating industry in many ways enable the further
de-politicisation of the discourse of sovereign credit risk. Mennillo and Sinclair (2019) argues
for instance that the intensification of regulatory oversight in the rating space post-2008/09
GFC has been central to the reproduction of its authority. This is because regulation removes
questions dealing with the legitimacy of CRAs outside a terrain of contestation by creating a
209
moral and legal space for them to proliferate (de Goede, 2005:123). Amtenbrink and Heine
(2013) refer to how the regulatory initiatives to counter the authority of CRAs appeal to
psychological aspects of making rational, responsible decisions that are based on the advice of
outside experts. This entails an emotional ‘offloading’ whereby ‘investors of debt securities may
rely overconfidently on credit ratings because they have a better emotional feeling, if they can
share responsibility’ (Amtenbrink & Heine, 2013:5). Overconfidence or trust in the ability of
CRAs to render investors safe against the uncertain future is rooted, as mentioned, in an
epistemic culture that places significant trust in numbers to render the world knowable.
There is a plethora of works that undermine the rationalist assumptions of REH and EMH
upon which calculable uncertainty is based. Sen’s (1977) ‘Rational Fools’ for instance, questions
the self-interested assumptions of REH, showing that the entire hypothesis falls apart when
considering the sociality of decision-making. Likewise, as mentioned in Chapter Two and
Three, Keynes also emphasise the radical uncertainty of knowledge. Not only was Keynes
opposed to the use of mathematics to study economics, given ‘all kinds of unexpressed
unavowed assumptions’ (cited in Louça, 2007:186), but also the idea that individuals behave
rationally in the marketplace positions investors’ behaviour at the centre of this theory and
specifies that any attempts at stabilisation should come to terms with the fact that human
behaviour in the market place is radically uncertain and indeterminable (Reddy, 1996:228-
230). This emphasis on the uncertainty of knowledge, as Best (2008:365) shows, enabled the
formation of Bretton Woods agreements that were markedly ambiguous. For example, the term
‘fundamental disequilibrium’, which outlined the conditions under which a state could alter its
pegged exchange rate, was never fully defined in the IMF’s articles of agreement. Not only did
these ambiguities enable the international financial system to negotiate and adapt to
unanticipated conditions, but also created more room for states to pursue their own ‘favourite
experiments’ and control capital movements (Best, 2008, 2005). In other words, the recognition
of uncertainty as an indispensable reality of economic activity opened the space of “the
indeterminate future to be transformed into an open political domain, rather than existing as
an undemocratically and scientistically defined and ‘mapped out’ horizon of alternatives”
(Reddy, 1996:228).
The politics of everyday life in IPE
This thesis aimed to show how the rating of sovereign credit risk assembles complex histories
of colonial conquest, rational economics, geographical imaginations of risk and uncertainty,
210
space, place, and financial markets. The goal was to show the entanglement of everyday life
with wider connections, spaces, and histories of accumulation and dispossession. Entanglement,
as Nuttall (2010:20) points out, ‘draw into our analyses critical attention to those sites and spaces
in which what was once thought of as separate – identities, spaces, histories – come together or
find points of intersection in unexpected ways.’ Here, a genealogical reading of the present
reveals how European colonialism, scientific rationalism, and the governmentality of sovereign
credit risk unfold in the production of ‘raw life’ in post-apartheid South Africa. Post-colonial
scholars explain show how imperial encounters enables the denial of effective agency to the
South. Here, the site of ‘everyday life’ writes Davies (2006), can be an important site of
resistance in IPE by prompting an investigation into how Western narratives and political
projects have been contested ‘on the ground.’ One such example can be found in Louw (2019,
2017), who provides an account on the history of underground gambling practices in South
Africa. Before commencing, it is important to point out the historical and conceptual
entanglements between finance and gambling, as both being strategies of confronting chance
and uncertainty.
In early modern Europe, there was no conceptual difference between financial activities and
gambling and it was only through prolonged political, cultural and legal struggles in which the
meaning and boundaries of ‘the financial sphere’ and the character and behaviour of ‘financial
man’ were debated, that a separation between gambling and finance were made possible (de
Goede, 2005:chapter 3). One instance that exemplifies this struggle is war against bucketshops
in New York and Chicago. These institutions were betting shops where it was possible to bet
on the movement of stock prices without actually purchasing a stock. Bucketshops deployed all
the paraphernalia associated with established exchanges and established themselves in major
cities all over the US. They accepted small bets on the movements of prices that were much
smaller than the minimum investments required by the exchanges, but mostly did not execute
their’ client’s orders on the exchanges. Instead, much like derivative trading, they took the
opposite position to their customer’s bets, sometimes hedging their positions on the exchanges
(de Goede, 2005:68). Given their similarities with exchanges, bucketshops associated financial
trading with gambling. In order to secure the legitimacy of their profession, amidst growing
opposition to their practices, the exchanges in Chicago and New York sought to distance
themselves from gambling by taking legal action against bucket shops. The problem however,
was that up to that point there was no legal separation between gambling and financial
speculation. In 1901, resuming a prolonged legal battle lodged by the Chicago Board of trade
211
(CBoT) against a bucketshop called Christie Grain and Stock Company, the CBoT lost, based
on Christie’s defence that there was no essential difference between its practices and those of
the CBoT. The court argued that:
It is thus proven beyond all reasonable question that the Chicago Board of
Trade…members…engage in making and carrying through deals in grains and
provisions, in which it is not intended to make a future delivery of the article dealt in, but
which are to be settle by payment of money only according to the fluctuations of the
market and which are in all essentials gambling transactions…the Board of Trade does not
come with clean hands, nor for a lawful purpose (cited in de Goede, 2005:71, emphasis original).
The CBoT appealed in 1905 and the case got referred to the US Supreme Court, whereby the
CBoT’s activities became codified in legal terms, based on the moral justification that trading
is a rational, calculative action instead of relying solely on chance (de Goede, 2005:77). It is the
gamblers, Defoe argued, that pose the most serious threat to Lady Credit as they cannot restrain
their desires and give into ‘Luxury, Sloath, Pride’. As he put it in ‘The True-Born Englishman’
(Defoe, quoted in Richetti, 2005:144)
The lab’ring poor, in spite of double pay,
Are saucy, mutinous, and beggarly:
So lavish of their money and time,
That want of forecast is the nation’s crime.
Good drunken company is their delight;
And what they get by day, they spend by night.
Defoe continues to argue that ruin will be the effect of ‘Luxury, Gaming, Lewdness and all sorts
of Vices’ (quoted in de Goede, 2000:67). Stockjobbers (stock brokers), who sold credit
certificates for gambling purposes were common offenders in this regard, as they displayed an
unrestrained lust for wealth. It is in this context of moral ambiguity and class conflict where
Louw (2019, 2017) provides interesting examples of how illicit gambling activities serve as
spaces of resistance against an historically exclusive financial system. He explores the history of
an illegal Chinese-run numbers game called fahfee and its underground development in South
Africa (Louw, 2019). The spread of fahfee in South Africa is associated with the influx of Chinese
settlers from the late nineteenth century. It became an extremely popular leisure activity for
Chinese immigrant communities and helped them mitigate the harsh realities of the
exclusionary racial-capitalist context. Recreational demand amongst South Africans grew
significantly, which served as an entrepreneurial opportunity for Chinese communities to make
a living outside the formal white-controlled economy. Not only did fahfee provide an illicit
accumulation strategy, but gambling operations also served as a space where racial mixing was
212
deemed socially acceptable. The games were run by individual families and involved them
travelling alongside fixed routes, stopping at particular places to collect bets from runners and
announcing winning numbers. Although, with the passing of the Group Areas Act in 1950, the
game lost much of its allure, it remains an extremely popular and an integral feature of everyday
life for many low-income, black women in South Africa. In another analysis, Louw (2017)
explores fahfee contemporary South Africa, focusing particularly on the subjective moral
universe of the game. Contrary to other forms of illegal gambling that tend to be controversial,
Louw (2017:19-20) observes that fahfee is widely tolerated and helps cultivate a sense of moral
community amongst players. Furthermore, contrary to claims that fahfee is played solely for
money as a form of ‘speculative accumulation’ due to limited livelihood strategies, the game
represents ‘a form of conspicuous decadency, a small but measured act of defiance against the
requirements of pecuniary responsibility’ (Louw, 2017:19-20). These acts of resistance that exist
at the site of the everyday exemplifies how modalities of counter-conduct takes place on a
microlevel in a way that contests the assumed morality of finance, based on claims of rational
calculation, and the immorality of gambling that is associated with usury, avarice, or drinking.
Conclusion
This chapter examined how the analyses conducted in this thesis, which focused on the
historical processes that have de-politicised the discourse of sovereign credit risk, opens up
possibilities of resistance and re-politicisation. Given the plurality of relations of power and
knowledge that have shape and continues to shape the authority of sovereign credit risk, this
chapter revealed the multiple entries for critique. The first deals with exposing the fragility of
stabilised, rationalised portrayals of sovereign credit risk. Referring back to Defoe’s ambition
to create a rational space for finance, contemporary efforts that seek to limit the risk posed by
emerging markets it becomes clear that the mastery of Lady Credit is never complete. Here,
the multiple instances of dissent expressed among leaders of the global South on the validity of
CRAs methodologies – the core of their objective truth claims – becomes important counter-
conducts that tear into their authority. Likewise, a genealogy of indicator production, as Merry
(2016a) shows, enables further sites of resistance by exposing the uncertainty of data and the
large amount of interpretive work that goes into their making. Given the arithmetic appearance
of financial practices in contemporary life, and the ability of statistics to de-politicise issues that
are inherently social and political, these critiques have the potential to significantly disrupt the
regimes of truth attached to ratings. At the same time, by exposing the limits of numerical
213
knowledge, it becomes possible to move away from the overconfidence in mathematical
probability to accurately model the future and allow more room for democratic debate and the
possibility for a plurality of agency in the making of financial numbers (de Goede, 2001:290).
Finally, Louw’s (2019, 2017) analysis of illegal gambling practices in South Africa provides an
example of how the site of the ‘every day’ is an important space of thinking about resistance in
IPE. It enables a way to question ideas of morality and rationality through which modern credit
practices have been defined, often through a play of differentiation from the European
gentleman. Instead of focusing on large-scale political revolutions, Louw’s analysis show how
agency can be reclaimed through investigations from the ‘ground up’. Fahfee, which has always
been illegal, continues to be played by low-income, mainly black women and contrary to long-
standing moral concerns about gambling, the meaning and value of the game has been
rearticulated as something that in fact cultivates a sense of moral community amongst players.
214
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