Empty signifiers: the “financing” of the sustainability transformation as a political problem

– Ulrich Klüh and Richard Sturn

The current political situation in Germany is an impressive reminder that the ecological, geopolitical, socio-economic and digital crises of our time are above all also crises of “finance”: the traffic light coalition failed not least due to differing views on the financing of aid to Ukraine, climate policy and social policy. The election manifestos of some parties outdo each other in their proposals for tax relief, which the other parties believe are severely “underfinanced”. Olaf Scholz, the chancellor, is backing a “Germany fund”, the “investment turbo” and a relaxation of debt rules. The conservative candidate for chancellor, Friedrich Merz, wants to close the transformation’s funding gaps by strengthening the European Capital Markets Union and will be speaking at an event organized by asset manager BlackRock in Davos. The green candidate, Robert Habeck, wants to “finance” social security systems through levies on capital income.

But what does it actually mean to “finance” a transformation

When the term “finance” is used in common parlance, most people think of raising a sum of money to finance a major purchase or project. The funds come either from own savings, from the savings of others arranged via capital markets or from a loan granted by banks. In common parlance, “financing”, therefore, usually refers to a private-sector activity in the broadest sense.

For a long time, very similar ideas prevailed in the context of financing the transformation to a sustainable economy and society. The term “sustainable finance” stood for a view that placed great trust in market mechanisms and private-sector initiative. The idea was that if the state succeeded in establishing a sufficiently high price for climate-damaging emissions, the nimble but invisible hands of private financial markets would ensure that ecologically harmful businesses would be deprived of funds and promising green applications would be provided with funds.

Unfortunately, the promises made by private financial market players to raise the funds required for the transformation have proven to be empty words. This is shown, for example, by a look at the gap between the financial resources required for climate policy and those actually available (Buchner et al. 2024): Currently, only a fifth of the estimated requirements are being raised, of which only around half comes from private sources (Figure 1).

And this fifth of the necessary funds already represents a success compared to the very small amounts that prevailed until recently. This success could only be achieved with the help of elaborate government measures: The state not only set framework conditions, for example with regard to measurement and reporting. The state now assumes a considerable proportion of the risks and costs associated with the transformation:

• As in the case of the European Green Deal, it actively assumes a large part of the risks associated with investments in sustainability
• As in the case of Germany’s traffic light government, it is setting up transformation funds that serve not least to circumvent overly strict debt brakes
• As in the case of the Biden administration, it is launching billion-dollar funding programs that not only promote green growth but are also intended to counteract right-wing populist tendencies.

With this takeover, state and supranational actors have themselves made a promise: To promote the financing of the sustainability transformation in such a way that it ultimately succeeds.

Unfortunately, the promises made by governments and the European Commission have also proven to be empty words. Debt brakes enshrined in constitutional law cannot be ignored in the long term, nor can the institutional and democratic deficits of the European Union or the susceptibility of certain voter groups to the right-wing populist promises of climate deniers, who often represent the interests of the old, fossil-based economy. In addition, any “hybrid” financing solution, i.e. one that is located in the space between the private and public spheres, will also fail if sufficient public funds are not available.

Why have all promises to raise a certain amount of money to finance the transformation so far proved to be empty words? This question will be explored at a conference at the Protestant Academy in Tutzing, which will take place from March 10 to 12 under the title “Financial Policy for Transformation”.

The starting point of the conference is the thesis that it is not only the financing models of private and public actors that consist of empty words. Rather, the term “financing” itself is an “empty word”, a “slogan” without a defined meaning. As an open-ended “label”, the term can be interpreted in many ways and in very different ways, representing different beliefs and agendas. Philosophers such as Jacques Derrida and Ernesto Laclau speak of an “empty signifier” in this context. Based on this term, we can find some reasons why most promises to finance transformation have turned out to be “empty words”.

The first reason that can help explain the inadequate transformation financing to date is the equation of financial issues with issues of money procurement. It is of course not surprising that in a capitalist system, in which not everything but much revolves around money, the yawning emptiness of the string of signs is initially filled with money. Money, however, is an important but deceptive medium when it comes to financing. The most important economist of the twentieth century, John Maynard Keynes, already pointed out this problem:

“For some weeks at this hour you have enjoyed the day-dreams of planning. But what about the nightmare of finance? I am sure there have been many listeners who have been muttering: ‘That’s all very well, but how is it to be paid for?’ Let me begin by telling you how I tried to answer an eminent architect who pushed on one side all the grandiose plans to rebuild London with the phrase: ‘ Where’s the money to come from?’ ‘The money?’ I said. ‘But surely, Sir John, you don’t build houses with money? Do you mean that there won’t be enough bricks and mortar and steel and cement?'”

The “nightmare of financing” arises from the initially used but erroneous equation of the term “finance” with raising a sum of money. In reality, financing, and especially the financing of transformation, is about material issues: Can the metals from yachts be used to “finance” a suburban train? Can the rare earths for e-scooters in Sao Paulo be “saved” in the production of large e-cars in Munich? Will the excavators and excavator operators be “transferred” from the highway to the rapid transit line?

The second reason for the empty promises so far is that power issues are decisive when it comes to financing problems. However, who exercises power and how often remains hidden in current political discourse. The strategic use of “empty signifiers” plays a decisive role here. Ernesto Laclau has pointed out the connection between empty signifiers and power in a particularly impressive way. Power is exercised through the creation and constant transformation of such empty signifiers. The result is a dynamic interrelationship in which power is exercised through the ability to control and occupy indeterminate and flexible concepts in a specific political context. The history of the term “finance”, which is closely linked to the emergence of the social dominance of financial logics, actors and technologies, provides impressive evidence of this relationship.

The third reason for empty words is closely related to the second: Financing issues are always also distributional issues, especially in the socio-ecological transformation (Figure 2). This is because the consequences of climate change hit less well-financed people hard and wealthier people less hard. Conversely, people with good financial resources contribute disproportionately to the problems, while people with poor financial resources contribute little or not at all. Similarly, the opportunities to contribute to “financing” the climate transformation are also very unequally distributed. And these distributional aspects are just the beginning of a long series of similar problems.

The financial system is therefore the crystallization core of a hegemonic discourse that obscures questions of materiality, power and distribution. Instead, “God and the world” are brought into the sphere of market-based, at first glance “neutral” and “fair” valuations. This leads to a fetishization of the financial system, such as that which underlies the enthusiasm for tradable emission rights. Finally bringing climate protection into the orbit of financial market valuations becomes the agenda of a group of influential players striving for hegemony.

Contrary to this hegemonic discourse, it is important to understand “the financial” as a combination of three aspects: As an expression of power relations, conflict-laden distributional problems and as a medium of real economic resource reallocation – in the best case towards transformational processes of change. All three aspects are interwoven. The fact that resource reallocations (be it for the construction of a cycle path network, for sustainable energy production or for whatever else) have financial prerequisites ultimately indicates that they do not take place in a vacuum. They have preconditions and consequences in terms of power and distribution conflicts.

The analysis of financial arrangements for transformation is therefore of central importance: Firstly, it helps us to understand where we stand today with regard to transformation: That is, where which funding streams come from, where they go and to what extent – and who ultimately has the power to make decisions about them under the prevailing conditions, structures and criteria. Secondly, it is an introduction to a central question for the transformation: to what extent are the current political conditions, structures and criteria, as reflected in the private and public financial sector, suitable with regard to the transformation? And to what extent are they not? Thirdly, they are a basic prerequisite for a more honest debate on the economic policy decisions that are necessary for a transformation towards sustainability. What role do financial instruments such as wealth and capital taxes play, for example, which establish a direct link between distribution problems and ecology?

Such analyses and strategies could or should be clear to everyone who sees that business-as-usual will not work in the long term in the face of current challenges and is already being challenged in various ways on a daily basis. They could or should make sense to them regardless of whether, in what way and with what time horizon they are aiming for the “green” transformation as a post-capitalist transformation.