This document discusses the allocation of financial risks and social justice. It defines risks and examines how risks have become commodified and distributed in unequal ways through the financial system. Risks are now allocated through explicit mechanisms like insurance as well as implicit logic like bank bailouts. This has led to the emergence of a "financial risk society" and questions the classical justifications of capitalism. The document considers different perspectives on the relationship between risks, finance, and justice.

1. The allocation of financial
risks and social justice
Moral and political philosophy research seminar
Teppo Eskelinen

2. The puzzlement
• Financial crises with intuitively very unjust outcomes
• Seems to relate to ”financial risks”
• What are financial risks and how has their allocation become to determine
social positions so greatly?
• Lots of analysis on risks, very little on financial risks and justice

3. Defining risk
• Risks vs uncertainties (”fortuna”)
• Risks as (negative) commodities
• Risks as (discoursive) power

4. Is risk a market good (burden)?
• Analogy: what is the problem with unequal distribution of bread loafs?
• Answer 1: Nothing, because their unequal distribution only shows varying
preferences (rice to bread, for example)
• -> market = preference-based allocation
• Answer 2: The problem is the unequal distribution of money, which results
in unequal capacities to obtain bread

5. …continued
• -> Neither of the answers see the distribution of bread loafs as a problem
of justice in its own right (not problem at all / result of the problem)
• -> Is there something in the nature of risks why this analogy would not be
hold?
• Answer 1: To some extent, the analogy works. For example, I can choose to
buy or not to buy a medical insurance for my child. Not doing this, I accept
that she is not protected in the case of illness. I am fully aware of this
consequence and choose to use my money differently.

6. …continued
• Answer 2: Are protection from risks always obtainable by money?
• ->The difference: explicit and implicit logics
• Explicit logic: for example existing insurances etc
• Implicit logic: for example bail-outs of banks

7. Risk constructs: the farmer
• Problem 1: likelihood of crop being destroyed by a flood
• Problem 2: fluctuation or prices
• ->Hedging products. Farmer pays for protection from natural / market risk,
someone else assumes the risk for compensation

8. The farmer (2)
• Level 2: reselling the farmer’s risk on an open secondary market
• Level 3: securitizing the farmer’s risk
• Level 4: gambling on the farmer’s risk
• Level 5: systemic risks on society by gambling on the farmer’s risk (risk of
collapse and bail-out, investment by social security investment funds etc).

9. Risk constructs: The hierarchy
1: Insurance / minimum payment deal
• 2: Selling the risk on a secondary market (commodification)
• 3: Creating CDOs (gambling)
• 4: Creating complex risk structures (systemic risk)

10. Two notions of future
• Likelihood: Statistically, and other relevant issues considered, how likely is event X
(say, a flood)?
• Discipline: What level of risk exists, that A will not pay me the sum legally owed by
her?
• ->The notion of risk entails both a) anticipation of future events; b) enforcement
of a system of financial discipline
• ->Future events might be predicted falsely, but they belong to ”external reality”.
Financial discipline might fail collectively, and is always a political issue (i.e.
enforcing payments vs social rights).

11. Financial capitalism (1)
• Relative size of finance to production.
• Relative size to capital gains to salaries.
• Financial imperatives deciding production decisions.
• Financial imperatives disciplining government consumption.

12. Financial capitalism (2)
• The financial risk society.
• The birth of the speculative economy and its politics (bail-outs etc)
• 1 Increasing number of ”exceptional situations”, exceptions to explicit rules
(”financial crises”)
• 2 Increasingly hierarchial implicit risk allocations
• 3 Overturning the classical justification of capitalism

13. Perspectives on risk and justice (1)
• Standard market view
• Financial market as a platform / trading venue for risks
• Optimisation, free-willing buyers, no creation of risks
• Potential normative problems related to:
• 1 Malfunctioning of the market institutions (can accommodate a notion of
institutional fairness)
• 2 Misinformation, deception

14. Perspectives on risk and justice (2)
• Finance vs society
• Finance as an agent
• Creation of systemic risk
• Governments binded by the sheer size of finance
• Implicit risk distribution

15. Perspectives on risk and justice (3)
• Terms of participating in the financial market
• How are financial risks assumed?
• Emergence of private insurance, investment-based social security, etc.

16. Theory of justice
• Universal vs particular
• Marxist, communitarian etc critiques
• Accepting the critique (at least partially):
• 1 Theory of justice has to use concepts relevant to current society (today
financial capitalism)
• 2 Hierarchies seek new forms

17. Some conclusions
• To some extent, risk distribution is a separate ”sphere” of justice or a
distributive logic not reducable to money or traditional liberal concepts such
as ”rights” or ”resources” (or even ”capabilities”)
• Public service provision: how?
• Hierarchies: like class, but taking new forms (revolution of positions of
protection)