Risk and fraudulent mutuality
Thirty years ago, having just successfully completed a international congress on environmental consciousness and mass media which I had organized on behalf of the Deutsche Hygiene-Museum, Dresden, a legacy of an early German pharmaceutical magnate, the inventor of the mouthwash Odol; I was asked to prepare the framework for a subsequent congress on risk and health for the same institution. Although the actual event was then assigned to a new employee and my contract not extended, I had already engaged in considerable research on the topic of risk and the underlying issue of the planned congress and its management. I no longer hesitate to say that the very factors which led to a successful and well-attended first event were conspicuously absent from the far more modest result of the second, namely conceptual breadth and theoretical foundation. One of the virtues of studied superficiality can be the readiness to see relationships or connections of even the most trivial kind. We live in a necessarily incoherent world but nonetheless in a unified field. By that I mean that there is no place outside of culture which we can assume in order to examine or intervene in human behaviour. As a result, the question is not if any particular aspect of our culture is imposed on human conduct but how the phenomenon we attempt to explain can be related to any of the thousand layers of culture in which humans have waded since birth.
Rather than attempting here to provide a comprehensive understanding of risk, I will explain the way I began to design the congress. This design was not accepted either because the principal—the museum—did not understand it or did not approve it or perhaps me. In any event the serving director died not long ago and can no longer be asked for an opinion. Another reason why my proposal was not accepted—I say that because there was no explicit rejection, my contract was simply not renewed—is the compulsion in any institution to reproduce all questions and solution ranges in terms defined by the institution itself. In fact “institution” can be understood as a set of problem-solution pairs (or ranges) which control/limit the behaviour of those people organized by it. This is the kind of truism that scholars like the late German sociologist Niklas Luhmann pronounced with great profundity—yet without drawing many useful conclusions. An academic event has to have certain conventional forms and rituals in order for it to be treated seriously or at least recognized as such. A museum—even one as peculiar as the German Hygiene Museum—has to present exhibitions of artefacts or collections. These two institutional habits are far more restrictive than a layperson may imagine.
Before discussing my preparation and plan it may help to explain the Deutsche Hygiene Museum. Founded in 1911 in connection with the International Hygiene Exhibition, organized and funded by August Lingner—the Odol magnate—the museum became a repository for the remainder of that event. Today a huge restored building in 1930s quasi-Bauhaus style stands at the head of Dresden’s great park, the site of the 1911 exhibition. The idea of a “hygiene” museum strikes most visitors to Saxony’s capital as strange, to say the least. Yet it must be seen in the context of the founding era. The turn of the 19th into the 20th century—as perhaps all transformative periods—was viewed both optimistically and pessimistically by contemporaries. The pessimists began to see what would come in 1914. The optimists saw the accumulation of human progress. Roughly at the same time three museums were created in Germany, each devoted to some element of human progress. The science and technology museum was inaugurated in Munich. Another museum was founded in the Ruhr region dedicated to industry and commerce. August Lingner’s hygiene museum was dedicated to the achievements in human health and physical well-being. (It was a museum dedicated to care for the body and healthy living conditions and not vaccinations.) The Ruhr museum was destroyed during the Second World War. The Munich museum survived. The Dresden museum, which had focussed on “race hygiene” during the NSDAP era, was burned out by the Anglo-American fire bombing of the city but the concrete shell remained. During the GDR era, the museum became an agency of the national health ministry and served as a health education centre and manufacture for teaching materials to serve the healthcare and medical profession. Its most famous product was the “glass man”, a statue-like figure by which all the vital elements of the human body were displayed in a glass or plexi-glass shell. The glass man (gläserne Mensch) was exported worldwide for use in medical and human biology education. Similar models of other living things were produced to meet the demand for teaching materials in schools and universities.
After the annexation of the German Democratic Republic the museum was reassigned to the Saxony health ministry. Like in much of the former GDR, well-paid managers and technicians were seconded or hired by state governments in the hands of the BRD politicians, in Saxony’s case the legacy CDU functionary and former premier of Baden-Württemburg, Kurt Biedenkopf. The reorganization of the DH-M from a state agency into a public foundation (following the neo-liberal public-private partnership model) was in the planning. This required “Western” management and operational models. Hence the new management was intent on following the Anglo-American museum business approach, enhanced entertainment and commercial opportunities. It was in the context of this transition that I was accidentally engaged to create the first congress on environmental consciousness and mass media in the early 1990s. I had been organizing academic conferences since the early 80s as well as working in the foundation of a new museum in New York City, I already had experience in the various processes for museum and event management in the PPP framework, a largely Anglo-American concept. The virtue of this concept is not at issue here.
With this experience my strategy was two-pronged. First, I wanted to establish a fundamental discussion of risk that would be broad enough to include both theory and praxis. Second, the event was to be shaped to permit as much “action” as possible, so that the discussion could extend beyond academic debate.
The idea of risk in the healthcare and medical context that had shaped the DH-M as an institution was quite simple and narrow. Human health was at risk because of environmental exposure and human ignorance or negligence. In other words people get sick because of some external toxicity, i.e. physical, chemical or biological, or because of some unhealthy behaviour, e.g. addictions, bad diet, inadequate exercise, etc. The risk of exposure to externalities can be controlled or limited by regulations and prohibitions. For instance, industrial toxins can be regulated by safety measures or forbidden entirely. Unhealthy behaviour can be treated by education and sanctions. However the decision as to what constitutes a risk to human health and what measures are appropriate to handle such risks can be viewed from very different and conflicting perspectives.
Hence the focus of risk debate is not on identifying and eliminating risks. Instead, principal attention is given to risk perception. The world is seen as full of risks, another way of saying that it is full of uncertainty and only relatively predictable. Relative predictability means that anticipating consequences is imperfect and therefore the relationship between any phenomenon and its risks to humans is incomplete—in fact tenuous. The branches of mathematics devoted to probability offer a variety of models for controlling the decisions about risk by turning measured factors into numbers that can be manipulated according to those mathematical rules. The subsequent probabilities are then used to define risks in terms of incident prediction statistics that in turn are monetized for those who decide based on such numbers what costs or benefits are reasonable. That is essentially what actuaries do, the professional number-crunchers of the insurance industry. There are also similar professionals employed to advise gambling casinos, brokerage houses, banks, and the military-industrial-pharmaceuticals cartel.
For the healthcare industry and its partners in crime, the insurance industry, the question of risk is ultimately just as monetary as for the gambling casinos. The premium flow upstream must continue to exceed the treatment or compensation flow downstream. Risk is therefore not an issue of substantive danger to human health and safety but the tolerance of injury in proportion to compensation claim. Since the healthcare industry is funded by the insurance industry—whether exclusively state-owned, corporate or mixed—there is a confluence of interest. While there are some conflicts such as the healthcare industry’s need for sick and injured as opposed to the insurance industry’s need for minimum payouts, the common risk culture which the health insurance model has produced—reinforced by a sympathetically adjusted legal system—permits a fairly balanced relationship. This is especially true for those market participants owned by the same beneficiaries. In fact with the absorption of nearly all industries by the financial sector there is scarcely a single economic activity that is not governed by the risk model underlying the insurance industry.
This realization led me to conceive the risk congress not as an academic forum for scholars to debate their scientific research about the nature of risk and its measurement. I was also less interested in those who studied the dangers of technology or industrial manufacturing processes and products. I had read work of the leading experts on risk at the time. Those I invited to talk at the congress generally refused. The most frequent reason given was that they had finished the work and talked about it until they had nothing new to add. I spent some considerable time and effort in conversation with representatives of the world’s largest reinsurers. Then I decided to look at the history of insurance itself. This led me to the oldest established insurance market, Lloyd’s of London.
Great Britain, in particular London and even more particularly the “Square Mile”—as the City of London is also known—became the centre of the world’s largest extant empire since the end of the Second World War known as the Commonweath of Nations. The success of this empire, which triumphed over Portugal, Spain, France and the Netherlands while squelching Germany, is remarkable given the small size of its population and their relative poverty. Although other monarchies expanded beyond the western Eurasian peninsula before Britain, the British Empire adopted and refined tools developed by its predecessors and concentrated their control in a small body of institutions, one of these was the Stock Exchange, another the East India Company, the precursor to today’s multinational public-private partnership corporation and then there was the Lloyd’s insurance market.
Lloyd’s started when coffee was still a luxury beverage. It was a coffee house located in the City. Instead of merchant-adventurers meeting to quaff martini cocktails, qualm with Cuban cigars and thousand dollar champagnes, they met in Lloyd’s for hot beverages, gossip and gambling. England emerged as a maritime power based on the ruthlessness of its pirate (privateer) fleet with commanders like Francis Drake. With time the pirate fleet would be divided into the merchant fleet and the Royal Navy. Shipping and seaborne piracy were subject to two principal risks, weather and war. Hence the merchant-adventurers, in Lloyd’s language “names”, began to gamble with the value of cargo, vessels and maritime value-added chain. This was not science or even Science. Instead it was a house full of gossipers and gamblers negotiating wagers based on reports about weather and world events. Insurance was a bet on whether losses would occur and if and how to cover them. In the course of establishment, booths became desks occupied by specialists in the wide range of commerce and the risks of loss specific to business involved. Although property (e.g. fire) risk and other terrestrial hazards also found cover, at Lloyd’s insurers retained their lead as the world’s largest maritime insurance market. Its members were thus capable of collectively harnessing the wealth of the British Empire to cover risks to shipping around the globe. This was not only possible because of the enormous financial resources the Lloyd’s brokers could muster. It was also because of the enormous state subsidy in the form of the Royal Navy. The nationalized British pirate fleet of Sir Francis and his successors was a guarantor for the safety and profitability of shipping flagged with the Union Jack. Lloyd’s had the implicit backing of the Royal Navy and the British State which also allowed the market to underbid any other maritime insurers and indirectly impair the competitiveness of other nations’ merchant fleets.
The ability to define risk and monetize that definition through legal, political, and military means made Lloyd’s and its insurance business model very lucrative for investors, also drawing foreign capital into the City and away from other assets.
The mercantile insurers consciously applied all these advantages and the capacity to manipulate insurers (names) and insured by means of information differentials or asymmetries. Consumer insurers developed a parallel yet distinct approach. In the scholarship this is called “risk perception”. Health insurers and property insurers work to raise the perception of loss probability to induce constantly intimidated consumers to pay premiums for policies to cover every conceivable fear. At the same time they support their shareholders by minimizing or otherwise modifying the perception of industrial or commercial hazards that could result in claims. For example, numerous studies promoted by the insurance industry argued that the chances of a critical accident with toxic or other destructive effects by heavy industry (including atomic power) and the consumer goods sector (including automobiles) are far lower than those to which humans voluntarily expose themselves. Hence fears of industrial accidents causing environmental or bodily harm or product negligence are deemed exaggerated by the public. While those of driving fast, so-called extreme sports, and ordinary diet are presented as risks to be borne entirely by those who engage in them. In other words, the risk that a legally mandated industrial injection could cause grievous bodily harm is exaggerated by the public since it could only affect individuals and therefore need not be treated as a serious threat. At the same time, health damage caused by voluntary consumption of a product (the entire contents of which are partially concealed by intellectual or industrial property rights) is considered a major unacceptable risk for the insurer. Another argument frequently presented states that the real risk, i.e. the probability of an incident, consistently deviates from the perceived risk. The conclusion drawn by the insurance industry and the underlying finance capital culture governing it is that risk is entirely a question of successful manipulation of risk perception and not an issue of sharing costs. Moreover by purchasing the legislation needed to exclude financially ruinous risks from cover (e.g. atomic power stations) or grossly negligent profit seeking (biological weapons dressed as experimental vaccines), the insurer and his class can exclude whole categories of intentional and negligent harm from any kind of liability whatsoever.
The official ideology of insurance describes the wager as a means of distributing the costs of large risks, by any definition, among the largest conceivable number of parties so that the cost of an incident need not be borne entirely by any one member. The social value implied is mutuality. This mutuality is exemplified in the early fire insurance companies. The mission of the mutual company was logical. In a densely populated city one ought to extinguish a burning house not just to save the owner but to prevent the fire from spreading to other owners, burning down entire neighbourhoods or towns. To this end premiums supported fire extinguishing brigades. Competition between these proved to be hazardous. Hence the fire brigades become public sector functions, like with the Royal Navy, the State became a guarantor for the fire insurers too. The principle of mutuality meant shared payments and shared risks. However there was little profit in mutuality alone.
The insurance industry, like the stock exchange and the multinational corporation, promotes the myth of mutuality because it is far more attractive than the underlying piracy and gambling scheme upon which it is based. This propaganda comprises two elements. First there is the appeal to selfishness. The insured wants to minimize the losses from any risk incidents and contribute as little to those costs as possible. At the same time the insurer wants to avoid liability for any incident and sacrifice as little income (invested premium payments) as possible. Then there is the appeal to mutuality, the insurance model is presented as benevolent implementation of “solidarity”. The insurer (and those who pay premiums) collect money (and invest it for a return) so that the community as a whole shares the risks and thus makes them more manageable for all. So when the industry opposes mandatory coverage (unless it also increases premium income) of some risk it will reply that is unreasonable to burden the community (its investors) with the cost of losses for which it is not responsible. When it wants to increase premiums or reduce cover it will present the risks as so substantial that they require more reserves to satisfy claims. Both propaganda strategies rely on confusing the citizenry as to who is the community and who is the actual rather that supposed beneficiary of mutuality. Finance capitalism relies on the illusion that every person contributing to (upward) cash flow is at least potentially an equal beneficiary of that income extraction. Insurance operates like all the other parasitic elements of finance capital. Like all parasites it must persuade the host to feed it. The chimeric character of finance capital (and the cult that controls it) leads the host—the ordinary population—to identify the strong and unobstructed upward flow of cash from individuals into the coffers of insurers or other financial institutions as not only a sign of economic strength but of social vitality. The power of those who chair the world’s largest hedge funds and their brethren is treated as scientifically inevitable. They are the “risk bearers”, the demigods of mutuality who assure that our human society is protected. Their skills in understanding human and natural risks and managing them endears a Fink and a Soros and others of their kind, permitting them the pedigree of “philanthropists”.
However, the insurance industry is not really based on some extraordinary oracular talents combined with professional accounting skills. The insurance industry is the “suit and tie” version of a business model much older, although today it is consigned to the parallel economy. The insurance protection business derives not from mutuality with which it decorates itself but from extortion. In fact, even the earliest incidents of fire brigade insurance included partnership with arsonists. Paying a premium would keep certain arsonists away or grant protection if competing arsonists added to accidental fires (although there were certainly enough urban fire risks too.) The collectivization of the private fire brigades was also an attempt to limit the extortion model and protect the inhabitants and property owners from natural and criminally-induced losses. When Bismarck introduced the first national pension scheme in Prussia the insurance model adopted was based on the entirely reasonable expectation that a substantial amount of the mandatory employee contributions would never have to be paid as retirement benefit. Workers would die before they became eligible. As lifespans increased so did the amounts deducted from wage packets. Civil servants pensions were funded, like their salaries, from taxation. However, the rest of the workforce had to pay wage taxes, matched in part by employer contributions (disproportionately levied on the SME sector to reduce its competitiveness with emerging cartels). At least for the ordinary worker the pension and health insurance system was a pyramid scheme, a state-sponsored scheme but a ponzi scheme nonetheless. What made it attractive to ordinary workers was its appearance of mutuality. That appearance was crucial to the anti-socialist legislation of which it was a part. It was attractive to Germany’s merchant-adventurer and industrial class because it constituted forced savings and hence cheap capital to be used by the State to fund infrastructure for which private enterprise could not or would not pay.
Needless to say, this model was a propaganda success. Even today Germans swear by their system, despite its near destruction through the neo-liberal “health reform” initiated under Chancellor Helmut Kohl. Compared to the US, the German system is nearly divine (although since 2020 the alliance between god above and devil below has become clearer than ever). The gradual dismantling of the German public health insurance/healthcare system was promoted by attacking mutuality. The individual premium-paying insured was bombarded with messages that he should see himself as the bearer of other people’s unreasonable risks or outright fraud. He was to see the reduction in cover and increase in fees as measures to protect his personal interest in avoiding anyone’s risk but his own. He was told that the price of compensating incidents, whether in terms of healthcare interventions or monetary restitution, was hurting him as the insured. At no time was he ever advised who sets the prices for those interventions, e.g., pharmaceuticals or hospital fees. Nor was he ever informed of the particular sources and causes of those injuries which the system was allegedly not designed. Finally, he was deceived about the resulting contraction of the contribution base with the result that the very risk spread and diversification that a large pool of insured offers disappeared leaving that selfish insured with higher premiums and less cover each year. In the mid-1990s, the mouthpieces for the Establishment in Germany blamed these burdens on an aging population, without admitting that this was Bismarck’s legacy. On one talkshow amidst repetition of this boilerplate, a former advisor to late Chancellor Willy Brandt intervened to say that actuarial errors were utterly irrelevant. He said loud and clear that the aging statistics were consistent with continued pension system funding. However, the funding model was based on the Federal Republic of Germany prior to annexation of the GDR and absorption of 16 million citizens whose pension and healthcare were funded under a completely different model and for whom the FRG pension/healthcare schemes had made no allowance whatsoever. The logic of this expertise was so compelling that the man was ignored for the remainder of the broadcast. No one dared to contradict it so burying it in silence was the only option.
This essay began explaining how I came to research the discussion about risk and insurance although my remit was merely to deal with risk and health. Not only did I drift into the history of insurance, especially Lloyd’s of London, my eclectic reading led me into another field, financial derivatives. At the time the market leader in the financial derivatives sector was the defunct Bankers Trust company in Boston (USA). I had read a lot in journals like The Economist about derivatives as risk management tools. These products were offered as universal instruments for dealing with all manner of risks and “hedging” against the potential financial losses. I attempted to find someone from Bankers Trust or a similar company to attend the planned congress and talk about risk and derivative financial instruments. At the time the scope and nature of the new generation of financial derivatives was far from being common knowledge. Traditional hedging is familiar to most people. It takes the form of buying supplies when they are cheap to avoid high prices due to scarcity or sudden demand increases. Even ordinary travellers following exchange rates know the value of changing money when one’s home currency is stronger than the currency one plans to visit. This simple logic made the idea of derivative risk management appear as merely a scale-up of conventional hedging. However, even the 2008 collapse in derivative markets with its international economic consequences has had little pedagogical value.
Despite warnings from a wide variety of analysts and critics about the enormous dangers latent in the global derivatives market, efforts to breach the propaganda wall that protects parasitic finance capital, with the narcotic of pseudo-mutuality from human hosts, continue to be modest and on the whole ineffectual. For example, when the so-called “subprime mortgage” derivative market (so-called mortgage-backed securities or collateralized debt obligations) failed, this was seen as irresponsible or reckless investment in low-quality debtors (home-buyers with little or no income stability in relation to the payment rates due on the mortgage bonds). This was encouraged by deceitful intermediaries who packaged non-performing debts together with positive cashflow to create the illusion of an overall performing debt instrument. The injured parties were the investors who had bought these overpriced or diluted securities. These so-called “toxic” investment products were heavily marketed to the largely corrupt asset managers for public sector and labor union trust and investment funds. Thus, when they collapsed not only were the homeowners defrauded but the quasi-private and state employee pension funds whose portfolios were loaded like lead with these securities. The fault was ultimately settled on the undeserving home buyers who were not entitled to reasonable financing for home purchases (due to externalities, of course). The homes were seized based on foreclosures for default and the properties bunkered to protect the real estate market from a flood of compulsory auctions. The infamous bailout organized by the leading derivatives house at the time, Goldman Sachs, was engineered in personal union of former partner-managers holding offices of trust in the US Government and the private central bank known as the US Federal Reserve System. The bailout served to insulate the perpetrators from losses that would have forced them to write-down those assets both tangible and intangible to seriously low market values. By absorbing the “bad debt/ risks”, those who created the risk were able to profit from the collapse of their “insurance cover”. Today’s “risk” from the volume of outstanding financial derivative contracts worldwide is acknowledge to well exceed any recognized total value of global GDP. Yet there is no public substantive debate which explains what this risk really is and how it is measured or covered. That is largely due to the reasons elaborated above.
Risk is presented as a measurable and thus manageable phenomenon, something that has been scientifically isolated and is amenable to treatment by qualified experts. The definition of risk, its scope and substance, including exposure, is governed by those whose business it is to profit from its inception. Although at the level of ordinary individuals any sense of real threat or danger is trivialized or treated as superstition, the threat to the class of wealth extractors is a matter of greatest severity that can only be appraised and managed by the experts appointed by the extractive (parasitic) class. Risk is defined and measured by them. The means to reduce or transfer the consequences or exposure to such risk are part of the laws they pass, the contracts they write and the deployment of media and martial violence they order. Like in the original Lloyd’s coffee house, these are gaming adventurers competing in any way available to privatize gains and socialize losses. Like in the old booths where coffee-drinking, pipe-smoking men exchanged rumours, lies, and calculated wagers—mainly with other people’s money—the manipulation of data, the dissemination of stories, the exploitation of ignorance and emotion or simply relative wealth—were essential for the “market” to work. Yet, it could never perform without the recourse to a State capable of selectively protecting insurer or insured, whether with the army, the navy or debtor’s prison.
For the past eighty some-odd years we have all been forced to accept insurance policies at extortionate prices because insurance is essentially a product of the extortion business. The atomic bomb could be seen as the ultimate, underlying derivative financial instrument. It has been complemented by the genetic engineering that produces the growing arsenal of “biologics” and pharmaments. Mutuality was consciously turned into Mutually Assured Destruction, although only the US (the Anglo-American Empire) actually demonstrated the will (and the secret planning) for destroying everyone else to preserve its oligarchy—aka the Samson option). The years of mass injection and incarceration exercises and planning that culminated in the Covid-19 War—an escalation of the 2001 Global War on Terror—have been marketed behind the same mask of “mutuality”. The more mutual risks become the more concentrated the profit for those who induce the losses and cause the risks. One can see the cancellation of civil rights in 2001 and of human rights in 2020 as the corporate state’s unilateral abrogation of coverage clauses in the social contract most ordinary people learned was the basis of the society in which they live.
In the midst of atomic war since 1945, we have been told that the USA has protected the world through deterrence when if fact we have been terrorized by the marketing fraud of forbearance. Every day all the media one can hope to find is full of “risk” campaigns; fear sells. Desperately ordinary people ask who and how will they be insured or better yet protected from the constant escalation of terror in every aspect of daily life. There are no universal insurers. The privately-owned armed bureaucracies, which we still call “governments” because of the archaic beauty pageants by which their public faces appear to be chosen, have renounced all pretence to mutual protection of anyone except the insurers, finance capital as a class. Salvation cannot be bought from the State in its current form any more than it could be bought be the inventor of today’s financial derivative insurance market—the Latin Church. It cannot be acquired “by faith alone” either. Instead it requires genuine mutuality and the hard work that is necessary to constitute a community and communities of interest in and among real human beings (as opposed to legal fictions, juridical entities or virtual humans as promoted by the finance capital class in its transhumanism). That means also—at the very least—that the risks created by the insurers for their parasitical profits must finally be borne by the creators of those risks themselves. We should harbour no illusions. That small class of parasites has centuries of experience successfully deceiving the hosts. Parasites by their nature only die when the host destroys them or dies for failure to do so. An insurer of last resort cannot tell the difference.