May 16, 2012
by Annelise Riles

Is this capitalism? If not, then what is it?

This post was originally published as part of a “Theorizing the Contemporary – Finance”  forum on the Cultural Anthropology website.


“Business Leaders of Today are Not Capitalists,” shouted the Financial Times headline several weeks ago. The article went on to describe how, inside the largest financial institutions, leaders are today chosen not for their entrepreneurial skills, their instinct for risk, their interest in making money even, but for their ability to schmooze and negotiate with government bureaucrats. Those with connections to governmental elites from their school days who have proven themselves agile at institutional and bureaucratic politics are the new titans of the economy.

Why? The article doesn’t go there, but I think the answer is obvious.  Today, money is made primarily from government give-aways of one kind or another—subsidies, bail-outs, regulatory regimes favorable to industry.  The game is now not about making markets but ensuring you get as much as possible from the state, or at least more than your competitors. Contrary to a decade ago when industry leaders decried the “nanny state,” today they line up to be coddled.

So what should we anthropologists of markets make of this new reality? And what of the fact that it doesn’t take an anthropologist to get this far: the FT, bastion of mainstream opinion in the financial industry, has already done the analytical work. What can we add to the mix?

To my mind, the core question and contribution anthropologists can make at this moment is similar to the contribution that Hayek and the Vienna School made at the close of World War II when, as today, the consensus about markets, states, and their relationships was shattered and the ideological field was wide open.  As Foucault recounts in his lectures on biopolitics, those guys fashioned a new consensus, a set of givens, and worked hard to turn them into the hegemony they became. The results spoke for themselves: until today it was largely impossible to think outside the view that markets were more legitimate than states and that state intervention in markets should be corrective, and hence reactive and limited, but not “dirigiste”.

We could have a vibrant and exciting debate about what the contours of this new consensus should look like, as a descriptive project and as a normative project.
For example, half of me finds myself rooting for the good old Hayekian days when markets were markets, losers lost, and innovation was the way to profit maximization.

So I was excited to see the petition by Public Citizen to the Federal Reserve to break up the banks that are deemed Too Big To Fail.

The occupy wall street folks made a similar proposal.  The argument in a nutshell is, “you told us that the rules were that capitalism produces winners and losers and that tough love toward the losers ultimately raises all boats.  You forced us, the workers, the small businesses, the underemployed, to live by those rules, so the least you should do is live by those rules now.  Allowing firms that are too big to fail to exist is an admission that there are two sets of capitalist rules–rules for the insiders and rules for the rest of us.”

One of the reasons I like this proposal is that, having studied the Too Big to Fail (TBTF) issue quite extensively from the vantage point of fieldwork among government technocrats, I can confidently say that most technocrats agree that this would be the best solution. But they believe that it is politically unpalatable because ultimately those TBTF institutions control the political process and will make sure that legislators do not allow technocrats to stick to market rules.  I bet the Fed was actually really really happy to get this petition in fact.  So here is a kind of political initiative on the part of the citizenry that we anthropologists could champion, in part because it dispenses with the usual divide between technocratic elites and ordinary citizens who are assumed to be well-meaning but know nothing about finance. This initiative potentially gives technocrats the power to do what they “know” to be right (from the vantage point of their Hayekian ideology) and pits technocrats and citizens together against the big banks.

That is one way to go. But my instinct is that as tempting as this may be, we should be doing something even more bold.  My guess is that we should not just hold the Hayekians to their Hayekian bargains but rather recognize that the world is changing and set out to build the new consensus.  And here there are all kinds of other interesting developments we might want to investigate and weave into a new kind of analysis. For example, what do we make of the sudden prominence of religion in debates about capitalism–not only in “alternative” forms of capitalism but right at the heart of North Atlantic economies? And what do we make of the fact that spokespersons for mainstream religion, who, in our social theory since Weber, are imagined as supporters of capitalism, are emerging as powerful critics? I am thinking here of the statements by both the Pope and the Archbishop of Canterbury in support of Occupy Wall Street. In Japan also one hears many allusions to Buddhism, Shinto and other religious traditions in political debate about market regulation. There are many possible understandings of such statements but I wonder if along with the collapse of confidence in rational modes of risk management, prediction and planning we are seeing the beginnings of a new appreciation for the metaphysical and existential issues posed by markets, the kinds of issues anthropologists and sociologists of finance since Weber have eloquently demonstrated. What happens to the ideological consensus of market/state relations when such issues come to the forefront of market participants’ own consciousness?

Another set of issues have to do with the decline of the North Atlantic economies and the rise of Asia in particular.  How does this new reality, accepted as such by all of my informants, and the ensuing debate they are having about multiple forms of capitalism, the relationship between capitalism and culture and so on, reconfigure the possibilities for a new post-Hayekian consensus about what makes markets work and why? These are just two small examples of how and why this is an exciting moment to be an anthropologist of markets.  As one of my informants put it, we are in a counter-cyclical business: when things are really bad for everyone else, our work is full of possibilities.

July 7, 2011
by Annelise Riles

Learning from Regulatory Diversity

As we look ahead toward how we can do a better job of preventing, or at least lessening the effects of the next financial crisis, I think we can all agree that the more information regulators have about the real world conditions in the market–the nature of the products, the institutional contexts in which business decisions are being made, and the character of the risks–the better.  The question is, what is the best way for regulators to get such information?

One of the big Ahas of my current research at the Bank of Japan is that different regulatory systems, or cultures, may have different approaches to getting such information.  In the United States and in the UK, there is a big emphasis on hiring regulators with practical market experience.  US and UK regulators know that such individuals can be invaluable because they understand the thinking of market insiders.  Ironically, such individuals often turn out to be the toughest regulators of all as they are least likely to be snowed by bogus excuses about the impossibility of implementation of a certain reform, or the unavailability of a certain kind of information.  Think Gary Gensler, former Goldman Sachs executive now head of the Commodity Futures Trading Commission for example.

There is no doubt that this kind of talent is one important route to information.  Japanese regulatory institutions have relatively few such people, and in my interviews some Japanese regulators have suggested that it would be helpful to have more.

But Japanese regulators have a different approach: they maintain much more intensive, almost real-time contacts with their counterparts in the industry.  For example, a junior regulator may have his counterpart in a given bank on the phone two or three times a day.  In addition there are yearly on-site inspections that last several weeks and provide mini “fieldwork” opportunities for regulators to sit on the inside, as well as multiple “targeted inspections” also on-site.  There are daily or weekly contacts at every level of the bank and government, too, from the most junior to the most senior, since one gets a different picture of what is going on inside a financial institution depending on who one talks to.

One advantage of this approach is that in a world in which market realities change very quickly the regulator’s information is very current.  In contrast one problem with the US-UK approach is that after only a few years in government, a former banker’s experience quickly becomes relatively obsolete.

Perhaps here regulatory theory could benefit from the insights of the field of comparative law. Comparative lawyers know that it is pointless to argue about which system in the world is “best” in some absolute sense. French law and American law each have their relative strengths and weaknesses, but more importantly reflect an adaptation to the wider culture and values of the societies out of which they emerge.  Studying these differences can sometimes provide insights for reform (a French court may wish to borrow some precedent from an American court or vice versa) and can also help sharpen, through the contrast, each side’s appreciation of what they value the most. In much the same way, regulatory cultures are different, and interesting in their differences.  Perhaps rather than throw all our energies into defining one global regulatory approach or standard, we could start by noticing these differences, describing them, and analyzing their relative strengths and weaknesses as well as their cultural sources and purposes within each institutional and economic context.

March 1, 2010
by Annelise Riles

After Balance: A New Way of Thinking About Market Reform

How can Markets be Reformed (and What is Wrong with Existing Answers)?

A crisis of ideas

We are facing a crisis of ideas about what to do about financial reform.  Policy debates recirculate endless versions of the same old alternatives–market self-regulation self correction versus government regulation–in the guise of argument about what is really the same old toolkit of policy interventions: taxes on certain kinds of transactions (eg the Tobin rule, recycled from the 1960s)? An outright ban on certain forms of trading or investment (eg the Volker rule, recycled from the 1980s)? capital adequacy requirements (eg a proposed Basel III that largely just raises the bar on Basel II)? more vigorous prosecution of insider trading (same regime, just more of it) ? New regulatory institutions aimed, for example, at protecting consumers (a return to the solutions of the 1930s)? At each stage proponents of one approach or another highlight the legitimate merits of their view and the legitimate problems with the alternative view.  Separating banking and investment activities is the only way to protect innocent third parties–no, separating banking and investment would not have prevented the problems of 2008.  Moving derivatives trading onto exchanges, or increasing capital adequacy requirements, will prevent future instances of the “domino effect”. No, any such rule can always be circumvented through clever accounting or derivatives engineeering. And on and on.

At this stage several things are clear. First, both positions in the free markets-versus-regulation debate are right.  Markets do not always self correct, but regulators do not always make wise decisions.  There is no perfect point of balance, no way to square the circle.  Lets face it: there is no Big Idea for how to rebuild and restabilize the economy. We are going to have to live with a market out of balance.

A simplistic debate about human motivation

One recurring feature of this debate is its worry about human motivations on all sides.  On the one hand, there is a great deal of worry about government officials: the view is that these basically selfish and often irrational actors need to be properly controlled–through transparency and accountability mechanisms like Congressional hearings–to keep them from becoming “captured” by certain large financial interests (consider the debate about whether Treasury officials are too close to Goldman Sachs for example).  On the other hand, there is a great deal of worry about market participants:  motivated by selfishness, irrationality, passion, herd mentality, and so on, they pursue short term personal profits at the expense of long term gains.  They too need to be properly controlled–through limits on bonuses, or bonus programs that incentivize long-term profits, or through criminal prosecutions, or firewalls that limit traders’ access to particular kinds of information.

This view of everyone involved as selfish, brutish and irrational is just a flip flop of the old view of market participants as brilliant wizards of finance embodying the collective wisdom of the free market on the one hand, and benevolent regulators bringing the wisdom of their elite educational training to the table in the service of the public welfare.

From the point of view of state of the art social science, these caricatures seem remarkably inadequate. Sociologists, anthropologists and psychologists know that there are few real angels and real devils in the world; most of us are a complex bag of motivations, ideas and aspirations that often we ourselves do not fully understand.

But these caricatures get one thing right: Markets are made up of people–real people, and their ideas, their tools, their strategies, their skill sets, their contacts and relationships. Nothing less, nothing more. Every possible form of market intervention–from monetary policy to criminal prosecutions–is only effective if it somehow causes a change in human behavior.  So we need a more practical approach to market stability that works for real people in real market situations.

Consequences of the financial crisis

Meanwhile, if we turn away from the headlines on the front or business page, there are a set of other stories proliferating about the “consequences” of the financial crisis on people’s lives. In the United States, unemployment and underemployment (particularly among young people), housing foreclosures, the reduction in real wages and job insecurity even among the employed has generated confusion and deep anxiety among many people at all but the very highest echelons.  Popular anger at both Wall Street and the government has spawned growing nationalism, far-right activism, and even calls for “revolution”.  In Japan, as Yuji Genda has discussed, suicide is up, and for the first time most Japanese do not believe that life for their children will be better than their own.  Young people do not see the point of taking up the kinds of careers their parents had.  Mid-career people are facing layoffs and a loss of a sense of purpose about their work.  The question of what to do about a pervasive hopelessness in the market and society has become a serious policy problem.

Out of Balance

In response, the pundits, the preachers, the career consultants and the self-help experts descend on the public with a singular message: Balance.  As an employee, you are responsible for maintaining a proper work-life balance, they tell us, and you also need to balance the increasing demands on you brought about by downsizing.  As a consumer, you need to get what you spend in balance with what you earn.  Moving from consuming to saving requires emotional balance, Suzi Orman says.  As a citizen/taxpayer, you need to balance the short-term injustice of financing Wall Street bailouts against the long-term benefits of economic stability, Obama reminds us.  This call to balance often has a moralistic tone: we feel guilty, as though it is our fault, when things are out of balance.  It is also an attractive fantasy–the promises of everyone from Oprah and her New Age gurus to the Golden Door Spa to the latest management consulting paradigm paints a picture of a perfect state that is just around the corner, if only we were a little more disciplined about our exercise routine or a little more efficient about our task management.

This kind of balance talk–whether it is about balancing the benefits and the costs of government intervention in the market, or balancing the interests of different economic constituencies in defining economic policy, or about entreating employees to balance the demands of their job, is ineffective and worse, irresponsible.  It is irresponsible because systemic problems–the mortgage crisis, or the collapse of the derivatives market, or the health care crisis–are passed off as attributable simply to individual failure or lack of proper motivation–greedy consumers, or greedy traders, or individual obesity and lack of exercise.  It is ineffective because it directs our attention away from the search for new alternatives to market stability and growth and towards a witch hunt for the guilty party–the corrupt bureaucrat, the rogue trader, the luxury-addicted consumer. Economists understand that market equilibrium is a kind of fictive assumption–something useful to think with but impossible and probably not even desirable (in arbitrage, for example, the moment of equilibrium is the moment at which there is nothing left for market participants to do since all the arbitrage opportunities have been taken).  This impossible quest for balance, this endless search for the perfect way to square the circle between work and leisure, for example or between government regulation and industry self-regulation, gets in the way of our noticing how markets actually cope in a practical way with the real imbalance that pervades every aspect of market institutions and activity.

So What to Do?

We need a new way of thinking, and a new way of taking personal responsibility for the market.  See my post here on what lawyers can do.

Skip to toolbar