Cronyism and the global city again (crosspost from crookedtimber.org)
Alex Pareene at Salon points to a bunch of evidence showing, in essence, that the rich look out for themselves and their kids, and no one else, then to a piece by Andrew Ross Sorkin defending nepotism in the US, and by extension in China. There was a time, not so long ago, when Asia’s reliance on guanxi and similar networking practices was denounced as ‘crony capitalism’, to be contrasted with the pure and hard-edged version to be found in the US. This was supposed to explain the vulnerability of Asian economies to the crisis of 1997, and the stability of the US, then well into the Great Moderation.
A few years later, in the very early days of blogging, I wrote a post pointing out that the eagerness of financial sector workers to congregate in the same physical location, even though their work was supposed to be based on objective evaluation of data transmitted by computer, was pretty good evidence that the “global city” phenomenon, much in vogue at the time, was just guanxi writ large.
I turned that into a magazine article at Next American City (now Next City, whose web site seems to have lost it). Then I wrote a longer and more academic version and submitted it a lot of journals in economic geography, urban geography and so on, none of whom were interested. I think it stands up well in retrospect (much more so than most of the ‘global city’ literature, at any rate), but of course I’m biased.
At any rate, at least now everyone, and not least a defender and beneficiary of the system like Sorkin, is comfortable with the notion that capitalism is a rigged game, in which the ability to fix the next round is part of the prize for winning this one.
Update/clarification I’ve implicitly taken the efficient markets hypothesis as a benchmark, and assumed that features of the financial sector (for example, physical colocation) that can’t be explained by EMH are likely indicators of cronyism. It’s possible to take the view that the financial sector does things that are inconsistent with EMH, but nevertheless socially beneficial. An obvious example is the kind of opaque, over-the-counter derivatives that Dodd-Frank has tried to ban, and that the finance sector is lobbying hard to protect: it seems clear that doing these kinds of deals would benefit from face-to-face contact. So, if such deals are, in aggregate, socially beneficial, my argument fails – the converse also holds.