June 20, 2011
by Annelise Riles

Japan: The country that can’t cooperate

There was a truly saddening story on the front page of the New York Times on June 13 about events surrounding the Japanese government’s response to the Fukushima crisis in the days immediately after the earthquake. Prime Minister Kan rightly mistrusted the nuclear industry and the government’s own nuclear experts, the article says, and hence relied upon a small group of close advisors, none of whom had expertise in the problem. The officials in the relevant
government ministries with material information that could have saved lives didn’t bother to try to get this information to the Prime Minister because, they said, he didn’t ask for it. The company hid information from the government. The academic experts obscured the issues. According to the Times, these people only started actually speaking to one another when the Americans came in and demanded information–and hence they all had to get on the same page about what to tell the Americans at their daily briefing. As I was discussing this over lunch with a senior bureaucrat today, he sighed–Japanese are people who don’t take any responsibility. And indeed, the only person (save perhaps the Prime Minister and his crew) who took any personal responsibility in all of this to do what they could for the welfare of their fellow-citizens was the manager of the Fukushima plant, did so by actually disobeying the orders of his superiors (and thereby probably saved many lives).

We often think of Japan as a country in which people know how to cooperate, and indeed the foreign news media has been full of wonderful stories about how much cooperation there has been among the citizenry in the aftermath of the earthquake. But at least at the policy and corporate levels this was a case of failed cooperation of an almost unthinkable magnitude with disastrous and enduring consequences.

Although readers of this blog know I am a big defender of Japan against Western stereotypes of all that is wrong with the place, I have to say that the Fukushima incident has given me pause. Japanese may be able to cooperate in certain settings–they know how to work together within the family or the company or how to line up for the subway–but what does this disastrous failure of cooperation and lack of will on the part of politicians, bureaucrats and corporate executives to sacrifice for the public good, or at least take responsibility to do all they can in this case, say about the Japanese cooperative ability? What kind of response is it, for a ministry bureaucrat questioned by the Times as to why he did not inform the Prime Ministry that they had a warning system available to let the public know the radiation risks they were facing and thus possibly avert tens of thousands of future cases of cancer, to say “well, he didn’t ask”?

My own country certainly has its sickening examples of government officials failing to live up to their public responsibilities or work together collegially. But in Japan too, perhaps, there is a need for some serious reflection on how to build a more cooperative culture.

May 30, 2011
by Annelise Riles

The Nightmare of Transparency

In a recent Business Week article, Hernando de Soto is once again peddling his simplistic view of property rights as the path to pure market transparency. He argues, to considerable journalistic and popular acclaim, that the problem with derivatives markets is simply that property rights are not sufficiently well defined and standardized.  Bring in good old fashion property law and related tools such as title registration, he argues, and the markets will magically clean up.

As I discuss at some length in my book, the proposal is preposterous from the point of view of anyone who knows anything about property law. Property rights are never clear in the way that non lawyers imagine them to be.  As I show with regard to actual cases of property claims in the derivatives markets, as is the case with ordinary property rights, there is tremendous room for interpretation, confusion, conflict and gamesmanship within the language of property law.

De Soto should know better.  He claims to have come upon his insist through field research, and I would venture that even a few casual conversations with any legal expert in the derivatives markets would reveal how property sets the stage for conflict of a different kind rather than bringing pure clarity to things.  But since I have laid out the problems with De Soto’s claim that property achieves transparency in the book, let me ask a different question instead: is transparency tout court always a good thing?

One of the painful rituals of daily life in Tokyo at the moment is the daily review of government statistics on radiation levels.  In response to complaints that it was not sufficiently transparent about radiation risks, the government is now drowning us in numbers.  There are readings taken by each city, each prefecture, and by the national government for each city and prefecture.  There are numbers for each kind of radiation–cesium, iodine, and so on.  Of course the numbers produced by the national and local governments rarely match up.  And we are given no explanation of these numbers since that would be the biased view of government officials–it is just purely transparent information. Truck loads and truck loads of it.

So we the citizens are left to ask ourselves every day how we translate these numbers into an answer to questions like, is it safe for my four year old to play outside today? Is it safe for me to drink the milk or the water? What are the odds of my dying of cancer as a result of my exposure to the rain this summer? And so on.

My husband and I both have PhDs in social scientific subjects and are used to working with data. And yet the deeper we try to dig into these numbers–to compare them for example against the safety standards set by international bodies–the more confused things become. First, it is as if just about every international organization, and every local data collecting body in Japan, has its own system of units.  Conversion between these units turns out to be basically impossible as they are apples and oranges, measuring different things. But some of the problem is simply the violence of probabilities. Learning for example that exposure increases cancer risk by a certain percentage tells you nothing about your own situation since it is based on averages, across global populations (is the average nuclear victim an eighty year old Swede or a twenty year old Bangladeshi?).  And in the case of nuclear accidents we have so little data anyway that those probabilities are probably best described as guesses.

But even though we know that these numbers tell us next to nothing, we can’t stop ourselves. The information is there, it is transparent, so we feel almost compelled to enter into it. Its analysis becomes the daily ritual of our worry.  Did iodine levels go up or down compared to yesterday? And what does that mean, anyway relative to how much iodine our child absorbed, or how much he can absorb?  Every day this analysis of the numbers ends with the same sick feeling in the stomach of total confusion, total lack of clarity about an issue of paramount importance to our family. I experience this daily ritual as its own kind of political violence.  It is as if this absurd cacophony of purely ordered data is taunting me, leaving me all the more exhausted and demoralized.

Now I realize this transparency nightmare seems quite far away from the wonders of property law de Soto would prescribe for the derivatives markets. Yet it is not so different in fact.  After all, market transparency, which is what he advocates, is just a matter of the availability of data. If the data is available, the theory goes, some smart people will make sense of it all. And yet data itself is only meaningful within a framework.  Our problem is that we lack a framework for analyzing the numbers because the people who produced the numbers themselves also lack a singular and coherent framework.  In that situation, the consumer of transparency is saddled with the absurd burden of making meaning–making something standard and comparable–out of what by definition is not standard.  This is often the case in the derivatives markets as well.  In the derivatives markets traders often dodge the pure impossibility of the task by just doing what everyone else is doing–using the same model, the same pricing tool as the next guy, even if we all know its limitations. That is called a herd mentality and we have seen its disastrous effects.

April 28, 2011
by Annelise Riles
1 Comment

Questioning the standard diagnosis of the financial crisis

Yesterday the Cornell Book Store organized a book signing for Collateral Knowkedge. I talked about some of the themes in the book and then we had a great discussion. What made it so fun was the mix of disciplines represented by the participants–economics, sociology, philosophy of law, anthropology–and the surprising points of agreement and mutual interest emerging across the disciplines. One of the themes was whether transparency is always a good thing, or even possible at all in financial regulation (a topic I have written about on this site here). Another was whether the crisis was caused by a greedy individuals, as many commentators suggest, or by much more haphazard and much more systemic glitches in the day to day systems–evaluation mechanisms that don’t mesh from one office to another, people who can’t reach each other because they can’t speak the same language literally or figuratively, and so on. The economist Levon Barseghyan thought that both institutional factors and individual moral culpability were responsible but he pointed out how different our conception of the regulatory fix would be, and how harder it becomes, once we accept that the crisis is not just caused by individual greed.

January 5, 2011
by Annelise Riles

What Can We Learn from Wikileaks About Market Regulation–or, Is Transparency Always a Good Thing?

(This entry was originally posted on Jan. 5, 2011 on the Credit Slips website)

In the wake of the Wikileaks debacle, we have started to see some conversation in the editorial pages about whether transparency is always a good thing in internationa

l affairs. The point is that there are times when allowing the parties to talk in private may help to reach optimal outcomes for all sides. As we learn more about the personalities and motivations behind the leaks, also, the image of the whistleblower as the pure-hearted pursuer of truth and justice is getting a bit tarnished. It is a complicated issue, with room for reasonable people to disagree, but that in itself is news: it used to be that if you were against transparency you had to be for cronyism, corruption, and fraud, and in fact everybody everywhere felt compelled to assert that they were of course in favor of full public disclosure. Now we are not quite so sure.

I think that some of the heatlhy skepticism–or at least complexity of thought–about transparency that is coming into the public debate about foreign affairs also has a place in the conversation about the regulation of financial markets. Why?

•  Transparency is too easy.

How many times, when faced with a difficult political choice between, say, siding with investors or siding with the financial institutions, have the politicians settled for simply demanding more disclosure to consumers? There is even a certain cynicism to this solution at times–research shows us that investors are often ill-equipped to digest the information that is handed to them in the name of transparency. And yet politicians get to say they took a stand in favor of the common good.

•  Transparency isn’t all that transparent.

Goldman Sachs artfully exploited this insight when they dumped literally tons of documents at the doors of Congress in response for a request for information–“go ahead, be our guest..” and yet it might as well have been a truckload of manure, for all it was worth to Congress.  The point here is that information alone is only valuable to those with the tools–that is, the resources to get the tools–to turn information into insight.   As the sociologist of science Bruno Latour has put it, referring to the beautiful transparent glass building that houses to German Bundestag or parliament–itself a symbol of transparency in the political process–you can stare at it all day but somehow you don’t see anything at all.

•  Transparency can do damage.

My own research among regulators has produced case after case in which an informal off-the-record conversation among representatives of the market and representatives of the state was able to avert disaster and reach a win-win result for each.  Yet my research also shows very high levels of fear (even paranoia) among bureaucrats that informal contacts with market participants will expose them to charges of corruption or non-transparent behavior. So too often the less courageous of them opt to do nothing, rather than to stick their necks out and solve the problem, and potentially expose themselves to charges of inappropriate behavior.  Now again, this is a complicated issue: I don’t deny for a second that some bureaucrats and market participants have at times exploited their informal relationships for personal gain so we have reason to demand transparency. However, the pro-transparency rhetoric goes too far where it suggests that any such contact is always motivated by naked self-interest. And the institutionalization of this position into policies that make all email correspondence, meeting records and so on a matter of public record has serious social costs as well as social benefits that deserve to be more carefully weighed as we think about the way forward in financial regulation.

Now again, all of these points are not mine alone: the anthropology and sociology of bureaucracy around the world has produced many examples now of how serious political harm, and the promotion of very questionable private interests has come to pass in the name of well-meaning transparency campaigns. This research suggests that transparency is not a simple good–that it has different costs and benefits in different situations, that we need to ask questions about whose interests transparency serves, and that if we value transparency there may be additional work to do to make it real and meaningful for all sectors of society.

My research has convinced me that a more effective financial regulation will require a new set of scripts for deep cooperation between regulators and market participants. It is the only way that regulators can get the information they need, and it is the only way that we can begin to get around the cat and mouse game in which as soon as the government proposes a rule market players look for a loophole.  Yet regulators and market participants alike insist that a certain degree of privacy is necessary in order for each side to trust the other.  How we carefully balance the costs and benefits of various institutional options, given this reality, is a complex, but interesting and important question.

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