Thought this summer school, primarily aimed at PhD students & early career researchers, might be of interest to readers of this blog. Titled the ‘Critical Economies Summer School’ (CES), guest speakers include John O’Neill (University of Manchester), Laurent Thévenot (Ecole des Hautes Etudes en Sciences Sociales) and Clive Spash (Vienna University of Economics and Business). The event will address three main topics: Environmental values and valuation, Environmental markets & Public decisions and the environment. Deadline for submissions is April 15th 2011.

More detailed information can be found on the CES website.

A very last minute notification of an event tomorrow at Goldsmiths which might interest some readers of this blog:

A presentation by Professor Franck Cochoy
CERTOP, University of Toulouse

‘The curious marketing fate of human curiosity: Technologizing consumers’ inner states to build market attachments’

Wednesday March 16th, 4-6pm
Goldsmiths, University of London
Richard Hoggart Building, Room 308

STS has done a terrific job in exploring the sociology of technical devices, but in so doing it has somewhat tended to neglect the properties of human subjects. I would like to suggest a more symmetrical analytical approach, by focusing on some market dynamics that bring “devices” and “dispositions” together. More precisely, I would like to focus on a particular disposition – curiosity – and the technologies market professionals have developed as a means to seduce consumers. The idea is that, more than any other disposition, focusing on curiosity can help in understanding how market professionals and technologies, in playing on human subjects’ inner states, may reinvent their very identity and behavioral logic. I will show that from Genesis to the curiosity cabinets of the 15th-18th centuries, to modern shop windows and the “teasing” strategies of today’s advertising, seducers and merchants have constantly built “curiosity devices”, that have helped ordinary persons to become curious and/or to become consumers. In the process, they have freed themselves from previous action schemes – routine and tradition for example –, as well as coming to behave in patterns very different from those understood according to the more familiar logics of interest and calculation. The contemporary commercial game introduces a real market of consumer drives, where “Blue Beard’s curiosity” ends up facing a real “rainbow market” of competing dispositions.

Organised by the Department of Sociology, Goldsmith University of London


Free. No registration required.

The Wall Street Journal (WSJ) recently published a headline article titled “Hedge Funds’ Pack Behaviors Magnifies Market Swings”. While it is not unusual to see the WSJ write on hedge funds and market swings, this article is unusual because it emphasizes the social ties linking investors. It reflects a sea change in the way that the public and the media view financial markets – and an opportunity for the social studies of finance (SSF) to reach a broader audience.

For the past decade, the quant metaphor has dominated public perceptions of financial markets. Institutional investors – particularly hedge funds – were seen as “quants” that used sophisticated computer models to analyze market trends. This idea went hand-in-hand with the view that markets were efficient – fueled by reliable, public data, proceed through sophisticated, rational algorithms, and powered by intelligent computer systems instead of mistake-prone humans.

Of course, the recent financial crisis has dislodged such beliefs. Instead of mathematical geniuses finding hidden patterns in public data, quants were revealed as Wizards of Oz – mere human beings capable of making mistakes. Their tools – computerized systems – went from being the enforcers of an efficient market to a worrying source of market instability. As stories about flash trading and inexplicable volatility popped up, the public even began to ask whether the quants were trying to defraud the public.

If institutional investors are mere humans instead of quantitative demigods, shouldn’t they also act like humans? And – shouldn’t their social natures affect the way they make investment decisions? The mainstream media is finally confronting such questions – which SSF has long raised. This particular WSJ article parallels a widely-circulated working paper by Jan Simon, Yuval Millo and their collaborators, as well as my own work under review at ASR.

The world is finally catching up with SSF. Will we finally be heard? It is our responsibility to reach out to the public and the media.

Reading through the New York Times and the Wall Street Journal, I was struck by a glaring omission. While the public has been mesmerized by currency wars and mortgage moratoriums, along with the usual sex, drugs and rock-n-roll, financial service reform has been largely forgotten. Although a few observers continue to follow the fate of the toothless financial reforms passed a few months ago, Wall Street has returned to business as usual.

Unfortunately, business as usual remains extremely dangerous. The financial system today relies upon a volatile mixture of leveraged finance and socially-driven irrationalities.

Leveraged finance is scary enough, illustrated by a recent conversation I had with a salesperson working for a major prime broker. For those of you who haven’t heard the term before, a prime broker lends securities and money to hedge funds, allowing some to invest more than $30 for every $1 they actually possess. Where does this money actually come from? Despite working at the epicenter of leverage finance, the salesperson seemed to have little idea.

What institutional investors do with borrowed money is even scarier. Simon, Millo, Kellard and Ofer (2010) find that hedge fund managers experienced groupthink in one spectacular financial episode, VW-Porsche. Being over-embedded with one another, one powerful group of managers talked each other into a “consensus trade”. Later, they collectively refused to heed warnings that the trade was becoming dangerous. When this trade inevitably exploded, the hedge fund managers stampeded out with their billions of dollars, briefly creating a spectacular bubble. This episode is consistent with my own research, which shows a follow-the-leader pattern amongst hedge fund managers. Not only are institutional investors gossipy and panicky, but they also imitate the most prestigious investors (e.g. the Tiger Cubs) using their social ties. Statistical analyses suggest that such imitation may occur despite imitators systematically harming themselves.

These cases illustrate why the social studies of finance (SSF) are so important. When socially-mediated irrationalities affect people who control hundreds of billions of leveraged dollars, they could very easily create financial bubbles and crashes impacting the real economy. Understanding these socialized irrationalities remains our best defense against future bubbles and collapses, an eventuality as long as “business as usual” continues.

How Keynesian Are We?

June 5, 2010

Last year, Congress passed the American Recovery and Reinvestment Act (or ARRA), known colloquially as “the stimulus”. Justifying this massive federal outlay ($787 billion over a couple years) was the ongoing economic meltdown following the mortgage and financial crises and the predicted decline in output and upsurge in unemployment (here’s Krugman’s pessimistic and, in retrospect, relatively accurate take). Obama signed the bill, and the federal government began spending (well, ramped up spending). A year and a half later, economists are debating the stimulus and its effects (e.g. Glaeser at the NYTimes Economix blog). 70 years later, the debate still rages – does Keynesianism work? Can we spend our way out of a recession? New and old estimates of the effects of various programs (the New Deal, Kennedy’s tax cut, etc.) are bandied in a debate that shows no signs of abating (though it may have gotten a bit more humorous).

Here’s my question though: is ARRA enough to label the current situation a Keynesian stimulus? Clearly, the act increased Federal spending from what it would have otherwise been. But the Federal government is not the whole of public spending. In fact, a quick glance at the National Income and Product Accounts Table 1.1.2. Contributions to Percent Change in Real Gross Domestic Product shows that total government expenditures have actually decreased for the last two quarters, with only contributions to growth the two quarters before that (Hat Tip to Mark Thoma). State and local governments, mostly constrained by balance budget amendments, have been slashing spending almost as fast or faster than the federal government could ramp it up. The trajectory that the US economy takes over the next couple years will be a key data point in debates about Keynesian spending and the like. And yet, when you look at the numbers, the whole thing seems a bit… small. The government as a whole is much larger than it was in 1929 or 1932. But the changes from the trend are tiny. For example, also according to the NIPA, total government spending rose 12.8% in 1934, which in turn contributed 2 percentage points of the increase in GDP.

(To clarify, the contributions I am talking about here are direct ones – there is no way to track inside the NIPA any multiplier (positive or negative). Rather, the NIPA simply calculate the growth in total GDP and then derives arithmetically how much each portion (consumption, investment, government, trade) contributed to the increase. Calculating the multiplier is a much-debated problem in macroeconomics, but I would think a subsequent one to establishing just how much government spent in the first place.)

In short, the New Deal was a big increase in spending in a much smaller government. The ARRA was a big increase in federal government spending that (almost) made up for a big decrease in state government spending. So the question is, how Keynesian are we? How Keynesian have we ever been? And perhaps of more interest for the crowd that reads this blog, why does popular perception maintain that government spending has increased dramatically when the official figures show very modest changes? I think it might have something to do with the focus of media on the federal government, and the failure to aggregate up local issues (laying off teachers and cops and the like) into their macroeconomic effects. But I’m not entirely sure. Also, what should the proper baseline be to compare the effectiveness of a stimulus against – a world where government expenditure was flat, or a world where government expenditure did what it would have without the stimulus (i.e. go way down due to cutbacks at the state level)? There are some interesting questions here, I think, in the realm of civic epistemology.

An interesting commentary appeared on BBC news about yesterday’s plunge in
US stock markets due to Greece’s continuing debt crisis:

“Computer trading is thought to have cranked up the losses, as
programmes designed to sell stocks at a specified level came into
action when the market started falling. ‘I think the machines just
took over,’ said Charlie Smith, chief investment officer at Fort Pitt
Capital Group. ‘There’s not a lot of human interaction. We’ve known
that automated trading can run away from you, and I think that’s what
we saw happen today.’”

Here the trader differentiates between two kinds of “panic” process
that both appear to the observers of the market as falling stock
prices: selling spells generated by machine interaction versus human
interaction. He assures that this time the plunge happened because the
machines were trading. This is a different kind of panic than what we
conventionally think of, one that is based on expectations about
European government debt, which escalates as traders are watching each
other’s moves, or more precisely, “the market’s” movement. Which kind
of panic prevails seems to be specific to the trading system of each
type of market. Another trader reassures us that today’s dive was “an
equity market structure issue, there’s no major problem going on.”

It is interesting that the traders almost dismiss the plunge as a periodic
and temporary side-effect, automated trading gone wild. Real problems
seem to emerge only when humans are involved. But if machine sociality
can crash a market and have ripple effects to other markets, then
perhaps the agency of trading software should be recognized.

Thank you to all the speakers and participants of the “Value, Worth and Valuation” workshop held last Friday, 05 March 2010 at CRASSH, University of Cambridge, UK, for the fascinating talks and discussions we had, and, of course, to my co-organisers Vito Laterza (Cambridge) and André Spicer (Warwick) for putting this really enjoyable and vibrant event together.

Let me attempt to capture a guiding theme of the workshop with a quote taken from one of my favourite texts, Nietzsche’s Genealogy of Morals

—   Is there anyone who would like to take a little look down on and under that secret how man fabricates ideals on earth? Who has the courage for that? …Come on, now! Here’s an open glimpse into this dark workshop. Just wait a moment, my dear Mr. Nosy and Presumptuous: your eye must first get used to this artificial flickering light… (1st essay/#14)

In a way all the talks were attempts to shed some light into the ‘workshop’ of the fundamental question of the creation of value and valuations– and how this is bound up with systems of meanings in the capitalist economy. What creates value? How is value created? What represents it? And how are its representations entangled with value creation itself? A recurring theme was the idea that in order to address the conundrum of value creation we might need to understand that a part of value creation is the act of determining what the values will be. The capitalist appropriation of value comes then to a large part from managing a symbol – or the social relationships from which the symbol derives its meaning. Moreover, what was formerly rendered external to the economic sphere (ethics, sustainability…) is increasingly becoming internalized. As a consequence, there is an open-ended market for values itself, where ‘value entrepreneurs’ compete for authority to decide what values count and how they can be appropriated.

(A rather free) summary of talks and discussions

Have management scholars been ‘middle class morons’?

The first session in the morning looked at brands and brand valuation. Inspired by Italian design, Davide Ravasi (Management, Università Bocconi) asked the question why people were willing to pay excessive money for everyday appliances. Are they paying for functional properties? Or because their possessions are essentially showing something about their extended selves (Belk, 1988)? Kitchen tools by Alessi become pieces of art and consumers become art collectors. Apple’s iMac makes a computer a fashion and lifestyle statement. The most interesting example was how, by virtue of a change of design, the Danish firm Oticon turned the hearing aid, a medical device for the handicapped and a sign of stigma, into a fashionable accessory. The symbolic dimension of consumption might appear as nothing fundamentally new to cultural anthropologists. But regarding mainstream strategy literature, some scholars from business schools in the audience arrived at a confessional conclusion: management scholars have been moronic about the question of how something that is so powerful as symbolic value can be managed. George Tsogas pointed comment on class and symbolic value sharpened the recognition that managers were not only moronic, but even “middle class morons”. An example of how class relates to symbolic consumption: once Burberry became popularized by working class people it gained a ‘negative’ symbolic value that devalued the brand. Conversely, much of the street fashion of 70s punk or hip hop ‘underclass’ culture became appropriated by catwalk fashion. It is a two-way process – it works from up and down.

Entrepreneurial valuation Who’s the pastor?

Celia Lury’s talk (Sociology, Goldsmiths), based on a paper written with her colleague Liz Moor, observed substantial shifts over the past 30 years of brand valuation techniques. In the early 1980s, accountants encountered a puzzle regarding M&A transactions. They involved necessary, but quite undesirable write-downs on the balance sheet afterwards. This was because conventional accounting techniques ignored the general role of ‘intangibles’ in value creation. As a result, the monetary value paid for an acquisition could not be accounted for– the access value paid included the intangible value of the brand acquired.

As the IASB recognised a need to translate brand reputation into financial value, a new, ‘economic use’ approach was introduced that was based on future earnings and included prospective future earnings from intangibles. The purchase of brands should be capitalized separately from ‘good will’ at market value. The firm Interbrand proposed a brand valuation tool that could capitalize prospective projected brand earnings and put them on the balance sheet. Initially, this was met with controversial reactions. Notably, the London Business School questioned the validity of the tool. Nevertheless, the methodology has become established. Brands have hence become a locus of financial valorization.

The new logic of brand valuation was not confined to commercial organizations and business. There are other real attempts to engage in what the value of a brand is. For example, attempts to measure city brand strength use questions like: “How interesting it would be to say at a cocktail party ‘I’ve just come from ‘Bradford’’ (which, on the European Citibank barometer, gained a rather low score.) Regarding my extended self, I agree it feels better saying ‘I’ve just come from Paris’. Other potentials sources of value that are made measurable are “the environment in your shopping basket” or ethical value, like Fairtrade. Things that were previously rendered external to the economy are now internal.

In conclusion, classic measures of productivity are superseded by forms of values that pose problems of valuation. There are new, entrepreneurial attempts to measure. This creates new markets of authorities and expertise in social life: standardization organizations, new representational spaces of value etc. This leads to an open-ended economy: It is never clear what measurement will prevail. Contemporary economy is about maintaining openness, not about stabilizing it.

Regarding these new sources of valuation, what then constitutes the economic value form? And does this mean that there is a complete anarchy in terms of the collective production of wealth? Is there a new substance of value? Adam Arvidsson suggests that the ability to valorise wealth might depend on the Machiavellian capacity to mobilize relations, in order to, effectively, determine what the values will be. Even though there might be a strategic aspect of it – at the same time – such value entrepreneurs are all believers, as Vito Laterza suggests. So who’s the pastor?

Even if not entirely anybody can say what is valuable (there are circular processes of ‘evaluating the evaluators’, ‘certifying the certifier’, ‘standardising standard setting’, etc.) the question emerges what are the rules for this market of authorities? Who can legitimately determine what the values will be?

Value, Debt and the performativity of abstract representations

The second session, introduced by Irene Peano (Social Anthropology, Cambridge) explored anthropological approaches to the questions of value. David Graeber (Anthropology, Goldsmiths) presented thoughts from his forthcoming book “Debt: The first five thousand years” (an overview I found here). What means value in the abstract? Reading Marx in an odd way as an elaborate theory of symbolism, value is the way of how our creative actions become meaningful to us by being integrating in meaning-giving totality. In this tradition, the realization of value relies on an imaginary totality, which provides an audience, arena, or sphere of recognition of value. How can this political economy tradition be squared with the influential approach of Marcel Mauss of conceiving of value in anthropology? This does not start not from the notion of value but from social interaction, and tends to explicitly or implicitly reduce transactions to reciprocity. But regarding exchange relationships in practice, it becomes evident that reciprocity has nothing to do with what actually happens in these relationships. Reciprocity is a rather abstract representations of what is just. Instead of reciprocity, Graeber proposes that the defining principle of exchange relationships is debt!

One starting point to understand the relation between value and debt might be through looking at the fetishization – or I guess what economic sociologists would call performativity– of symbols. Money is both the representation of one’s labour, but also the object of value. It hence becomes the very thing that it represents. Originally, money did not appear as gold coins, but as in Mesopotanian history, as virtual, abstract forms that symbolize a debt relationship, a dependency. In what are thought to be traditional barter systems, there is actually a sophisticated virtual systems of account keeping, interest rates and virtual money in place. What is going on is that the symbol for money becomes money. For example, both the Greek origin of our word “symbol” and the Chinese word for symbol (fu), are, historically and etymologically, directly derived from terms for a tally stick. That is a stick that is broken in half and notched to represent a relation of debt between human beings. Each side keeps one part, which either represents the debt or the stock. They put their parts together, creating totality, when the debt is settled.

Holographic thinking

Vito Laterza (Social Anthropology, Cambridge) suggested that holographic thinking can explain how three apparently unrelated stories happening around the Swaziland Pentecostal Christian business town named Bulembu came together in a seemingly ‘spontaneous’ wildcat strike. While the start of the strike was triggered by chance event, it is possible to trace, a posteriori, the connections between these three stories. But the outcome could not have been predicted. Too many layers of signification are overlapping. Beyond the logic of “straight-linear” thinking, there are holographic operations at work that connect the epistemologies of apparently disparate phenomenology, African traditionalism and Pentecostal Christianity.

I found particularly interesting of how the notion of ‘dogma’ and holographic thinking can tell us something about of value creation. The dogma of God is a basic ordering mechanism. We can never explain or discuss the dogma itself, but we can talk about how many angels there are and so on. All elements of this totality are interconnected (a totality, rather a fragmented postmodernist version), and this is what enables value creation. Transferred to the notion of the market, its dogma is to imagine a totality, a model, and assume certain things about it. We basically make up imaginary constructs and treat them like Gods. The cross-fertilization of disciplines became evident with a managerial applications: Spiritual leadership is the fantasy that the dogma can indeed be managed.

A new ‘politics of value’

The third session addressed the notion of value creation “in” in or “after” the new economy. Adam Arvidsson (Social and Political Studies, University of Milan) presented the key argument from his forthcoming book “The Ethical Economy. Business and Society in the 21st Century”: A new value logic is contained in capitalist economy, that has not yet become fully institutionalised: Ethics creates value. Particularly, Aristotelian ethics, which is kind of the organizing principles of virtuous social relations – i.e. the ability of free men to civilize their passions so as to enable peaceful forms of cohabitation. Value is then not a function of the quantity of productive time but related to the quality of social relations.

An indication of a new value logic is the puzzle that Fortune 500 companies are 3.5x valued their book value. Where does this ‘excess’ value come from? What creates values seems to be neither materials nor individual skills but the ability to organize a network of social relations and endow it with an ethos. The value of brand is based on creating particular types of relations with consumers that both attract value and are able to retain value. This mode of production through self-organized productive networks is a hyper-extension of productive chains of cooperation like the classical assembly line.

Brands play a fundamental role as the ethical value logic becomes institutionalised through a reputation economy: ethical value circulates in form of reputation. Open source, I think, would be the example par excellence of a collaborative community that epitomises such a possible new logic of value creation in an ‘economy of the commons’. But is the defining property of open source value creation not the absence of a “capitalist” appropriation of value?

Like in Celia Lury’s talk, one of the central aspects was the emergence of new ways of determining what the values will be. And the new ‘communitarian’ value logic seems to sugest that there are  openings for more democratic and participative forms of value creation. Does this new ‘politics of value’ then mean a democratization of determining what the values will be? Or the ultimate primitive accumulation of the commons?

And back to the raw material of what the immaterial economy is made of…

Chris Land (University of St Gallen / Essex Business School) and Steffen Böhm (Essex Business School) were more sceptical of such a reading. They questioned that the economy had undergone such a fundamental transformation towards immaterial production as a type of cooperation of networked brains. What if value production had not essentially moved away from the industrial and material points of production? Celebrated possibilities for more democratic and participative forms of production are still based on obligatory points of passage controlled by corporate power. For example, to participate in the semi-autonomous forms of production of the information economy you have to pay a token to, in most cases, a monopolistic software giant like Microsoft. Chris and Steffen argued for acknowledging the centrality of what Marx (1976) primitive accumulation as an on-going process at the heart of contemporary regimes of capitalist value production and accumulation. They reminded us that the electronic devices enabling our immaterial, collaborative networks are made of raw materials like the mineral coltan. This brought us back to the reality of extractive industries. Oil and mining remain among the most profitable industries, but they appropriate land, national resources and quite material human labour. Primitive accumulation remains hence central to the functioning of capitalist value creation. Branding, immaterial economy and the carbon economy represent three of the areas that are just another instances of how the value of the commons (communication, subsistence agriculture and the environment) has been appropriated through forms of primitive accumulation.