Performing Transparency: A Long View

February 12, 2009

Transparency, transparency, transparency: Obama wants it in government (he says), mortgage back securities didn’t seems to have enough of it, and many are yet to be convinced that the various bailouts will deliver it. As one recent sociological text on the subject puts it (in what, in light of the current context, now reads as something of an understatement), transparency is: ‘a concept that has gained increasing currency and favour as an organising principle and administrative goal’ [1] (you can also download a version of Fabian Muniesa, Emiliano Grossman and Emilio Luque’s excellent paper on the topic from the same book here).

In relation to my own research into consumer credit, the attempts to perform transparency (as with many other financial products) have to somehow manage and contain the inherent uncertainty and opacity of the unknowable future. In other words, consumer credit has to contain mechanisms that in some way render the future a little less opaque, even if achieving complete transparency is, by definition, impossible.

In the UK, part of this task has been recently undertaken by an ongoing review of the regulatory framework in relation to which consumer credit sits, principally oriented around an updating of the Consumer Credit Act (first drafted in 1974). This review has a stated aim of achieving a ‘fair, clear and competitive’  consumer credit industry; in other words, transparency (clarity) sits in relation to two perhaps conflicting requirements: ethical (fairness) and market openness (competition). Part of my research examines how these categories are performed in and through the operations of consumer credit in the UK. Just to give an idea of how achieving these aims are attempted, requirements on regularity of credit statements have recently been strengthened and, within those statements themselves, there are precise requirements for the ways in which the balance, interest payments, and default charges are displayed (this includes a requirement to provide a clear ‘Summary Box’ detailing the particular product’s key features, both pre- and post-contract – a similar scheme operates in the US, I understand).

I’m not going to focus here in detail on the role such ‘market devices’ play in relation to contemporary consumer credit. Instead, I want to sit these attempts to devise a contemporary regulatory framework in something of a long historical context. For, it was in a period when I was actively considering some of the issues that I have sketched above, that I visited Salisbury Cathedral in the UK and encountered one of their venerable ancestors: the Magna Carta, the document that is widely held to provide many of the founding principles for British jurisprudence, written in 1215. This is what (in translated form), it states in the ninth of sixty-three points:

‘9. Neither we [the King] nor our officials [in some versions ‘bailiffs’] will seize any land or rent in payment of a debt, so long as the debtor has movable goods sufficient to discharge the debt. A debtor’s sureties [guarantees] shall not be distrained upon [seized] so long as the debtor himself can discharge the debt. If, for lack of means, the debtor is unable to discharge his debt, his sureties shall be answerable for it. If they so desire, they may have the debtor’s lands and rents until they have received satisfaction for the debt that they have paid for him unless the debtor can show that he has settled his obligations to them.’

It then continues, in points ten and eleven, to lay out further attempts at establishing what are clearly intended to be the ‘reasonable’ responsibilities that should be held by others (in particular heirs and wives) towards the repayment of any debts owed to moneylenders should a debtor die. The Magna Carta is then, not only the first (well, to my knowledge – perhaps a legal scholar will correct me if not) attempt at a credit act, but also the first attempt at achieving ‘fairness’ and ‘clarity’ in relation to borrowed sums and to bring some measure of ‘transparency’ towards a financial instrument that depends on an inevitably opaque future. Unsurprisingly, the desire to couple these two aims with achieving market ‘competitiveness’ is absent – although, that being said, the document as a whole was produced in a context where a group of barons were attempting to circumscribe King John’s (seemingly unfettered) power, deemed to be a threat to the pursuit of their livelihood. So perhaps a proto-market imperative is there after all.

Apart from wanting to simply draw attention to this, to my eyes anyway, compelling historical artefact, one perhaps quite simple point here (and this relates to previous posts here and here), is the historical persistence of controversy around forms of borrowing, as well as the need for material devices that attempt to contain these controversies. Forms of lending, in their need to stretch an economic transaction across time, and in their ability for debts be transferred from one party to another, tie together actors often wholly disconnected from the original moment of exchange: in this example, there are not only borrowers and lenders, but also potentially bailiffs, wives, heirs, barons, Kings, and their various assets. The Magna Carta is an attempt to ‘frame’ or stabilise the potentially unpredictable and variable interactions that could occur between these parties. Performing transparency in relation to financial instruments is thus not solely a contemporary phenomenon, but as old the legal system itself.

But more than that, it is often too easy to forget the material labour that goes into establishing these ‘transparency enacting’ framing devices: in that respect, the Magna Carta serves as a good reminder. Painstakingly etched, in tiny script, into durable vellum, the Magna Carta is a device that was written so as to both endure and to be (to again recall a Latourian concept) an ‘immutable mobile’, to travel both across time and space, without losing its agential potential, its ability to ‘act’ and be mobilised when, and where needed. Achieving transparency through the regulation of contemporary financial instruments may well be dependent on a far greater range of material processes, however this greater complexity should only increase our attention to the way they combine with people and other material processes across a varied range of highly situated social settings.

[1] Garsten, C., de Montoya, L. (Eds.) (2008), Transparency In A New Global Order: Unveiling Organizational Visions, Cheltenham, UK: Edward Elgar, p. 1.

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13 Responses to “Performing Transparency: A Long View”


  1. [...] Today’s post looks at the Magna Carta as an early attempt to perform transparency in relation to forms of borrowing. I also talk about its materiality, so here’s a picture to remind you of what it looks like (I couldn’t get this to work on the Socializing Finance site). [...]

  2. danielbeunza Says:

    I could not agree more. Transparency has become like “apple pie,” an uncontested good thing that politicians and pundits want to bestow on the investor and consumer.

    But I would like more concreteness. You hint at a negative (or at least skeptical) view of transparency in consumer credit. But I am not sure I understand, or how exactly its negative effects are related to the Magna Carta.

    I can attest, for instance, that transparency is a key issue in market microstructure. Academics debate whether it creates liquidity, or reduces. Here, finance economists are divided about it. Most are in favor, some oppose it, but all of them realize in one way or another that information about orders can lead investors to pull back: if so-and-so wants to sell a ton of IBMs, the thinking goes, why would I want to buy? The key role of the intermediary –i.e., the specialist or floor broker– is to alleviate this fear by create opacity. And now that the specialists have been downsized, investors resort to “dark pools”.

  3. Fabian Says:

    Joe, Daniel,

    Here is a nice example of an argument on the perils of transparency (a difficult state to be in, indeed):

    “But the populist impulse to follow the money is not always shared by banking regulators who are primarily concerned with preserving the overall stability and liquidity of the financial system. For them, there is such a thing as too much transparency – especially if it undermines public faith in banks or discourages ailing companies from seeking help.”

    http://www.nytimes.com/2009/02/10/business/economy/10bank.html

  4. joedeville Says:

    Thanks for article Fabian. I think that does capture very well the variable deployment of transparency; in other words, when thinking about transparency, the need to remain attentive to ‘whose’ transparency is being enacted, and ‘where’.

    And thanks also to Daniel for your comment. I will try my best to deliver a little more concreteness…!

    Your question has two parts: whether there are negative effects to transparency in relation to consumer credit and, if so, how (on earth) this relates to the Magna Carta. Let me address, at least in part, this second element of the question first, so to speak. I’m certainly not making any big claims in relation to the Magna Carta – but it does serve well as something of a rhetorical tool I think. First, it simply provides for me a nice example of the persistence of needs to institute framing mechanisms around forms of borrowing. To draw on Callon’s terminology, because of its incorporation of an inherently unknowable future, forms of borrowing/lending inevitably multiply the amount of potential entanglements between the two parties involved. Hence the need for more complex framing devices, to account for some of the (unknowable, opaque) future eventualities. You could certainly go back further than the Magna Carta, and look at the various sanctions and edicts around borrowing in a range of religious texts and social norms. But the Magna Carta does something more than that, in attempting to lay down a clear jurisprudential framework around borrowing. It is, therefore, much more similar to the kinds of contemporary market devices that abound now. And, when you see the Magna Carta, you are struck by its tactility, by the careful material labour that has gone into constructing it. Again, I think this is a nice metaphor for the (far more complex) material investments necessary ‘perform’ contemporary transparency not only in relation to consumer credit, but a range of financial instruments.

    So, on to the first part of your question. I guess for me, in relation to consumer credit, the question is less whether transparency is a ‘good’ or ‘bad’ thing, but how the attempts to achieve transparency sit in relation to assumptions about borrowing behaviour. There is an implied assumption, in relation to consumer credit, in governmental discourse at least, that there is an identity between transparency and economic calculation in relation to consumer credit. That more transparency in relation to consumer credit will lead to better, and more sensible, borrowing decisions amongst consumers. I’m only in the early stages of analysing my data, but my gut instinct is that this assumption is based on a notion of consumer rationality (and its relationship to an inevitably opaque future) that isn’t sustainable empirically. But I will hold off making any more comments on this now, until I have worked though this further.

  5. danielbeunza Says:

    I see. My take on the Magna Carta would be similar to that of an institutional economist a la Doug North… seems that the materiality there symbolizes the importance of preserving property rights.

    Far more interesting, and closer to my own concerns, is the role of transparency and free information flow to consumers and borrowers. I agree that the present material devices pose important challenges to the ability to calculate.

    This was precisely the concern, back in 2006, of myself and my two coauthors at Derivart in putting together “The Mortgager.” We observed that the “mortgage calculators” (available for potential home buyers in the website of realtors) only emphasized the monthly expenditure (and tax savings) involved in buying a home, obscuring the lifetime commitment to that expense that the buyers incurs into.

    So, by way of an art installation, we created a “reverse mortgage calculator” that gave out, as output, the final age at which the home would be free from the mortgage:

    http://www.derivart.info/projectes/pdf/hipotecadora_en.pdf

  6. joedeville Says:

    I like the thinking behind the reverse mortgage calculator and its attempts to complicate the ways in which the future can be rendered visible.

    And you’re right about many conventional mortgage calculators. Even on the FSA (a UK independent authority, in charge of regulating financial services) ‘Money Made Clear’ website (again, invoking a transparency ideal), the mortgage calculations focus on monthly costs:

    http://www.moneymadeclear.fsa.gov.uk/tools.aspx?Tool=mortgage_calculator

    In relation to consumer credit, there’s some really interesting research that has been done in the psychology department Warwick University by Neil Stewart, looking at the ways people get ‘fixated’ on (or, as they put it, ‘anchored’ to) minimum payments:

    http://www2.warwick.ac.uk/newsandevents/pressreleases/research_finds_customers146/

    Stewart suggests that in fact the very existence of a minimum payment has adverse effects on many of those who repay only part of the bill, becoming treated (erroneously) as a guide towards repayment amounts. In his experiment, the lower the suggested minimum repayment, the lower the likely (partial) repayment.

    They also devised their own tool on the website to try and make the costs of partial repayment more visible – unfortunately, the link does not seem to be working at the moment.

  7. danielbeunza Says:

    This is precious material. And in fact, the two of them are related. My sense is that it is because there is a lack of proper calculating tools that users get anchored to the minimum. The minimum, to be real clear, is the only number that comes up on screen — a case of “screen priming”. So, of course there is anchoring.

    I was rather surprised by the apparent naivete of Neil Stewart. He writes “these results should be of real concern to credit card companies. Virtually all credit card statements include minimum payments. But this consumer safeguard has an unexpected negative consequence: Minimum payments distort the behaviour of many customers in a way that increases interest charges and increases the duration of their debt.”

    Duh? Greater interest charges and longer debts is *precisely* what the credit cards want. That’s how they make money. I have it that, in bank parlance, the consumers who do not have credit card debts are referred to as “zombies” because, from the standpoint of interest charges, they might as well be dead.

    OK, but on to the FSA calculator. I see, first, that it is part of an entire suite of tools, which includes (a “financial healthcheck” and a “parenting calculator.”). This is excellent stuff. I think it could be more even helpful with some improvements. I would have a graphical interface –make it fun, alluring and more “machine-like.” Second, it should have a way (as ours does) to introduce the financial aims of the user, to set them in relation to his or her financial realities.

  8. joedeville Says:

    I agree… the ‘applied’ interpretation of Stewart’s findings do seem a little forced.

    However, the study does I think at least speak to some of what Sid Winter discussed when he came into Columbia last week. Winter (for those who were not there) made a case for the ubiquity of poor economic decisions, in instances of what he termed ‘improvised rationality’. These are the highly frequent, routine situations where people make decisions ‘on the fly’, so to speak, without modelling tools, or aids, often with detrimental economic consequences.

    This does to some extent resonate with the idea of a borrower, in a moment of improvised decision making, fixing on a figure and reading it (erroneously) as a guide towards a repayment amount. And I wonder to what extent more tools would be of help in those situations, given their improvised nature? Calculating tools are of undeniable potential benefit to a consumer, at least to some extent giving them greater calculative agency in certain situations (and yes, better design, as you suggested, could help I suspect). But I wonder if the routinised nature of consumer credit in some way itself mitigates against the construction of more formalised, less ‘improvised’ calculating instances (compared to the more infrequent decisions made about, for example, a mortgage).

    That being said, whether this means we blame ‘habit’ for the ubiquity of poor, ‘on the fly’ economic decisions, as Winter seemed to, I am not so sure (think, by contrast, of the richness of Callon’s account of the socio-technical construction of decision making. Although, I’m only going on Winter’s presentation here – I am yet to read the full book). Either way, questions that need further inquiry…

  9. danielbeunza Says:

    Right on. What your comment suggests is that one should take a symmetrical approach to the study of calculation and routine. The purported advantage of routines is that they save on the cognitive cost of decision making. But calculative devices accomplish the same. So — how do actors trade off one versus the other? When? With what consequences? I think these are crucial questions to understand how people make mistaken expenditure decisions.

  10. marthapoon Says:

    Apologies for being a little late on joining this conversation, but Joe, I’m a bit confused as to why you’ve framed the purpose of market devices in credit as necessarily being solutions to the problem of future opacity. It was my understanding that consumer credit only becomes a problem of future outcomes when one is in a regime of risk which occurs well after then 1950’s; prior to it would seem that that devices seek to inscribe and maintain networks of relationships…

  11. joedeville Says:

    Thanks for the comment Martha – appreciated. I think you are right to point to the need to remain attentive to the history of consumer credit, especially in relation to a post originally claiming some sort of ‘Long View’!

    So, in answer to your query, I would certainly not claim that the purpose of market devices in relation to consumer credit is necessarily to answer the problem of future opacity. Although I would say that this is one opacity (of many potential opacities) that borrowing markets have always had to deal with, in order for these markets not to collapse in on themselves. And, in relation to contemporary consumer credit, a range of market devices have certainly sprung up to deal with this. My own interest is in devices pitched towards the consumer. One that I’m particularly interested in is the credit statements – a market device that, at least in part, aims to make both past and future calculable and that has, in the recent review of the UK consumer credit act, been the subject of much regulatory scrutiny.

    But a historical perspective on this is certainly valuable here. I wrote in reply to Fabian’s post of the need to remain attentive to ‘whose’ transparency is being enacted and ‘where’. But perhaps I should have also added, ‘when’. Consumer credit is a constantly shifting object, where the forms of transparency demanded by both consumers, lenders, regulators are constantly changing and responding to ever changing demands (or ‘overflows’). So, from that point of view, talking about consumer credit will always demand remaining attentive to historical contingency, as well as to where devices are enacted and for/towards whom. In that sense, I think you are right to demand an attention to the deep dependence on risk management practices in relation to contemporary consumer credit.

    As for pre-1950s consumer credit, it’s not something I’m looking at. But I’d be certainly interested to hear more about what the devices were that you were thinking of, in relation to the prior need to maintain/inscribe personal relationships? And also, I’m wondering, for whom do you see the opacities of future outcomes as becoming a problem post 1950s? For the borrowers, lenders, regulators? Because presumably this is (was, has been) a different problem for each?

  12. yrumpala Says:

    Maybe a way to achieve a kind of transparency would be to trace the networks of our contemporary world. For a theoretical and practical proposition using this idea as a way to rebuild a political project, see http://yannickrumpala.wordpress.com/2008/09/16/knowledge-and-praxis-of-networks-as-a-political-project/

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