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.