Sep 1, 2017

One of the striking features of our times is that we have companies that are wealthier than many states around the world. And even when the largest multinationals aren’t bigger, the likes of Apple, Shell, Glencore, Facebook, and Wall Mart still outpower governments on many fronts. Notwithstanding that many consumers may eagerly buy their products and services, due to their rent seeking, tax avoidance, lobbying, etc., then, large multinationals should be considered a significant societal risk. Instead, it is the ones who can’t transfer their profits or incomes to tax havens (the ordinary taxpayer and average small and medium size businesses, so to speak) who have to make up for this deficit – and indirectly subsidise the existence of many multinationals!

Of course, there is anti-trust and competition legislation aimed at preventing companies from obtaining too large a market share. There are also increasing talks about blocking tax havens and unifying tax systems. So far, however, these are either just talks instead of action or just too limited to start with. In other words, the continuing existence of large multinationals is proof that existing approaches do little to reverse the unequal power balance.

In the highly unlikely case of closing tax loopholes, it will certainly become evident that many multinationals aren’t that competitive after all. In addition, though maybe even more unlikely to happen, (too) big should actually become economically unviable. Above a certain size, a company should be subject to higher taxation. The aim is to discourage companies from merging and growing. Companies may still grow bigger, yet size will come at a cost. But wouldn’t this punish companies that produce something many consumers desire, such as Coca-Cola or Apple, one may ask? Maybe. But then companies can just do the maths: selling more products does not necessarily increase profits. The hope is, however, that they may reconsider their business models. After all, these companies have often grown enormously not because of consumer demands, but because they took over, as in the case of Coca-Cola, many other (soda) brands. Or they ventured into other domains and decided, as in the case of Apple, to not only focus on computers but also develop mobile phones. Faced with a higher tax bill, corporations may instead rethink their strategies. They may realise that mergers, (hostile) take-overs, or simply expanding may not weigh up to the higher tax they will have to pay. Consumers, conversely, will suffer little, as innovation will most likely benefit from the absence of monopoly power. And would companies still want to grow, it is at least not the (immobile) individual taxpayers and small and medium size businesses that foot the bill.

Surely, I am perfectly aware that we are very far from (ever) turning this idea into a reality. To start with, the continuing existence of tax havens doesn’t help much. Yet even with a universal tax approach instead of a race to the bottom, it will still be a huge task – not the least, because economies significantly differ in size and as such also in the ruling whether a company is considered too big. So there are lots (and lots and lots and lots) of challenges and fine-tuning ahead. But we need all the ideas and efforts that prevent multinationals from growing ever bigger – at the costs of competition, fairness, democratic decision-making, and so forth. Plus it makes for a nice challenge to oppose multinationals (and their allies) that will certainly not give up their advantages easily!

Mar 1, 2017

In an article forthcoming with the journal Critique of Anthropology Irene Skovgaard-Smith and I explore the often ambiguous relations between elites and other social groups, both subordinate and of relatively equal standing. We draw on two distinctive ethnographic cases: the white Franco-Mauritian elite, and the expert elite of management consultants in a Western European context. Our analysis of the two cases provides insights into how the power and status of elites is both contested and attributed by the people they interact with and relate to in concrete, yet substantially different contexts and situations. The aim is to show how the position and power of different kinds of elites is relationally negotiated and achieved. As we argue, a better understanding of the role of other social groups in the attribution,maintenance and contestation of status is relevant for understanding both more traditional economic elites and expert elites without tight networks. [read the rest of the article here]


Feb 1, 2017

From talks with (foreign) corporations and investors active in agriculture in Africa, particularly in Zambia in my case, I realised that many of them are concerned about the issues critics have raised. These critics, ranging from (international) NGOs to local communities, human rights lawyers, international organisations, journalists, and social movements, increasingly point to the negative consequences of current forms of global capitalism. They try, in a way, to put ethics back into economics. They demand a halt to ‘land grabbing’, better treatment and wages for labourers, the mitigation of environmental damage, and so forth. Resonating with the thoughts of John Kenneth Galbraith and Karl Polanyi, the critics can be considered a countervailing power or countermovement aimed at reducing the damaging effects of agricultural investments – and corporate practices and market expansion more generally.

The countervailing power of critics, such as NGOs, has been at the origin of phenomena such as Corporate Social Responsibility (CSR), impact investment, and ethical consumption. Notwithstanding the many limitations of these phenomena, they symbolise a more or less constant struggle between economic beliefs and ethical and social concerns. I have actually come to believe that this is a recurring pattern of capitalism. The raising of concerns, I have noticed, is not without its results. Change is possible. Large-scale systemic slavery has been abolished. In many Western countries labour conditions have seen improvements. Minimum wages have been implemented. There are laws that allow for the prosecution of companies in case of pollution. Yet it is never enough, never completed. There is always something to hope for. Besides, when one issue is solved or attention wanes, a new issue presents itself – or labour rights are gradually undermined again. It is, in a way, a perpetual taming of the ‘capitalist beast’. [read the rest of the article here]

Jun 2, 2016

In a pessimistic – or realistic – mood, it is hard to deny that the world’s future looks rather grim: growing inequality appears difficult to undo; the financial system has hardly become safer since the 2007/2008 crisis; and the rising power of BRICS and other Global South economies tends to rely on conventional economic and ecologically destructive growth models. At the same time, and nurturing a more positive mood, we are increasingly witnessing efforts to turn the tide of the current economic predicament: more inclusive forms of capitalism; ethical consumption; and alternative approaches to economic growth.

In this issue of Voices from Around the World we present a number of thoughts on alternatives to current forms of global capitalism, and considerations as to whether and how these may evolve... [read the rest of the issue here]

Jan 2, 2016

There is not much new in the observation that markets are closely intertwined with political authority. In the past authorities guaranteed markets to operate, while global financial markets also exist thanks to active state support. If this was not already obvious, then governments acting as lenders of last resort to banks in the aftermath of the 2008 financial crisis certainly brought the message home. However, what has received less coverage in media and academic analyses is how geopolitical considerations influence states in their approaches to finance – and, as a result, to their people... [read the rest of the blog post on the Human Economy blog]

Dec 15, 2015

Berghahn Books, the publisher of my book on the Franco-Mauritians, offers a 65% discount till the end of December 2015. You can access their website here. The code that should be entered to obtain the discount is SAL15.

Nov 21, 2015

After the first shock of the devastating terrorist attacks in Paris had waned, criticism about the unequal attention the victims in France received compared to victims of similar attacks elsewhere in the world quickly surfaced. Why did President Obama give a public announcement relatively soon after the attacks in Paris but had said little about the equally horrible bombings in Beirut one day earlier? Why did Facebook have a Safety Check in the case of Paris but not in other cases? Why was there not a similar global outpour of sympathy for the victims of, for example, the even more lethal attacks at a university in Kenya earlier this year? It seemed that the lives of (white) Europeans are worth more than that of others around the world, in particular that of Muslims.

But differences in grief and shock about the French attacks are not necessarily an expression of how life is valued. Critics pointing out the hypocrisy of being concerned about Paris but less about Beirut, or any other equally devastating killings around the world, do miss an important point. One of the central factors regarding the newsworthiness of an event, both for media outlets and for media consumers, is the proximity of the event – both in absolute terms, i.e. geographical distance, and in relative terms, i.e. a sense of identification. Most people care more about a car crash close to home than a similar crash in a distant location. Compared to the attacks in Beirut, many could more easily see themselves in Paris on a Friday night (or associate it with a similar situation closer to home) than in Beirut – or at a university in Kenya. Conversely, for someone with strong ties to Lebanon – and less to France – identification with the bombings in Beirut may be much stronger. We just more easily identify with an event that we could picture ourselves in. Many expressing their outrage over the unequal share of attention devoted to the different attacks too easily forget about this logic.

That said, white, Western and/or Christian victims often receive an unequal share of the attention – even though the victims in Paris were by no means all white. Some form of (racial) preference that goes beyond a sense of proximity may well shape differences in attention devoted to attacks around the world. One way or the other, then, politicians, media outlets and also Facebook should become more sensitive to the impact of their messages. Was Facebook’s tool the result of their algorithms going in overdrive due to postings about Paris or did it result from ad hoc decision taken at management level? I imagine the latter. With accountholders all over the world, they may want to rethink how to convey a message of equality when it comes to devoting attention to (horrendous) events in the world. Politicians would also do good to be more outspoken about attacks in case they may not directly identify with the victims and/or the setting. The inhabitants of the (multicultural) nation they represent may care. Or with news travelling fast – helped by the widespread use of social media – they may want to give some thoughts to how their comments are perceived elsewhere in the world. It doesn’t harm to give people the impression that their lives are equally appreciated after all!

May 30, 2015

Abstract of my article 'Who does the state work for? Geopolitical considerations in the organization of (global) finance':

States acting as lenders of last resort in the aftermath of the 2007/2008 financial crisis clearly illustrated the central role that states have in the operations of financial markets. Despite their active roles, however, states continue to be presented as passive actors that dance to the tunes of the financial markets. This paper, however, takes a close look at how states’ geopolitical concerns influence financial regulation. States are perceived as serving the interests of their citizens, yet future rescue operations (as lenders of last resort) at the costs of the taxpayers remain a strong possibility – in particular, Too Big To Fail (TBTF) banks persist and their leverageratios have not greatly improved. To better understand why this is the case, this paper argues that geopolitical concerns influence the triangular relationships between the (democratic) state, the financial sector, and the state’s citizens (and taxpayers) in favour of the financial sector. Accordingly, the paper argues that we should more explicitly ask ‘what drives states (and politics) in their approaches to finance?’

Read the rest of the article in the Real-World Economics Review, issue no. 71


Apr 23, 2015

Berghahn Books offers a discount of 50% on my new book 'The Franco-Mauritian Elite: Power and Anxiety in the Face of Change' (until 31 May 2015). A flyer for the offer can be found here.

Dec 17, 2014

Thomas Piketty’s 2014 Capital in the Twenty-First Century (translated from the 2013 French version) has clearly reinvigorated the debate about inequality, in particular in the Anglo-Saxon world. Prior to Piketty, many had already raised concerns about rising inequality, though the focus was largely on income from labour, with the highly remunerated CEOs as the lighting rod. Piketty equally shares these concerns, yet the contribution and buzz of his book comes predominantly from his longitudinal analysis of wealth inequality – gains from investments in stocks, land, property, etc., instead of income from labour. This is a much-needed contribution to the current debate, as wealth inequality tends to be even more skewed. Yet, it also comes with many challenges, as wealth is notoriously difficult to measure due to the variety of asset classes and the incentives and potential to hide wealth (in tax havens, for example)... [read the rest of this review on Allegra, a virtual lab of legal anthropology]

Aug 13, 2014

As I have already pointed out in an earlier piece in this blog, growing inequality has become a major issue of concern around the world. With the buzz Thomas Piketty’s work has generated, inequality now features prominently on the political agenda of Europe and the US. Piketty’s book is part of a wider trend in policy and public debates: the uncomfortable reality of inequality is brought back ‘home’ to the Western centres of economic development. It is not anymore the defining characteristic of economies like South Africa, Russia or Brazil. 

South Africa, where this blog is based, provides an interesting case for comparison with Europe and the US. South Africa is a tremendously unequal society, ranking second highest in the world for income inequality measured by the Gini Index. Compared to the US and, especially, Europe, the nature of its inequality appears of a different kind. Hence, a closer look at the South African case may give some additional insights about differences in inequality...[read the rest of the blog post on the Human Economy blog]

Feb 5, 2014

On the Indian Ocean island of Mauritius, a former French colony where I have been carrying out fieldwork for several years, wealthy French and white Mauritians often chat about French president Hollande and his policies. They despise him for taxing the rich. The story is that he scares away the rich and that he makes them poorer, thus diminishing the amount of money they have to invest abroad.... [read the rest of the blog post on the Human Economy blog]

Nov 14, 2013

Mauritius may not the first thing that comes to mind when watching Elysium, a 2013 Hollywood sci-fi movie. However, in our understandings of elite geographies the film makes an interesting allegory for the Indian Ocean island known for its pristine beaches.... [read the rest of the blog post on Geography Directions]

Oct 21, 2013

One of the forefathers of the study of elites, Vilfredo Pareto, remarked that ‘history is a graveyard of aristocracies’. Indeed, maintaining an elite position is not self-evident and throughout history many elites have lost their position while new ones have risen to power. Elites are elites in relation to other social groups and by their very nature only constitutes a small minority, which makes them vulnerable to the moods and ambitions of other (more numerous) social groups and/or counter-elites. They seem often perfectly aware of this and my view is that many elites are actually quite good at anticipating potential changes and challenges.

For example, a family office of one of the richest Dutch families invited a professor who I taught with at the University of Amsterdam. He had a very opinionated view about the undemocratic conditions of global (and Dutch) finance. In particular, he was quite vocal in the media about bankers, the large social costs of their behaviour and their lack of responsibility. Initially, it seemed odd that this family office, a bastion of elite power, would invite him. However, I have since come across a number of other examples of elites and (big) business inviting individuals who condemn the patterns the ones at the top thrive on. As long as the critics are not outright neo-Marxist and asking for the dismantling of capitalism, elites, in times of change and popular resentment, show an openness to discuss opposing – and potentially threatening – views.

It certainly needs more in-depth investigation (I have so far come across few explicit analyses of this tendency to anticipate change). Yet, more than we think, elites and others in the axis of power appear to keep an eye out for potential changes and challenges in society, in the hope that if change occurs they may be well positioned to anticipate it. Hence, they invite a professor to learn about resentment, developments and directions of change. In their positions at the top, they are, subsequently, in a good position to quickly adapt to changes. Owing to their present advantages – financial means, networks, etc. – they are much better situated than others to secure privileges and power in the face of change. They may dispose some of their previous imagery, while taking up a new 'identity' in the meanwhile. Once a new situation has crystallised, we may have to conclude that the same elites have maintained their position, however. The graveyard may be full, but plenty elites cleverly stay clear from the gravediggers.

Sep 27, 2013

The latest economic indicators revealed Mauritius as more competitive than South Africa, but numbers don't capture the whole picture... [read the rest of this opinion piece, written with Marina Martin, on the website of South Africa's Mail and Guardian]

Sep 25, 2013

Risk vs uncertainty. The battle was at the core of NYU professor and renowned anthropologist Arjun Appadurai’s keynote speech at the Human Economy conference. Finance, he argued, was establishing itself as a discipline separate from economics largely due to shedding off the notion of uncertainty. Instead, the focus is on the calculation of risk... [read the rest of this blog post on the Human Economy blog]

Aug 8, 2013

Here is a link to the Human Economy blog we have set up.

May 11, 2013

Do many units of power, like elites, powerful individuals, but also states, punch above their weight? This was a question raised at a seminar I gave about ‘defensive power’ last week at the University of Cape Town. Elites, for example, often loudly object changes that may jeopardise their position – louder than their power stemming from control over resources would justify. The UK and France are still permanent members of the UN’s security council, while the geopolitical balance has changed substantially since the Second World War. An obnoxious and loud boss often gets his/her way more than someone who is less self-assured.

If they punch above their weight, there should be much more room for opposing power. Elites and the like, as a matter of fact, may not have as much power as we assume. This opens up an interesting quest about the (mis)perceptions of power. Powers that be may have a misinformed self-perception about their power. They, after all, pretend to be more powerful than they really are. Equally, subordinates, other states, non-elite groups, and so forth think that units of powers have more power than they really do. They have much more potential to challenge power than they do. Instead, they stop short of a challenging it. Hence, based on an ‘objective’ analysis of power – control over resources, economic and political domination in the geopolitical sphere – there is a misperception of power.

Yet, there is a twist to the misperception of power. Since others than the powers that be also have a misperception, elites and the like are nevertheless granted more power than ‘objectively’ justified. In the end of the day, the subjective notion of power makes their power real. Awareness about the limits of power may actually contribute to this. In certain cases, the powers that be may have a rather well informed perception of their power. They know that they are vulnerable and that they don’t have as much powers as others think. They punch above their weight to disguise this. But since this message conveys that they are powerful, the misperception of power becomes a correct perception. They are really more powerful than they really are.

Feb 16, 2013

Op-ed I felt the urge to write. Dutch newspapers decided not to publish it, however. Here is a copy:

Wachtgeld, bonussen, exorbitante salarissen, de discussie daarover valt vaak terug op de individuele kwaliteiten van de ontvanger. De argumenten die de ontvangers gebruiken zijn veelal in de trant van ‘ik heb er hard voor gewerkt’, ‘als je iemand met kwaliteit wil, moet je een marktconforme prijs betalen’, en ga zo maar door. Terwijl critici beargumenteren dat de individuele kwaliteiten niet uitzonderlijker zijn dan die van iemand anders. Enigszins begrijpelijk voelt de wethouder of bankdirecteur zich dan ook aangevallen als critici commentaar leveren op het geld dat zij ontvangen. ‘Maar ik heb er toch hard voor gewerkt?’, is de reactie op het moment dat ze als graaiers worden weggezet. De individuele kwaliteiten voeren de boventoon. De discussie negeert zo de sociale logica die onlosmakelijk met het probleem en mogelijke oplossing is verbonden.

Dit is het meest voor de hand liggend in de publieke sector, aangezien die per definitie de publieke zaak behoort te dienen – en dus betrekking heeft op een groter sociaal veld dan alleen de eigen groep. Maar het  is ook toepasbaar op het bankwezen en de private sector. Elites in meer algemene zin rechtvaardigen hun positie vaak aan de hand van individuele kwaliteiten en een cultuur van hard werken . Maar de vraag is niet alleen of de individuele kwaliteiten wel of niet het geld rechtvaardigen. De afweging die de ontvanger – en critici – ook moeten maken, heeft  betrekking op de sociale inbedding van de beloning. Elites verhouden zich per slot van rekening tot de gehele samenleving.

Rinda den Besten is ondanks dat zij uiteindelijk heeft afgezien van haar wachtgeld een sprekend voorbeeld. Dat zij er vanaf ziet na protesten verandert de logica nog niet. De vraag is of het haar mening over de relatie tussen individuele kwaliteiten en het wachtgeld heeft veranderd. Het kan zijn dat zij vindt dat zij het nog altijd verdient, omdat ze zich een slag in de rondte heeft gewerkt, met een baan van 80 uur per week. Dat zij zich met veel energie heeft ingezet, zou ik niet willen bestrijden. En individuele capaciteiten zijn dan ook zeker van belang. Alleen de prijs daarvan, zo blijkt nog eens te meer uit alle ophef, kan niet louter berusten op het idee van individuele kwaliteiten ingebed in regels en marktconformisme. Rinda den Besten zou ook de vraag moeten stellen of er een sociale basis is voor haar beloning in de (huidige) maatschappelijke context. Niet na, maar vóór de inning van het geld. Een vergoeding (en de hoogte daarvan), verhoudt zich namelijk tot de maatschappij en niet alleen tot de individuele kwaliteiten.

De vraag die dan ook gesteld moet worden is niet alleen of individuele kwaliteiten een bepaalde beloning rechtvaardigen. Individuele kwaliteiten, zoals inzet en kunde, hoeven wat dat betreft niet de basis te vormen voor de kritiek. De vraag moet ook zijn, wat is de sociale rechtvaardiging van de vergoeding. Het is uiteraard moeilijk om buiten de eigen sociale groep en culturele logica te kijken. Maar mensen op belangrijke maatschappelijke posities – en ja, dat zijn ook bankmanagers – moeten rekening houden met het gehele sociale speelveld in Nederland en niet alleen de eigen cirkel. Dat toont nog eens individuele kwaliteiten.

Nov 11, 2012

I am a bit puzzled about the lack of reorganisation and regulation of the financial sector. Or better said, I am a bit puzzled why a seemingly vital element shaping the lack of progress receives so little media coverage. Or is it just my imagination and not really a vital element?

There is enough support to reign in the power of banks, yet they seem to get away with the mess they inflicted upon the world scot-free. Governments appear to value the financial sector’s interests much higher than that of ordinary citizens. TBTF is still as present as before, with the world’s largest banks remaining very unstable. National governments largely seem to ignore BIS recommendations for tighter global rules. Why? I think there is a very strong geopolitical component to it. I would even say that this is quite an obvious one, though strikingly enough one I hear very little about.

The limited response of many national governments appears to a large extent the result of geopolitical considerations – see also a post from two years ago. I think that many governments assume that the size of their banks and financial sectors is proportional to their geopolitical power. Hence, what would the UK’s geopolitical input be without the City? (Sustaining tax havens may actually relate to a similar way of thinking.) Politicians fear that if they break up their banks, implement stricter regulation that favours society and customers over the banks, they jeopardise their geopolitical power. What if China would have bigger banks than Wall Street? Would this equally correspond with a difference in geopolitical power? And what are the financial implications of a decline in geopolitical power? I don’t know. What however strikes me is that this isn’t part of the discussion. Commentators hardly address this issue. Is it too abstract, too obvious or do they just not connect the dots? And what about quantifying and assessing the (dis)advantages of geopolitical power for ordinary citizens. Or is aspiring and maintaining geopolitical power more a nationalistic trip than that it pays off economically? Apart from Jamie Dimon arguing that implementing the BIS’ new global bank rules would be anti-American, you also hear very little about whether financiers use this as an argument in negotiations. Maybe they don’t need it, because governments already share the view that they are in bed together. But still, it strikes me that this isn’t addressed more thoroughly. I, for one, would like to read more profound analyses about the correlation between – and (dis)advantages of – the size of banks and geopolitical power.

Jun 7, 2012

With the euro-rollercoaster going for another ride, Spain’s banking sector on the verge of collapse and the solvency of states decreasing by the day, I wonder whether the lack of foresighted regulation of the banking conglomerates is coming back as a boomerang. Not, in this case, in the face of the taxpayer directly but in the face of the investors.

The issue of ‘too big to fail’, which as many have rightly argued may not only lead to socialising the losses but also gives an unfair advantage to large banks because of governments’ ‘underwriting’ their risk portfolios (see the baseline scenario, for example), now seems to also have become ‘too big to invest’. The lender of last resort, the world’s states, after all, has fallen of its solvency pedestal. If it saves a ‘too big to fail’ it may just go from bad to worse.

When investors, financiers and the like distrust the lender of last resort, because it is hardly able to pay off its own debts, let alone handle the burden of having to save a failing bank, what about trusting the banking conglomerates? Not only as a ‘sound’ investment, but also as a safe haven for parking excess deposits? (Of which they have received a tremendous amount over the last couple of years; paradoxically skewing the balance of inflated banks vis-à-vis the state.) This, of course, is not the only aspect negatively influencing expectations about future returns. But there is a stark underlying contagion risk that finds its origins in large cross-border financial institutes that can only fall back on certain 'sovereign' entities as their theoretical lender of last resort. An unsustainable situation, if you would ask me.

But with the boomerang approaching fast, it may bring some good, too. So far pressure to tackle ‘too big to fail’ has mainly focused on the protection of taxpayers. Finance and businesses have stayed silent, because they did not want to upset the banking behemoths or were in for a free ride – well, one underwritten by the taxpayer. But now they may realise that there is no such thing as a free ride, with their business models increasingly jeopardised due to the exposure of a patchy system. Maybe they will even pressure governments to break up big banks! Too utopian a thought? Or will our next stop be a carousel instead of a rollercoaster?

May 21, 2012

Like an invisible cloud waiting to develop in a storm, the financial sector’s unsolved problems have been lingering above us since the economy fell to pieces after the 2007/2008 financial crisis. Some saw the cloud developing behind the horizon, and pushed for substantially reforming the financial sector. Others stopped well short of the horizon, and seemed to have been guided only by the financial markets’ immediate reactions. The latter’s stand is, in my opinion, often the result of a thinking deficiency: it’s about trust (in the long run) and not about whether financial markets are in favour of reform or not.

Recently I watched an interesting documentary about the financial crisis and its aftermath, titled Money, Power and Wall Street, in which this became once more evident. In episode three, the documentary focuses on the decision-making in Obama’s government shortly after it came to power. Faced with a huge crisis, and a financial sector that had been bailed out beyond imagination, there was the wish and opportunity to reign in the big banks. But it didn’t happen! Why not? Because the deficiency thinkers, under the leadership of Timothy Geithner, got the upper hand – among others Larry Summer had an opposing view, focusing more strongly on forcing extensive new regulation on the financial sector. Geithner seemed haunted by the Lehman ghost of the disastrous unintended consequences of strong interference (or the lack of it, in Lehman's case), and feared financial markets would disapprove of profound change.

The fear for a Lehman-like scenario was an understandable but equally wrong one. The unintended consequences of Lehman’s demise were largely the result of a lack of trust that surfaced with a vengeance. Banks didn’t know what crap was on the books of their counterparts, and because the government’s safety net now wasn’t a sure think anymore trust evaporated. Financial markets reacted immediately, though negatively. Now that the unlimited faith that had existed before had been cracked, uncertainty prevailed.

In the follow up, financial markets first reactions have unfortunately become the gauge for the soundness of (proposed) policies, and issues like too-big-to-fail, derivatives and risky investment have not been seriously addressed (JPMorgan Chase’s recent disaster clearly illustrates this). This line of thinking prevents one to look beyond the horizon, and ask the question whether financial markets are driven by a lack of trust or a fear for the ending of profitable business models. The latter is often the case, and should largely be ignored if the main priority is a more equal and stable economy. Players in the financial markets may not like reform that jeopardises profitability, and they will certainly object. But if it’s a clear message trust will quickly resume. What matters is whether they can trust their counterparts and make assumptions about the future, even if they earn less than before. After the first shock and disapproval of the financial markets, financial players will pick up their trading and business - they can't sit and moan, if they want to make a living.

If only there were more people looking beyond the horizon we may face a sunny future instead of a gloomy one.

Mar 5, 2012

Once more, a wealthy-turned-do-gooder: David Blood, in a previous life CEO of Goldman Sachs Asset Management, is now preaching for a sustainable capitalism. Together with Al Gore he initiated Generation Investment Management, offering an alternative to the financial markets’ tendency for short-term thinking. It might be a case of wisdom comes with age. And I wouldn’t deny Blood any genuine worries about the state of our globe. Besides sustainability is a trendy topic, and Blood won’t lose any credits among his peers to jump on the bandwagon of business larded with environmental and social consciousness – though, I would say, the verdict is still out as to how sustainable their capitalism really is.

Blood’s turn stands in a long tradition of wealthy and successful entrepreneurs embracing philanthropy and the good cause – often, like Blood, after they have become rich with business practices that didn’t necessarily withhold the scrutiny of sustainability, labour rights, poverty alleviation, et cetera. Andrew Carnegie, John D. Rockefeller and, nowadays, Bill Gates and George Soros are just a few examples. These seemingly contradictory practices between business without social consciousness and a ‘retirement’ filled with moral often puzzles me – the same goes for numerous politicians, driven by political power games during their term in office, but supporting the good cause after their ‘active’ career. Why wasn’t their any activism in earlier years? Why didn’t employees and customers equally share in their financial success? Would that have been an impossible task? Once more, people may change their opinions over time. We all learn by doing, after all. But the more I think about the wealthy-turned-do-gooders the more I wonder whether the explanation also lies elsewhere. Maybe they just didn’t dare to express a different – and more sustainable – approach earlier in their careers. In order to not stand out they dared not to go against the mainstream, against the pursuit to make a profit and obtain power. In hope for success, all they could was adapt to the general (business) morale. But once established and financially independent, confidence followed – to think independently and follow their heart. A question of courage, really. This is a pity, because I think society and the environment would benefit much more from people, who during their careers combine powerful ideas with a social consciousness – and not after they have cashed in and contributed their fair share to the problems they now try to solve.


Update (18 March 2012): Greg Smith’s lambasting of Goldman Sachs’ culture, after he had worked there for 12 years, made me think. ‘Retirement wisdom’ comes apart from a lack of courage at a younger age also from a shortage of seeing things differently. In an insightful analysis about Goldman Sachs’ long history of fooling its clients, William D. Cohan illustrates this perfectly: ‘[p]erhaps Smith’s youthful enthusiasm to join Goldman Sachs and become part of Wall Street’s elite blinded him to the firm’s history. For all the venom he has now focused on Goldman, he probably drank the Kool-Aid for most of his time there …’ Hence, a young (wo)man’s dream to establish a career, to be successful and to gain status makes him/her not only a coward in questioning the ‘unquestionable’ but actually blinds him/her for seeing the ‘questionable’.

Dec 3, 2011

The European project in a severe crisis, a dark cloud over the world economy, and yet banks keep on thinking about their own interests mainly. One could say, ‘hey, banks are just in it for their own stake, for making money’. But even then, this puzzles me. Financiers seem intelligent enough to realise that, in the long run, finding a sustainable solution is also the best for their own survival.

An answer to this quest might be the following: grim prospects of the future may prevent financiers from thinking in (societal) solutions. Instead, latent feelings of doom and anxiety seem to determine their behaviour. As a quant stated, ‘[c]all it fatalistic. It can be over any moment so I am going to try and grab what I can.’ And if they don’t fear the complete collapse of the financial sector, financiers (in the West) fear the upcoming power of Asia. They feel that the years of prosperity will (soon) be over. This, then, may drive their behaviour much more than collaborating with regulators, politicians and so forth in order to find a more sustainable and equal, yet (for them) a possibly less prosperous future.

Obviously, you could argue that also during good times financiers were amassing huge bonuses and salaries. Are they not merely continuing their habits? They certainly do, but the underlying patterns seem to have changed nevertheless – partly at least. Before the crisis, they could amass wealth without much criticism.* It was widely believed that these were prosperous times for everyone, so they considered their practices beneficial to society at large. With hindsight, a distorted believe though. And now, solidarity is doomed. Financiers still hear the music playing, albeit fading, and consequently keep frantically dancing to it until the music completely stops – instead of looking for new songs to put on.

* Actually, also during 'good times' feelings of uncertainty and anxiety were affecting financiers' behaviour to a certain extent. This, however, was not related to grim prospects of the financial sector as such, but to the latent potential of being made redundant, of complete departments being laid off – the anthropologist Karen Ho gives an interesting account of how these feelings affected operations on Wall Street.

Jul 14, 2011

Greece, again downgraded. Portugal, junk status. Ireland, Baa3. Many are fearing what else there is to come from the offices of Moody’s, Standard & Poor’s and Fitch. If we would have a European rating agency it would be different, so the argument goes. Would it be really? If using similar tools, a European one would probably come to the same analysis. It would not be particular objective if they would be less critical about these European economies just because they’re European. After all, much of the mess comes from analysts who were far too positive about the state of these economies in the past - and, yes, this includes the credit rating agencies. Lending them cheap money.

In that sense, the present discussion is a dead end. Because the problem doesn’t seem to be with the rating agencies necessarily. It’s the financial community, governments and the like relying too much on them - they can't think for themselves anymore, or they have made their business and regulatory models too dependent on the ratings. But the ratings are just a tool for measuring risk. They might be right, they might be wrong. But they’re based on the same public information available to people willing to do their own analysis. That, to me, seems to be the issue. Based on their own risk analysis, the financial sector and others involved can set their own terms for lending money to Greece cum suis. Some insightful analysts have already written about the spiral trap of downgrading bonds: Greece, Portugal, etc. have to pay higher interest rates, increasing the chance of a default, leading subsequently to another downgrade. Chances seem more likely you'll get your money back when you demand lower interest rates from, for example, Greece, even though ratings would correspond with higher ones.

A roll over, then, would matter less as well. Just ignore the rating agencies that argue a ‘roll over’ equals a default. Investors should be able to assess for themselves whether they think a (French) bank is worthy lending money to – and at what rate.

The debate should not so much be about replacing the credit rating agencies, or about the agencies being to strict, but as Alexandra Ouroussoff shows in her Wall Street at War, though talking about the agencies vis-a-vis the corporate world, it should be about the underlying assumptions. We should question the agencies’ inherent (bordering on the unquestionable) belief that we can measure risk and uncertainty. Of course, in order to know whether the borrower repays you a certain level of looking into the future is required. But this should include much more awareness about the impossibility to be really able to measure all risk involved. One thing, after all, that has once again become evident the last couple of years, is that the future is difficult to predict, let alone calculate.


Update (16 January 2012): obviously, the value of investments, such as government bonds, institutional investors have on their books depends on the (legally binding) ratings of the credit rating agencies. It should be discussed whether this (self-)inflicted dependency on ratings is sensible, yet that is behind my point here. I am puzzled about which rating is decisive? Standard and Poor's downgrading of France has sparked fear about the consequences of revalueing investments in (French) sovereign debt - and potentially France's borrowing costs. Fitch and Moody's, however, recently kept France's AAA status. Which rating of the big three is conclusive for the value of investments? The lowest? A combination? Or?

Feb 21, 2011

Number crunching, a useful practice in the financial sector – and the world beyond. I like it as an expression, too. But over-relying on numbers bears a danger. You are only able to measure what translates into numbers. The world, however, is much more complex as we witness time and again – and clearly illustrated by another crunch, the 2008 credit crunch. Hence, for a safer financial sector we have to look beyond numbers.

Partly, financial services companies and regulators need to change the way they see the world. A worldview relying on computing is, of course, much easier to understand, predict and monitor. Accepting a complex world in which often intangible and interrelating processes influence the outcome is something else. As Rober J. Shiller in Irrational Exuberance (2005: 31) states, ‘this ambiguity [i.e. that many events are determined by a plurality of factors] is unsatisfying to those seeking scientific certitude, especially given that it is so hard to identify and isolate the precipitating factors to begin with.’ A sheer challenge, then, to adapt well-entrenched convictions about ‘measuring’ the world to the reality on the ground. But hey, a challenge is something that should make financiers and regulators tick!

Subsequently, there lies another challenge ahead. How to include power? How to include politicians’ (un)predictability in the search for economic solutions? And especially how to avoid that it all boils down to numbers again, obscuring, once more, difficult to measure aspects involved? Regulators and financiers I’ve met after the 2008 crisis were now aware that there was more to it than formulas and mathematical models. Cultural practises and social conventions, they realised, were certainly of influence. However, I noticed that they had a tendency not to take these aspects into account (because they were considered too intangible to include in their policies) or to try to translate it into numbers (as this was the main language they understood). They, so it seemed to me, didn’t seize the opportunity to bring it to another level. Maybe the biggest challenge, then, is to convince actors involved that part of their responsibility lies in taking time to rethink new solutions – and use and integrate insights from a variety of disciplines, such as economics, sociology, anthropology and psychology.

Nov 26, 2010

The 2008 financial crisis has often been blamed on a lack of morals and ethics in the financial sector. There might be a kernel of truth in there, yet I don’t think there is an a priori unwillingness to change. Stronger focus on CSR and sustainability in the private sector more generally, as witnessed in the last decades, clearly indicates that there are incentives to change. The difficulty, however, is to change conventional wisdoms and find common ground with respect to new (social) roles. In order to succeed, a fresh perspective may be helpful:

'Financial Complexity'

Sep 21, 2010

Recently, a study by the Netherlands Bureau for Economic Policy Analysis (CPB) sketched a number of scenarios about the future for finance. It seems that small banks are the safest bet to prevent a new financial crisis.

The Dutch banking conglomerates and the Dutch Central Bank (DNB), however, oppose the idea of smaller banks. They have a preference for universal and internationally operating banks. Understandably, the conglomerates don’t like to wind down their operations. More interesting, is the central bank’s preference for big, as one would assume that its first and foremost priority is a safe financial system.

The Dutch Central Bank’s preference raises a number of interesting questions about geopolitics, power and the role of finance in society. Firstly, why does the bank prefer big over small? My assumption is that the bank’s employees (and president) have rather mundane motives for this position. Supervising universal banks gives them a say in global financial regulation, such as the BIS. Conversely, supervising small banks will sideline them on global level and lower their status vis-à-vis their peers. It’s probably difficult to come to terms with this change and with their (much more boring) job of only regulating nationally operating (retail) banks.

Secondly, however, we should not refrain from another pertinent question: what will be the influence of smaller banks on the geopolitical position of the Netherlands? The international position of states is importantly tight to the size and scope of their financial system. Only small banks may diminish the influence of the Netherlands internationally. Hence, it’s really about an internationally competitive position from a political perspective and not so much from an economic perspective. Geopolitics, so to say. But central bankers, and politicians alike, hardly make this explicit. At least, not publicly.

In order to further discussions about the future of finance and its role in society, we have to include questions about power, geopolitics and mundane motives more openly. This will not directly solve regulators’ (including politicians) difficult position of having to balance an internationally competitive position with sentiments of the (nationally embedded) public. But it will help to better weigh different scenarios about the future for finance (in the Netherlands, elsewhere and also globally). Only then can we really start to think about the role of finance in society.


Apr 5, 2010

Last night, I realised that we should focus more strongly on narratives. Eminent economists (Akerlof and Shiller, 2009) already drew attention to the role of storytelling in professional behaviour of financiers. They argued that envy-producing stories of young millionaires, for example, were a driving force for many, and securitised mortgages were considered safe because smart people were buying them. I was wondering, then, if the power of narratives causes public outcry about bankers' bonuses vis-a-vis criticism about other patterns that contributed to the financial crisis, such as complex models to assess risk. Bonuses and exorbitant life styles just more easily translate into narratives than complex models.

This made me wonder how narratives may be effective in illustrating (the need for) cultural change in the financial sector. If we come around translating underlying patterns in clear and striking examples of actual behaviour, awareness of how ‘intangible’ aspects, such as socio-cultural patterns and power, affect professional behaviour may be increased - as well as the actual workings of economic models. Both the public and financiers may easily pick up things about behaviour in the financial sector and its social consequences when analyses are presented in clearcut narratives they can relate to.

Feb 10, 2010