Governmentality - Thomas Friedman

Friedman, that's Thomas not Milton, today in the New York Times was citing from a book he'd returned to recently to help him explain how the US will work through the current crises in the 'unreal' economy. Strikes me that this following passage is what Foucault meant by governmentality: techniques and rationalities by way of which the self, the household, the state are conducted.

Yes, this bubble is about us — not all of us, many Americans were way too poor to play. But it is about enough of us to say it is about America. And we will not get out of this without going back to some basics, which is why I find myself re-reading a valuable book that I wrote about once before, called, “How: Why How We Do Anything Means Everything in Business (and in Life).” Its author, Dov Seidman, is the C.E.O. of LRN, which helps companies build ethical corporate cultures.

Seidman basically argues that in our hyperconnected and transparent world, how you do things matters more than ever, because so many more people can now see how you do things, be affected by how you do things and tell others how you do things on the Internet anytime, for no cost and without restraint.

“In a connected world,” Seidman said to me, “countries, governments and companies also have character, and their character — how they do what they do, how they keep promises, how they make decisions, how things really happen inside, how they connect and collaborate, how they engender trust, how they relate to their customers, to the environment and to the communities in which they operate — is now their fate.”

We got away from these hows. We became more connected than ever in recent years, but the connections were actually very loose. That is, we went away from a world in which, if you wanted a mortgage to buy a home, you needed to show real income and a credit record into a world where a banker could sell you a mortgage and make gobs of money upfront and then offload your mortgage to a bundler who put a whole bunch together, chopped them into bonds and sold some to banks as far afield as Iceland.

The bank writing the mortgage got away from how because it was just passing you along to a bundler. And the investment bank bundling these mortgages got away from how because it didn’t know you, but it knew it was lucrative to bundle your mortgage with others. And the credit-rating agency got away from “how” because there was just so much money to be made in giving good ratings to these bonds, why delve too deeply? And the bank in Iceland got away from how because, hey, everyone else was buying the stuff and returns were great — so why not?

Of course, Friedman, in quoting Seidman, is not saying anything out of the ordinary- ethics is an old subject. But what the highlighted passage does show, I think, is that the reasons or rationalities for practices are, to turn Seidman's logic around, what saturates the practices, and that these techniques of conducting conduct are practiced across a continuum of bodies: countries, governments, corporations and selves. So, rather than the ideology of deregulation or of the creative innovations of free markets, or the rhetoric of completely new markets that will never fall to earth, Friedman is drawing attention to techniques. And it's to this level that the regulation-deregulation debate needs to shift. Not whether or not to have regulation, because as should be clear there were regulations governing, for example, sub-prime mortgages, but the how of regulations - governmentalities.

We are governed too much.

Alan Moran - Director of Deregulation at the Neoliberal Think Tank Institute of Public Affairs puts the Neoliberal case [from Unleashed] for greater Central bank deregulation. A hasty retort is attached below and Will Hutton's analysis, on which my retort is based, linked to below, as well.

Reprising the 1930s degringolade

"You don't know what you're doing" is the soccer crowd's refrain to a failing team manager's player selections. Such an accusation applies to almost all the world's central bankers, whose carefully cultivated pretensions of deific prescience are now deflated.

Aside from attempting to address the economic mess they have created, central bankers are setting out their apologias. The authorised version is given by Charles I. Plosser, President and Chief Executive Officer, Federal Reserve Bank of Philadelphia.

Plosser tells us that monetary policy can't do everything. He says it cannot protect against buffeting caused by non-monetary disturbances, such as a sharp rise in the price of oil or a sharp drop in the housing market.

In fact, soaring oil price increases over the past couple of years were absorbed without causing economic dislocation. As for house price increases, these were caused partly by governments forcing up the price of housing land (and in the US requiring relaxed lending standards) and partly by the reckless expansion in the money supply fomented by the Fed and, indeed, by our Reserve Bank.

Plosser adds. "Encouraging the belief that any system of financial regulation and supervision can prevent all types of financial instability would be a mistake. Instead, our goal should be to lower the probability of a financial crisis and the costs imposed from any troubled financial institution." Having specified such limited goals, neither Plosser nor other central bankers and Treasury chiefs have acknowledged their abject failure to meet them.

For the central bankers, their bail-out proposals are policy-on-the-run with no sense of fitting the colossal rescue sums they want into what is needed. The US $700 billion is inadequate to liquidate the "toxic debt" variously estimated at $3-6 trillion. It will be used to reward the very people who have acted recklessly in their borrowing and lending and it is being accompanied by a re-run of the very low interest rates that were the original cause of the debacle.

The central banks have been set up with dictatorial powers over the money supply and interest rates precisely so that these levers of a stable economy can be kept away from the political process. Wisely, the machinery of monetary management has been removed from the control of politicians who therefore have to be open in borrowing and stealing to buy votes.

But, in taking such powers from politicians, we have surrendered considerable discretion in monetary management to detached experts. These reserve bankers have basked in that power. They have encouraged an army of sycophants examining every word they utter looking for hidden meaning or some hint as to where the great minds' thoughts are developing.

In fact the Masters of the Policy Levers had no clue what the money supply was doing. The recession we now face is due solely to their monetary mismanagement. When a central bank presides over year after year of money supply increasing at double digit rates, something in their training and qualifications should be asking "where is all that money going"? The increased money supply can only be reflected in inflation, transfers overseas and real economic growth.

We are pretty certain that economic growth was at levels of only 3-5 per cent, so the rest must have been boosting inflation or was being accumulated by overseas borrowers. The overseas accumulation of Australian funds is certainly one direction where the monetary expansion went. The collapse of the $A is a vivid illustration that the lenders want their money back and, in claiming it, are causing just the sort of policy surprises and wild fluctuations that the monetary policy managers were supposed to prevent.

As for the rest of the surplus money created by the Reserve Bank, if it was not being measured in the CPI it must have gone into other forms of inflation. Housing is the obvious area. House prices were inflated by mismanagement in other arms of government, which boosted prices by creating land shortages and excessive taxation of new developments. This created a casino with prices escalating and home owners complacently took out second mortgages to finance rental properties and overseas trips.


In the current debacle, there have been calls for punishment of the merchant bank Masters of the Universe. But all they were doing was responding to the policy environment set by the central bankers, and it is they who should be called to account.

Far from acknowledging their culpability, central bankers and Treasury chiefs are calling for even greater powers. It would be foolish to agree to this.

Many voices are calling for greater regulation. Regulatory controls should be constantly reviewed, though in the current world crisis it is not always the lesser regulated countries that have fared worst. In Australia, Lindsay Tanner has recognised that there remain areas where red tape is excessive and costly. Knee-jerk regulatory intensifications and government interventions have not worked in the US and UK and can store up real future problems.

*********Retort, posted to this thread, following***************************

Trust the market seems to be Moran's message, along with the old, tired Neoliberal mantra of 'free us from the shackles of being overgoverned'.

Moran doesn't appear to even believe in a democratic public sphere, otherwise he'd be down hear with the plebs defending his Neoliberal whinge. C'mon, Moran, please explain how Government ancouraged the market in credit default swaps; please explain to us ignorant people how we should be ensuring that Government gets out of the way of the various markets in financial derivatives. Please explain how the current global financial system's complex and opaque market in derivatives was based on anything but the normalization of lies and obfuscation.

The market in financial derivatives was plenty regulated. The problem is that its fundamental form of regulation was to lie about the value of the asset on which the financal instrument was supposedly based. At the heart of the current crises is the fact that there is a multi-trillion dollar global industry in financial derivatives and no one trusts the value that any other corporate body place on these products. The convulsions in the stock markets probably won't stop until true valuations can be made on the assets that these instruments are based on.

The problem then is not one of regulatin or deregulation: the market in derivates was meant to be a means of regulating risk. The problem is the degree of abstraction in this system. Failing a concrete grounding this system ran on until it hit the valuation embedded in US sub prime defaults. These aren't the cause of the mess, but the catylyst, where the currents in the credit markets came back to earth.
Reserve banks, households, corporations, states - we are all part of this system of regulation. To use an older meaning of the word government, we have all governed ourselves, our economies, our states, badly. The answer is not a return to regulation, but a different set of regulations. On a household level that means keeping your credit grounded, same as on a state level, and also for business.

Arguing like Moran does that Central Banks are solely to blame by setting the framework for financial policy gives the illusion that deregulation will not only make us freer but would have avoided the current crises. Isn't this precisely the sort of mentality that has led to the current situation?

***
Will Hutton

A lethal new threat is emerging at the dark heart of the financial system. We must have a unified global response or an already perilous position will become a calamity.

The problem is that the markets no longer have any faith that the world financial system they helped create has any future. The model is bust. It is encouraging that both the Americans and Germans are now moving towards what they considered ideologically unthinkable a fortnight ago - they are preparing to follow the British lead, take big public stakes in banks and offer guarantees to the interbank market.

But while this is a necessary condition for stabilisation it is not sufficient. What needs to happen on top is an assault on the dark heart of the global financial system - the $55 trillion market in credit derivatives and, in particular, credit default swaps, the mechanisms routinely used to insure banks against losses on risky investments. This is a market more than twice the size of the combined GDP of the US, Japan and the EU. Until it is cleaned up and the toxic threat it poses is removed, the pandemic will continue. Even nationalised banks, and the countries standing behind them, could be overwhelmed by the scale of the losses now emerging.

This market in credit derivatives has grown explosively over the last decade largely in response to the $10 trillion market in securitised assets - the packaging up of income from a huge variety of sources (office rents, port charges, mortgage payments, sport stadiums) and its subsequent sale as a 'security' to be traded between banks.

Plainly, these securities are risky, so the markets invented a system of insurance. A buyer of a securitised bond can purchase what is in effect an insurance contract that will protect him or her against default - a credit default swap (CDS). But unlike the comprehensive insurance contract on your car which you have with one insurance company, these credit default contracts can be freely bought and sold. Complex mathematical models are continually assessing the risk and comparing it to market prices. If the risk falls, the CDSs are cheap; if the risk rises - because, say, a credit rating agency declares the issuing company is less solid - the price rises. Hedge funds speculate in them wildly.

Their purpose was a market solution to make securitisation less risky; in fact, they make it more risky, as we are now witnessing. The collapse of Lehman Brothers - the refusal to bail it out has had cataclysmic consequences - means that it can no longer honour $110bn of bonds, nor $440bn of CDSs it had written. On Friday, the dud contracts were auctioned, with buyers paying a paltry eight cents for every dollar. Put another way, there is now a $414bn hole which somebody holding these contracts has to honour. And if your head is spinning now, add the three bust Icelandic banks. They can no longer honour more than $50bn of bonds, nor a mind-boggling $200bn of CDSs.

economic rationalism or neoliberal governmentality?

A section from the thesis where I work through some of the writings which seek to characterise the political practices and reasoning that affected Australian Government in the long Labor Decade. Thought this might be worth throwing up here as there are debates echoing around the tubes about Neoliberalism's death, or its utter resilience. It took me a while to come around to the Foucauldian view of it as a type of governmentality, which is not to say that the more commonplace view of Neoliberalism as forms of deregulation and privatisation are not also facets in the same assemblage. However, what the governmentality approach stresses is that Neoliberalism is a set of liberal political techniques which are saturated with forms of reasoning and knowledge that aim to shape and conduct people as flexible, productive and above all as entrepreneurs of themselves. Neoliberalism is a political rationality of government that stretches from the self to the state.

Anyway here's a slice relevant to a debate that while a little old is I think still pertinent.

Economic Rationalism and Neoliberal governmentality

Fucking locusts: the moment they smell something green it’s gone in an instant.

[A] very senior (and battle-weary) person in one of the service departments in answer to a question about his view of the economic rationalists in the central agencies.(Pusey, 1991: 174)

In a 1995 review of Beilharz’s book [Transforming Labor Carol] Johnson wonders if Beilharz’s approach to the Hawke-Keating government and Labor tradition fails to take into account the possibility that the transformation of Labourism was less its exhaustion than its expansion to include social groups outside the white, male heterosexual wage earner (1995). She also wonders “what use Beilharz might have made of more recent Foucauldian approaches to issues of political economy and governmentality” (ibid: 102).

While Johnson’s 1989 political history is based on the method of an ideology critique, which “concentrates on the dominant premises underlying government policies”, her 2000 text is a more methodologically diverse approach to political science and, indeed, towards political culture (ibid: 3). In Governing Change: from Keating to Howard (2000) Johnson reaches back through the Howard Coalition Government into the Keating-led period of the long Labor decade and approaches this approximately nine year period through a range of analytic methods, which she applies and evaluates according to their interpretive and explanatory power and utility. While heuristics based on technology, gender and sexuality are placed over the period to draw out the causes and implications of changes in governing and government that these methodological grids enable, it is Johnson’s use of theories that emerge out of the Foucauldian governmentalities school and use of the Habermas-based critique of economic rationalism that Michael Pusey makes which is her central and important contribution to an understanding of the long Labor decade.

Rather than seeing the rise of Australian Neoliberalism solely in terms of an ideology which presents itself as the necessary withdrawal of the state through such practices as “privatisation, deregulation, free-markets and the increasing role of the private-sector” Johnson’s use of a governmentalities-based approach to the long Labor decade leads her to argue that “other forms of state activity” accompany these practices, which include “shaping and influencing the behaviour of its citizens, encouraging new forms of self-managing and self-regulating behaviour by individuals and relying on the disciplinary power of the market to influence citizen behaviour” (2000: 100). Considering that it is only recently that the lectures in which Foucault most fully outlined his theories and critique of Neoliberalism, were published in English it is not surprising to find that definitions of Neoliberalism rarely countenance Foucault’s concepts that it is also a political rationality rather than just an ideology about market freedom and that it is a form of governmentality that changes the techniques by which states and individuals govern and are governed (Foucault, 2008: 215-238). The advantage of this approach is that it sets aside the claims of an ideological focus and critique in order to track the reasoning or rationality upon which government practices are based. Such an approach uncovers the view that contemporary forms of liberalism differ from earlier forms in that they do not see the market as already existing in some natural form but as something that government needs to actively construct through establishing particular political, legal and institutional conditions. The state is then faced with the additional dilemma of needing to encourage the development of the particular forms of ‘autonomous’ and ‘free’ individuals that neo-liberal styles of government depend upon, given that liberal sovereignty in general takes a less directly coercive form than more authoritarian forms of rule (Johnson, 2000: 102).

This is an argument which seeks to explicate the ‘Neo’ in Neoliberalism. A complementary historical argument is that the target of Neoliberalism in many countries is the practice of Social-liberal techniques that were instituted through Keynesian practices in the period after World War Two until the early 1970s. The ‘Neo’ prefix thereby refers to the specific nature of this historically recent object of critique; a critique which, as Foucault argues, projects itself along the well-worn Liberal path of “governing too much,” but which because of its Keynesian and Social-liberal object can be called New (Foucault, 2008: 319).

Thus Johnson’s application of the insights of the Foucauldian conception of Neoliberalism to the long Labor decade leads to her depiction of it as a specific project of identity construction and thereby behavioural ‘encouragement’: “In the Keating government’s practice, governmentality took the form of attempting to construct a range of identities in ways that are compatible with Labor’s conceptions of reconstructing the Australian economy” (2000: 104).

Johnson’s use of Foucauldian methods is a cautious one as she finds them inadequate for dealing with forces exterior to the state-subject relationship, such as market power in a capitalist economy. In order to better approach these forces she turns to Michael Pusey’s application of Jürgen Habermas’s theories in Pusey’s Economic Rationalism in Canberra: A Nation Building State Changes its Mind (1991). For Johnson, Habermas’s method relies on an opposition between a “lifeworld” of human subjects that contains “culturally secured meanings, and . . . social action,” and “systems structures,” forms of which are money and power and which threaten to mediatise and colonise the lifeworld (Pusey, 1991: 175 and Johnson, 2000: 112). To some extent Habermas’s schema is a retooling of the concepts he employs in The Structural Transformation of the Public Sphere: An Inquiry into a Category of Bourgeois Society (1989) where he places the practices and institutions of rational-critical discourse as central to the democratic potentials of modern liberal political life (1989: 51-56). According to Habermas there is a form of rationality higher and more suited to the lifeworld, the source of democracy, than to those forms embedded in ‘money’ and (bureaucratic-state) ‘power’ (Johnson, 2000: 112).This is both an argument for the safeguarding of these higher and more democratic forms from ‘colonisation’ and a reiteration of the central thesis of his earlier work on the political public sphere.

For Johnson, Pusey’s research into changes in norms and practices amongst Canberra’s Senior Public Servants and critique of economic rationalism go far in explaining how and why “the Canberra Bureaucracy itself became a site intimately implicated in the colonisation of the lifeworld by the economic subsystem” (ibid: 113). Indeed, Pusey’s critique is a compelling one that has a sharp moral edge and is one drawn on a comprehensible spatial model which clearly demarcates the sources of economic rationalism against what must be protected from it: the lifeworld and its practices of communicative rationality. In a sense Pusey’s is form of immanent critique, taking the language of the object, turning it back on itself and thereby undoing its claims to any moral superiority or longevity:

[T]his doctrine and its sponsors will pay the price of casting society itself both as the object of business strategy and, just as negatively, as the generic source of all ‘market failure’. It is an aggressive reduction that pretends not to see that in the West in the space of little more than a generation, extended family, church, and local community neighbourhood have all been burnt up as fuel in the engine of economic ‘development’. (Pusey, 1991: 241)

Yet the limits of Pusey’s critique of economic rationalism are those that the governmentality ‘school’ treat as the central objects of their practice. Pusey’s Habermasean schema makes assumptions about the nature of the lifeworld and the human-subjects who populate it which are not held by those that practice with more Nietzschean-influenced ideas on the relation of truth-subject-power that Foucault wields. Specifically, Pusey’s critique is, like aspects of Habermas’s writings, caught in the paradox of thinking a modernity that ruptures historical time into a traditional past and new future. The paradox is that ‘tradition,’ like heritage, doesn’t pre-exist modernity so much as it is made in the moment of the modern. The concept of ‘lifeworld’ and of a transparent communicative rationality would seem to be Janus-faced: the lifeworld a condition or state of human community that is the projection of a temporalization made in the cauldron of modernity, and facing another way, the dream of a pure communicative rationality seemingly a secular model of redemption without the violence or revolutionary desires that Benjamin’s messianic time conjures. While this thesis sides with the Foucauldian concept of Neoliberalism as a form of governmentality which ascends in the long Labor decade, it follows Johnson’s scepticism about its limits and thereby accepts the usefulness of Pusey’s critique to explain aspects of the forces operating on the long Labor decade.

One dimension of Neoliberalism is its forming, or bildungs, and re-forming of citizen-subjects in terms of freedom and market rationalities. This process of what Mitchell Dean calls “culture-governance” is analogous to the Bildungs: a term denoting the formation of self through culture and a term more commonly known through its deployment in the anglo-linguistic world as the novel genre of the Bildungsroman: formation-novel (Dean, 2007: 198). Much of the thesis is concerned with formation novels, or Bildungsromane, that traverse or arise out of the long Labour decade, and it argues that the representations of subject-formation in realist novels of this period are ones that can be seen to engage with the forces, rationalities and technologies of neoliberal governmentalities working in and through the cultures and discourses of Australian Labourism and industrial citizenship.

There is ongoing debate over how to describe and theorise the political project that the long Labor decade both attempted to enact and in part succeeded in realizing. The key tension in this debate concerns the description of Neoliberalism as the submission of the State to global corporations and markets by privatising formerly state-owned and run businesses and utilities, by deregulating formerly protected and state-controlled markets in finance and labour, and by adopting business techniques in the running of bureaucracies and state utilities. This conception of Neoliberalism, shared by such global Left intellectuals as David Harvey (2007) and the late Pierre Bourdieu (1998), is firmly rejected by those theorists of Neoliberalism influenced by Foucault’s writings and lectures on the subject (Lemke, 2002: 54-60). The terms of this debate will be explored in more depth throughout this thesis, in particular in Part 3. But the advantages of a literary history of the long Labor decade as a track running alongside the political history is that fiction is more conducive to investigating the representation of political forces as they form the self. This thesis’s focus on formation novels aims to give an account of Australian literary-fictional responses to Neoliberalism which complements and contests non-fictional accounts.