Abstract
In this paper, Gordon Clark draws on experimental psychology and an analysis of the practices of financial institutions to give an account of the recent global financial crisis. He attributes the crisis to the failure of financial institutions to calculate and manage risk effectively, and assigns responsibility for this failure to ‘myopia and the distinctive nature of financial decision-making’; or, put another way, ‘behavioural predisposition combined with the incompleteness of financial markets'. In the genesis of the crisis, he argues, these features of the financial market proved self-reinforcing as ‘the failure of risk-metrics and increasing market uncertainty amplified our predisposition to myopia’.
While far from either a structural or micropolitical account, the paper insists on the significance of context in the interplay among rationality, conventions, and more formal structures. Clark draws our attention to the geographies of his account – geographically mediated contagion, the difficulties of scale in risk management, and financial institutions operating at a distance in relative ignorance of place-based conventions and regulatory contexts in other jurisdictions. Although they might have been teased out in more detail, each of these geographies is argued to have contributed to the failure of financial institutions to manage their risk. Each effectively develops the argument that geography ought to be crucial to economic explanation. The paper emphasizes in conclusion that context is crucial to cognition; and that geographers recognize this in their methodological predilection to develop empirically informed understandings of behaviour (economic rationality) and institutions (the nature and structure of financial markets) and the way these relate in practice. Clark’s institutional analysis (in places political) is a valuable antidote to accounts directing attention to individual greed, the specific actions of specific actors at specific times, unfathomable complexity, or even the unpredictable perfect storm.
The paper is an important contribution in economic geography. Christophers (2009) charges that economic geographers have been complacent, even lazy, in getting to grips with global finance, tacitly contributing to its discursive construction as too complex to understand (and thus manage). Not so Clark, for whom the crisis is not the implosion of a system too complex for actors to know or manage. Curiously, however, despite writing to an argument about the potential of a geographer’s gaze to lay bare the machinations of global finance, Clark makes little reference in this paper to the work of geographers who have begun to examine the crisis. There is space in this account to treat a different explanation of crisis grounded in structural pressures and a richer conception of place than financial conventions. There is room for acknowledging a wider economic geography. Indeed, if context really matters, then there is much to be gained from doing so and a disciplinary obligation to do so.
The paper makes a compelling argument about the short-termism endemic in the practices of market actors, especially in financial markets. Perhaps more problematically, it traces this back to myopia as a fundamental human characteristic, and forward to argue that myopia in context is to blame for the crisis. Context, in this account, is institutional rather than cultural. While Clark has elsewhere successfully challenged certain mythical aspects of cultural context (notably the ‘barrow-boy’ cultural subjectivity of market traders) (Clark and Thrift, 2005), market actors remain cultural subjects of firm, industry, market, place, social group, and time. So too do those who overborrowed and those who invested in weak instruments and funds, about whom we hear little in this paper. Little is said about intermediaries or actors other than banks.
I remain unconvinced that the embrace of context is a ‘move away from foundations to contingency’, as Clark claims. Traders are still seen as rational economic actors, even if it is conceded that there is a fundamental irrationality at the heart of economic rationality. They are portrayed as ideal types, rather than embodied actors. The paper refers to ‘fundamental human traits', including insensitivity to base-rate information, short-termism, and hostility to intertemporal tradeoffs. Such talk always leaves me uneasy, as does the implication that if only we were not so flawed, the world (markets) would work. While Clark does not argue that point, there is something troubling about the time and place specificity of claims that people (sic) are ‘impulsive, inconsistent over time, and unable or unwilling to conceptualize their “long-term” interests'. That we might try to correct for such flaws, even in very restricted settings, makes me uneasy. Were the children of the postwar golden weather less myopic than those of neoliberalism?
How should we judge the paper as a contribution to disciplinary dialogue? The paper provides a challenging account from within one stream of economic geography. It is not intended to be either a comprehensive disciplinary consideration of the crisis or a review of the contributions of geographers. Perhaps it is up to others to conduct ethnographies that might give financial actors bodies and render more visceral accounts of their performance. However, as a reading back to the world of what geography might say, the paper could have provided a more robust explanation of the crisis with a look at the work of economic geographers writing in different traditions.
The central metaphor has a certain salience. It makes clear reference to the temporal contradictions of capitalism, the absence of an inherent regulatory principle, and our failures to design or to suppress the damaging short-term opportunism of clever agents. However, its implications are troubling: that banks are organic and relatively unproblematically controlled by their brains, that there is such a thing as full-sightedness, that short-termism is the same as short-sightedness, that people are born people and all people are short-sighted, and that what is at stake is a condition that might be corrected. While I am sure that the staff of financial institutions suffer myopia and make bad decisions as a result, a broader explanation is required to account for changes in the way banks perform in changing contexts, how they shape those contexts, and how they perform internally. Geographers might look to Harvey (2009) for inspiration as well as to their colleagues now exploring financialization (French et al., 2009; Leyshon and Thrift, 2007; O’Neill, 2009; Pike and Pollard, 2009). I would look to relations within banks, among banks, and between banks and other agents, and the way those relations are institutionalized, to understand what banks do and how they do it.
My vision of distant objects is blurry. While I wear glasses when I want to see the writing on the wall, it has yet to drive me to develop intricate strategies and microscopically detailed schemes for rearranging my nearby worlds. I am regulated to wear corrective lenses when driving – by insurers and police as well as moral commitment to myself, my family, and other road users. Clark too seeks correction. He challenges economic orthodoxy on the crisis and its calls for corrective institutions in the wake of the crisis. For Clark, myopia offers both an object for regulation and a constraint on effective regulation. His intervention is not to rail against the myopia of banks, their role in the social costs of the crisis, greed, or bonuses, but to offer an explanation of crisis in the internal contradictions of bank practices and to develop a framework for considering appropriate interventions to regulate them.
The paper’s explanation of the crisis may not convince me, but I learned from it. I particularly like the two-by-two grid of types of professionals (sophisticated and opportunistic) and types of corporate environment (reinforcing and regulatory) used to test risk management scenarios in conditions of stability and volatility. Clark runs the myopia thesis through the grid, to consider the appropriateness and potential efficacy of suggested regulatory interventions at the site of the firm, national law, or global regulation. The paper offers a myopia test for crisis prevention regulations, which seems a useful intervention. I am inclined to other accounts of the crisis, to other objects of analysis, and to a politics of intervention based on actions other than helping bankers to see further into the future. However, I have enjoyed engaging with the paper, which is perhaps the best way to judge a contribution to disciplinary dialogue.