by Thomas Gould (University of Bristol)
What has been the relationship between the growth of finance and ‘neoliberalism’ in post-war Britain? My research shows that the drive towards popular capitalism and a property-owning democracy was not directly created by Thatcherism, which qualifies popular narratives about the impact of government reforms such as deregulation and privatisation.
Instead, away from the battlegrounds of mainstream economics and politics, a silent ‘neoliberal revolution’ developed deep within the financial industry before Thatcher came to power.
For example, between 1967 and 1980, the number of personalised life insurance policies directly linked to asset values increased from 81,000 to 3.5 million. This development marked a sea change in the way that society managed financial risk and uncertainty.
It had little to do with mainstream politics, and it was so powerful that by 1990 there were over 12 million of these unit-linked policies in force, showing that Thatcherite reforms merely accelerated the pace of change for developments that were already underway.
A cornerstone of traditional insurance, the objective of collective security, was superseded by the interests of individual fairness. The burden of financial risk was increasingly allocated to individual policyholders and the management of financial risk to the markets.
Together, unitised insurance policies and mathematical finance re-engineered the landscape of British capitalism by undermining the scientific foundations and appeal of traditional forms of protective insurance, such as industrial life insurance policies, annuities and defined benefit pension schemes.
Vast concentrations of personal wealth accumulated in institutional funds. The conduct and behaviour of firms became more diverse and complex as the science behind financial risk management was revolutionised. There were four key contours of change:
- First, collective provision was increasingly superseded by considerations of individual equity.
- Second, financial analysis and treatment of assets assumed greater importance than the management of liabilities.
- Third, insurance and protection were increasingly displaced by savings and investment media.
- Finally, traditional actuarial science was gradually substituted for a paradigm of financial economics.
Financial neoliberalism – the increased role and responsibility of financial markets and financial theories in the provision of economic security – redesigned the management of uncertainty and risk in insurance by changing the relationships between experts, individuals and the regulator within an increasingly sophisticated and competitive financial environment.
Risk-taking financial behaviour became an exigency. The presumption that financial uncertainty could, and should, be managed through financial markets gained saliency. The financial world, and its future, was increasingly understood through the lenses of advanced computing, mathematics and statistics.
Financial neoliberalism dramatically changed the ways in which the financial industry and government engaged with uncertainty; and it influenced the increasingly risk-based techniques, and forms of knowledge, through which they sought to manage and control that future.
Political philosophy may be thought to have represented the main attack on collectivism and the welfare state. Yet, removed from mainstream political discourse, the journals of the actuarial profession show how financial economics gradually displaced actuarial science as the principle scientific paradigm that managed financial uncertainty.
Furthermore, data compiled from the Association of British Insurers show that the attack on principles of collectivism were already underway in the late 1960s and early 1970s as individuals increasingly acquired these personalised insurance policies.
Thus, the practice of unitising the management of risk gradually merged with a new paradigm of financial economics that scientifically legitimised investment and savings rather than mutual protection and risk pooling. In this sense, many of the Thatcher government’s reforms geared towards promoting popular capitalism and property ownership simply pushed at an open door.