Uncertain Futures: Imaginaries, Narratives, and Calculation in the Economy

Jens Beckert (ed.), Richard Bronk (ed.)

https://doi.org/10.1093/oso/9780198820802.001.0001
Published: 2018 Online ISBN: 9780191860430 Print ISBN: 9780198820802

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CHAPTER

2 Expectations, Narratives, and Socio-Economic Regimes 

Robert Boyer

https://doi.org/10.1093/oso/9780198820802.003.0002 Pages 39–61

Published: July 2018

Abstract
The chapter proposes a history of the grand narratives associated with a succession of recent socio-
economic regimes. Since the 2000s, radical uncertainty has greatly increased, given widespread
innovation, and the unprecedented complexity of domestic and international interdependencies. In
these circumstances, actors cannot form fully rational expectations because the past is a poor predictor
of the future. This agony of the rational expectation hypothesis has opened a wide space to consider
the role played by economic narratives in conditions of uncertainty. These narratives are generally
rather simple in form and promise a drastic reduction of radical uncertainty and system complexity.
Businesses use storytelling to convince markets to nance daring, uncertain projects, and economic
policy-makers rely on it to coordinate action. In this way, imaginaries and narratives are crucial in
moving capitalist spirits—but at the cost of recurring nancial and economic crises as each is found
wanting in turn.

Keywords: complexity, history of socio-economic regimes, narratives, radical uncertainty, rational

expectations
Subject: Political Economy
Collection: Oxford Scholarship Online
 Introduction

This chapter provides a history of the narratives associated with a succession of recent socio-economic
regimes. It argues that radical uncertainty has reached an unprecedented level thanks to radical innovations
and the complexity of domestic and international interdependencies. This uncertainty cannot be overcome
by models based on the currently dominant rational expectations hypothesis. Actors are unable to base their
estimates on such determinist models because the past is a poor predictor of future socio-economic
regimes. The current agony of the rational expectations hypothesis has opened up a wide space for
economic narratives—generally fairly simple in nature—that promise a drastic reduction of radical

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uncertainty and systemic complexity. The chapter reviews how these narratives are deployed within the
business community (storytelling as a method for convincing markets to nance daring and uncertain
projects), and among economic policy-makers. The chapter shows that imaginaries (and the narratives that
embody them) are crucial in moving capitalist spirits; but it also demonstrates that the related tendency for
hegemonic imaginaries or grand narratives to emerge leads to recurring nancial and economic crises.

In the early 2000s, the economic profession was very proud of the discipline’s achievements. Due to
advances in conceptualization, the sophistication of econometric techniques, and the availability of real-
time data, macroeconomics had acquired the status of a quasi-natural science. Only details were still to be
worked out (Blanchard 2008). Economists were pleased to be one, if not the only, social science able to
deliver causal explanations and precise forecasts. This hope was destroyed by the bursting of the subprime
p. 40 bubble and its development into a world economic crisis that has yet to be overcome even a decade later.

The crisis was a shock for policy-makers: how and why had the scienti c discipline of economics been so
myopic that it failed to diagnose a speculative real estate bubble (Greenspan 2013) that any American taxi
driver might have sensed, but not the head of the Federal Reserve? In order to ght against cumulative
depression, central bankers had to give up their previous conservative principles. They had to buy bonds,
including toxic ones, to sustain the liquidity and solvency of commercial banks. Unfortunately, nobody
knows the way out of this policy of ‘quantitative easing’, a monetary approach that stands in clear violation
of the rational expectations hypothesis that remains central to contemporary macroeconomics.

This chapter proposes the concept of expectation regimes in order to analyse the succession of distinct
periods in which di erent sets of expectations prevail in the socio-economic order. Expectations can be
adaptive or rational within a quasi-stationary world. When key political compromises build complex but
coherent institutional architectures, the expectation regime is context-dependent. By contrast, when
nance is the hierarchically dominant institution, the radical uncertainty of economic futures has to be
reduced by the invention and di usion of narratives that range from business plans to society-wide utopias.
Because self-ful lling prophecies are exceptional (see the chapter by Esposito in this volume), nancial and
economic crises typically mark the shifts in narratives required to cure capital imbalances.

Expectation regimes that are historically contingent and based on narratives provide an alternative set of
microfoundations that—unlike those envisaged by standard economic theories—are able to account for the
central importance of uncertain futures in modern economies. The inadequacy of standard economic
theories in this regard is well understood. For example, the Walrasian auctioneer can do no more than
organize the synchronicity of exchanges, without any concern for uncertainty and di erent time frames in
the various spheres of society. This means that views about the future are excluded from analysis, although
they are crucial in any market and even more in a capitalist economy. Walrasian and by extension many
standard economic theories have limited applicability because they are unable to deal with time (Sapir
2000). They discard the historical dimension of economic processes (including progressive learning from
the past) and fail to recognize the futurity that lies at the heart of markets and capitalist economies. This
structural weakness is recognized by some of the modern theoreticians who have tried to generalize the
 Walrasian theory. To date, however, none of these e orts have been successful because contingent

p. 41 commodity markets are rare, rational expectations internalizing the correct model (Muth 1961) are not valid
outside a stable equilibrium, and the creation of futures and option markets entails speculation without
ensuring dynamic stability.

Luckily, the actors populating real-life economies have been continuously inventing practical devices to
reduce uncertainty and complexity. During the post-Second World War Golden Age, indicative planning was
used in order to mimic the impact of heterogeneous strategies and discover a minimalist basis for coherence
at the macroeconomic level. The neoliberal project that followed aimed at delegating this coordination to

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nancial markets. However, in practice this coordination took place not by means of rational and
computational calculation but by the invention of simple and attractive narratives.

These practical devices can be grouped under the concept of expectation regimes, de ned as the mix of
individual and collective coordination mechanisms that facilitate and channel decisions over multiple
periods and thus have a long-lasting impact. Since the nineteenth century, quite di erent regimes have
been invented, matured, and decayed. In the modern era when the e cacy of macroeconomic institutions is
declining, the heterogeneity of interests is increasing, and intense structural change is obscuring the future,
the time of narratives has come. Nevertheless, because such narratives rarely lead to the world they pretend
to build, many fail. As this chapter demonstrates, the narratives of Japan number one, the new economy, and
the omniscience of nancial markets are all good examples of a relentless quest for attractive narrative
representations of an unknown future.

This analytical framework provides a suggestive interpretation of the higher frequency and severity of
economic crises since nancial liberalization: the timeframe of nanciers’ representations is far too short
compared with the time required to change products, technologies, lifestyles, education and training, public
spending priorities, and the tax system. As a consequence, the sources (and the nature) of economic crises
have changed dramatically. In socio-economic regimes dominated by a nancial logic, storytelling is no
longer restricted to the road shows of companies’ chief nancial o cers. Instead, it has permeated the
mass media and transformed the very process of democratic political choices and government policies. ‘New
era’ narratives and associated emotions and passions (Akerlof and Shiller 2009) sustain attractive but
frequently unfounded stories that drive markets and even penetrate the political agenda. This amounts to
the end of well-planned political programmes and ushers in an era of vibrant but unstable imaginary
visions.

Uncertainty: The Core Ambiguities of Capitalism

It might be tempting to restrict the role of narratives and ctions to nance-led contemporary capitalism
p. 42 (Boyer 2018). It is, however, much more insightful to revisit brie y theories that point out the
uncertainty inherent in any monetary economy, before examining the particular prevalence of uncertainty
(requiring resolution with the help of narratives) in globalized and nance-led capitalist systems.
 The Three Uncertainties of Any Capitalist System
Many theoretical and historical approaches have shown that the institution of money is a necessary
condition for a market economy to exist, contrary to the neoclassical myth whereby it is the extension of
barter that calls for the introduction of money. This raises the question of how a market economy reaches
equilibrium via the price mechanism. Karl Marx seems to be the rst to have pointed out that the issue is not
only the determination of relative prices; rather, the existence of money allows actors to deal with the
uncertainty stemming from the frequent temporal separation of selling one good and buying another (Marx
1867 [2017]).

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A further source of uncertainty relates to the time lag between investment in a productive process and the
delivery of the expected returns: because competition between capitalists leads to overaccumulation, the
succession of booms and busts is the consequence of an inability to anticipate the timing of the relevant
stages of an economy during the course of an investment. American institutionalists provided particular
insights regarding the close links between capitalism and the forging of images about the future. The
concept of ‘futurity’ stresses this core property of any monetary economy (Commons 1934 [1989]).

A third level of uncertainty is introduced once innovation becomes a key driver of competition: by
de nition, innovation undermines repetition and thus cannot be assessed by rational calculus. The
challenge is the more daunting, the longer the time lag between the investment in research and
development and the delivery of new goods or services to the market. This is the core message of Joseph
Schumpeter (1926). Logically, the standard microeconomic approach is unable to deliver any reasonable
solution, because no probability distribution can be derived from previous innovations. This central
importance of innovation and novelty in modern economies (see also Shackle 1972) dictates a crucial role
for contingent imaginaries and social representations of uncertain futures in contemporary capitalism.

Uncertainties Compounded in Finance-Led Capitalism

While these general causes of uncertainty hold for capitalism in all its historical formations, there are
p. 43 reasons to believe that uncertainty is exacerbated in contemporary capitalism and is leading to a growing
role for storytelling (Salmon 2007; West and Micht 2000).

The rst reason is that the deepening of the division of labour creates strong structural interdependencies:
any localized event might have surprising fallouts in distant sectors and territories. Generally, economic
agents have neither the power nor the resources to diagnose and control this uncertainty. They have
therefore to forge ad hoc representations of these interdependencies, taking into account only a few of the
actually existing causal relations.

The second reason is that globalization has developed global value chains that are di cult to master even
for the leading rms that organize the segmentation of production. Rather than uncertainty being limited to
the local environment of each production site, it is related to worldwide shocks that a ect both demand in
nal markets and the supply of resources. Clearly, even the most talented experts with huge data sets have
been unable to anticipate the successive crises of the new economy.

Finally, the explosion of derivatives linked to each basic transaction has created an impressive complexity in
nancial instruments. Because the position of each trader is based in large part on private information in a
context in which bilateral ad hoc contracts are the norm, outside observers are unable to detect emerging
structural imbalances: they are revealed only when a node of the international nancial system goes
bankrupt. The collapse of Lehmann Brothers is a good example of this obscurity at the heart of the nancial
markets that standard economic theory had generally assumed were transparent. Financiers and traders are
 left to invent ctions in order to pretend they are masters of a process that ultimately they cannot
comprehend.

Beyond Standard Economic Theory: How Institutions, Planning,

Market Prices, and Narratives Guide Expectations

Has contemporary economic theory found practical solutions to overcome or channel this uncertainty and
make investment decisions easier and safer? Despite all the e orts in economics, only unsatisfactory

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theoretical solutions with little practical relevance have been found. This holds for general equilibrium
theory as much as for rational expectations theory. Both these strands of standard economics are built on a
series of thought experiments designed to deal with the future, but few of their insights can be applicable to
the real world because that would require the complete redesign of economic institutions in accordance with
the requirements of a normative model assuming total price exibility, a complete set of contingent
markets, and the ability of actors to solve complex analytical problems through an exclusive reliance on a
p. 44 full measure of substantial rationality. Since—notwithstanding the partial performativity of economic
models in some areas (see MacKenzie 2006)—it is not possible to build the social world according to such
idealized economic models, rms, individuals, and public authorities have had to invent partial and
imperfect solutions to overcome the inhibiting role of uncertainty.

Economic Institutions: Devices for Guiding Expectations and Behaviours

Despite the beliefs of standard economic theory, markets are not the only social constructions invented for
coordinating heterogeneous behaviours. Conventions might emerge from the repetition of successful
interactions (Lewis 2002) and organizations are built to socialize information and individual strategies
(Aoki 1988). Both embed collective responses to recurring as well as unexpected events by partially
rede ning the social identity of members of society (Douglas 1986). At a higher level, some society-wide
institutions help in structuring both the incentives and constraints that individuals face (North 1990),
thereby reducing the scope of relevant behaviours. Similarly, regulation theory states that institutional forms
monitor some key interdependencies among di erent domains—industrial relations, the competition
regime, as well as the monetary and exchange rate regime (Boyer 2015; Boyer and Saillard 2001). In this
way, institutions help construct the strategies necessary to cope with the deep complexity of societies
(Delorme 2010).

De facto, institutions address the various sources of uncertainty diagnosed by economic sociology (Beckert
2016, 43). Institutions frame the context for individual decisions; they constrain the range of alternatives
considered; and they provide a simpli cation of the interactions with other domains. Of course, the rules of
the game that institutions set do not fully determine the outcome but they delineate strategies and restrict
radical uncertainty. They give structure to a problem with otherwise unlimited dimensions (Aoki 2010).
 Indicative Planning: A Method for Socializing Individual Strategies
While these general institutional forms may reduce ‘local’ uncertainty, their interaction can still display a
lack of compatibility that generates chaotic dynamics that appear as uncertainty at the global or system
level. Indicative planning may provide a method for diagnosing such incoherent regimes, promoting
deliberation about possible solutions, and simulating likely consequences. If all the stakeholders are
involved in the patient and recurring process of planning, then a shared vision of the future is di used in
everyday decisions about private and public investment, education and research, the geographical
distribution of economic activity, and so on. In this way, the uncertainty of the future is partially but not

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totally reduced. This was the explicit philosophy of French public authorities in the heyday of the French
p. 45 Golden Age: the statistical system, macroeconomic modelling, cost/bene t analysis of sectoral projects,
and economic policy in terms of taxation or public spending were jointly mobilized to sustain the central
trajectory decided after many iterations between technical expertise, the conciliation of dominant interests,
and strategic choices made by the government.

From a theoretical point of view, planning was presented as a tool to ght uncertainty (Massé 1965). It is not
so easy to assess its role in the rapid and fairly steady growth in France in the thirty years after 1945
(Kindleberger 1967), but a similar con guration could be observed in Japan and had remarkable outcomes.
In both countries the catching up process could be organized under the monitoring of the public authorities.

But the very success of this socio-economic regime promoted a diversi cation of production away from
basic goods, and the national economy was progressively opened up to international trade. These two
structural transformations gradually eroded the e ciency of indicative planning, because rms tend to
become the lead players in the sti ening of international competition, while public authorities lose some
key economic policy instruments, such as control over the exchange rate or the taxation of mobile capital.
When the trans-nationalization of value chains and nancial asset portfolio management became the
dominant mechanisms governing macroeconomic evolutions, French indicative planning experienced a
severe crisis and the di usion of ‘laissez-faire’ discourses convinced later governments that the state is the
problem and markets are the solution.

The Creation of a Multiplicity of Futures Markets: The Neoliberal Solution

When modern economies became too complex to be monitored by interventionist tools, the institutional
arrangements of the post-Second World War regimes were replaced by competition mechanisms that
operate through liberalized markets. This holds for the goods markets, labour contracts, and, more
fundamentally, nancial markets. If the best experts, both public and private, can no longer make accurate
forecasts, market price signals are tasked with revealing the viability of public and private strategies.

Under these conditions markets and states switch places. In the past, governments set medium-term
expectations through programmes, while markets provided short-run adjustment processes. Since the end
of 1990, international nance has been tasked with setting the stock market value of leading rms,
assessing the relevance of their investments and innovation decisions, and checking the viability of national
public nance. The future has become the consequence of private strategic choices, and governments are in
charge of reacting to unexpected perturbations alongside the long-term trajectories set by leading private
actors.

p. 46 Many futures markets are thus created and become the compass guiding economic actors. A large fraction of
the economic profession followed the hypothesis that these markets are e cient in the sense that they
deliver the best synthesis of scattered individual information. Nevertheless, the literature has shown that
the volatility of stock market valuations is far higher than the variability of the underlying process of pro t
generation (Shiller 2000). It might be troubling for traders to observe that the ups and downs of nancial
 markets follow a pure random walk. As a result, the related erratic movements tend to be attributed to the
‘mood of the market’, according to an astonishingly anthropomorphic vision of nancial markets. Last but
not least, instead of a smooth adjustment of stock markets to new information, brutal collapses of nancial
valuation continually surprise the best experts and nancial gurus. The creation of futures markets, which
was supposed to reduce uncertainty, appears in the end to have increased it, rendering decision-making by
rms still more di cult than in the era of administered economies.

The Socialization of Expectations by Narratives

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This has opened up a new epoch for devices that actors invent to deal with futurity and uncertainty—in
particular, for the spectacular narratives invented by nanciers and entrepreneurs. In the words of the
French poet Jean Cocteau (1927): ‘Let us pretend to be the authors of mysteries we are totally ignorant of’. Since
interdependencies between the domestic and the international, nance and the real economy, polity and
economy display multiple channels that cannot be captured by a rational business plan and balance sheet,
rms, investors, and traders need to simplify dramatically the mysterious world they must live in. It would
be foolhardy to summarize an investment plan by a series of quantitative indices that are likely to be
falsi ed by subsequent events. So instead the focus is on a suggestive discourse that o ers a vision of the
intentions of the large rm’s CEO, the startup manager, or the business angel of Silicon Valley.

Faced with the multiplicity of transformations occurring in technological paradigms, lifestyles, geography
of production, and social strati cation, large multinational rms and investors must address the deep
uncertainty a ecting their decisions: how to invest in a changing world in which the old principles are
invalid but new ones have not yet emerged? Business plans describing expected cash ows along a series of
trajectories become mere ctions, because rms are unable to know the distribution of probability over the
successive events that will a ect the outcome of today’s decisions in terms of products, investment, and
R&D expenditures. Inventing a simple and attractive narrative cuts through the inhibiting complexity and
p. 47 uncertainty. This solution suggests that entrepreneurs are mastering their future by describing it in a
narrative and allocating resources to make it happen. The initiative shifts from government and public
agencies to charismatic entrepreneurs in the Schumpeterian sense of the term: they escape from the
management of purely repetitive decisions sustaining the exhausted productive paradigm from the past and
bet on the imagined success of new products, organizations, methods, and territories.

This should normally deliver fairly chaotic macroeconomic developments, given the intrinsic heterogeneity
generated by a market economy. Two features of contemporary societies, however, polarize the a priori
unlimited pool of possible narratives. Firstly, the stock market and, more generally, the di erent nancial
instruments coordinate heterogeneous expectations via price formation: the rapid appreciation of a
company’s stock is interpreted as a mark of the success of its visions and strategies, the more so when
theoreticians and practitioners believe that the market valuation reveals all available information about the
future. Frequently a dominant narrative emerges and becomes adopted by actors whose alternative bets
have been disappointed. A typical ction-led boom moves new industries and by extension the national
economy. Secondly, the mass media, both old and new, widely di use not only nancial valuations but also
the stories of leading entrepreneurs at the forefront of the ‘new economy’. Thus a powerful mechanism
reinforcing the role of dominant narratives is embedded in both the modern nancial system and the media
system.

Such statements can be self-ful lling if su cient people invest money in the story. Instead of trying to
decipher an obscure future, actors take decisions designed to make an imagined future real. ‘The new
economy is the future’, ‘Capitalism has moved to Asia’, ‘Quantitative nance allows us to master risk and deliver
an unprecedented rate of return’, or ‘The Euro is irreversible’ are all good examples of the contemporary
 narrative approach to uncertain futures; and these stories have to a considerable extent structured recent
economic behaviour.

The narratives told to the nancial markets by government agencies also di er from the government
policies prevailing at the time of indicative planning. The key public actor is no longer the ministry of
nance, which is too slow and cumbersome to react to unexpected events, but rather the central banker: she
or he has the task of interacting with nanciers’ narratives by issuing statements designed to maintain trust
in the positive evolution of nancial markets (Greenspan 2013; see also the chapters by Braun and Holmes
in this volume). This is a novelty in the long history of central banking (Blinder 1997). Governments are

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even happy to delegate di cult distribution choices to the so-called ‘markets’ in the context of a zero-sum
game brought about by the quasi-stagnation of productivity (Krippner 2011). Furthermore, political
p. 48 authorities tend to take into account the interests of international nanciers more than citizens’
demands (Streeck 2017). It is clear that communication has become one of the main policy instruments for
governments and central bankers (Lordon 1997), while deciphering the message of markets has become one
of the main policy inputs.

A Succession of Grand Narratives in Recent Economic History

Because most imaginaries are unable to deliver the expected transformations in the economy, they
generally end up with a brutal readjustment of expectations. In some cases, there is a long period of
contestation between competing grand narratives and one eventually gains temporary dominance. In some
other con gurations, after a period of doubt and uncertainty, an alternative vision of the future emerges,
becomes hegemonic, and leads to the recovery of investors’ ‘animal spirits’.

Back to Malthus: The Limits to Growth

When the brutal spike in oil prices in the 1970s revealed the neglected dependency of the industrialist post-
war model on cheap natural resources, economists expressed con icting views. For most of them, the oil
shocks of 1973 and 1979 represented temporary periods of turbulence for prosperous economies and were
expected to be overcome quickly, provided that wise economic policies were followed: energy-saving
innovations would respond to higher energy prices and allow production-based growth to resume.
However, a dissenting group at the margins of the economic profession challenged this optimism: economic
growth and demography had reached the limits set by the volume of natural resources available in the world
(Meadows et al. 1972). An intriguing image was popularized by a simulation model, namely that of the water
lily whose exponential growth will completely cover a pond in 30 days. Whatever the theoretical and technical
controversies, the oil crises succeeded in reintroducing Malthus’ generic fears and his narrative of natural
limits to growth. Public opinion supported, and governments initially adopted, some drastic measures in
order to save energy. But as soon as a modest recovery had taken place, most economists resumed their
defence of the guiding vision of Prometheus unbound: price and income variations, substitution, and
technical change could overcome any natural resource scarcity.

Japan Invents the Machine that was Supposed to Change the World
The debate shifted in the 1980s to analysis of the juxtaposed trajectories followed by the United States and
p. 49 Japan: industrial decline of typically Fordist industries, on one hand, and the invention of a new
production paradigm, on the other. The Asian ‘dragons’ and Japan in particular seemed to have discovered a
way of avoiding the stagnation of productivity observed in North America.
 In practice, of course, the Asian emerging industrial economies displayed many di erences with American
and European capitalisms in terms of the interplay between state and market, social strati cation, and
integration in the world economy. Institutional theorists have pointed out the complementarity between the
various institutional forms and di erent coherent development modes (Hollingsworth and Boyer 1997),
which implies that successful institutional architectures cannot easily be imported (Amable 2003).

Despite this, American and European managers harnessed the power of narrative to propose shortcuts that
promised to resolve a complex web of causalities. The post-war ‘golden age’ was reinterpreted as a direct
consequence of the breakthrough of mass production and the di usion of the assembly line, inherited from

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the sophistication of ‘model T Ford’ production (Nye 2013). According to an imaginary of technological
determinism that transcends di erent epochs, the future was now seen as being dependent on the adoption
of so-called lean production. This inspiration was captured by the titles of two bestsellers: Japan Number One
(Vogel 1999) and The Machine that Changed the World (Womack et al. 1990).

This vision became quite e ective in mobilizing managers and shaping macrodynamics. All over the world,
business schools were teaching how to implement the so-called ‘Japanese model’, and many authors
anticipated its domination at the global level—especially in terms of rms’ organization of production—as
evidenced by the opening of Japanese plants in the United States and Europe. The belief in the superiority of
the Japanese brand of capitalism created an unprecedented speculative stock market and real estate bubble,
in an overreaction to what was perceived to be Japan’s bright future, with its possible replacement of the
United States as the leading industrial power.

This speculation had to be reassessed, however, because the simple narrative of lean production turned out
to be an unjusti ed generalization, given the diversity of production models within the same sector and
country (Boyer and Freyssenet 2002). Furthermore, Japanese macroeconomic performance had to be
attributed to many other distinctive features, such as the wage–labour nexus, the nature of competition,
and the nancial system. Moreover, foreign admirers of Japanese capitalism totally missed the growing
tensions and disequilibria generated by the very success of past strategies of rms and successive
governments (Boyer and Yamada 2000). The lean production ction has long been discarded, but it
nevertheless achieved a partial transformation of the industrial world while it lasted.

p. 50 From Information to Knowledge: The New Economy

After a period of uncertainty in search of promising new sectors, in the mid-1990s American business
became convinced that the convergence of various advances in information and communication
technologies (ICT) would open up a new epoch in the history of production systems: information would
become more important than energy and natural resources. This conception emerged in the United States,
where public opinion tends to consider any innovation to be potentially bene cial—an attitude that stands
at odds with the more cautious approach characteristic of Europe (World Value Survey 2016). Experts
praised the unique innovative potential in North America, anchored in the excellence of top universities and
research organizations. Policy-makers were eager to regain technical and economic hegemony over Japan.
While the old industrial basis was shrinking, totally new enterprises quickly established dominant and
sometimes quasi-monopolistic positions in the production of information products and equipment goods. A
new and powerful narrative emerged: information and communication technologies were believed to
abolish the barriers of time and space.

As communication and information technologies were di used, it became clear that pro ts can only be
earned in the longer term if the bulk of information is converted into knowledge. This led to the rise of the
second generation of internet companies, specializing in software (Boyer 2004). The narrative of the new
economy permeated society as a whole: intangible capital frequently eclipsed typical equipment goods;
 start-ups dictated the speed of the economy; and when they were converted into public rms quoted on the
stock market, their capitalization exploded and often superseded those of the old economy. Companies that
never earned any pro t enjoyed high stock prices because they explored the future and were destined (so the
narrative went) to encounter success ‘eventually’. Silicon Valley and the newly created Nasdaq were allies
that jointly bet on the bright future of the New Economy: they channelled a ow of investments into new
companies out of typical goods production. The enthusiasm was so frantic that in the 1990s some experts
even speculated that ‘economic laws’ had now been invalidated.

Very early on, dissenters challenged the anticipated impact of ICT on productivity, but they were not

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listened to (Gordon 2000). In due course, they were proved right, however, and the new economy did not
succeed in building a stable regime. Instead, the dot-com bubble burst in the early 2000s. From this a
general lesson can be drawn: the grand narratives that guide behaviour may change, but they all end up in a
nancial crisis (Garber 2000; Kindleberger 1978; Reinhart and Rogo 2009). In the end, the guiding ctions
have to cope with the real components of accumulation: although they may succeed in transforming the
p. 51 economy, they tend not to do so quickly or deeply enough to triumph as self-ful lling prophecies. The
con ict of time horizons between nancial imaginaries and the actual economic activity they impel is the
deeply rooted source of major nancial crises (Boyer 2013). Furthermore, every narrative has its blind spots;
and, if the same narrative is widely shared, so too is the cognitive myopia implied (Bronk 2013; and Beckert
and Bronk in this volume).

The Hegemony of Finance: The Heyday of Imaginaries and Narratives

The dot-com crisis did not trigger a depression because the central banks reacted quickly, lowering interest
rates. This created a permissive condition for a recovery of the economy. But where to invest, given the
reappraisal of the prospects opened by ICT and the New Economy? The solution was found within the
nancial system: the advances in mathematical nance opened up a new territory promising the
reconciliation of high rates of return on capital with a reduction of risk. As Haldane (2009) puts it: ‘A new
era had dawned, one with simultaneously higher returns and lower risk.…Or so ran the rhetoric.’ The
breakthroughs of academic research delivered methods for pricing new nancial products; rst options,
then derivatives, and nally derivatives of derivatives (Black and Scholes 1973; Merton 1973; see also
Esposito in this volume). The volume of contracts and transactions exploded and they came to be a source of
pro ts for banks and nancial intermediaries alike. Academic research had set in motion a transformation
of contemporary nancial markets (MacKenzie 2006).

Paradoxically, some conceptual continuity prevailed with the previous periods: scienti c progress was
invoked to justify the hegemony of nance that developed. The specialists in statistical physics or
engineering shifted from industry to nance and became so-called ‘quants’: old-style nanciers could not
assess the nature and risks of these new businesses and were unable to challenge the legitimacy of quants
because they did not share the prestige of such high calibre scientists (see also Besedovsky in this volume).
Dissenters who stressed that the whole nancial industry was built upon erroneous calculations of
probability distributions that exclude the ‘fat tails’ associated with crises were not listened to (Mandelbrot
and Hudson 2005; Taleb 2010).

A new grand narrative was born. It stated that any economic or social issue can be overcome by an ad hoc
nancial instrument, whose introduction is a better strategy than implementing painful reforms and
unpopular policies (Shiller 2003, 2008). Are developing countries su ering from recurring exchange rate
adjustments and nancial crises? Let us design a sophisticated insurance contract that obviates the need to
change either the currency regime or economic policy! Is a rock star su ering a liquidity constraint but rich
p. 52 in terms of future royalties? Let us convert the ow of income into a security that can be sold to an
investor and cashed-in immediately. Do minority and low-income families face persistent di culties
 purchasing housing? Why not reduce personal income and asset requirements for mortgages, and securitize
these credits to ‘spread’ the risk? If this opportunity is widely exploited by banks, a housing boom generates
price increases that sustain the illusion that gains from speculation can replace income. Unfortunately from
a macroeconomic point of view, this is impossible in the long run, and the strategy was bound to end in a
dramatic collapse of a nancial system that had fully embraced the narrative that systemic risk was now
under control (Boyer 2008, 2011a).

The subsequent crisis was far more severe than most previous ones. This was because the accumulation
regime was totally nance-led, with few breakthroughs in the real economy that might lead to productivity

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increases (Gordon 2016). Moreover, the deep integration of various nancial systems reinforced the
synchronicity generated by the worldwide di usion of the same basic narrative about the e ciency of
nancial markets (see also Bronk and Jacoby 2016). But this belief was not in line with rigorous research
that had proven that nancial markets could not be e cient in terms of information (Grossman and Stiglitz
1980). The typical pattern of nancial crises con rms this assessment: the reversal from speculative boom
to brutal and deep collapse is always spectacular. After the collapse of Lehman Brothers in the autumn of
2008, the panic was interrupted only by the central banks—which played their role of lender and buyer of
last resort to the hilt (Eichengreen 2015)—and by the resilience of the rare accumulation regimes still based
on productive capital, especially that of China (Boyer 2011b). In the end, the economic policies introduced
via a succession of imagined futures derived from nance theory have led to collapse or have tended to
become less and less e ective, leaving most modern economies that were built around these imaginaries
facing the prospect of long-term stagnation (Summers 2016).

The Green Economy: The Most Recent Narrative to Move Financial Markets
Once the risk of a cumulative depression and de ation was removed in the 2010s, governments and
nanciers faced a daunting question: what will be the next engine of growth? The very active Chinese
economic policy achieved a return to rapid growth fuelled by a credit boom that reverberated all over the
world. The strong dependency of Chinese manufacturing on imported natural resources triggered a
commodity boom and a spectacular reversal of the terms of trade between manufactured goods and natural
resources. This was, for a time, interpreted as a con rmation of the possible blocking of growth by the
exhaustion of oil, metals, and even food in some regions of the world.

p. 53 But this was not a mere repetition of the oil shocks of the 1970s (Meadows et al. 1972, 2004). On one hand,
the debate on climate change reinserts world economic activity into the biosphere and the physical barriers
to continuing the past modes of development: economists and policy-makers have to take this structural
change into account (Stern 2006). On the other hand, the market for oil futures fed intense speculation
because the expectation of future scarcity drives the spot market: primary commodity prices were quoted as
nancial assets (Cournot Center 2016). This invasion of the domain of natural resources by nance was the
explicit strategy of some investors and it was designed immediately after Lehman Brothers’ collapse
(MacCall 2009). A new narrative emerged around the green economy and it permeated the redeployment of
investment, innovation, environment regulations, taxation, and public infrastructure. One variant of this
project proposed that sustainability and prosperity should replace growth as governments’ key concern
(Jackson 2009).

As in previous cases, this new narrative triggered a modest economic boom, but it failed to allow the
e ective implementation of the new growth regime based on long-term ecological sustainability, as
anticipated by governments and reiterated by the Paris Conference on Climate Change. The transformation
of the real economy was far slower than the unfolding of the speculative bubble in oil and natural resources.
Furthermore, the narrative of the greening of national economies is a drastic simpli cation, given the
complexity of ongoing and interrelated structural transformations: the maturing of the e-economy, the
 development of new services, the constant rise of health-care demand, the delocalization of polluting
industries, an uncertain exit policy from quantitative easing, and recurring protectionist temptations. The
con ict of time horizons between nance and the economy and the extreme simpli cation associated with
the concept of the Green Economy explain the brutal reversal of oil prices seen since 2014, its repercussion
on stock markets, and the re-emergence of major uncertainties concerning the direction of investment and
the future regime for oil prices (Garnier and Sølna 2017).

The Destiny of Successful Narratives: A Source of Major Financial

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Crises

This brief historical perspective on developments since the 1970s—summarized in Table 2.1—suggests the
existence of some crucial and invariant mechanisms that explain both the reasons for narratives and their
power to determine the dynamics of capitalist economies. It seems to con rm the importance of
representations of the future as stressed by recent theoretical breakthroughs: widely shared imaginaries
p. 54 and associated grand narratives are one of the (imperfect) responses to the uncertainty of modern
economies (Beckert 2013, 2016; Bronk and Jacoby 2016).

Table 2.1. A synoptic view of the chronology of imaginaries and expectation regimes in the contemporary period

Socio-economic Imaginary Expectation regime Sources of crisis

regime

Limits to growth A neo-Malthusian conception Transition towards a Oversimplification of links between

(1970s) stationary economy economy and natural resources

Japan no. 1 (1980s) Decline of American hegemony, Transition towards Misreading of the source of Japanese
Japanization of the world another socio- growth
economic regime

The New Economy A Schumpeterian technological Technological Conflict of time horizons between
(1990s) revolution impatience technical imaginaries and the real
economy

Finance-led Successful control of risk by Driven by storytelling Conflict of time horizons between
accumulation scientific advances in financial models and the real
(2000s) mathematical finance economy

Environmental A green economy Transition to a new Global challenge versus national

limits to prosperity socio-economic regime interests
(2010s)
 The Higher the Uncertainty and Complexity, the More Urgent the Need for
Simple Narratives
All individuals or rms have to face the uncertainty associated with a monetary economy and develop
relevant strategies, knowing that economic calculus deals only with measurable (or ‘Knightean’) risk and
becomes unfeasible in complex economies. In conditions of uncertainty, rules of thumb (Heiner 1983),
reliance on bounded rationality (Simon 1997), learning from past episodes (Nelson and Winter 1982), or the
in uence of ‘animal spirits’ (Keynes 1936) are all mobilized in order to enlighten decisions with inter-
temporal consequences. These devices help to overcome speci c and localized uncertainties, and they imply

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fairly diverse behaviours (including the bankruptcy of some actors) that are made compatible only ex post
by the price mechanism. More di cult to master is a second level of uncertainty created by the complexity
of the long-distance interactions between sectors, and by the macroeconomic uncertainties generated by
innovations within the nancial system and government policy.

As argued earlier in this chapter, economic institutions aim precisely at reducing this second-degree
p. 55 uncertainty. But the exhaustion and open crisis of the post-war socio-economic regime eroded belief in
institutional constructivism. Given the lack of convincing alternatives, most governments have, as a result,
delegated the exploration of the future to nancial markets. Such markets do allow for the pooling of
scattered visions and the coordination of decentralized information through the price mechanism—one
de nition of nancial market e ciency—but this does not warrant the extreme faith in market knowledge
evident before the crisis. Individuals and rms recognize that they must rely upon the price signals of
nancial markets because they have only limited knowledge. Since these markets appear to be highly
stochastic, experts have frequently gone on to attribute a clear intentionality and rationality to the ups and
downs of nancial markets. A curious personi cation of the markets occurs, with statements such as ‘the
markets think that…’, whereas in reality the ‘message of markets’ is merely the unintended consequence of
the confrontation of initially heterogeneous expectations, objectives, and nancial resources.

This introduces two entry points for narratives. As this chapter has shown, each era displays a grand vision
(or narrative) about the direction of change and the source of pro t. But in order to interpret the everyday
market process, secondary narratives have to explain the observed discrepancies with respect to the
imagined ideal future. To be convincing, both primary and secondary narratives have to be fairly simple.

Mimetism Is Rational and Leads to the Hegemony of a Single Narrative

In the post-war period, social and political deliberations—via collective bargaining, economic policy
debates, and indicative planning—partially succeeded in synchronizing, ex ante, behaviours across
di erent social groups with di erent, if not opposing economic interests. This has not been the case since
the 1980s. What, then, are the processes that convert the heterogeneity of representations of the future into
a common macroeconomic dynamic? This chapter argues that the logic of nancial markets entails a
de nite pattern—alternating bull and bear assessments of a succession of grand narratives.

Conventional economic theory sticks to the hypothesis that in equilibrium rational expectations will prevail
because agents gain economic rewards by anticipating the future correctly, while competition eliminates all
those who fail to build correct forecasts. But this neglects the fact that the learning process converges only if
the nal rational equilibrium is stable (Grandmont and Laroque 1991). Since socio-economic regimes
mature and decay repeatedly, agents are unable to deploy rational expectations during periods of dynamic
change between alternative emerging regimes characterized by radical uncertainty.

p. 56 A second standard economic solution considers the sequence of price signals on product and factor markets
as su cient for the monitoring of inter-temporal and long-term decisions about production, investment,
and innovation. Again, this assumes an ergodic and ultimately predictable system tending towards a stable
 and long-term equilibrium—a contradiction in terms because technical, organizational, and institutional
innovations progressively transform the existing economic regime (Shackle 1972; and Beckert and Bronk in
the introduction to this volume).

The overwhelming role of nance in contemporary capitalist regimes opens up a more relevant solution.
The futures markets guide decentralized individual strategies by proposing not only prices but also shared
representations of the future. When uncertainty increases, agents tend to rely more on the expectations of
others than on their own, and this rational mimetic behaviour may move the price of assets away from so-
called fundamental value, computed as the discounted value of future incomes (Orléan 1990). Indeed, two

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extreme narratives may then alternate: one a bet on the complete success, the other on the total failure, of a
given nancial investment. In a sense, nance has replaced collective deliberation. This comes at a cost: the
reliance on widely shared and frequently misleading narratives implies an intrinsic nancial and economic
instability. This calls for a new theory of value that is di erent from past analyses that used to look for
objective foundations for prices and values (Orléan 2014).

Conclusion

The analysis presented in this chapter is synthesized in Figure 2.1.

Figure 2.1

An interpretation of economic evolution: the emerging, maturing, and crisis of successive narratives

Three basic features of monetary and capitalist economies render powerless any economic calculus
assuming rational expectations. First, at the individual level, investment and innovation face radical
uncertainty because not all possible states of the world can be known. A second category of uncertainty
relates to the reaction of other agents that belong to the same sector and sphere of competition. Finally, the
relevant web of interactions is di cult to decipher, given the deepening of divisions of labour within and
across national borders.

This central problem of uncertainty for modern economies has been dealt with since the immediate post-
war period by applying two di erent strategic approaches. During the epoch of constructivism that followed
the Second World War, core socio-political compromises and indicative planning led to the emergence of fairly
coherent socio-economic regimes, and a remarkable reduction of the three main sources of uncertainty was
achieved. With the subsequent deregulation of product and labour markets, the dynamism of nancial
p. 57 innovation, and the move towards globalization, nancial markets

p. 58
were charged with designing an alternative regime. Ever since, the price signals on nancial markets have
been progressively complemented by grand narratives that are supposed to synchronize the strategies of
heterogeneous actors. Narratives are now the key instruments available for top managers and governments.
But the downside of this strategy has been made painfully clear by the nancial crisis of 2007 and the
instability that followed.

Behind the major di erences between di erent eras, a common dynamic pattern is operating. The invention
of narratives as an ‘anti-uncertainty device’ makes possible a wave of investments that is initially
successful but nally hits the barrier associated with an unbalanced accumulation regime, a disjunction

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between the time frames of imaginaries and actual economic outcomes, and a failure of narratives to
capture key dynamics. In particular, a ‘structural crisis’ tends to take place when a common belief about the
direction of investment and innovation breaks down. Radical uncertainty then tends to return amid calls for
the invention of alternative narratives and economic institutions.

This chapter has described the existence of a two-way causality between a succession of key narratives and
various con gurations of capitalism. At the most basic level, narratives and socio-economic regimes co-
evolve alongside major social transformations. Across the unfolding of di erent historical eras, there are
signi cant regularities in the pattern of emergence, maturing, and crisis of socio-economic regimes, in
which narratives and expectation regimes play a crucial role.
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