Criticize and Construct! A Case for Emancipatory Social Theory

Criticize!

Though it is a matter of considerable debate, the key texts in critical finance studies argue that finance capitalism is a novel regime of accumulation in which profits increasingly accrue through financial channels—interest, dividends, and capital gains (Durand, 2017; Lapavitsas, 2013; Rabinovich, 2019). In my own work on the development of pension finance, my key contribution to this debate is to show that it is not only firm profits and the wealth of the elite that are financialized but also the income-producing assets of the working class itself. This feature of modern wealth has its origins in the postwar period not the neoliberal turn (McCarthy, 2017). How we got here is a complicated historical and institutional story, but it has a simple upshot. This transformation literally turned labor into capital (worker’s deferred wages into financial investments) (McCarthy, 2014). Whether it is referred to as the new finance capitalism (Maher and Aquanno, 2022), asset manager capitalism (Braun, 2021), or asset manager society (Christophers, 2024a), the result is that more and more people’s personal wealth is held in financial vehicles such as pension funds, mutual funds, hedge funds, and private equity firms that are controlled not by worker’s themselves, but asset managers. They are ‘managed by markets’ (Davis, 2009).

In short, finance capitalists play a dominant role in shaping investment decisions of worker’s own investable assets. But because these institutions are organized to maximize their own returns above all else, they are driven by a logic of ‘acquire & extract’. They acquire assets and extract as much value out of them as is possible. They do not, in other words, aim to ‘build & nourish’ the jobs, goods, and critical infrastructures that are necessary for flourishing social and ecological worlds (McCarthy, 2024).

Finance capitalism drives crises of inequality and worker precarity, geographic concentrations of racial underdevelopment, the lack of affordable housing (asset managers don’t build housing units; they buy old ones and raise the rent), and climate catastrophe. And on its own terms, it offers no solutions. Put simply, the investment needed to solve these problems are less profitable than the investments that are causing them (Christophers, 2024b).

And yet finance capitalism has also had a profound impact on our democratic institutions. Our political institutions are ensnared and suffocated by an extractive financial logic. My recent book, The Master’s Tools: How Finance Wrecked Democracy (and a Radical Plan to Rebuild It) develops a framework to describe and theorize how this new financial order degrades democracy (McCarthy, 2025). I term the sector’s principle sources of leverage in democratic politics: engagement, entanglement, and prominence. Taking all three together shows how finance capitalism has not only wrecked our social and ecological worlds, but democracy alongside it.

Underscoring these distinct forms of financial leverage in politics is what I call asset power. Both radical and liberal theorists of capitalist democracy argue that capitalist control of productive assets is the basis of their political power (Block, 1977; Lindblom, 1982). But they limit their theorization of the political power of capitalists to an abstract level of analysis, when our moment requires a more conjunctural level of understanding (see McCarthy, 2023). By examining power at this lower level, we can see how changes in the context itself transform the way that power is exercised in politics.

Asset power concerns the character of the wealth in circulation in a political economy. Today, more people are dependent on income from financial assets that are both more mobile (i.e. more movable across political boundaries and borders) and more liquid (i.e. more easily convertible into cash). And the people that manage those assets derive incredible power from those basic characteristics. It is relatively easy, for instance, for the managers of funds to simply buy and sell the assets under management. And this mobility and liquidity have degraded democracy. The ironic twist here is that it is through the income-producing assets of both the elites and workers themselves that asset managers exercise power within democratic politics.

This asset power activates and makes possible three forms of leverage in politics. The first form of leverage is engagement. This is the way financial actors directly influence politics. It involves coordination across the financial sector and the sector’s money in politics. Finance is organized through interlocking directorates and business associations, such as Bank Policy Institute, American Bankers Association, National Association of Insurance & Financial Advisors here in the United States. These organizations spend incredible amounts of money on lobbying and campaign contributions. Individual financiers and asset managers do as well, though in our post Citizen United era the dark money they slosh around politics is much harder to follow. In the 2021–2022 election cycle, finance spent $2.9 billion, that is, 50% more than previous high 2015–2016. And they are poised to spend even more this year.

The second form of leverage is entanglement. This concerns the way that finance’s embeddedness in other institutions affords those institutions the capacity to implement their governance decisions. It has two dimensions. First, financial actors are deeply entangled with non-financial firms. The sector maintains and manages relationships, goods, services, and the debt that other sectors of business depend on in their own operations. On the one hand, small and medium-sized corporations, the sector that produces ‘zombie firms’, have managed to stay afloat by taking on greater and greater amounts of corporate debt. On the other hand, the largest firms have also become financial profiteers (Krippner, 2012; Lin, 2020).

The second dimension of entanglement concerns the way that financial markets and actors enable state agencies like the Central Banks to enact policy and govern the economy. Monetary policy, the main way states have attempted to stabilize economies, relies on the structure of financial markets and the behavior of participants within them. Political economists Benjamin Braun and Daniella Gabor (2020) have shown that the main tools of state governance that Central Banks rely on are enmeshed in private financial markets.

In the United States, the Federal Reserve uses shadow money creation in repo markets as an alternative to US Treasuries. In the repo market, one party (let’s call them the borrower) needs cash and owns some securities (like bonds). They temporarily sell these securities to another party (the lender) in exchange for cash. But, they agree to buy back the securities at a slightly higher price later, typically the next day. When Central Banks want to inject money into the system, they can conduct repo agreements, lending cash to banks in exchange for securities. This increases the money supply and lowers short-term interest rates. Conversely, when they want to reduce the money supply and increase short-term interest rates, central banks conduct reverse repo operations. Here, they borrow cash from banks, taking in securities as collateral.

The third form of leverage is prominence. This refers to finance’s position in the economy and how that position bears on the decisions of policymakers. Because financial assets make up a growing portion of income-producing assets, increasing numbers of people are dependent on finance. In a sense, then, the short-term economic well-being of the working class depends on the well-being of finance itself. And this directly bears on what voters and also politicians are willing to do in politics.

Imagine these simple steps. (1) If the financial interests and needs of firms are not met, their profits will be smaller. (2) If their profits are smaller, firms will be incentivized to shift investments elsewhere. In the case of asset managers, selling some financial assets in order to buy other ones. (3) If they sell to invest elsewhere, the companies whose stock they sell will get hit. (4) If that happens, non-financial companies will suffer reputational damage, their credit scores could decline and their ability to generate revenue through equity financings will suffer. (5) Working people will lose jobs and wages will decrease. (6) If wages decrease tax revenue will decrease and the electorate will be upset. (7) Politicians will be voted out of office for allowing the economy to tank. The financial system in this sense is not a mere casino unrelated to the non-financial firms that provide the services we use, the goods we consume, and the jobs we do. In a quite direct sense, then, everyone has a stake in its success. The structural prominence of finance in the United States is reflected in the narrative, Too Big To Fail.

But underscoring each of these forms of leverage is asset power.

Finance threatens to move investments elsewhere in lobbying, they threaten loans for firms and ordinary people will dry up, and they threaten that the fund returns to which workers depend on will be smaller. These threats are real because the assets asset managers control aren’t fixed, like mines, large tracks of agriculture or even factories. And in many cases there are very little transaction costs in disinvesting in one area and investing into another. In short, the engagement, entanglement, and prominence that finance uses to destroy the formal institutions of democracy are all activated through their asset power.

Today asset power is exercised by those that control the investment of financial assets, even when they themselves do not own the assets. Ownership does not equal control in finance capitalism. And, fundamentally, this asset power is a key terrain of the contentious politics of our conjuncture. When investors pulled their money en mass from green funds in 2023, it was an explicit response to anti-environmental campaigning by Republican politicians. Similarly, when students set up encampments at their universities across the United States calling to divest from companies profiting from the war in Gaza, they were explicitly trying to bring the asset power wielded by these unaccountable managers into the democratic sphere.

Construct!

This brings us to the emancipatory twist of critical sociology. If we understand that capitalist control over the investment function in finance (even the investment of worker’s savings) both drives underinvestment crises and wrecks democracy such that those crises cannot be addressed, how might we construct an alternative. It’s not enough to simply call out the problem, we need a solution.

In my book I argue for what I call ‘democratic ruptures’. These involve four transformations: they extend democratic and participatory processes into investment decisions, they consolidate the body politic to reveal its fundamental social cleavages, they decommodify labor, and they expand the democratic composition of the economy. Together, I argue, these substantially disrupt the power of finance—not only in terms of its control over investment decisions but in formal institutions of the state as well.

But how do we turn ‘democratic ruptures’ into institutional reality? Financial activists and our progressive policy makers today offer the answer. Both Public Bank Los Angeles and the San Francisco Public Bank Coalition are working to establish municipal democratic public banks. Cooperation Jackson, a networks or worker coops, is building a democratic solidarity economy in Jackson, Mississippi. Congresswoman Rashida Tlaib (D-MI) along with Alexandria Ocasio-Cortez (NY-14) recently introduced the Public Banking Act of 2023 which creates a framework for the establishment of state and local public banks governed with democratic processes.

These different efforts share a fundamental insight. In order to respond to the predations of finance and its erosion of democracy, democracy needs to be extended to those economic institutions that make investment decisions.

But how should we conceptualize democratic control in concrete terms? I want to now identify four democratic design principles that I have drawn out of the community organizations and policy proposals I am involved in as well as current debates in social and political theory. I have in mind here that these design principles can be used to think about a wide range of alternative financial and political institutions that we might begin to construct in our various domains of politics.

The first overarching design principle is the affected interests principle. If investment shouldn’t be left up to private profit maximizers and asset managers, then who should have a say? The idea here is that when subjecting organizations to democratic procedures, the people with the say should be the ones most deeply and directly affected by those organizations. This is a very intuitive democratic idea and it helps us understand how to constitute the demos. It is a solution to the problem of negative externalities, a situation where costs are imposed on parties with no say in transactions.

Once we have our relevant demos defined in this way, how do we bring people together to create mandates for distinct pools of finance? Increasingly, community activists and critical policy think tanks are turning to sortition, where a random selection of people are used to create small deliberative bodies to generate democratic decisions and recommendations.

In Ireland, these citizen assemblies are now a regular part of governance. In 2012, they had constitutional assemblies on same sex marriage and abortion where randomly selected people were brought together to discuss and deliberate both issues. After that they make public recommendations, which resulted in constitutional bans on same sex marriage and abortion being lifted. In 2020, Bogotá, Colombia set up a series of assemblies that are attached to the City Council to take on questions of urban planning. More recently, there were deliberations about the end of life, in France. After a month of deliberation, with 92% of participants ending up in agreement, 27 separate end of life policies were suggested, including aid in dying under very specific conditions.

Drawing from this recent history, our second design principle is sortition-based deliberation. There are powerful reasons why we might want to use randomly selected assemblies to begin to create mandates for the investment of different pools of finance. Epistemically, deliberation and decision-making with randomly selected participants reduces top-of-mind bias, generates more reasoned political judgments, and creates a context in which there can be actual cognitive divisions of labor, where depending on what we are selected for, as members of a demos, some of us might deeply learn and make political judgments about some issues while others focus on other things. Sortition into minipublics can also undermine the financial sector’s political dominance. They have the capacity to generate decisions that have actual legitimacy among the demos, are governed by principles of political equality and fairness and therefore can generate actual democratic outputs. Randomly selected assemblies of relevant demos (at the global, regional, national, state, and local and tribal levels, for instance) might be the mandate-setting bodies of democratized finance in everything from Calpers to BlackRock to municipal lending facilities to a planetary green bank.

As I have tried to show, finance capitalism involves a specific class politics that results in the capture of democratic institutions and worker’s control of their own wealth by financial interests and actors. To challenge and transform it an alternative working-class politics has to be built. There is no way around this.

This is where the third design principal of agonism comes into play. This has been developed by the left populist Chantal Mouffe (1993), who has argued that all democratic institutions should facilitate political conflict and draw out the key underlying social cleavages into the political arena. In this view, part of the problem of capitalist democracy is that its deep class conflicts are hidden and rendered invisible by a liberal political discourse of equality.

How do we circumvent this? There is a new strain of ideas in political and social theory that argues for the creation of class-based political institutions (McCormick, 2011; Vergara, 2020). Applying the insights of the exciting area of research and the principal of agonism, we would want to explicitly build in class-based and issue-based institutions with veto power and say over decisions in our institutional designs. For instance, imagine a working-class commission, which excluded the elite with wealth and income restrictions, or a green commission, set up to ensure certain climate goals were met, or an indigenous commission, to represent tribal groups and interests. And each one of these is able to exert veto power over the general assemblies deliberative recommendations.

By explicitly building agonism into our deliberative processes, the hope is to create and facilitate real democratic dynamism. The working class is heterogeneous, not homogeneous, both in terms of its member’s positions and interests/goals. To quote Audre Lorde (2018), ‘Difference must be not merely tolerated, but seen as a fund of necessary polarities between which our creativity can spark like a dialectic’.

Now that we have three general design principles for participant selection, how should we allocate financing power? Based on the principle of affected interests alone, it is clear that a planetary system of democratic finance must be multiscalar and potentially global in scope, but what principle should guide its design? The answer I give here is subsidiarity.

The concept is an old one, laid out theoretically in 1603 by Johannes Althusius, a Calvinist jurist from Germany. It has been applied to modern institutional designs like the European Union and is a part of Catholic social teaching. But subsidiarity is quite simple as a principle: authority over particular issues should be allocated to the scale most effective at governing for that particular issue, and between equals, chose the smaller of the scales.

If we consider the affected interest principle above, this prioritizes depth of influence. For example, to be truly effective at mitigating climate change, a democratic green bank may need to be planetary in scale. The combination of the scale of the climate problem itself, the planetary nature of a solution to it, the planetary interest in reversing it, and the fact that such a reversal will have both positive and negative externalities that are planetary in scale may simply make planetary green banks most functional to the problem of reversing climate change. But a green bank with a unique focus on the financing of actual retrofits and green transitional projects might require a more municipal design, where the workers in its operations divisions can build strong local relationships and more easily develop local knowledge about where green financing needs to flow.

Building on the affected interest principle above, a system of democratic finance organized along the lines of subsidiarity would produce many polycentric circles of democratic inclusion and could be a source of legitimacy for projects viewed as bound to specific geographies by the inhabitants of those places.

To return to my comments at the outset of this talk, critical sociology should not just criticize it should also get its hands dirty in the more difficult problem of constructing alternatives. Social theory must be brought to bear on questions of future designs in our organizations, political institutions, and policies. To do so, critical social theorists should use a lens that is realist, historicist, and conjunctural precisely so our collective work might also be emancipatory. Not only is this the principal way to bring critical sociology to bear on our global problems, but it is also the means to breaking down the artificial disciplinary barriers between intellectual work and political work.