Risk, Ratings and the Antagonistic Relationship Between Epistocracy and Democracy: Financial Engineering and Reclaiming Fiscal Sovereignty

As democratic governments around the world, but especially the periphery of Europe, struggle to stimulate economic growth while adhering to an austerity doctrine imposed on them my credit markets, the futility of the exercise is becoming evident as deflationary pressures only compound matters. Even more odd is that fact that much of this disinflationary orthodoxy is based on the very precarious financial expertise/modelling which helped to precipitate/exacerbate some of the most severe economic crises in recent memory; especially the recent credit crunch and sovereign debt debacle. Yet, as this paper argues, this risk management remains taken for granted and even promoted as the propitious approach to conducting and governing economic activity. Arguably, nowhere are these abuses as rampant as in the credit ratings space. Credit rating agencies (CRAs) have been criticised as arrogant oligopolists, for their cosy relationships with company management and for being either unbearably slow or excessively shift in passing judgment on a firm or sovereign government; to name but a few. Irrespective of this (persistent) chorus of objections and history of failures, however, CRAs remain a formidable force in the assessment and articulation of creditworthiness – especially problematic in diminishing fiscal sovereignty. While settlements may be extracting fines of US$1.5 billion from key CRAs, such as S&P, the rating model has not fundamentally changed but only witnessed relatively minor modifications. Insofar as sovereign ratings help constitute a ‘fiscal normality/rectitude’ that privileges a disinflationary logic to budgetary relations, this paper problematises how ratings exert an authoritative grip over markets and governments, and whether the most recent regulatory responses are adequate to correct the most egregious elements of ratings? Furthermore, it dissects how the impetus for reform is stymied by the fact that the risk calculus underpinning credit ratings, as a socio-technical devises of control, is aligned with the hegemonic discourse of risk management at the core of corporate practice. The emergence, regeneration and sedimentation of the (neoliberal) politics of limits that results and the authoritative capacity of ratings are constituted and reinforced through their ‘performative’ effects on both investors and CRAs. Yet the distortions inherent in ratings are bound to produce more crises as they only intensify the antagonistic relationship between the programmatic/expertise and the operational/politics dimensions of budgetary governance. Now governments are seeking to reclaim that diminishing fiscal sovereignty; thereby further pitting democracy against epistocracy – knowledge-based rule.