Finance Enacts Violence on People and the Planet. Fintech — Left Unchecked — Will Make It Worse.
“Nature has taught me that if humans don’t figure out what revolution really means, nature will make the revolution despite us.”
— Tawana Petty, 2015
The contradictions of global finance were on full display the week of March 22, 2021. A container ship called the Ever Given lodged itself in the Suez Canal, rerouting awaiting ships around Africa’s Cape of Good Hope and threatening to delay global commerce for weeks. Every day it was blocked, $10 billion worth of cargo failed to pass through the canal and transform into corporate profits. Egypt estimated revenue losses of $1 billion from uncollected toll fees and added labor costs. The Ever Given was freed a week later and the flow of profits resumed. The ship eventually arrived at its destination on August 3, 2021 and was greeted by a crowd of onlookers who had come to see the infamous ship for themselves.
Technology is often believed capable of solving societal problems, especially financial ones, which is really to say all problems since we have allowed finance to reach a hand into every corner of society. However, the Ever Given saga makes it hard to ignore just how much global finance relies on our world’s physical and natural infrastructure. For all of society’s technological advancements, something far more ancient yet beautifully sophisticated finally allowed the gears of global commerce to turn again. Rescue efforts were aided by the moon’s gravitational force when the water’s rising tide helped to free the ship.
Ever Given’s ripple effects continue to rock global commerce months after passage through the canal resumed. And container ships widening to accommodate capitalism’s growth continue to pass through same-sized canals, threatening to disrupt supply chains and displace profits in the future.
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The punishing edges of racial capitalism expose the limits of technological advancements. Our U.S. economy operates by pursuing maximum wealth and profits alongside a guarantee of racial inequalities. Advancement and progress are synonymous with continual economic growth. Individualism is prized over collectivism. Such an economic system, like the technologies it can produce, eschews questioning the composition of its soil where the roots of so many societal problems grow. This makes it unlikely that the decision-makers involved in global finance will reverse course on the widening of container ships or invest generously in infrastructure to support supply chains. Instead, racial capitalism favors the quick fixes often promised by technological advancements and celebrates in the form of rising stock values when even the moon seems to concede the primacy of profit-making.
The belief that technological advancements on their own can circumvent the realities of our planet’s natural environment is an illusion that we cannot afford, especially in the Anthropocene when human activity is causing dramatic environmental changes. The worsening of our climate emergency intensifies planetary resistance to racial capitalism’s desires for the growth and wealth promised by technological advancements. The illusion of technological solutions displaces the most extreme harms onto the world’s growing numbers of poor and marginalized peoples who least can bear the planet’s resistance, which comes in the form of droughts, floods, wildfires, food shortages, and intolerable heat.
Financial technologies or “fintech” — digital technologies that enable a range of banking and financial activities including payments, cryptocurrencies, and private equity asset management — are often appreciated because their advancements to expand capacity are coupled with a shrinking in physical size. It’s an illusion that stands in stark contrast to the widening of container ships. Fintech operates with near imperceptibility and the presumption of reduced environmental impact, circumventing otherwise fixed geography through underground wires and satellite airwaves. The more advanced the technology, the smaller and less visible the wires.
In reality, fintech’s hidden infrastructure commits very tangible effects on the planet and people’s material conditions.
Fintech’s concealed infrastructure enables willful misguidance about its possibilities for environmentally-sustainable forms of racial capitalism. It has taken a full 10 years for burgeoning concerns about the environmental impacts of bitcoin — a cryptocurrency created in 2009 using blockchain technology and thought to unlock greater equality alongside the latest social construction of money — to be taken seriously. In early years, bitcoin was lauded for advancing the green energy revolution because it encouraged the pursuit of cheaper, cleaner energy. Except the revolution was offsetting the costs of bitcoin mining instead of people’s rising energy bills. Excitement over new forms of profit muffled the cries of rivers churning through hydroelectric plants and the atmosphere’s choking on methane seeping from newly-revived gas-powered plants. By the time the cryptocurrency’s environmental impacts were being routinely discussed in mainstream news media and queried in congressional hearings, the electricity consumption needed to fuel bitcoin mining already rivaled that of small nations. Today, this single cryptocurrency, born of a technology still in relative infancy, uses 20% of the electricity of the entire global finance industry.1
Like bitcoin mining, artificial intelligence models are computationally intensive and therefore energy intensive. Renowned engineer and researcher Timnit Gebru was investigating the environmental impacts of artificial intelligence when she was forced out of her job at Google last year. Artificial intelligence models need more and more energy for processing given the assumption that ever-increasing amounts of new data improve their accuracy. Google had taken issue with an academic paper written by Gebru and her colleagues, which summarized the environmental risks of artificial intelligence models in addition to the risks of perpetuating racist discrimination and misinformation with implications for surveillance. The authors cited a study that found training a single artificial intelligence model produces as much carbon dioxide as the average lifetime output of five cars in the United States. This includes the carbon dioxide produced during manufacturing.
Fintech is on course to add exponentially to harmful environmental impacts — on top of the already known impacts of bitcoin and other cryptocurrencies. According to a report by Tribe Payments, 70% of fintech companies already use artificial intelligence and even more companies plan to adopt these models in the coming years.
Fintech that shrinks while it expands satiates racial capitalism’s desires for quick fixes to environmental damage centuries in the making. On its own, without accountability to the people and planet it should serve, fintech doesn’t advance a green energy revolution or greater equality any more than it keeps global supply chains flowing whose passage has been blocked by an oversized container ship.
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Many of us are familiar with fintech because of what these digital technologies mean for our everyday money management. Pay bills online from the convenience of your kitchen table. Check your account balance on a mobile app instead of driving to an ATM. Lend money to family and friends without writing a check. Access financial services at your fingertips despite all the other ways that banks avoid serving you. We might even know how fintech is supposed to solve some societal problems, like banking the unbanked and closing the racial wealth gap.
Companies have sold the idea of fintech largely at the retail level, popularizing these technologies on their ability to make it easier for us to spend money. Corporate strategy keeps our understandings of fintech focused on consumption, which is to say on the colloquial. And here, individualism — the ideology embedded in racial capitalism that undermines solidarity by convincing us that we are only responsible to ourselves — discourages us from discerning that fintech wasn’t designed entirely for our benefit.
Like underground wires and satellite airwaves, fintech companies have leveraged the contested advantages to retail banking for disguising the finance industry’s more violent personal and environmental impacts. Examples abound. Facebook markets its cryptocurrency project, Diem, for the ability to provide faster and cheaper payments to poor people who may end up using a coin they never asked for simply because of the social media company’s omnipresence. Amazon’s purported cheaper financial services are a deceptive side hustle to ensure that people on society’s economic margins remain the company’s primary profit-making opportunity. Google announced it was launching a digital, no-fee checking account in partnership with several major U.S. banks in order to make payments cheaper and easier. Financial services make up an increasing share of these companies’ revenues. And together, these companies generate carbon dioxide emissions equivalent to that of Scandinavian countries — ironically, the same region to where cryptocurrency mining traveled in search of cheap energy.
Fintech as an archetype of technological advancements hasn’t shrunk in size as much as it has disguised and displaced the harmful impacts, hiding the human and planetary costs from view.
Planetary alerts of our climate emergency offer a reminder for whom fintech is ultimately designed. During the February 2021 deep freeze in Texas, electric companies charged customers thousands of dollars for just a few days of service while people tried to stave hypothermia and prevent their pipes from bursting. The failure of Texas’ electrical grid caused the cost of electricity to skyrocket, exposing people to the extremes of the market as well as the weather. People’s rapidly accumulating utility debts meant bigger profits, and private corporations quickly marshalled online bill pay to their advantage. Some customers discovered that electric companies were extracting payments for bills they couldn’t afford directly from their bank accounts. Electric companies dipped their hands into customers’ pockets while banks then charged fees on overdrawn account balances.
The scale of the crisis in Texas makes it difficult to pass off problems with online bill pay as individuals’ failures with money management. This wasn’t so much reverse engineering as it was engineering as designed, with multiple industries’ wiring coordinating to generate profits during an emergency from people who already had little money to spare. The state recognizes a lower official death count, but investigative reporting reveals that 700 people died in the storm.
Finance enacts violence on people and the planet. And fintech, left unchecked, will make it worse.
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Fintech can be anything and everything when it is defined as digital technologies that enable banking and financial activities. So, it is worth distinguishing between the levels or spiraling-upward iterations of fintech that have been collapsed by this catch-all definition.
At the retail level, there are non-profit and people-centered efforts that use fintech to mitigate the extractive, harmful aspects of finance and support everyday money management. Many genuine efforts use these digital technologies as a corrective to the racist, classist, and gendered violence that the finance industry inflicts through its roles in racial capitalism. Organizations creating financial products that have been requested and designed by their stakeholders. Researchers considering the ethics of new products. Community groups working to share resources and power through cooperative lending. People struggling together and using technology to envision and build pathways toward alternative futures — absent the extraction, harm, and violence.
Or, at least as absent as possible. Racial capitalism produces contradictions with which people-centered efforts must remain aware of and contend. Electric companies reversing the convenience of online bill pay to their advantage is an example of the contradictions that people experience at the retail level. People-centered efforts will need to respond adaptively to new contradictions that arise. However, the quarrel isn’t here, with people-centered efforts.
At a systemic level, fintech amplifies the harms that finance inflicts on people and the planet at the speed of globalization. Here, corporations call the shots, calculate risks, hoard the profits, concentrate power, and set the terms so they win no matter what. As one example, finance companies use advancing technologies including artificial intelligence to facilitate a process called securitization. Securitization combines people’s individual lines of debt such as from mortgages, credit cards, and student loans into a single package. Finance companies then sell this packaged debt to wealthy investors, whose asset portfolios depend on other people’s indebtedness. The packaging of debt is supposed to spread out investors’ risks to protect against losses when a few people default on their loans. Securitization enables massive wealth transfers from people struggling to pay their credit card bills or student loans to the top echelons of the world’s economic order.
Poor and marginalized peoples can never spread their growing risks far enough to be protected from losses. But at the top, wealthy investors leverage securitization to their advantage. The Ever Given’s owner likely used a combination of securitization, insurance, and maritime law to ensure that the costs of freeing the ship were collectively absorbed by parties that aided in the rescue effort. Despite the container ship’s troubles, the Ever Given’s net profits for the first half of 2021 were 30 times higher compared to profits during the same time in the prior year.
Industry experts argue that securitization makes modern day global commerce possible. Through securitization, society shares in the costs that enable private companies to take big risks. If successful, these risks are supposed to have collective benefits. Except relying on securitization means that society still shares in the costs even when benefits don’t materialize. Maybe people will pay for the risks of global commerce when the parties involved in the Ever Given’s rescue effort decide to raise taxes or forego wage increases for their workers.
Fintech makes securitization more efficient: easier to spread out the risks, separate people from their money, commodify property and land, and transfer ownership to wealthy elites. In the U.S. alone, the securities market including mortgage-backed securities was valued around $3 trillion in 2020, maybe more. There are even securities for shipping containers, which were expected to reach $9 billion before the pandemic.
Making the securities market and upwardly-mobile wealth transfers more efficient is an opportunity for profits that fintech companies are racing to exploit. Cadence, a fintech company promising to optimize securitization through blockchain technology, raised hundreds of millions of dollars from corporate investors shortly after launching the company in 2017.
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Any enthusiasm for fintech that lacks a critical analysis fails to adequately calculate the harms and the potential for violence.
The quarrel with fintech must focus on its amplifying impacts of finance under racial capitalism, including the concomitant environmental impacts and disproportionate burdens to poor and marginalized peoples. Any enthusiasm for fintech that lacks this critical analysis fails to adequately calculate the harms and the potential for violence. And the harms and violence will not be equally shared; Black and brown women and children around the world have been experiencing the effects of global warming for decades, especially those in the southern hemisphere.
For the global community to survive our worsening climate emergency, we need to redistribute economic and political power in accordance with the realities of our interdependence. We cannot afford to accept the illusion of quick fixes offered by technological advancements, or to circumvent the hard political work of making necessary changes. Redistribution shifts power to poor and marginalized peoples who experience the worst of the climate crisis. We all share in the risks of global warming, and therefore must have an equal stake in mitigating its harmful consequences.
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Terri Friedline is an associate professor of social work at the University of Michigan, a faculty affiliate with U-M’s Poverty Solutions initiative, and an appointed member of the Consumer Financial Protection Bureau’s Academic Research Council. She is the author of the book, “Banking on a Revolution: Why Financial Technology Won’t Save a Broken System.” @TerriFriedline
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Notes:
- Proponents of crypto and blockchain technologies point out that models can be built differently, such as by changing how proof of work is recorded or captured. Climatecoin is poised to be a carbon neutral cryptocurrency, for example. Yet the fact remains that new technologies can be created in pursuit of profit, innovation, or democratization whose environmental impacts and their long-term consequences are not known until much later.
