Financial literacy: What for?

Good morning. How can I confuse you?
Good morning. How can I cheat you?

In preparation for the 2015 Global Forum on Development, which will focus on how access to financing can contribute to inclusive social and economic development, the OECD Development Centre and the United Nations Capital Development Fund (UNCDF) have developed a series of articles exploring the key issues and dimensions of financial inclusion. Today’s post from Sarah Bel of the UNCDF Better Than Cash Alliance and James Eberlein of the OECD Development Centre highlights some of the overarching themes related to financial literacy.

Most of our problems are based on finances. Money is always an issue. I have to still provide for both my parents who are not working and make sure they are fed; I must pay their insurance policies because they no longer have the ability to pay them. I don’t earn enough money to afford all of that. A 35-year-old man from Lesotho, interviewed as part of the UNCDF Making Access Possible initiative

Have you ever tested your financial literacy? Read what follows and you’ll get a better sense of why this matters more than you may have thought.

Low-income consumers must make complex financial decisions even more frequently than middle or high-income consumers, given their smaller operating margins and their limited and irregular incomes. A forthcoming report by UNCDF on Lesotho and Swaziland shows that many workers forfeit up to 40% of their income because of burdensome loan repayments. Indebtedness in the informal consumer market is often an indicator not only of poverty, but also limited financial literacy.

Yet these problems are not limited to poor consumers or low-income countries. While households in advanced and emerging economies have gained increased access to a wide range of financial products, they seldom have the capacity to fully understand and master them. In response to the growing concerns about over-indebtedness, policymakers across the world are focusing on “predatory” lending, which takes advantage of financial illiteracy to push inappropriate loans to consumers who cannot repay them. Some common-sense reforms, like those implemented in France, now require lenders to include a disclaimer (“You are responsible for paying back a loan. Verify your ability to repay the loan before borrowing.”) Additionally, all marketing material must include plain-language explanations of the long-term cost of loans (interest rate, total amount due and the final cost of the credit). South Africa’s Broad-Based Black Economic Empowerment (BBBEE) legislation has specific regulations around financial education and consumer empowerment as stipulated under the Financial Sector Codes. The purpose of these types of regulations is to improve financial capability and increase financial inclusion. But while such reforms have helped improve the protection of financial consumers, they only address part of the problem.

Many people, in developed and developing countries alike, know little about basic financial concepts and do not engage in savvy financial behaviours. An OECD paper shows that in almost all of the 14 countries across 4 continents taking part in the study, at least half of the adult population failed to identify the impact of interest compounding on their savings, and revealed that fewer than one in five people would shop around when buying financial products.

Unfortunately, the picture isn’t any brighter when it comes to young consumers. The recently published OECD PISA financial literacy assessment revealed that around one in seven students in the 13 OECD countries and economies taking part in the assessment are unable to make simple decisions about everyday spending, and only one in ten can solve complex financial tasks. This result is astonishing and requires prompt action to ensure that tomorrow’s adults understand bank statements, the long-term costs of consumer credit and how insurance works, among other basic financial services and products. Indeed, improving the financial literacy of young people will help ensure that they can benefit from savings, retirement and healthcare coverage — much-needed safety nets in the absence of parents and/or social systems. And in case you wonder if you’re any better off than a 15-year-old when it comes to financial literacy, have a look at these sample questions.

To help governments design and implement policies to increase financial skills, including among young people, the OECD and its International Network on Financial Education (INFE) developed High-level Principles on National Strategies for Financial Education, which were endorsed by G20 leaders in 2012. They encourage countries to develop nationally co-ordinated frameworks for financial education policies and provide general guidance on the main elements of an efficient national financial education strategy, such as an effective mechanism to co-ordinate with civil society and the private sector.

Governments may involve financial service providers and other key stakeholders to build the financial capabilities of young people and adults through a variety of delivery channels. Rwanda’s national strategy, for instance, underlines the importance of using not only schools to deliver financial education, but also other innovative channels to reach vulnerable, out-of-school youth. Umutanguha Finance, one of the ten institutions supported by the UNCDF initiative YouthStart, empowers teenagers to deliver financial education on issues like savings to younger children. This peer-to-peer approach is particularly useful because young people tend to listen to their peers more than adults, and the participative approach helps foster youth as agents of change in their own communities.

Financial literacy programmes can play an important role in reducing economic inequalities as well as empowering citizens and decreasing information asymmetries between financial intermediaries and their customers. Public authorities have a responsibility to develop financial education policies and set up robust financial consumer protection frameworks to ensure that consumers are informed and understand the financial products available to them. Innovations such as electronic payments are tipping the economic scales in favour of those who have, for too long, been excluded from the system. But unless consumers are equipped to make sound decisions about use of financial services, no amount of innovation will bridge the gap.

Useful links

OECD work on inequality, inclusive growth, financial education and consumer policy

UNCDF Making Access Possible, YouthStart and Better than Cash Alliance initiatives and Pacific Financial Inclusion Programme

FinMark Trust Financial Education Toolkit

The growing pains of investment treaties

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Today’s post is from OECD Secretary-General Angel Gurría

International investment treaties are in the spotlight as articles in the Financial Times and The Economist last week show. An ad hoc investment arbitration tribunal recently awarded $50 billion to shareholders in Yukos. EU consultations on proposed investment provisions in the Transatlantic Trade and Investment Partnership (TTIP) with the United States generated a record 150,000 comments. There is intense public interest in treaty challenges to the regulation of tobacco marketing, nuclear power and health care.

Some 3000 investment treaties provide special rights for covered foreign investors to bring arbitration claims against governments. Principles of fair and equitable treatment included in many treaties are uncontroversial as general principles of good public governance. But the treaty procedures for interpreting and enforcing them in arbitration claims for damages are increasingly controversial.

A trickle of arbitration claims under these treaties has become a surging stream. Over 500 foreign investors have brought claims, mostly in the last few years. Investor claims regularly seek hundreds of millions or billions of dollars. High damages awards and high costs have attracted institutional investors who finance claims.

Providing investors with recourse against governments is valuable. Governments can and do expropriate investors or discriminate against them. Domestic judicial and administrative systems provide investors with one option for protecting themselves. The threat of international arbitration gives substantial additional leverage to foreign investors in their dealings with host governments, especially when domestic systems are weak.

At the same time, there is mounting criticism. Arbitration cases can involve challenges to the actions of national parliaments and supreme courts. As Chief Justice Roberts of the US Supreme Court wrote earlier this year, “by acquiescing to [investment] arbitration, a state permits private adjudicators to review its public policies and effectively annul the authoritative acts of its legislature, executive, and judiciary”. In a similar vein, Chief Justice French of the High Court of Australia recently noted that the judiciary in his country had not yet made any “collective input” to the design of investment arbitration and that it was time to start “catching up”. This broadening interest in the system will enrich the debate on the future of investment treaties.

Governments and business leaders are also seeking to reform treaties so as to ensure that they help attract investment, not litigation. Some major countries, such as South Africa, Indonesia and India, are terminating, reconsidering or updating what they perceive to be outdated treaties that excessively curtail their “policy space” and entail unacceptable legal risks. Germany opposes the inclusion of investment arbitration in TTIP. The B20 grouping of world business leaders recently called on the G20 to address investment treaties.

International organisations such as the OECD can help governments and others to shape the future of investment treaties. I propose the following agenda for joint action to reform and strengthen the investment treaty system.

Resolve investor claims in public. The frequently secretive nature of investment arbitration under many treaties heightens public concerns. The treaties of NAFTA countries and some other countries have instituted transparent procedures. But nearly 80% of investment treaties create procedures that fall well short of international standards for public sector transparency. This is a major weakness. In July, UNCITRAL (the United Nations Commission on International Trade Law) approved a multilateral convention on transparency. Governments can now easily make all investor claims public. Over a century ago, Lord Atkinson emphasised that a public trial is “the best security for the pure, impartial, and efficient administration of justice, the best means of winning for it public confidence and respect”. Governments – with the support of major investors — should rapidly take action to ensure that investment arbitration adopts high standards of transparency.

Boost public confidence in investment arbitration. Governments have borrowed the ad hoc commercial arbitration system for their investment treaties. But this borrowing is increasingly questioned. Sundaresh Menon, as Attorney-General of Singapore, has observed that “entrepreneurial” arbitrators are subject to troubling economic incentives when making decisions on investor state cases. Advanced domestic systems for settling disputes between investors and governments go to great lengths to avoid the appearance of economic interests influencing decisions. Investment arbitration needs to do the same.

Do not distort competition. The concept of national treatment is a core component of investment and trade agreements. It promotes valuable competition on a level playing field. Investment treaties should not turn this idea on its head, giving privileges to foreign companies that are not available to domestic companies. Governments should protect competition and domestic investment by, for example, ensuring that treaty standards of protection do not exceed those provided to investors under the domestic legal systems of advanced economies. Some case law interpretations of vague investment treaty provisions go beyond these standards, and are unrelated to protectionism, bias against foreign investors or expropriation. Governments that allow for such interpretations should either make public a persuasive policy rationale for these exceptional protections for only certain investors, or take action to preclude such interpretations of their treaties.

Eliminate incentives to create multi-tiered corporate structures. By allowing a wide range of claims by direct and indirect shareholders of a company injured by a government, most investment treaties encourage multi-tiered corporate structures. Each shareholder can be a potential claimant. Indeed, many treaties encourage even a domestic investor to create foreign subsidiaries – it can then claim treaty benefits as a “foreign” investor.

If complex structures were cost-free, perhaps it wouldn’t matter. But they aren’t. Complex structures increase the cost of insolvencies and mergers. They also interfere with the fight against bribery, tax fraud and money laundering because they can obscure the beneficial owner of the investment. Governments should promptly eliminate investment treaty incentives to create multi-tiered corporate structures.

We need international capital flows to support long-term growth through a better international allocation of saving and investment. But the investment treaty system needs to be reformed to ensure that the rights of citizens, governments, enterprises and investors are respected in a mutually beneficial way.

Useful links

OECD work on international investment

OECD work on international investment law

Legal principles applicable to joint government interpretation of investment treaties was one of the issues discussed at the March 2014 OECD Roundtable on Freedom of Investment

Changing minds

Mental Health DayTo mark WHO World Mental Health Day, today’s post is by Emily Hewett of the OECD Health Division

Across the OECD an estimated 20% of the working-age population suffer from mental ill-health, and the social and economic impacts of this burden of illness are huge, according to the OECD’s recent publication Making Mental Health Count. Together, the direct and indirect costs of mental ill-health can exceed 4% of GDP across the OECD, driven by expenditure on medical needs and social care costs, as well as higher rates of unemployment and more absences from work. According to OECD’s Sick on the Job report, people with severe mental illness are 6 to 7 times more likely to be unemployed, while those with a mild-to-moderate illness are 2 to 3 times more likely to be unemployed.

World Mental Health Day should also be a time to look beneath these striking statistics, and think about the millions of individuals living with mental ill-health across the OECD, and worldwide.

The reality of mental ill-health is often a grim one. Mild and moderate mental illnesses such as depression or anxiety are estimated to affect around 50% of people in their lifetime. For society and economies the costs are clearly significant, but for individuals the strain can be crippling. The heavy weight of depression and anxiety can stop individuals reaching their full potential in education or at work and put huge strain on relationships with loved ones. If untreated, individuals suffering from depression or anxiety can quickly find themselves out of work and dependant on sickness or disability benefits. Sick on the Job shows that after long periods of sickness absence, individuals find it harder and harder to return to work. Furthermore, the stigma around mental illness can lead people to hide their suffering, leaving them to struggle alone.

Individuals with severe mental illnesses, like bipolar disorder or schizophrenia, experience symptoms such as hallucinations and big swings in mood, which are hard to understand and tough to control. In too many instances, treatment is restricted to ‘what’s available’, rather than the care that best suits the individual’s needs or preferences. Individuals with severe mental illness also have poorer physical health, and higher rates of cardiovascular disease, diabetes and cancer. For health systems this means higher spending on services, and for individuals having a physical and a mental illness together can mean dying up to 20 years earlier than the average for people born around the same and in similar circumstances to them.

What, then, needs to be done?

The high social and economic costs of mental ill-health demand a more robust policy response. Individuals with mental ill-health should be offered care that is timely and appropriate for their needs, which puts them at the centre of care delivery, and makes treatment choice a reality. Sick on the Job stresses the importance of making employment a core desired outcome for mental health care and the need for employment services to address widespread mental health needs among jobseekers. With appropriate training, guidance and resources, the ability of teachers and managers to provide support with mental health problems can make a huge difference to individual wellbeing, and can be decisive in whether a student or worker stays in education or work or not.

The structure of mental health services, how they are set up, funded, and delivered to the individuals who need them, needs to be strengthened. Even as national pressures, costs and priorities bear down, OECD mental health systems need enough services, enough investment, enough evidence-based care, and enough cleverly designed service delivery to make patient-centred high quality care a reality for every individual that needs it.

Making mental health a policy priority would have significant and economic benefits, but most importantly it would enhance people’s lives. We can hope that by the next World Mental Health Day we are further along the road to societies where all individuals with mental health needs get the treatment, care and support that they need.

Useful links

OECD work on mental health systems

OECD mental health and work project

Depressing depression: mental illness at work OECD Insights

Work-life imbalance OECD Insights

Dementia: a modern killer OECD Observer

In my view: Development depends on realising the potential of taxation

Nigeria govtToday’s post from Ngozi Okonjo-Iweala, Co-ordinating Minister for the Economy and Minister of Finance, Nigeria, concludes a series of ‘In my view’ pieces written by prominent authors on issues covered in the Development Co-operation Report 2014: Mobilising resources for sustainable development. The Report is being launched today in London with the Overseas Development Institution, and you can watch the event by registering here.

Developing country governments would do well to strengthen their tax systems so they can mobilise the domestic resources they need to finance their own development. This is particularly true for African countries, where the recent trend of decreasing ODA shows no sign of reversing.

In developing countries in general, revenue administration is often hampered by weak organisational structures, low capacity of tax officials and a lack of modern, computerised, risk-management techniques. The value-added tax “gap” alone is estimated at around 50-60% in developing countries, compared with only 13% in developed countries. The International Monetary Fund (IMF) estimates that for many low-income countries, an increase in tax revenues of about 4% of GDP is attainable.

Since the 1990s, many African countries have made progress in improving their domestic tax capacities and receipts. Despite these improvements, however, there are still many revenue leaks that need to be plugged.

In Nigeria, we are making concerted efforts. Following the recent revision of our GDP to USD 510 billion, our tax-to-GDP ratio declined from 20% to about 12%, several points below the 15% tax-to-GDP threshold recommended by the IMF for satisfactory tax performance. Yet with our increasingly diversified economy, there is room to greatly improve our tax administration capacity and increase our tax revenues.

A recent diagnostic exercise to examine the bottlenecks in our tax collection processes revealed some interesting findings. For example, about 75% of our “registered” firms were not in the tax system! Moreover, about 65% of Nigeria’s registered taxpayers had not filed their tax returns over the past two years. With the support of external consultants, we are introducing remedial measures to improve tax performance and estimate that we can raise an additional USD 500 million in non-oil tax revenues in 2014.

The international community has an important role to play in supporting such efforts by developing countries, and evidence shows that this can yield impressive returns (see also Chapter 14). The OECD has found that every USD 1 of official development assistance (ODA) spent on building tax administrative capacity can generate as much as USD 1 650 in incremental tax revenues (Chapter 14). Yet to date, only limited funds have been targeted at improving tax institutions and tax policies.

To support the broader goal of mobilizing financing for the post-2015 development agenda, ODA can also be used in many other creative ways, for instance to leverage private financial resources (Chapter 11).

In my view, realising the full potential of domestic resource mobilisation in developing countries – and in Africa in particular – is central to discussions on financing the post-2015 development agenda. It will be particularly important to deploy a greater proportion of ODA in low-income countries to support their tax administration efforts. Realising this potential will require strong commitment and leadership from developing country policy makers, as well as the support of the international community.

Useful links

Find out more about the Development Co-operation Report 2014: Mobilising resources for sustainable development here and follow #DCR2014 for live coverage of the launch events on Twitter.

Development finance: hundreds of billions more available

DCR 2014Today sees the launch of the OECD Development Co-operation Report 2014: Mobilising Resources for Sustainable Development. In today’s post, Erik Solheim, Chair of the OECD Development Assistance Committee (DAC) argues that hundreds of billions more could potentially be mobilized for poverty alleviation and sustainable development over and above the $134 billion in development assistance donated last year.

The enormous development progress seen over the past 20 years has been unprecedented in human history. Extreme poverty has been halved and 600 million people were brought out of poverty in China alone. The mortality rate for children under age five has been almost halved, saving 17,000 children every day. Economic growth and better government policies explain much of the progress. But official development assistance (ODA) has also been a great success and contributed to global improvements. However, much more and better financing will be required to eradicate extreme poverty and promote green growth.

Official Development Assistance is increasing and has never been higher. The main donors in the OECD Development Assistance Committee increased development assistance by 6.1% last year, reaching an all-time high of 134.8 billion dollars. Additionally, emerging and increasingly important donors like China, Turkey and Arab nations provided around 15 billion dollars. On top of that, Development banks such as the World Bank and Asian and African Development Banks, granted 40 billion dollars in more market-based loans not considered development assistance.

The Bill & Melinda Gates Foundation and other private foundations provided around 30 billion for development, while organizations like the Red Cross and World Vision International raised more than 30 billion dollars from the public. Remittances sent home to their families by overseas workers added 350 billion dollars to the flow of finances into developing countries. Foreign direct investments, by far the largest source of external finances to developing countries, amounted to 600 billion dollars.

Together, this adds up to more than one thousand billion dollars of external financing for poverty reduction, schools, hospitals, infrastructure and jobs in developing countries.

Several additional thousands of billions of dollars could potentially be made available for poverty eradication and green growth, and development assistance can help unlock these resources. Domestic resources such as taxes are the most important source of financing for developing, even in many of the poorest countries. For example, more than 1300 billion dollars is spent on education in developing countries every year but only 15 billion of this comes from development assistance.

Yet, while OECD countries collect on average 34% of their gross domestic product as tax, developing countries achieve only half this rate. The combined GDP of the developing world is over 30,000 billion dollars and adding a mere 1% increase in tax mobilization in the developing world could add 300 billion dollars for public services, schools and hospitals. The OECD has rolled out two programmes – Tax for Development and Tax Inspectors without Borders – to improve tax revenue generation. A pilot project assisting Kenya’s tax administration returned an incredible 1650 dollars in taxes for every dollar invested.

About 5000 billion dollars annually will be required for infrastructure investment to green our economies and support a future population of 9 billion people. The private sector will need to finance most of the required investments in roads, railroads, sustainable agriculture and green energy infrastructure. But development assistance can help mobilize such private investments.

Using financial instruments such as public guarantees, development assistance can help alleviate some of the risks associated with investing in developing countries and mobilize more private finances. New and innovative financing mechanisms like social impact bonds only mobilise 2 billion dollars out of the more than 600 billion dollars that the UN estimates potentially could be mobilized. Institutional investors such as pension funds and sovereign wealth funds are sitting on a staggering 83,000 billion dollars in assets in OECD countries alone. But their investments in infrastructure only represent around 1% of those 83,000 billion.

Encouraging leadership, improving the regulatory environment and using development assistance to alleviate risk would make it easier for institutional investors to finance roads and green energy generation in developing countries. An extraordinary 830 billion dollars would be mobilized for infrastructure investments in developing countries just by directing an additional 1% of our wealth and pension funds to this purpose.

Billions could be mobilized for global development by turning bad investments into good investments. Developing countries lose more to illicit capital outflows such as corruption, money laundering and tax evasion than they receive as inflows from aid and private investments. Poor countries are losing as much as one thousand billion dollars a year to illicit capital flows. These billions are invested in crime and lavish lifestyles rather than schools and hospitals. Illicit flows can be stopped by sharing information and streamlining regulations while prosecuting and jailing financial criminals in developed and developing countries alike.

Global development would improve if we directed more investments from public bads to global public goods. The 544 billion dollars spent on fossil fuel subsidies would do more good if invested in green energy. Any portion of the 1700 billions of defence expenditures would provide security and save lives if directed to peace instead of war. Better rules facilitating global trade could benefit everyone and raise global output by more than 400 billion.

Development assistance has been a huge success. But more and better financing for development is needed to eradicate poverty and support green growth. Traditional and emerging providers of development assistance must work with private investors and developing partners to mobilize more private investments and domestic resources.

Useful links

Find out more about the Development Co-operation Report 2014: Mobilising resources for sustainable development here and follow #DCR2014 for live coverage of the launch events on Twitter.

The right kind of green growth

Green growth indicators 2014It’s the kind of scene travel agents love. A quiet beach where the only sound is the lapping of the waves. Then, the beat of a horse’s hooves, slowly becoming louder. A rider gallops into view, reining in his mount. But then, the horse drops dead and the rider is saved by chance because a worker sees him and manages to drag him to safety in time. The killer is a thick green slime bubbling on the sands. We’re not in some 1950s sci-fi movie. This really happened in Brittany, France, in August 2009.

The horseman, Vincent Petit, is a vet, and he had a toxicology lab carry out some tests. The cause of the horse’s death was probably intoxication by hydrogen sulphide escaping from rotting algae. When these plants wash up on land, a white crust forms and traps the gases. The putrefying algae eventually turn the sand into black sludge, sometimes over a metre deep, containing pockets of poison gas. Vincent Petit’s horse broke the crust trapping these gases.

An official report confirmed the part played by the poisonous gases, and says that the solution is to collect the algae. Some Breton towns spend over 100,000 euros a year clearing away the slime. For environmental groups, the problem should be eliminated, not managed. They argue that the upsurge in recent years is due to nutrients washed off farms into rivers and then into the sea, causing the algae to proliferate.

In any case, that’s not what the OECD means when it says it wants to encourage green growth. Writing in OECD Green Growth Indicators 2014, Rintaro Tamaki, the Organisation’s Deputy Secretary-General, explains that it is about “fostering economic growth and development while ensuring that natural assets continue to provide the resources and environmental services on which well-being relies.” So how are we doing?

It’s a mixed picture. Global CO2 emissions are growing, but OECD countries are “decoupling” emissions from growth, meaning either that emissions are actually declining (absolute decoupling) in a third of the countries, or that GDP is growing at a faster rate than emissions (relative decoupling). OECD countries don’t do so well if you look at final demand though. Some of the reductions are due importing goods with a high carbon footprint rather than making them in the country.

Energy productivity is improving too (the amount of energy needed to produce a given unit of output), but a person living in an OECD economy still uses 78% more energy on average than someone in an emerging economy. Moreover, 80% of our energy still comes from fossil fuels and low-carbon energy technologies haven’t progressed much – an average unit of energy produced today pollutes just as much as 20 years ago. And OECD countries are still subsidising fossil fuels to the tune of $50-90 billion a year, with developing countries giving half a trillion more. Air pollution now kills twice as many people as HIV/AIDS according to an OECD report, The Cost of Air Pollution: Health Impacts of Road Transport.

Global resource extraction is rising, and a lot of these resources are thrown away. In OECD countries each person generates over half a tonne (530 kg) of municipal waste a year on average, which is 30 kg less than in 2000 but 30 kg more than in 1990.

The overall pressure on natural resources remains high and Green Growth Indicators reveals a series of worrying trends. “Biodiversity rich areas are declining and many ecosystems are being degraded. Many animal and plant species are endangered; one third of the world’s fish stocks are overexploited, and many forests are threatened by degradation, fragmentation and conversion to other land types. Pressures on water resources remain high; in some cases local water scarcity may constrain economic activity.”

There are some glimmers of hope. Environmental goods and services are becoming more important for the economy and government policies are starting to support a transition to green growth, for example through environmental taxes or reducing subsidies to environmentally harmful farming activities. International finance is starting to explore the potential of green growth through green bonds, while export credit agencies are facilitating private investment in projects that undergo an environmental impact assessment.

Overall though, the impression I got from reading the report was, to misquote a favourite OECD conclusion, that not much has been done and much remains to be done. On the other hand, last July a French court did say the state was to blame for the green algae since it wasn’t diligent enough in applying national and European norms on agricultural runoff. It awarded Vincent Petit 2000 euros for his horse and about the same for his lawyer, although they did say it was his own fault for going near that beach in the first place.

Useful links

As part of its Green Growth Strategy, the OECD is developing a set of indicators for agriculture. A Preliminary Assessment has just been published, and a selection of indicators has been identified to capture key aspects of a low-carbon, resource-efficient agricultural sector. You can read the report below.

Castoriadis: Democracy’s advocate

Catoriadis Une vieCornelius Castoriadis was an economist at the OECD and its precursor, the Organisation for European Economic Cooperation (OEEC), but he was also one of the 20th century’s leading thinkers on society and politics. We asked François Dosse, author of a newly-published biography, to discuss Castoriadis’ thinking on democracy, a theme we’ll be coming back to.

Castoriadis was highly critical of modern-day Greece, but he considered that the Ancient Greeks had created something totally new that we should think about to shake off the torpor he diagnosed in our times. In the fifth century before the current era, Greece created political democracy, with the emergence of the city, the polis, with its community of citizens and institutions whose only foundation was that which they wished to grant it. That said, Castoriadis didn’t argue that this historical experience should be treated as a model. Rather, we should seize it as a fertile seed to create a true democracy.

To support his argument, Castoriadis had to break with the long-standing “continuist” vision. This sees Ancient Greece as a sketch of future Western democracy at a time when the individual didn’t yet exist. This would mean that Greece was the cradle of democracy, but modern democracy went much further in the flourishing of democratic values. This view was summed up in 1890 by the historian Ernest Lavisse: “our history starts with the Greeks”.

Castoriadis on the other hand based his position on the change in Ancient Greek historiography in the 1960s that looked afresh at the subject to rediscover the uniqueness of the Greeks and the exceptional nature of the Greek imagination at the time. According to Castoriadis, the polis that is born in the eighth to fifth centuries BCE is a radical invention that cannot be explained away by some causal system. The feeling of belonging to a common space and its translation into political terms cannot be reduced to a simple desire for territorialisation, since Themistocles said he was ready to found Athens again elsewhere. Castoriadis rejects all the explanations based on a single cause, for example that these cities were born because of the hoplite revolution or the demographic crisis.

The main reason for this invention is to be found in the political imagination of an autonomous community that in this way constituted itself on the basis of a voluntary collective act and rejected all forms of heteronomy. The people (Demos) proclaims its sovereignty (Autodikos) as well as political equality (Isonomia), creating an institution, the people’s assembly (Ecclesia) and proclaims the rules of a society that fully assumes its autonomy, with no transcendental foundation. These Ancient Greeks created a direct democracy for the first time in human history. Castoriadis insisted on the fact that a truly democratic regime is defined in opposition to any form of the delegation of power or representation, that do however characterise modern democracy, which is nothing more than an oligarchy according to him.

In Ancient Greece, politics was not considered as a specialisation reserved for a particular social category trained to exercise authority, as opposed to activities linked to a techne. Politics is everybody’s business and cannot be confiscated by a caste of wise experts. And to the extent that politics is everybody’s business, practical wisdom (Phronesis) is the responsibility of the whole community of citizens.

The other facet of autonomy realised by the Ancient Greeks is existential, and concerns the relationship with the meaning of existence. Another singularity of this Ancient Greece that Castoriadis links to the political dimension, is that there is no revealed religion from Homer’s era already, no promise of eternal life, of individual salvation after death, since the Greek religion offers no horizon of hope. Everything therefore is self-centred on Earthly experience and hope. As Castoriadis says, “What makes Greece is not measure and harmony, nor an evidence of truth as revelation. What makes Greece is the question of non-meaning and non-being.” According to Castoriadis, this sentiment of the absurd, of the certainty of finitude, engenders a reaction that nourishes an imagination founded on rationality, the law, the cosmos.

This democratic deepening is only possible if society conquers more autonomy, a major theme of Castoriadis. It is on the horizon of all his thinking as an objective to draw ever nearer to. It has to be understood in a double sense. It is the conquest of an individual capable of giving the full force of his being (what Spinoza calls the Conatus and Ricoeur names “capability”). In this sense, Castoriadis considered psychoanalysis of great help in reconciling a desire to be and what is done, a personal realisation. But autonomy is first and foremost the fact that a society should strive consciously for its self-determination, give itself limits and rules that can be controlled and revised at any moment by the citizens.

The theme of autonomy expresses the conviction that a human society can be self-governing, both politically and as concerns the economy, deciding what it considers to be good, giving a sense to collective action. From this point of view, Castoriadis defends a radically atheist position, rejecting any form of transcendence, and all heteronomy according to which society would have rules external to itself (although this didn’t stop him dialoguing with Christian intellectuals). His vision appeals to human responsibility because an autonomous society is one that is fully responsible for itself and its orientations. Human freedom lies on the horizon of autonomy. This harks back to what Thucydides meant when he said you have to choose: “rest or be free”.

To me, what seems fundamental is that Castoriadis’ thinking, which is never a system even if it is a very coherent whole, is a work opening on our future that gives us some keys to thinking about the 21st century. He did in fact feel early on the changeover in how we think about history, what we can call “presentism”, and the crisis provoked by the collapse of one of the three terms that time is composed of, the future – the future that foundered in the tragic 20th century. It’s up to our era, at the outset of the 21st century, to rethink a project of the future that isn’t dreadful, to react against barbarous temptations. Castoriadis invites us to revisit our past, not as a museum or tourist attraction, but to reinforce the determination of what Koselleck calls our “horizon of expectation” and he called our “socio-historical imagination”.

Useful links

Castoriadis: l’avocat de la démocratie. François Dosse (The original French text of François Dosse’s article)

Openness and Transparency – Pillars for Democracy, Trust and Progress Speech by OECD Secretary-General Angel Gurría at the launch of the Open Government Partnership

Democracy: What future? OECD Observer article by Patrick Love

Institutional (in)competence in 21st century politics was one of the discussions at the 2014 OECD Forum