The price of inclusion

By bringing together insights from Europe and the Americas on the reliance of credit in building inclusive societies today and in the past, we reflect upon the price of inclusion and the ambivalent nature of debt relations. Fluctuating between reciprocity and domination, debt broadens the scope of manoeuvre for individuals and collectives, but increased dependence on private debt fuels growing inequalities within and across societies.

By Marie Kolling and Stefan Nygård

Photo by Marie Kolling from the city of Salvador, plastered with advertisements for immediate, unsecured credit

Echoing the parallel human drives to associate with and dominate each other, debt functions both as a cohesive and divisive social force. The dual connotations of moral guilt and economic debt denoted by the German word for debt, Schuld, highlight the combination of moral feelings and economic calculation inherent in the notion of debt in many cultures. While individuals and collectives are brought together by debt, the centrality of the creditor-debtor distinction as a primary locus of social conflict under current conditions of financialization testifies to the uneven distribution of power between creditors and debtors. Before elaborating on the social consequences of debt in contemporary financialized economies, we turn to the case of Brazil where access to credit has been promoted as a means to both financial and social inclusion for Brazilians on the margins of society and the formal economy. Financial inclusion “helps to reduce inequalities and build a more inclusive society” according to Brazil’s Central bank, and it was part of a strategy promoting so-called financial citizenship. But on what terms is such inclusion granted?

Across the Americas, in response to insufficient revenue among low-income populations, households have come to rely on expensive forms of subprime lending, including payday loans and credit cards issued by corporate retailers. While credit-money may solve acute cash shortages in the present, it concomitantly enhances economic deprivation far into the future. In Brazil, consumer credit has become a ubiquitous feature of the economy at all strata of society since the mid-2000s. Through fieldwork among low-income families in Salvador da Bahia, a city of 3 million people, it was possible to observe first-hand the impact of increased credit dependency on families and communities accruing more debt than they can repay. Some families live in extreme poverty. Cash was in short supply and many people relied on different types of credit to buy daily items and food, to cover larger expenses such as medicine or home improvements, and unexpected expenses such as a funeral. Credit cards were particularly desirable because they can pay for any of these expenses.

If people’s credit cards were rendered ‘worthless’ (because they were maxed out), and people faced difficulties getting a new credit card approved, one way of gaining access to credit was to seek out relatives or neighbours to borrow their card. With less cash at hand than creditors to repay as well as relatives and people in the community, debt was often left unpaid and forged cyclical, perpetual debt. Individuals became entangled with financial institutions of credit providers and debt collectors outside of the community, and debt became entangled in social relations, bringing tension and conflict into these relations within the community.

The contemporary high-risk credit economy accepts high levels of default, which is factored into subprime lending schemes, but it is also punished by credit providers increasing the price of credit, hurting people’s credit score, or ultimately denying new credit. High levels of default are indeed common in a country like Brazil where it concerns more than 40 percent of the adult population and has continued to increase during the pandemic.

As Brazilian lending practices show, while credit momentarily expands people’s room for manoeuvre and may provide a sense of inclusion – as well as insertion into a global credit market – the subsequent debt may turn into a constraining source of social and financial exclusion. This is not only because the debts extend far into the future, accumulating interests and late penalty fees, but also because when people fail to repay, they become registered as ‘bad payers’, which drastically narrows their opportunities to seek out new credit and can undermine their social standing. The dual cohesive and divisive function of debt applies to private as well as public debt in Brazil and beyond, but speculative lending practices accentuate the latter tendency.

No world beyond debt

Historically, the European nation-states that aspired for a place in the international society relied on credit provided by other states and banking houses for carrying out costly wars and investing in national infrastructure, education, and administration. The resulting debtor-creditor relationships kept the system together, but they were also a means of sustaining hierarchy. More recently, the Eurozone crisis in the 2010s united European nations around a ‘common problem’ while at the same time reactivating a regional North-South divide and tensions between creditor and debtor countries.

Governments in the past and present are faced with the same dilemma: on the one hand, someone’s debt is someone else’s gain and rising debt levels lead to increasing inequality, on the other hand, debt connects societies across the globe. As the proudly reckless debtor Panurge in Rabelais’ sixteenth-century satire Gargantua and Pantagruel claims: “There is no world beyond debt”. Without debt, there is “no mutual sharing of qualities, no transmutation whatsoever: one will not think itself obliged to the other: it has lent nothing,” he says, underlining the socially benign functions of debt in terms of binding individuals and collectives together in the time that passes between giving and reciprocating. If this is the case, it is crucial that we bring back solidarity and recognition to debt relations and avoid a narrow instrumental understanding of debt. We should also pay more attention to the ethical consequences of the increasingly sophisticated technological means of obtaining debt in a digital age. To be sure, debt relations have often vacillated between reciprocity and domination, but in modern financialized economies the social consequences of debt are characterized by a high degree of uncertainty.

The ways in which these dynamics play out in Brazil present us with a complex web of debt relations, often without expectations of full repayment, and with uncertain hierarchies between creditors and debtors. What is striking about these new debt relations is that they are entangled in the formal economy and perceived as a new life condition. Under this modern condition, creditors and debtors at the local level are equally subjected to the international debt system profiting from digitalization and the making of credit more readily available for low-income populations. The impersonal relations thus formed between globally networked creditors and the multiple layers of interdependent debtors in countries such as Brazil have evolved far beyond the notion of debt relations and moral obligations as a cornerstone of social life in small-scale societies, or the liberal understanding of debt as a contractual relation between two self-governing parties. Moral obligation is unevenly present at different junctures of these complex debt relations, which attest to the different meanings of debt, credit and money between personal trust-based borrowing and large-scale banking practices where lending against trust in ability to repay (credit comes from the Latin credere, to believe or have faith) plays little or no role.

In this scenario, poverty in economic terms is being reconfigured. It is not only a matter of how little people earn, but also how much they owe and on which conditions. While debt facilitates forms of inclusion by offering opportunities to access financial services and consumer goods, potentially benign forms of debt ‘turn bad’ when the power asymmetries they help sustain lead to frustration among debtors unable to reciprocate. Ultimately, they limit the possibilities for exercising individual and collective autonomy on multiple scales.

About the authors

Marie Kolling is an anthropologist and senior researcher at the Danish Institute for International Studies in Copenhagen. She is co-editor of the open access edited volume Who’s cashing In? Contemporary Perspectives on New Monies and Global Cashlessness (Berghahn Books, 2020) and Latinamerika Nu [Latin America Now] (Raeson Medier, 2021).

Stefan Nygård is a historian and senior researcher at the Department of Philosophy, History and Art at the University of Helsinki. He is the editor of The Politics of Debt and Europe’s Relations with the ‘South’ (2020), Edinburgh University Press and co-editor of Decentering European Intellectual Space (Brill, 2018).