Please note that this material is only for use by those registered on the course of study for which

this digital copy has been made.

All staff and students of Goldsmiths are reminded that all material held in electronic form is subject to copyright law. This digital copy has been made under the terms and conditions laid down by the Copyright Licensing Agency (CLA) licence. Further details are available at http://www.cla.co.uk/UUKguildhe_members.php. This licence allows legitimate users to: Access and download a copy Print a copy

You may retain such copies after the end of the course, but its use is strictly limited to yourself and cannot be given or loaned to any others. All copies (including those held electronically) will include this copyright notice and will be destroyed and/or deleted if and when required by Goldsmiths. No further copying, storage or distribution (including by e-mail) is permitted without the permission of the copyright holder. The authors, artists and other visual creators have moral rights to the work and neither staff nor students of Goldsmiths may cause or permit the distortion, mutilation or any other modification of the work, or any other derogatory treatment of it that would be prejudicial to the honour or reputation of the author, etc. This is a digital version of copyright material made under licence from the rights holder and its accuracy cannot be guaranteed. Please refer to the original published edition.

Course of Study Title: Author: Publisher: ISBN/ISSN:

CU71004C Financial Derivatives and the Globalization of Risk LiPuma, Edward & Lee, Benjamin Duke University Press 0822334186 Rebecca Randall

Designated Person authorising scanning:

7 Derivatives and the Stability of the State

inancial derivatives are a crucial dimension, and their emergence is a critical moment, in the ascendance of circulation. This is, but is also much more than, the amplification of the flows of materials and money across national borders that on the margins were always soft and rather permeable. The centerpiece is a reorganization of the world economy animated by globalizing processes whose main hubs are cultures and sociostructures of circulation in which financial derivatives are increasingly important cogsimportant because they add a metalevel to the transnational pulse of capital and because they emanate from the metropole. Powered by the emergence and abundance of speculative capital, the riskdriven derivative has come to exert enormous influence on the global economy by inflecting and deflecting the movements of capital, the ultimate lubricant of commerce. The explosive rise of derivatives from almost nothing to the planet's largest market is instrumental in, and also expressive of, a world change that challenges virtually all existing accounts of the interrelationship between the economy and the state. Capitalism appears to be transforming from a production-centered, nation-based political economy to a much more cosmopolitan structure in which not only does

162

production share the stage with circulation, but circulation appears to be subsuming production, a process that seeks to simultaneously (if not contradictorily) amplify global productive output even as it encompasses and reorganizes the geography of the existing regime of production. In this process, circulation is emerging as the leading edge of global capital and the transformative engine driving an ensemble of other modifications to the world order, not least in the ways states conduct domestic politics. This transformation is occurring with a haste unknown in the past, a haste itself elemental to the reinvention of Euroamerican capitalism (we underline the Euroamerican limitation because Japan has been bypassed as being beyond the scope of this work). In terms of political economy, Euroamerican capitalism in its cycles of creative destruction and resurrection seems to have reinvented itself, once again, and in the process transformed the social conditions for the production of a capitalist politics. It is important to be clear about what is happening. Many of the world's nation-states, particularly in Africa, Latin America, the non-petroleum-producing states of the Islamic Mediterranean, and huge swaths of Southeast Asia, are being simultaneously detached from the global structure of production even as they are attached by the chains of circulation. There is, moreover, an intrinsic connection between their disenfranchisement from the global realm of production and their absorption into a transformative circulatory system. The metropole's contemporary economic condition, characterized by industrial overcapacity and capital overaccumulation, is leading to what may turn out to be a politically if not economically toxic triangulation, especially because Euroamerican capitalism sees its best immediate economic prospects in using its resources to advance this triangulation. Operating under the name of neoliberalism and

the ideology of the free market, the reorganization of global capitalism is progressing toward a tripolar economic space. In the metropole, this process appears as the much-written about slow dissolve of industry and manufacturing, and the resulting restructuring in which the circulatory enterprises of finance, media and internet services, and logistics come to the fore, coupled with the shift in production to technologies of circulation and the shift in technology and software platforms to design products manufactured (in whole or part) elsewhere. As Perez (2002, 99-100) notes, this is producing a set of contradictory effects. Those sectors of the economy involved in creating and installing these new technologies of circulation, amply financed by the oversupply of capital, are experiencing rapid and accelerating growth; and, displaying enormous potential for wealth creation, they are fast displacing industrial manufacturing as an engine of growth. Conversely, those nations and regions that lack the technological, educational, and financial capital to either move into the technologies of circulation or become the new manufacturing centers are entering into a vicious downward spiral of slow or nonexistent growth coupled with a drain on capital. This reformation of production underpins the postFordist metropolitan economy of outsourcing, linked to the outlocation or relocation of entire sectors of production to varied points on the multipolar periphery. This reconfiguration or multi-territorialization of production within the context of the differences and distances produced by nation-state politics created the conditions of connectivity that were the springboard for the ascent of a culture of financial circulation. As this outline suggests, the periphery is truly multipolar in that the benefits of both outsourcing and the relocation of production benefit some countries and regions and all but exclude others. Much of Southeast Asia, the huge and densely

163

164

populated eastern half of China, select regions within the Indian subcontinent, and a few other areas are the main beneficiaries of this new geography and functional rescaling of global capitalism. Especially noteworthy is the florescence of China as the epicenter of production even as its near neighbor competitor, Japan, struggles to wean itself from what was once its way to wealth but is now an economically suffocating regime of state-steered, production-monocentric capitalism (most strongly exemplified by a banking system yoked to what was once a very prosperous regime of industrialized production and the real estate values it supported). According to an assessment of globalization by the World Bank (2001), only twenty-four nations, led by China, have benefited from the reorganization of global industrial production, though some of those are now beginning to slip behind. This report indicates in aridly statistical fashion, even as it underestimates, that the metropole in concert with the new national centers of industrial production and oil exporters are doing well economically, whereas the remainder of the world is suffering a worsening decline in personal incomes, product per capita, standard of living, and practically every other measure of economic prosperity. Though the structure of circulation affects the lives of all nations, it does so unevenly, according to the way in which the global political economy inserts various regions into global capitalism. The situation is as clear in its large form as it is lapidary in its details. To transcend the limits of economies that are still deeply dependent on minimally skilled labor, unfinished goods, and tourism, the smaller but more advanced nations of the periphery, like Thailand, South Africa, and Malaysia, have sought to invest in value-adding sectors, such as the manufacture of communications technology. Even less advanced economies (such as Mexico and Ghana) are aware that there is a steady and unstoppable decline in the value

added of simple production, making it all but impossible for their expanding populations to maintain, let alone increase, their product per capita. The hitch is that to accomplish the goal of making manufacturing more technologically directed, they need to attract capital from Euroamerican investors. But to attract such capital, even from the World Bank, the borrowing country must liberalize its internal financial controls, on the assumption that the free market inevitably makes better long-term economic decisions than the political system. The process of liberalization, as enunciated by the International Monetary Fund, calls for privatization of state-held banks, the deregulation of local money markets, elimination of foreign exchange controls (letting the currency float), and the introduction of more accessible records and more transparent (read: standardized) accounting. The catch is that such liberalization opens the borders not only to manufacturing capital but also to its speculative cousin. Indeed, the record indicates that while net private capital inflows to many countries have remained stagnant for a decade (Institute for International Finance 2000), there has been an astronomical increase in the flow of speculative capital. What should give pause is that nations that only a decade ago were on the verge of development (Ivory Coast, Indonesia) now appear to be slipping backward into economic chaos and instabilities of many types. The third leg of the triangulation is an increasing number of nations and soon perhaps continents that are being progressively decoupled and excluded from the global structure of production. Owing to a global reshaping of production in which outsourcing is narrowly channeled, the enrichment of China and other privileged regions of the multipolar periphery is increasingly coming at the expense of others. So, many developing and transitional countries are internally fractured to support just a few industries, such as textiles and tour-

165

166

ism, which are integrated, if only at the margins, into global capitalist production, in contrast to the externalization and disenfranchisement of the other parts and populations. For these nations, the real issue is not the functional rescaling of capitalism (illustrated by the rising importance of global cities) or the restructuring of the production of inputs (outsourcing), but being decoupled from the global economic system on which they are dependent for the critical resources (petroleum, pharmaceuticals, technology, and capital) that would form the foundation for any sustainable development. Like increasing immiseration and political turbulence, few things exemplify this combination of dependence and detachment more than the permanent state of monetary emergency prevailing in these barely assembled states, which have only a little and declining ability to control inflation, the denationalization of needed capital, and cross-currency and interest rates. The ascension of a Euroamerican globalizing culture of financial circulation exacerbates these problems, multiplying their effects beyond anything known in the recent past. What from the metropole appears to be no more than the natural evolution of capitalism appears from the disenfranchised periphery to be a new technology of impoverishment and violence. Few things are as much on the inside of social life as money: for money is a social relationship that is a connectivity, meaning that money can take on forms and functions that encompass but also go well beyond the economic. The circulation of money is certainly the connective medium that facilitates the flow of goods and services, but it is also part of a moral economy that citizens use politically to assess the quality of governance. In this vein, people the world over seem to interpret the instability or volatility of their national currency as an index of the stability of the state that issues, and presumably guarantees the value of, the currency. So the permanent

state of monetary emergency that exists in many states along the periphery touches off a chain reaction that begins in the economy but quickly inflects many dimensions of political life, such as the level of trust and confidence that citizens have in their government. Although any particular crisis may have its local factors (such as a new government, or collapse of a crucial commodity price), the many points along the periphery also share a number of related reasons for their continuing states of monetary emergency. First, their central banks have little control over the domestic price of money, interest rates rising and falling mostly in response to exogenous realities that lie outside any form of governmentality. Second, there is little or no relationship between the success of the domestic economy of production and the value of a currency on the transnational markets. So even in an expanding and increasingly productive economy, an externally motivated, precipitous, and thus unanticipated decline in the value of a currency may compel the central bank to defend it by increasing interest rates and tightening access to credit, moves that tend to slow economies that hardly need to be slowed. Finally, the violent swings in the value of the currency and in interest rates make it very difficult if not impossible to coordinate the flow of capital with the capital investments required to augment production. The state of monetary emergency that has befallen so many nations underlines that the growing cultures of circulation, exemplified perhaps by finance, not only generate a freer circulation of people, goods, capital, and services but a corresponding undertow that is often divisive and violent. The metropolitan reply to expressions of concern about these globalizing processes is that every great transformation has left dead and wounded states in its progress toward betterment. But what invites frustration and anger throughout much of the multipolar periphery is that in the vocabulary of

167

those who steer these globalizing processes, betterment seems to be a purely economic term, one in which the law of competitive advantage triumphs over, indeed thumbs its nose at, the laws of sociality, such as those of justice and independence. For many billions of people, the hidden hand conceals its violence.

Violence in the Abstract Under the rule and during the regime of the modern production-centered nation-state, violence took essentially two forms: the violence that occurred within the limits of sovereignty and under the auspices of the state as a deployment and expression of its power, including war; and violence directed against the sovereignty of the state either by internal revolutionaries, from the heights of politically minded, militant opposition down to the most pedestrian criminals, or by another sovereign state (or coalition of states). What these incarnations of violence have in common is that they are direct expressions of the topos of sovereignty. The terror that flows in and around the state is direct and tangible in that it is always ultimately grounded in the right and realities of physical force. The dominant motif in this perspective is that the state best expresses its collective agency and sovereignty through the construction of a mutually and freely agreed upon body of social rules, norms, and contracts, including and particularly those related to the use of violence. The world is thereby divided into those forms of violence that are the work of the agreement of the collectivity and those that undermine sovereignty, internally by crimes that breach the accepted body of norms, rules, and contracts, and externally through attack by another sovereign power, namely war. The globalizing processes now in motion are actively disassembling this organization of violence at both ends. As has

168

frequently been the case historically, the work of violence is most visible among those least able to defend themselves, in the immediate case the dependent countries now being decoupled from the world production system. At the most local level, one sees an extraordinary increase in the immediacy and pervasiveness of violence against civilian citizen-subjects. Across much of sub-Saharan Africa, the Islamic Mediterranean, and the northern cone of South America, not to mention parts of the former Soviet Union, what little sovereignty states might have enjoyed is being greatly undercut by the emergence of denationalized, politically aimless, and fanatic war machines guerilla groups, gangs, coalitions of mercenaries, and other predatory entities that terrorize and visit extreme forms of violence on the population in general as a means of extracting resources, gaining recruits, and guaranteeing control. Often hooked into a range of transnational networks, these instigators of violence are only incidentally related to the sovereignty of states insofar as they arise in the disorganized space that is resulting from the implosion and dissipation of formal political institutions. Speaking about these decoupled states, the Africanist Achille Mbembe observes sorrowfully that emerging technologies of destruction have become "more tactile, more anatomical and sensorial," being less concerned with inscribing people in a disciplinary apparatus than in "the order of the maximal economy represented by the 'massacre' " (Mbembe 2003, 34). At the same time, the rising cultures of circulation, especially those which are creating a permanent state of monetary emergency, are producing a new and much more abstract form of violence, one that is partly responsible for the disintegration of formal political institutions, processes, and sovereignty on the periphery. Where the other form of violence is increasingly visceral, this form is mediated, indirect, and visible solely through its effects on everyday realities.

169

170

The quotidian effects of speculative uses of risk-driven derivatives appear in all of the innumerable ways that the price of money inflects the ability of a government to carry out its responsibilities and of people to create a reasonable standard of living. This violence is also more profoundly abstract because it arises from abstract forms that are themselves constitutive of globalization relationships, as exemplified by the emergence and interlinking of the various dimensions of speculative capital, decontextualized risk, and the derivative to engender a new level of financial abstraction heretofore unknown. Together these forces generate a metalevel to the global circulation of capital, which in turn produces violent repercussions without any overt political intention or sovereign objectives. So the appearance or apparition of a globalizing culture of circulation in opposition to the local communities that make up the globe is an expression of the underlying abstract foundation of this most contemporary species of violence. The violence is abstract in terms of both its opacity at the level of everyday existence and the oppositional character of the sociostructural relations between the global and the local. This double nature of abstract violence, at least from the standpoint of its victims, amounts to a new form of terrorism, a new mode of abstract domination, one in which violence is so economically systemic that it appears necessary and inevitable. Politics and the State of the State There can be little doubt, given the accumulating reports from the metropole and the periphery, that certain parts and products of the globalizing processes, such as the rise of a Euroamerican culture of financial circulation, work to compromise the stability and sovereignty of those transitional states that are struggling to politically consolidate them-

selves. From a structural, historical view, what kinds of politics and political culture are possible and permissible when capitalism shifts out of alignment with its surface-level segmentations, notably the sovereign nation-state? What kinds of domestic disturbances and instabilities start to appear when transnational agents and markets begin to exert control over economies once managed in and through the national state? Each day brings fresh evidence illustrating that these transnational markets and institutions have begun to impose their will on nationally imagined economic spaces and the communities of economic interests into which they once insinuated themselves. While the nations of the metropole and to a lesser extent the new centers of manufacturing and industrial production have the (decreasing) capacity to offset, blunt, or circumvent some of the excesses of the monetary circulatory system, the more marginal and externalized nations are helpless. The emerging financial regime raises the question of whether the owners of mobile transient capital, whose financial practices suspend their allegiance to any specific state, are constructing a sociostructure and culture of circulation that circumscribes and constrains the possibilities of state action to the point where these states no longer have the capacity or will to stabilize themselves. Because modern history has made the state responsible for securing democratic rights, any great decline in the power of the state to supervise capitalism may well propagate a form of domination whose basis lies in abstract, virtual, and osmotic global money markets. Their rise to power also forcibly foregrounds the organization of a world system founded on the national state: specifically, whether this inter-national system can shape a collective strategy of insight and action on those occasions when the machinery of specific governments, including and most especially those of the metropole, cannot articulate a political

171

172

response to what in the now paradigmatic reality of financial circulation presents a problem resistant to state-based solutions. In this expanding universe, the issue is not simply whether the metropolitan states can agree on another international regulatory body (see for example the proposal by Eatwell and Taylor 2000 for a World Financial Authority), but more importantly whether it is possible to craft a cosmopolitan political form that is as potentially democratic and stabilizing as that of the national state. Our current history of the highly unpredictable, lightning-like, and destabilizing ways in which capital rushes in and out of local currencies challenges the ideology prevalent in the commentary on international finance that these markets gravitate toward equilibrium and are democratic because they represent the sum of consumer preferences or votes. Reality appears to impel the alternative realization that the globalizing financial markets, and the cultures of circulation on which they are founded, are fundamentally destabilizing and undemocratic. These realizations notwithstanding, reliance on a nebulous notion of the structure of circulation has greatly impeded an understanding of the political implications of capital flows especially with respect to state power and the balance of power among states. Increasingly, across a wide spectrum of positions, commentaries on state stability begin by acknowledging that circulatory capital is undermining, in ways as powerful as they are unfathomable, the capacity of states to do what all states must do regardless of their political complexion: govern. Trying to understand the recent history of Latin America, Atilio Boron, professor of political theory at the Universidad de Buenos Aires, observes that the global capital markets continue to impose conditions that "are tantamount to a subtle takeover of the national economy," resulting in a "surrendering of sovereignty" (1998, 55-56). Writing about

and from the southern cone of Africa, Achille Mbembe (1999) observes that the "temporality" of technologically accelerated finance capital seems to be overwhelming if not tyrannizing the region's economies and states (53). With these observations in mind, we have attempted to enunciate a framework that will make it possible to penetrate the relationship between global streams of speculative capital and national and regional politics. The culture of circulation of derivatives, especially those that regulate exchange rates and capital flows, structurally reproduces existing forms of global asymmetry and, more importantly perhaps, introduces a new form of structural and structuring asymmetry that owes its coherence to a set of ideologically impregnated conceptual schemes. The western capitalist conception of risk becomes the only empowered and empowering notion. It is imposed by the transnational banking system, by multilateral monetary agencies, and also by metropolitan governments when extending foreign aid. This concept of risk fosters asymmetry because it inscribes western ideology, specifically an acultural notion that modernity is a set of enhancing transformations that every nation-state can, should, and no doubt will be forced to go through. On this view, which appears implicitly or explicitly in every account of global money markets, modernity issues from the growth of rationality and the rationalization of society and economy. The upshot is that markets are seen as able to economically assess any nation or culture based on the extent to which it has become the input of this general function. Accordingly, then, the market presumes that forms of national economic, political, or social policy that stray too far from this model engender risk. The market routinely applies terms such as nonmarket, socialist, state-controlled, excessively bureaucratic terms that it considers pejorativeto decisions by gov-

173

174

ernments to regulate trade or foreign investment, provide job relief by hiring more state employees than functionally necessary, or extend economic emancipation through social welfare programs such as state-sponsored housing projects. The agents of the global money market perceive policies such as these as magnifying the level of objective risk and thus placing a quantifiable strain on their interest rate and currency models. Such added risk motivates a contraction of finance capital, which in conjunction with increasing monetary volatility can precipitate a devaluation of a nation's currency. What is more, to many in the academic world, blind to the power of speculative capital and derivatives markets, such problems come about because those on the periphery lack the statecraft to create and use institutions that encourage free trade and open markets by channeling the efforts of interest groups in productive directions. The result is a form of encompassment and domination that is nearly absolute because the very determination of these systems of circulation is founded on western forms of intellectual and technological capital. The basis of the modern state has been its enhanced administrative capacities, its unification of a territory, its more direct control of and intervention into the territories and populations it has embraced, its reliance on popular political participation, and its assertion of clear boundaries rather than frontiers (Calhoun 1997, 66). As Skocpol (1979), Giddens (1984), and others have emphasized, modern states have sought to engender internal integration and homogenization, especially in democratic governments, less through direct coercion than through the inculcation of the social imaginary of citizen-subject and common political culture (for example through the education system). A critical feature of such political consolidation has been the integration of the economy on a national level. The contemporary world has thus

imagined the state as a semi- and selectively permeable sovereign territory where the citizens of the state control governance, however disproportionately. The result is that the modern period has conceptualized international relations as external and politically determined relationships among sovereign states, and therefore that congresses of states (such as the United Nations), state-ratified treaties (the European Union), and state-run warfare have dominated regional and transnational relations. In the state context, global issues always have a leadership and an address (consider the example of the 0-7), making the resolution of global problems inseparable from negotiations among the leaders of sovereign states. On this model, the state is also the site of realizing democratic governance and furthering a democratic political culture (as through constitutional guarantees to an open public sphere). The growth of cultures of circulation is having a powerfully transformative effect on the capacity of states to organize economic relationships, for example by fixing the value of their money or using formed capital, because the circulatory system now in ascension is virtual, deterritorializing, and not state-centered. The question posed by the rise of new forms of connectivity is less whether the state will simply wither or retreatimportantly because these cultures of circulation capitalize upon some of the functions of the state than how they will reconfigure the politics and power of states and among them. The ascension of circulation as a quasi-autonomous sphere is displacing critical determinants of local economic well-being to a temporality and space beyond the influence of the citizens and elected officials of each state. They also lie beyond the purview and power of most coalitions among states, especially for the postcolonial world. For metropolitan states and interstate organizations designed to promote economic stability, the derivatives market provides a new, apparently objective, and seemingly transpar-

175

176

ent means of measuring and monitoring economic progress within a state; and consonantly, a government's success in implementing capital-enhancing policies, such as privatization, that presumably spur economic growth. The derivatives market allows multilateral accrediting and lending institutions, such as Moody's and the IMF, to assess the creditworthiness and aggressive capitalism of a state's government at every moment in time. In reined and misrecognized form, in ways that appear entirely separate from the business of trading, the western agents who participate in the culture of the circulation of derivatives both embody and objectify the social ontology and ideology of the Euroamerican tradition, to the point where western notions such as those of person and collectivity, agency and constraint, reason and representation, and value and quantity are becoming increasingly inscribed in these cultures of circulation as regimes of interpretation and regulation. In the relationship of the politics of economy, the culture of the circulation of derivatives apprehends democracy as a market of choices, economic and political, and it defines the true mission of governance strictly in terms of maintaining civil procedures and individual rights. Those who trade, create, and underwrite derivatives denounce government interference into markets of any type (whether of stocks, housing, property, or jobs) and indeed view as antidemocratic and anti-capitalist any attempt by government to tax the market for social welfare purposes. The imagination of risk as a transversal concept, whose properties, price, and power transcend the limits of locality, also undermines the modern notion of the state. To engender unity and project a notion of "we-ness," states have sought to collect, consolidate, organize, and distribute information about the operation of the economy. This process encompasses an array of qualitative and statistical information rang-

ing from calculations of gross national product and rates of (un)employment to prices of goods and services and levels of industrial production. These forms of information not only presuppose the existence of a fully sovereign citizen-state, they performatively iterate this act of totalization because they attach economic and moral values to it (by assuming, for example, that laid-ofF illegal aliens are not entitled to unemployment compensation). However, within the circulatory net of financial capital the state has no part in collecting and redistributing information. So the circulation of risk-bearing derivatives and speculative capital continually subverts the state's attempt to totalize itself through its control over determinative economic information. All its forms of economic classification, laws, and regulatory agencies and codes (such as those for accounting and taxation) are ignored, are clouded over, or make little sense within a world of virtual circulation. This retreat of the state is particularly apparent when, as in the implosion of Enron, the state bureaucracy has no control or knowledge of the derivative-trading practices of a firm based and incorporated in the United States. Transnational circulation thus challenges the very principles of production by which the state produces itself, in this instance those that underwrite the construction and dissemination of information about the national economy. The growth of financial derivatives and other electronic markets is also fracturing the internal tempo and rhythms of the democratic state by disrupting the interrelationship between the temporality of economic change and the speed of deliberative democratic response. There is an ever-widening gap between the circulatory time in which transnational markets devalue a nation's currency, elevate the cost of money, or relocate significant sums of capital and the political time needed to make democratic decisions about implementing

177

178

structural adjustments in domestic cycles of production. Where a materially significant devaluation (10 percent or more) of a currency can occur almost overnightexemplified by a nearly 50 percent devaluation of the Turkish lira in three daysthe time necessary to reach a democratically based decision and then make economic changes is measured in months if not years. Since financial derivatives determine the availability, cost, velocity, and value of capital itself, they exert an influence over the entire economy; their effects are infinitely more pervasive than market contracts that focus on single commodities, such as timber, wheat, iron ore, or rice, which influence the economy in a more limited way, and then only with respect to primary production. An important dimension of Bretton Woods was that it lengthened the temporalities of change. By subordinating the market to the political process and functionally recalibrating exchange rates in a deliberative fashion, Bretton Woods greatly aided states in coordinating economic and political timewhat today seems an impossible luxury. The ability of global financial markets to impose sanctions, veto policies approved by and responsive to the will of a nation's citizens, and censure or remove democratically chosen officials in effect decouples the relationship between legitimacy and consent. The democratic state can garner consent for its actions only on the condition that its citizens see consent as legitimately arising from the people, a proposition that is compromised by the perception that the state is organized by, and responsive to, foreign agents and institutions, a perception that seems to assume an almost occult form when the external power boasts nothing but an electronic address. There appears to be a worldwide, if widely differentiated, attempt to personify the cause of financial distress (as in the increasingly popular Middle Eastern notion that a Jewish conspiracy organizes the derivatives markets) and rediscover a

countervailing power ahle to defend the collectivity. Perhaps it is just a coincidence that 1973 marks the beginning of a stunning resurgence of religious fundamentalism that will profoundly affect every continent in its quest to mobilize the divinity in the moral interests of redeeming the spirituality and solidarity of the community, imagined and otherwise.1 The nature of the financial circulatory system all but guarantees that the habitus, the ownmost space of the practice of everyday life, will embody the global as an increasingly constitutive moment in its own self-production. That these transversal forces now influence the price, velocity, and liquidity of money in any given nation, in even its most remote locales and quotidian parts of the economic life, should make them important topics of conversation for the public sphere. But reactions to the circulatory system, especially in the postcolony, characteristically take shape in the public sphere only in their most misrecognized formsas a grievance against elected officials for their failure to make the national currency function properly, as assaults by occult and supernatural forces, as consequences of spiritual impurity and cultural infidelity, or as a Euroamerican, state-directed result of the policies of international agencies under western control (recent demonstrations against the World Trade Organization epitomize this response). The rising tide of dissent is an index of the power of capital markets; the direction of the discourse an index of their relative invisibility. The perspective created by and in the practice of everyday life, no matter how revealing, also conceals everything that is not visible from that vantage pointin this case, the abstracted instruments of abstract power. And there can be no public discussion, no popular dissent, and no incisive resistance at the citizen-state level or quotidian level against that which is too virtual to be visible. Just as importantly, the financial markets are not an Other for the state or its citizens to

179

180

act upon. There is no apparent way to organize either strategic or tactical forms of influence. In a world composed of nationstates, especially self-interested capitalist and often mutually noncooperative ones, the circulatory markets can always keep their distance and immunity from the states and peoples they affect. This anonymity, the cloak of distance and complexity, suggests that there is no way for local forms of agency to influence the behavior of global capital markets. There is no language and there are no pathways for communicating with these markets, even if doing so were ever an intention. There are several grounds on which this is particularly devastating, especially for postcolonial nations. It robs them of any way to coordinate their responsesactions appear ad hoc, unconnected, not built up over time. The derivatives markets neither effect a wholesale retreat of the state from international and domestic politics nor instigate a process in which the market simply replaces the functions of the national state. The state, and especially the postcolonial state, continues, but in a progressively decomposed and disarticulated manner. The structures of circulation seem to undermine the unity of the state, citizens' faith in its ability and authority to govern, and the state's wherewithal in negotiating international waters. The ascendance and increasing power of circulation are eating away at the techno-economic functions of the state, particularly its attempt to regulate money, credit, international commerce, and, especially in the postcolony, the influence of alien interests on its internal relations of production. But even more, the cultures of circulation now in motion also immediately inform the political functions of the stateits policies of taxation, privatization, legislative oversight, and welfare practices, and indeed any projects that may affect the economic interests of global markets. The collective agency of the market, driven by the logic and laws of profit, shaped by a view

of governance that conceives it as minimal and procedural, can and does forcefully punish states whose politics aim at other objectives. It likewise follows from this logic that states should involve themselves in sociocultural projects such as those that build communal solidarity, insure dignity, and affirm social identitiesonly insofar as they do not compromise the profitability of the market. Proliferating technologies of circulation also mean that the state loses much of its control over mass communications and the public media. The pressure radiating from global capital markets to hollow out the state does not assure that states will go gently. Indeed, in the person and projects of their elite, states struggle to find ways of gaining control over and against markets whose only accountability is that imposed by the market itself. But even more importantly, the cultures of financial circulation want states to be strong in one crucial respect: they want states to assume responsibility for policing and suppressing internal conflicts and disorder, because social and political unrest tends to increase counterparty risk, making it more difficult to price derivatives efficiently and, in the case of a chain reaction set off by default, for the participants to get paid. Our analysis of the culture of the circulation of derivatives is not intended as a critique or prediction about the future, but as a statement about the political economy of contemporary emerging countries. Beginning in the spring of 2001, for example, the currency markets in conjunction with the International Monetary Fund decided to remove the democratically elected president of Indonesia, Abdurrahman Wahid. Though of course neither the fund nor the currency markets have a constitutionally validated voice in the internal politics of Indonesia, they are influential beyond measure. An IMF report critical of President Wahid's economic policies instigated an accelerating and further decline in the Indonesian rupiah on the transnational currency markets. This decline

181

182

in the rupiah then led the fund to withhold the disbursement of $400 million in scheduled assistance. Horst Kohler, the managing director of the IMF, emphasized that the fund's response to the crisis of governance in Indonesia was part of an "early warning system" to identify and expose weaknesses in the political economy of emerging nations. The institutional mechanism of the warning system would be none other than the derivative markets, especially those determining exchange rates. The behavior of the market would signal the presence of an impending crisis, leading the IMF to institute structural reforms whose success would in turn be measured by "investor confidence." Moreover, the IMF and the U.S. Treasury stated at the time that what the markets wanted was bank reform, privatization, and the cessation of wasteful social programs. While Turkey and Argentina are perhaps the most dramatic recent examples of the effects of the new cultures of financial circulation, South Africa is an example of how the continuing crisis impedes countries struggling to stay afloat in the currents of global capitalism. Thomas Koelble (1998) has shown how the global economy influences the course of democracy in South Africa: how the notion of democracy articulated by agencies such as the World Bank fixates on institutional arrangements and ontologically saturated western concepts such as elections, freedom of speech and association, and human (individual) rights even as it pays little attention to the content of emancipation and socioeconomic redistribution that are critical if not determinative aspects of the popular local conceptions of what democracy means. In particular, much of the local populace associates democracy with education and housing programs, especially important in that many areas have squatter settlements, substandard housing, and too few schools. According to a consensus existing across South Africa, the nation requires a democracy that incorpo-

rates critical measures of social justice. The understanding is that the formerly disenfranchised portions of the population cannot forge interest groups, evaluate their elected officials, or develop a sense of nationness if they do not possess the income, education, and basic standards of living necessary to do so. Moreover, a notion of democracy that incorporates the social and the economicnow manifested as a desire for emancipation, reconciliation, and redistributionis much closer to an African vision of how collectivities work, a point underscored by Koelble (1998,174-78) and illustrated in the exposition by Hales (1998) of black political thought on democracy in South Africa. Despite popular and intellectual support for this broader concept of democracy, the government is reluctant to pursue emancipatory and redistributive goals on the understanding that doing so would amount to "socialism" and offend transnational corporations, scare away the financial capital needed to develop the economy, and run afoul of the budgetary spending limits mandated by the IMF. Indeed, it has been made clear that the unrestrained pursuit of emancipatory aims would increase the perceived level of risk, which would in turn lead to a contraction in foreign funding, higher interest rates, and a devaluation of the rand. Accordingly, the government has to walk a fine if not impossible line: it must embrace a social-justice notion of democracy, providing enough housing, education, jobs, and medical services to meet the expectations of its constituency, even as it must accede to a Euroamerican conception of democracy to maintain access to the economic resources that fund emancipatory and redistributive programs. So though the end of apartheid and the advent of democracy have exponentially increased people's subjective freedom, globalization, here in the form of the derivatives markets, has if anything increased their state of objective dependence.

183

184

In the latter half of 2001, the culture of financial circulation began to wreak havoc on the South African economy. At first, the South African rand, which had been losing ground to the dollar and ECU for several years, began to slide at a more precipitous pace. Given that the domestic economy had grown during this period, there appeared to be no economically fundamental reasons for the decline. Several economists noted, however, that the rand's prolonged slippage resulted from the failure of the government to privatize state-owned companies rapidly enough. The state's decision to privatize these firms in ways that did not aggravate an already socially injurious unemployment rate failed, according to the financial markets, to conform to their ideology that economic considerations always trumped social and political ones. A second reason cited for the rand's decline was the political problems in Zimbabwe, which shook the market's confidence that Black Africans were capable of governing a sophisticated economy. Conventional economic theory predicts, of course, that an economy characterized by increasing growth and declining inflation, as South Africa's was, should attract Euroamerican capital, its inflow leading to a rise in the rand's value as foreign investors exchange dollars and ECUS for South African assets.2 Well beyond the limits of this logic, impoverished by their lack of culturemost conspicuously, the absence of any concept of representational processes Euroamerican investors did not divert funds into South Africa. To the contrary, figures assembled by the Bureau for Economic Research at Stellenbosch University indicate that not only was there little direct foreign investment, there was net disinvestment. A dialectic was in play in which the currency markets assigned to South Africa an abstract risk premium based on its socialism and racial makeup. Thus the forward contracts predicted a continuing decline in the value of the rand, the seemingly unending depreciation discouraging for-

eign investment, which pushed the rand ever lower despite improving economic fundamentals. Then in December 2001, seeing the absence of foreign investment, the rising tide of economic turmoil incited by the rand's decline, and the market's cascading momentum downward, torrents of speculative capital attacked the rand, leading to a further devaluation of 12 percent for the month. For the year, the currency markets had taken the rand down by more than 30 percent. In a kind of self-fulfilling prophecy, the repercussions from the rand's devaluationpredicated on a social objectification of abstract risk (that is, the risks caused by a failure to privatize, the counterparty risk posed by a Black African government on a continent where government failure is endemic, the risk that the AIDS epidemic would siphon off too much government funds) caused the economy to stumble. Once under control and declining, inflation accelerated as domestic producers shipped goods abroad to capture the exchange rate differential, and the cost of necessary imported goods became prohibitively expensive in rand. The crucial factor in understanding the effects of devaluation is that the temporality of production is glacial compared to that of circulation. Although depreciation almost instantaneously increases demand for exports, the expansion of production operates on a much longer temporal string and in some cases is relatively inelastic (for example, past a certain point there is not much that one can do to increase wine production). In decoupling the value of the rand from South Africa's economic fundamentalsmeaning the state of labor-based productionthe global markets also detached the temporality of the currency from that of production. Since the currency and economy were disconnected, there was no reason why, just as local producers increased production capacity to meet surging export demand, the rand could not turn around and appreciate equally rapidly against rival currencies, thereby eroding

185

the competitive advantage that domestic producers briefly enjoyed.

Circulations and Conclusions

186

We have tried to show that speculative capital, a socio-historically specific concept of risk, and derivatives have become the very center of the financial clockwork that turns the hands of contemporary capitalism. Grasping the character and culture of the circulation of derivatives is important, because though a slew of commenta'tors have asserted that the modern economy outruns the political, and have worried about a capitalism allowed to remake the world in its own economistic image, they have mostly grasped (post)modern capitalism in terms of the further disenchantment of labor, the migratory flight to the metropole and urban capitals, and the new florescence of magical materialism; but this is only a quantitative change and does not really suggest what is the structurally transformative difference about this (post)modern economy. If the contemporary world is a place where power operates more diffusively, across manifold sites, then few things so represent and embody this reality as much as speculatively driven derivatives. Derivatives are part of the new sociostructural imaginary of capitalism in its latest act of self-destruction and self-resurrection: unlike futures exchanges of the past, such as Osaka's seventeenth-century rice exchange or Chicago's wheattrading exchange of the eighteenth, derivatives markets have nothing to do with the physical production or delivery of a concrete use value. Rather, they constitute a quasi-autonomous sphere of circulation that they simultaneously presuppose and are instrumental in creating. They accomplish this by developing forms of objectification and subjectivity that draw upon the existing social forms of production-based capi-

talism to engender a new social ontology geared to the character of connectivity. The unmistakable implication is that we can no longer grasp the world economy as commerce among sovereign states (that is, international trade); rather, we must grasp the global economy in terms of translocal and transversal sites of connectivity. The emergence of circulation underlines that capitalism in its present-day form is progressively shifting out of alignment with certain surface-level segmentations, particularly the nation-state. It is useful to envision the imaginary of the nation-state as a set of overlapping topological spaceseconomic, political, religiousthat may be continually brought into alignment by commonalities of language, the performativity of engaging in the same set of everyday practices, and the institutions and policies of the state. In this respect, a certain fundamental premise of democratic governance has been the capacity of the elected to regulate and oversee the structures and structuring of economic relations. Democracy as we know it has always assumed that the topological spaces of the economic and the political, while seldom in complete alignment, were sufficiently congruent to provide social goods, such as justice, social welfare, education, and health care. To fund such projects required the capacity to tax effectively, print money, and to regulate the use and value of money. The realization of democracy also requires a sufficiently sovereign space in which citizens elect leaders responsible and responsive to their interests, in which state regulation of the economy is exemplified by its control over money and other financial instruments, and in which civil society pursues the emancipatory objectives that would allow citizens to genuinely participate in the democracy. Derivatives are a part and product of a circulatory system that undercuts key dimensions of the construction and reproduction of democratic governance. The larger sugges-

187

188

tion is that the ascendance of circulation is radically transforming the interrelationships between the economy (here exemplified by derivatives) and culture (exemplified by diverse and historically specific political cultures), by simultaneously disrupting the national relationship between the state and civil society and the international relationship among nation-states. The suggestion is that the directional dynamic of modern capitalism is in the process of creating a sphere of influence and operation that serves to disempower statebased politics and national democratic governance. Forms of direct access characteristic of modern-day democracies, in which strangers, because they are nonetheless citizens, imagine themselves involved in a common project that presupposes and creates solidarity, are being not so slowly subsumed by forms of connectivity in which no common project exists or can even be imagined. It seems something of a conundrum that democracy and democratization appear to be in full swing worldwide even as the modern home of democratic governance, the sovereign state, has never been more imperiled. Innumerable commentators across the political spectrum have underlined what appears to be a paradox, among them Touraine (2000), Held (1995), Shaw (2000), Diamond and Plattner (1996). The discourse that was once so alarmingly popular in conventional economic quarters (led by the Chicago school)that closed authoritarian regimes were better suited to creating the conditions for capitalist growth because they can better manage expectations and demandshas all but disappeared. In the mid-igyos there began a shift toward the view that the open democracy was the preferred governmental system of capitalism. The open, externally exposed, market-oriented democratic state is the preferred form of governance of speculative circulatory capital. What the participants of the derivatives market desire is fully transparent financial structures within

states even as their activities remain invisible and unsupervised. We are thus suggesting that the Euroamerican push for democracy, and specifically a vision of democracy whose heartbeat is the openness of internal markets and government accounting, a vision of democracy in which those on the periphery play by "international" rules, is being driven by the needs of circulatory capital and the players of the derivatives markets. In this respect, the installation of contemporary versions of neoliberal democracy in regions such as Southeast Asia, and metropolitan support for them, are themselves part and product of the new hegemonic process. Should we be surprised to learn that this shift by conventional economists, political scientists, and the leadership of the metropole began just after Bretton Woods had crashed and the derivatives market was taking off? It is indeed unfortunate that for those who live beyond the walls of the metropole, there has yet to be invented a derivative that could offset the risk that they will be progressively encompassed by, and subordinated to, a global finance capitalism with an indelibly Euroamerican stamp. To an accelerating and unpredictable degree, the capitalist culture of the circulation of derivatives is a power that seems answerable to no other power.

189