Convention theory and neoliberalism

Introduction

The socio-economic analysis of contemporary economies and societies frequently draws on the concept of neoliberalism (Duménil & Lévy 2004, 2011; Harvey 2005; Mirowski & Plehwe 2009; Crouch 2011; Stedman Jones 2012; Mirowski 2013). But there is no single theory or definition of neoliberalism. As Michel Foucault pointed out, the term has had different meanings in different fields, which have also changed since its invention in the 1930s.

Foucault (2008, p. 130) suggests that talk about neoliberalism often elicits three types of response: that neoliberalism is simply the ‘reactivation of old, secondhand economic theories’; that it is ‘just a way of establishing strictly market relations in society’; or that it is ‘no more than a cover for a generalized administrative invention by the state which is all the more profound for being insidious and hidden beneath the appearance of a neo-liberalism'; in the end, Foucault insists that ‘to discover how far and to what extent the formal principles of a market economy can index a general art of government, the neo-liberals had to subject classical liberalism to a number of transformations’ (pp. 129–130).

Today, neoliberalism remains neither a doctrine nor a coherent body of theory. Instead, it is a key term used in different forms of contemporary criticism of capitalist societies. The book written by William Davies presents this international phenomenon as a way in which liberal economic theory and its methods ‘take over’ the government of many social spheres – including public discourses and the state – thereby producing disenchantment with public political deliberation and democratic politics.

Many of the positions and arguments presented in this new book extend well-known discussions about neoliberalism. What makes Davies’ book innovative and outstanding in the field of contemporary critical analysis of neoliberalism is its relation to the French ‘convention theory’ approach. Davies relates neoliberalism to foundational conventions of the economy not only to offer an external critique but also to discuss the internal problems and paradoxes of neoliberalism itself.

Given that convention theory is not well known beyond French and German circles, this review situates Davies’ book in relation to it, while also offering an overview of the book's main arguments. With this in mind, the review begins with a short introduction to convention theory which may be useful for readers unfamiliar with its key contributions.

Convention Theory

In the early 1980s, a group of heterodox economists around Paris formed a scientific movement that aimed to build a new pragmatist and socio-economic institutional approach. The founders were Robert Salais, Laurent Thévenot, François Eymard-Duvernay, Olivier Favereau, and André Orléan (Salais & Thévenot 1986; Storper & Salais 1997; Favereau & Lazega 2002; Eymard-Duvernay 2006a, 2006b; Diaz-Bone & Thévenot 2010; Diaz-Bone & Salais 2011). The new label for this approach soon became ‘convention theory’ or the economics of conventions (in French ‘économie des conventions’) – hence its abbreviation ‘EC’. The core assumption of EC is that economic value and worth have to be interpreted and constructed according to situations of economic coordination. Economic actors therefore rely on conventions as socio-cultural frames for mobilizing a shared interpretation of the objects, actions, goals, and collective intentions involved in situations of production, distribution, and consumption. Quality conventions, for example, are foundational for the evaluation and valuation of qualities ascribed to elements in economic situations. However, EC has identified many other of conventions on which actors rely in acts of economic coordination. Furthermore, EC has developed a set of further concepts – such as cognitive forms, investment in forms, the dispositive (an apparatus/device), intermediaries, and so on – so that EC is today a comprehensive institutionalist approach to the study of the economy.

This pragmatist point of view is articulated through some important theoretical positions. First, it is understood that there is a co-existing plurality of conventions, in general, and quality conventions – which are also termed ‘orders of worth’ or ‘orders of justification’ – in particular. Real economic situations are characterized by a specific and historically pluralistic arrangement of different conventions, some of minor importance and others – even a single one – more dominant. Second, actors are regarded as competent to judge the appropriateness of conventions for different situations. They can combine and switch conventions according to different logics of coordination. Actors are seen as competent in performing critique or justification, in doing so referring to conventions and objects (things, and material realities). Third, EC regards situations not as constrained to those that are face-to-face. Instead, economic situations can have a broad geographical and temporal scope. The consequence is that the concept of situation replaces the multilevel models used by other institutionalist approaches – dealing with the various level-related ontological problems and related reductionisms (such as methodological individualism or methodological holism). Fourth, if reliant on quality conventions, an actor's coordination is understood as intentionally oriented towards a common good. Quality conventions introduce a particularly normative foundation and a practical morality as the basis for the judgement of persons, objects, actions, and intentions. Fifth, EC conceives of institutions as different from conventions. The meaning of institutions is incomplete and not external to actions. Social actions are not determined by institutions. Instead, actors apply conventions to interpret the meaning of institutions in real situations. Sixth, EC refuses the ‘division of labor’ found in the landscape of highly specialized scientific disciplines. Instead, EC integrates historical, legal, cognitive, pragmatist, sociological, and statistical perspectives on conventions and institutions. An important example is EC's socio-historical analysis of law in the field of economy and EC's critique of the neoclassical approach to ‘law and economics’ (Diaz-Bone, Didry, & Salais 2015a).

EC (together with the actor network theory) is today one of the main strands of the so-called new pragmatist French social sciences (Nachi 2006; Corcuff 2011; Diaz-Bone 2011) and can be seen as the main contribution of new French economic sociology – more important, in fact, in France and for German-speaking sociologies than Callonian contributions (to which I will return below; see Diaz-Bone 2015). From its beginnings EC was supported by important French social scientists, who began to share the conventionalist perspective and to contribute to conventionalist publications. The most important collaborators in this respect are Luc Boltanski and Alain Desrosières (Desrosières 1998, 2008a, 2008b, 2014; Desrosières & Thévenot 2002; Boltanski & Thévenot 2006). These founders of EC represent its first generation. Today, one can speak of a second and an upcoming third generation. In roughly the past 10 years, convention theory has become more broadly recognized within the English- and German-speaking social sciences.

In recent years conventionalists have intensified their critical analysis of the financial system and financial crises. Orléan has studied money, financial markets, and financial crises (Orléan 1999, 2011, 2014). Salais (2013) has reconstructed the history of the European Union, working on the differences between liberalism, ordoliberalism, and neoliberalism. Desrosières (2008a, 2008b, 2011, 2014) has now become internationally renowned for his works on quantification and its relation to political economies, and this strand of research has been continued by Salais and Thévenot (Thévenot 2011; Salais 2012, 2013; Diaz-Bone 2015; Diaz-Bone & Didier forthcoming).

The Anti-liberalism of Neoliberalism

Davies’ book is a detailed analysis of the contradiction between liberalism and neoliberalism. Liberalism asserts the importance of free exchange relations – free of state intervention and with equal access for all to markets, but contingent on the outcome of competition. Pricing mechanisms are expected to fairly reflect the value of goods. While liberalism expects markets to emerge spontaneously, ordoliberalism advocates for state agencies as a way of combating market power and its monopolistic tendencies. Liberalism and especially ordoliberalism are in favor of markets as institutions that are separated and free, which work because of fair rules and a market-enabling spirit of fairness. Competition is a value in itself for these two ideological movements.

In contrast to liberalism and ordoliberalism, neoliberalism has shown a tendency to generate unfair market behavior and also to motivate competitors to take over markets by ignoring market rules and normative ideas of fair play. Davies coins the notion of ‘violent threat’ to denote such practices. The consequence is the undermining of correct pricing, competition, and the functioning of markets. Davies also challenges the conventional interpretation of Schumpeter's theory of the innovative entrepreneur. This theory is highly valued in neoliberalism and emphasizes individual and non-conformist forms of behavior as potentially innovative. Schumpeter ascribes special properties to successful entrepreneurs who destroy existing market conventions by opposing market standards and norms. Competition is for him not a contest conducted using the same rules and with individuals as equals. Instead, some individuals are more powerful and capable than others. For Davies, these ‘unusual’ individuals introduce uncertainty and new routines into markets. The consequence is a contestation and refusal of existing market structures through the invention of the model of ‘distinguished’ individuals, whose psychological traits become the driving force of market economies rather than the public institution of the market. This is thus in opposition to the liberal model.

The first limit of neoliberalism is therefore its antagonistic relationship to markets as economic institutions. Paradoxically, neoliberalism attacks the state as ‘inefficient’ but deploys the state to enforce market-like conditions in the extra-economic social sphere and to transform non-economic institutions into market-like arrangements. The state is discredited as a democratic realm but misused as an instrument for strategic interests, to expand economic principles to areas formerly considered inappropriate. Referring to Carl Schmitt's notion of the ‘state of exception’, Davies speaks of the ‘state of market exception’, a situation in which states intervene in markets to save big companies in crises (for example, to save failing banks at the public's expense), setting aside market mechanisms in the name of the recovery of a market economy. The state in the era of neoliberalism has become ever more a kind of agency for crisis management in order to protect economic deficits and thereby shield neoliberal economic settings. In the long run, neoliberalism undermines the sovereignty of the state, replacing it with the sovereignty of economics. One of the main contributions of the book is to demonstrate the anti-liberal character of neoliberalism with regard to its undermining of market rules and its misuse of the state.

Neoliberalism and Performativity

The second important contribution of the book is to reconstruct the different forms of performativity which are mobilized in the making of neoliberal economic thinking. The sociologists Callon (1998) and MacKenzie (2006) have opened a new perspective on economies. They scrutinized how economists and economic theories ‘perform’ real economic practices and institutions. The scientific discipline of economics does not describe economic realities, but invests cognitive, cultural, and strategic resources to construct economies. Many of Davies’ arguments are influenced by this performativity approach, applied to the phenomenon of neoliberalism. Neoliberal economic structures are interpreted as being the result of the political intervention of economists, economic experts, think tanks, and liberal groups (such as the Mont Pelerin Society), which seek to influence the design of social institutions and social policies across a range of fields. Economics has therefore been successful, Davies argues, in replacing politics and public spaces as arenas for public deliberation, and Davies describes how economics has become the new authority for politics and legislation.

The ‘law and economics’ movement is a paradigmatic example of this performative process (see also Davies 2010). From an ordoliberal perspective, law had to be engaged to protect market institutions from trusts and monopolies. Law had been a dispositive of sovereign state politics in the maintenance of openly accessible and fairly functioning economic institutions. The ‘law and economics’ approach reverses this relationship. Here, neoclassical economic thinking became established as the foundation for the design and evaluation of law. Due to the success of this approach, legislation increasingly had to respect economic criteria, and economics gradually achieved the position of deciding on the evidence of legal practices. From that moment economics became the sovereign of the design of law across a growing number of policy fields, reversing the power relation between law and politics on the one side and economics on the other side. Law – seen from this approach – is just a dispositive for efficient institutional design, not a democratically authorized instrument for the advancement of social justice. In neoliberalism, performativity is also implemented in attempts to reduce uncertainty. For Davies, this is done by introducing economic methods, economic models, and quantitative indicators to make society more manageable and predictable. He refers here to the conventionalist concept of ‘convention of equivalence’ as proposed by Desrosières (1998). These conventions are the basis for calculating indicators, which are the cognitive devices for numerical comparisons. For Davies the quantification of social issues is judged to be an ally of neoliberalism.

Conventions, Justification, and Neoliberalism

Convention theory is introduced by Davies to analyze other antinomies and contradictions of neoliberalism. This is the third main contribution of his book, and it is particularly relevant to scholars in the field of EC. From the standpoint of EC, Davies states that economic realities, their qualities and properties, can only be judged with reference to conventions as the normative basis of coordination, evaluation, and valuation. Economic actors are able to justify and substantiate the appropriateness and legitimacy of their actions because they rely on quality conventions – or orders of justification, as Boltanski and Thévenot (2006) termed them. And, vice versa, public critique is exercised by questioning the appropriateness and legitimacy of economic realities with reference to alternative quality conventions. Davies characterizes neoliberalism as a political position that seeks to obscure the relationship between economic realities and policies and the existing plurality of quality conventions of respective orders of worth. For Davies, social realities are implicitly related by neoliberalism to only one mode of (e)valuation, by being treated as if they were markets. The critical point for Davies is neoliberalism's avoidance of critique through its use of ‘positivistic’ evidence, consisting of economic measures, quantitative indicators, and ostensibly technical evaluations. Neoliberalism is thereby immunized against social deliberation and critique. As portrayed by Davies, this mechanism is part of a process of the disenchantment of politics.

Future Perspectives for Critical Studies of Neoliberalism

From the perspective of convention theory, The Limits of Neoliberalism is an inspiring piece of work, because it offers a link between this pragmatist movement and newer forms of political economy. Davies presents a range of new arguments and interpretations of economic thinking. For EC this book can thus be a valuable starting point. Some future tasks to be undertaken can be sketched here as ‘future perspectives’.

1. The book refers to only a small selection of the works published by convention theorists. The foundational contributions of Robert Salais and André Orléan, which have been path-breaking for the analysis and critique of neoliberalism, financial crisis and the role of state, are completely absent in Davies’ argument. Most of the important contributions of Alain Desrosières on the relation of quantification, economy, and the state are missing. Davies’ analysis is overly restricted to the works of Luc Boltanski, who has his merits for this movement, but does not deal with important issues – such as finance, quantification, or law – and does not belong to EC's core.

2. A newer development in convention theory is the inclusion of notions of discourse and the insertion of the method of discourse analysis into its work. Davies has a clear idea of the importance of economic discourses in neoliberalism. A desideratum is the use of a set of quality conventions (or orders of worth) in Davies’ discourse analysis of liberal, ordoliberal, and neoliberal discourses. It is a strong position of EC that economies cannot only be understood according to the market convention seen as an order of worth. Instead, conventionalists claim the existence of a plurality of quality conventions existing in what economists call ‘markets’. Real markets regularly possess a high degree of organization and standardization, the influence not of the market order of worth, but of the industrial order of worth. The influence of Schumpeter's theory would be better understood by applying the concept of the order of worth of inspiration. Similarly, neoliberalism's critique of the state could be better understood by applying the concept of the civic order of worth as an implicit target. The point here is to analyze neoliberal discourses not by equating them to only a single order of worth but by recognizing that the power of neoliberal discourses is unleashed by a specific combination of different orders of worth, which is also the internal logic of these discourses. Such presentations can be found in Boltanski and Thévenot (2006) and Storper and Salais (1997). The former presents six ‘orders of worth’ (or ‘worlds of justification’) and the latter four ‘worlds of production’.

3. When the concept of ‘principle of equivalence’ is used by scholars, Alain Desrosières is rarely referred to as its inventor. Conventions of equivalence ‘make things comparable’, and they are the first element in the politics of quantification. For Desrosières, the use of conventions was a necessary and unavoidable procedure: ‘Quantification is about bringing in a convention and then measuring’ (Desrosières 2008a, p. 10).¹ Quantification is not as such a critical issue in economies. Modern societies and modern economies cannot avoid processes of quantification, no matter if they are – let us say – Keynesian, socialist (centrally planned), or neoliberal in character (Desrosières 2011). Rather than the target being quantification as such, the starting point of a critique of quantification should be the processes and situations of deliberation of the underlying conventions of equivalence. In recent years Robert Salais has started to work out a conventionalist approach to analyzing the politics of quantification, in which he refers to the works of Amartya Sen and his idea of an ‘informational base’ (Salais 2008).

4. If a property of neoliberalism is the denial of public justification and the reluctance to inform the public about the conditions and practices of privatization, then privatization becomes a core property of neoliberalism, one that has to be related to different types of convention. Conventions of equivalence may also become private and therefore invisible, but they still exist, for example in private enterprises. The sociology of quantification and the critique of neoliberalism thus have a problem in getting access to their research object. Davies (2012) has studied the processes of privatization in the economy, but the relation between privatization and quantification in the era of neoliberalism remains undertheorized.

5. EC's transdisciplinary approach to an economic sociology of law is not well known outside of France (see the contributions in Diaz-Bone, Didry, & Salais 2015b).² Existing critiques of neoliberalism have not recognized that EC offers an alternative to the ‘law and economics’ approach.

With respect to each of these issues, William Davies has laid down the first foundation stones. The book makes readers aware of the fundamental reference that exists in any political economy to convention-based forms of evaluation and valuation. Neoliberalism has a contradictory relation to conventions and justifications. It is anti-liberal in character and tries to avoid public reflexivity and deliberation on the conventional foundations which are its factual normativity. The future advancement in the study and critique of neoliberalism depends on more transdisciplinary forms of research, which integrate the analysis of (economic) law, quantification, and economic discourses, as EC in France has being doing for three decades now.

Acknowledgements

I would like to thank Joe Deville and Taylor Nelms for comments on a former version of this review article.

Notes

1. Translated by the author.

2. See also the contributions in the ‘Conventions, law and economy' special issue of Economic Sociology, available at http://econsoc.mpifg.de/archive/econ_soc_14-1.pdf