Periodic Reporting for period 2 - RESOLVENCY (A GLOBAL THEORY OF REFLEXIVE DEBT (DELIBERATION))
Reporting period: 2022-11-01 to 2024-04-30
[Global markets] The looming future of the world is dramatic: emerging ecological collapses, drastic political and social inequalities, growing cultural suppression and geostrategic (military) conflicts. International political governance bodies (e.g. the UN) are currently not powerful enough to really solve existential problems and new nationalism or regionalism hinders their empowerment. The only really powerful worldwide social coordination mechanism remain global markets.
[Debt in the Anthropocene] Global markets are based on money mostly in form of credit (i.e. debt). Debt is the or at least one core medium of the global economic system, not only but in particular through financial markets. Given its internal interest premium logic debt drives an endless economic growth narrative. Unregulated debt and financial markets are feeding the catastrophic cycle of natural and social exploitation. One element of a more sustainable social development should be a more holistic understanding of debt and debt governance.
[Governing debt by its limits] Modern financial debt relations are legal relations. Legal debt governance includes insolvency law as a collective mechanism to deal with accumulated debt default including solutions of debt relief and restructuring. In the end, insolvency procedures decide on which debts really have to be paid back and to which amount. This socio-political dimension of debt is revealed in diverse fields, e.g. for corporate debt with the Credit Suisse or Lehman Brothers break-downs, for consumer debt in the US debate as well as pending Supreme Court case on cancelling student loans, and for sovereign debt in the Greek or Argentinian debt crisis. Debt restructuring in insolvency situations defines the limits of debt and could thus be a nucleus not only to govern but also to rethink and reshape any conception of debt.
[Reflexive debt] The classical function of ‘insolvency law’ is the economic distribution of remaining assets of a defaulting debtor between all its creditors. The progressive widening to ‘resolvency law’ opens the classical economic paradigm for a social rehabilitation of the debtor (e.g. by partial debt relief). Our project wants to go even one step further. Only including multiple stakeholders (beyond direct financial creditors) private and public interests enables a really democratic debt deliberation. Only such a broad approach to debt governance could reconstitute debt as a sustainable socio-economic medium, which remains ‘reflexive’ for integrating and balancing diverse social rationalities (economic, political, ecological and cultural). A promising blueprint for more sustainable debt restructuring could be seen in sovereign debt-nature-swaps like in the Ecuador Galapagos islands. In light of this core objective, the acronym of the project ‘RESOLVENCY’ has to be complemented by ‘RE:DEBT’, i.e. ‘reflexive debt’.
[Debt in the Anthropocene] Global markets are based on money mostly in form of credit (i.e. debt). Debt is the or at least one core medium of the global economic system, not only but in particular through financial markets. Given its internal interest premium logic debt drives an endless economic growth narrative. Unregulated debt and financial markets are feeding the catastrophic cycle of natural and social exploitation. One element of a more sustainable social development should be a more holistic understanding of debt and debt governance.
[Governing debt by its limits] Modern financial debt relations are legal relations. Legal debt governance includes insolvency law as a collective mechanism to deal with accumulated debt default including solutions of debt relief and restructuring. In the end, insolvency procedures decide on which debts really have to be paid back and to which amount. This socio-political dimension of debt is revealed in diverse fields, e.g. for corporate debt with the Credit Suisse or Lehman Brothers break-downs, for consumer debt in the US debate as well as pending Supreme Court case on cancelling student loans, and for sovereign debt in the Greek or Argentinian debt crisis. Debt restructuring in insolvency situations defines the limits of debt and could thus be a nucleus not only to govern but also to rethink and reshape any conception of debt.
[Reflexive debt] The classical function of ‘insolvency law’ is the economic distribution of remaining assets of a defaulting debtor between all its creditors. The progressive widening to ‘resolvency law’ opens the classical economic paradigm for a social rehabilitation of the debtor (e.g. by partial debt relief). Our project wants to go even one step further. Only including multiple stakeholders (beyond direct financial creditors) private and public interests enables a really democratic debt deliberation. Only such a broad approach to debt governance could reconstitute debt as a sustainable socio-economic medium, which remains ‘reflexive’ for integrating and balancing diverse social rationalities (economic, political, ecological and cultural). A promising blueprint for more sustainable debt restructuring could be seen in sovereign debt-nature-swaps like in the Ecuador Galapagos islands. In light of this core objective, the acronym of the project ‘RESOLVENCY’ has to be complemented by ‘RE:DEBT’, i.e. ‘reflexive debt’.
[Methodological grounding] The reconstruction of insolvency law as reflexive debt deliberation relays on three theoretical models: legal constitutionalism (or transformative law), a discoursive normative grammar (DNG) structure of deliberation and the idea of reflexive sustainabilities. During the first period the project elaborated and validated these models as general methodologies to prove their credibility as theoretical cornerstones of the reflexive debt idea.
[Comparative studies] The project aims to shed light on debt restructuring regulations across corporate, consumer and sovereign debt around the world. The corresponding comparative study analysis insolvency and restructuring laws of 30 countries worldwide. The project collected, validated and cleaned the legal data and started coding the data set according to several evaluative ‘factors’ concerning i.a. priorities, distribution, restructuring decision-making and relief procedures. Ongoing quantitative and qualitative comparative analyses intend to enlighten the complex relation between law and debt as much as to identify possible leverage elements for the democratic debt deliberation of a reflexive debt model.
[Experiments & procedural design] A further methodological approach implemented by the project are behavioral experiments. The project debt theory assumes causal loops between legal design of insolvency laws, debt and socio-economic behavior. To substantiate causal links the project incorporates laboratory experiments. The experiment which was already carried out tests distributional preferences of creditors to share losses in an insolvency situation. The result show that distributional preferences are not invariable but depend on the creditors’ economic starting positions. Starting from this insight, the project analyzed political justice dimensions of debt restructuring procedures.
[Comparative studies] The project aims to shed light on debt restructuring regulations across corporate, consumer and sovereign debt around the world. The corresponding comparative study analysis insolvency and restructuring laws of 30 countries worldwide. The project collected, validated and cleaned the legal data and started coding the data set according to several evaluative ‘factors’ concerning i.a. priorities, distribution, restructuring decision-making and relief procedures. Ongoing quantitative and qualitative comparative analyses intend to enlighten the complex relation between law and debt as much as to identify possible leverage elements for the democratic debt deliberation of a reflexive debt model.
[Experiments & procedural design] A further methodological approach implemented by the project are behavioral experiments. The project debt theory assumes causal loops between legal design of insolvency laws, debt and socio-economic behavior. To substantiate causal links the project incorporates laboratory experiments. The experiment which was already carried out tests distributional preferences of creditors to share losses in an insolvency situation. The result show that distributional preferences are not invariable but depend on the creditors’ economic starting positions. Starting from this insight, the project analyzed political justice dimensions of debt restructuring procedures.
[DNG model & novel comparative analysis] The current progress beyond the state of the art is mainly methodological. Above all the discoursive normative grammar (DNG) enfolds a two-dimensional dialectical value structure (i.e. a normative system of coordinates). The pathbreaking work during the project concerned the DNG grounding in basic global values as invariable (‘universal’) social system structures yet not innate human preconditions (like in dominant moral psychology value theory). Within the project, the DNG analysis allows e.g. for novel structural normative comparisons of different legal orders and the reconstruction of political economy paradigms. Yet, the successful transfer to e.g. property theory proves that the DNG model is universally applicable to analyze normative social ordering in general. A next pathbreaking step would be to outline a quantifiable version of the model.
[Reflexive sustainabilities] The second methodological innovation is the reflexive sustainabilities model. The complex model integrates existing sustainability theories and allows to differentiate natural from social systems sustainability levels. The model reads a system specific sustainability as core normative foundation of every social system (economic sustainability, political sustainability, cultural sustainability, ecological sustainability). As these system specific sustainabilities could not only conflict with each other but also with a holistic natural sustainability a reflexive approach is needed to balance different natural and social system normativities. In combination with the DNG structure a quantitative indexing is possible. The expected result for the quantitative comparative studies within the project is a debt (restructuring) sustainability index.
[Experimental political philosophy & reflexive debt] Within the first laboratory experiment the project used a veil of ignorance design which in light of the scientific community feedback during the conference presentations turned out to have highly innovative potential. The team aims to elaborate on this potential and is currently planning a further experiment in that direction. The methodology could enable novel forms of political philosophy experiments. For the project this new path could also allow for inspiring insight to the institutional design of reflexive debt (restructuring) models.
[Reflexive sustainabilities] The second methodological innovation is the reflexive sustainabilities model. The complex model integrates existing sustainability theories and allows to differentiate natural from social systems sustainability levels. The model reads a system specific sustainability as core normative foundation of every social system (economic sustainability, political sustainability, cultural sustainability, ecological sustainability). As these system specific sustainabilities could not only conflict with each other but also with a holistic natural sustainability a reflexive approach is needed to balance different natural and social system normativities. In combination with the DNG structure a quantitative indexing is possible. The expected result for the quantitative comparative studies within the project is a debt (restructuring) sustainability index.
[Experimental political philosophy & reflexive debt] Within the first laboratory experiment the project used a veil of ignorance design which in light of the scientific community feedback during the conference presentations turned out to have highly innovative potential. The team aims to elaborate on this potential and is currently planning a further experiment in that direction. The methodology could enable novel forms of political philosophy experiments. For the project this new path could also allow for inspiring insight to the institutional design of reflexive debt (restructuring) models.