BY SASKIA SASSEN
The two very different types of digital formations examined here make legible the variable ways in which the socio-technical interaction between digital technology and social logics produce distinctive outcomes. These differences point to the possibility that networked forms of power are not inherently distributive, as is often theorized when the focus is exclusively on technical properties.
Intervening mechanisms that may have little to do with the technology per se can re-shape what is, technically, a primary outcome of these networks. These two cases show us that the trajectory followed by what begins in each as the distributed power we associate with computer-centered networks can take on many forms. In the case of the global capital market it winds up as concentrated power. New technologies are partly embedded in institutional environments that have the power to inscribe technology. As a result the outcome does not reflect exclusively the features of the particular technology at work. To capture the interactions between the technical and social logics at work in producing the distinct outcomes of each case we need to identify appropriate indicators. One type of indicator is the counterfactual, that which disproves the logic at work in each case.
Dynamics of Transformation
For the global capital market, one such counterfactual can be found in the fact that this electronic, trans-jurisdictional, globally interconnected market is actually embedded in a set of dense localized environments and specific social logics rather than being a seamless global electronic space. The new technologies have had a deeply transformative effect but they do not dislodge the fact of substantive agendas organizing market actors. Todayâ€™s global capital market is a complex formation markedly different from earlier global financial markets but its extensive digitization does not necessarily mean that it is disembedded. In the case of electronic activist networks, the indicator would function in precisely the opposite direction â€” how the local can be embedded in the non-local, specifically in this case: global networks and global agendas. Both cases make legible how digitization can destabilize nested formalized hierarchies of scale: the global is shown to be multi-scalar and, though in different manner, so is the local. The global capital market is a particularly helpful case for examining these dynamics of transformation and embeddedness. It represents an enormously complex series of imbrications that can actually be traced given a high level of institutionalization and a considerable amount of evidence.
Embeddedness of Markets
There are two major sets of differences that distinguish todayâ€™s global market for capital from that of earlier periods. One has to do with the level of formalization and institutionalization of the global market for capital today, partly an outcome of the interaction with national regulatory systems that themselves gradually became far more elaborate over the last hundred years. The second set of differences concerns the transformative impact of digital networks and the possibility of digitizing financial instruments. In combination with the various dynamics and policies refered to as globalization they have constituted the capital market as a distinct institutional order, one different from other major markets and circulation systems such as global trade. One of the key and most significant outcomes of digitization in finance has been the jump in orders of magnitude and the extent of worldwide interconnectedness. There are basically three ways in which digitization has contributed to this outcome. One is the use of sophisticated software, a key feature of the global financial markets today and a condition that in turn has made possible an enormous amount of innovation. It has raised the level of liquidity as well as increased the possibilities of liquefying forms of wealth hitherto considered non-liquid. Second, the distinctive features of digital networks can maximize the implications of global market integration by producing the possibility of simultaneous interconnected flows and transactions, as well as decentralized access for investors and for exchanges in a growing number of countries.
The key background factor here is that since the late 1980s, the trend has been for more and more countries to de- and re-regulate their economies according to a particular set of criteria that has ensured cross-border convergence and the global integration of their financial centers. This non-digital condition amplified the new capabilities introduced by the digitization of markets and instruments. Third, because finance is particularly about transactions rather than simply flows of money, the technical properties of digital networks assume added meaning. Interconnectivity, simultaneity, decentralized access, and softwared instruments, all contribute to multiply the number of transactions, the length of transaction chains (i.e. distance between instrument and underlying asset), and thereby the number of participants. The overall outcome is a complex architecture of transactions. These three features of todayâ€™s global market for capital are inextricably related to the new technologies. The difference they have made can be seen in two consequences. One is the multiplication of specialized financial markets. It is not only a question of global markets for equities, bonds, futures, currencies, but also of the proliferation of enormously specialized global sub-markets for each of these. The second consequence is that the combination of these conditions has contributed to the distinctive position of the global capital market in relation to several other components of economic globalization. We can specify two major traits, one concerning orders of magnitude and the second the spatial organization of finance. In terms of the first, indicators are the actual monetary values involved and, though more difficult to measure, the growing weight of financial criteria in economic transactions, sometimes referred to as the financializing of the economy. Since 1980, the total stock of financial assets has increased three times faster than the aggregate GDP of the 23 highly developed countries that formed the OECD for much of this period; and the volume of trading in currencies, bonds and equities has increased about five times faster and now surpasses it by far. As for the second major trait, the spatial organization of finance, it has been deeply shaped by regulation. The wave of deregulations that began in the mid-1980s has lifted many of the formal constraints to the geographic spread of the industry and has brought with it a sharp increase in access to what were still largely national financial centers and has enabled innovations which, in turn, facilitated the industry â€˜s expansion both geographically and institutionally.
Distinctiveness of Capital Market
If we measure the volume of long-term flows as a share of national economies the large and dynamic international financial market from the late 1800s to the inter-war period was as massive as todayâ€™s. The extent of its internationalization can be seen in the fact that in 1920, for example, Moodyâ€™s rated bonds issued by about 50 governments to raise money in the American capital markets (Sinclair 1994). The depression brought on a radical decline in the extent of this internationalization, and it was not till very recently that Moodyâ€™s was once again rating the bonds of about fifty governments. Indeed, as late as 1985, only 15 foreign governments were borrowing in the U.S. capital markets. Not until after 1985 did the international financial markets re-emerge as a major factor. But there are significant differences. One is the volume of short-term financial flows that has grown sharply and outstrips long-term flows, this has brought with it the rise of types of financial institutions almost exclusively involved in such flows and hence highly speculative. More generally, there has been a growing concentration of market power in institutions, including more conservatives ones such as pension funds and insurance companies. Institutional investors are not new. What is different beginning in the 1980s is the diversity of types of funds, the rapid escalation of the value of their assets, and the sharp rise of extremely speculative institutions. Hedge funds are among the most speculative of these institutions; they sidestep certain disclosure and leverage regulations by having a small private clientele and, frequently, by operating offshore. While they are not new, the growth in their size and their capacity to affect the functioning of markets certainly grew enormously in the 1990s and they emerged as a major force by the late 1990s. It is particularly in the world of short-term flows and speculative investors that digitization has had transformative consequences. The increased digitization of both transactions and instruments discussed above has enabled the work of producing innovations and has enabled the workability of a variety of new but also older innovations. Today we have seen a multiplication of types of derivatives and a sharp increase in their complexity. This in turn has led to what we might describe as the growing embeddedness of financial instrument development in academic economics (MacKenzie 2003, Callon 1998). Digitization of transactions and instruments has been central to this multiplication of types of derivatives and their increased complexity. The overall result has been a massive increase in the extent to which the financial industry has been able to securitize various forms of what were previously considered untradeable assets or were simply not considered as assets, e.g. many forms of debt. At a macro-institutional level, the proliferation of innovative derivatives has furthered the linking of national markets by producing specific types of incentives. One indicator is the growing importance of cross border transactions measured in terms of their value as a percentage of GDP in the leading developed economies.in the digital era: more concentration than dispersal?
In theory, the intensification of deregulation and the instituting of policies in various countries aimed at creating a supportive cross-border environment for financial transactions, could have dramatically changed the locational logic of the transformation. Today we might expect the actual spatial organization of the industry to be a much better indicator of its market-driven locational dynamics than was the case in earlier phases with more regulation and less digitization. But empirically what stands out in the evidence about the global financial markets after a decade and a half of deregulation, worldwide integration, and major advances in electronic trading is the extent of locational concentration and the premium firms are willing to pay to be in major financial centers. Large shares of many financial markets are disproportionately concentrated in a few financial centers. This trend towards consolidation in a few centers, even as the network of integrated financial centers expands globally, is evident within countries. There is both consolidation in fewer major centers across and within countries and a sharp growth in the numbers of centers that become part of the global network as countries deregulate their economies and the global economy expands accordingly. Bombay, for instance became incorporated in the global financial network in the early 1990s after India (partly) deregulated its financial system. This mode of incorporation into the global network is often at the cost of losing functions that these cities may have had when they were largely national centers. Today the leading, typically foreign, financial, accounting and legal services firms enter their markets to handle the many of the new cross-border operations.the continuing utility of spatial agglomerationThere are at least three reasons that explain the trend towards consolidation in a few centers rather than massive dispersal.i) First, while the new communications technologies do indeed facilitate geographic dispersal of economic activities without losing system integration, they have also had the effect of strengthening the importance of central coordination and control functions for firms and, even, markets. Indeed for firms in any sector, operating a widely dispersed network of branches and affiliates and operating in multiple markets has made central functions far more complicated. It is increasingly evident that to maximize the benefits of the new information technologies firms need not only the infrastructure but also a complex mix of other resources. In the case of financial markets we could make a parallel argument. Most of the value added that these technologies can produce for advanced service firms lies in so-called externalities. And this means the material and human resources â€”state of the art office buildings, top talent, and the social networking infrastructure that maximizes connectivity. Financial centers provide the social connectivity that allows a firm or market to maximize the benefits of its technical connectivity. ii) Besides the familiar mergers and acquisitions of firms an important trend in the global capital market is the Â»mergerÂ« of electronic exchanges that connect select groups of centers. There are a number of networks connecting markets that have been set up in the last few years. In 1999 NASDAQ, the second largest US stock market after the New York Stock Exchange, set up NASDAQ Japan and in 2000 NASDAQ Canada. This gives investors in Japan and Canada direct access to the market in the U.S. Europeâ€™s more than 30 stock exchanges have been seeking to shape various alliances. Euronext (NEXT) is Europeâ€™s largest stock exchange merger, an alliance among the Paris, Amsterdam and Brussels bourses. A novel pattern is hostile takeovers, not of firms, but of markets, such as the attempt by the owners of the Stockholm Stock Exchange to buy the London Stock Exchange (for a price of US$ 3.7 billion).
These developments may well ensure the consolidation of a stratum of select financial centers at the top of the worldwide network of 30 or 40 global cities through which the global financial industry operates. Taking an indicator such as equities under management shows a similar pattern of spread and simultaneous concentration at the top of the hierarchy. These developments make clear a second important trend that in many ways specifies the current global era. In the initial stages of deregulation in the 1980s there was a strong tendency to see the relation among the major centers as one of straight competition when it came to international transactions.
New York, London and Tokyo, then the major centers in the system, were seen as competing. What we are seeing now is an additional pattern whereby the cooperation or division of functions is somewhat institutionalized: strategic alliances not only between firms across borders but also between markets. There is competition, strategic collaboration and hierarchy. Together all of these trends indicate the emergence of global formations where before there were interactions among national centers, but global formations partly embedded in networks of financial centers.iii) It is important to recognize that national financial centers have themselves been transformed by these developments. National attachments and identities are becoming weaker for global firms and their customers. Global financial products are accessible in national markets and national investors can operate in global markets. For instance, some of the major Brazilian firms now list on the New York Stock Exchange, and by-pass the Sao Paulo exchange, a new practice which has caused somewhat of an uproar in specialized circles in Brazil. While it is as yet inconceivable in the Asian case, this may well change given the growing number of foreign acquisitions of major firms in several countries. It can be argued that such denationalization is a necessary condition for economic globalization. The sophistication of this system lies in the fact that it only needs to involve strategic institutional areas â€”most national systems can be left basically unaltered.a politics of places on global circuits: the local as multiscalarParticular instantiations of the local can actually be constituted at multiple scales and thereby construct global formations that tend towards lateralized and horizontal networks. Local, often resource-poor organizations and individuals can become part of global networks and struggles. These practices are constituting a specific type of global politics, one that runs through localities and is not predicated on the existence of global institutions. Simultaneous decentralized access can help local actors have a sense of participation in struggles that are not necessarily global but are, rather, globally distributed in that they recur in locality after locality. The conceptualization of the local in the social sciences has assumed physical/geographic proximity and thereby a sharply defined territorial boundedness, with the associated implication of closure. Also, partly a consequence of the first, there is a strong tendency to conceive of the local as part of a hierarchy of nested scales, especially once there are national states. These conceptualizations hold for most of the instantiations of the local today, but there are also conditions that contribute to destabilize these practices and formations and hence invite a reconceptualization of the local that can accommodate a set of instances that diverge from dominant patterns. Key among these current conditions are globalization and/or globality as constitutive not only of cross-border institutional spaces but also of powerful imaginaries enabling aspirations to transboundary political practice even when the actors involved are basically localized. Computer centered interactive technologies facilitate multi-scalar transactions and simultaneous interconnectivity among those largely confined to a locality. As has been widely recognized by now, new ICTS do not simply replace existing media techniques. For instance, a survey of local and grassroots human rights NGOs in several regions of the world found that the Internet makes exchange of information easier and is helpful in developing other kinds of collaboration, but that it did not helps launch joint projects (Lannon 2002: 33). On the other hand, there is evidence of highly creative ways of using the new ICTs along with older media recognizing the needs of particular communities. A good example is using the Internet to send audio files that can then be broadcast over loudspeakers to groups who lack access to the Internet or are illiterate. There is little doubt that the gathering, storage and dissemination of information are crucial functions for Human rights, large development, and environmental organizations whom are at this point the leaders in the effort to build online databases and archives. Adams (1996), among others, shows us how telecommunications create new linkages across space that underline the importance of networks of relations and partly bypass older hierarchies of scale. The issue is one of orders of magnitude, scope and simultaneity: the technologies, the institutions and the imaginaries that mark the current global digital context inscribe local political practice with new meanings and new potentialities. Distributed access is crucial: once an alert enters the network from no matter what point of access it spreads very fast through the whole network. Amnestyâ€™s Urgent Action Alert is such a system. The second form of multi-scalar interaction is one where localized struggles are aiming at engaging global actors, e.g. WTO, IMF, or multinational firms, either at the global scale or in multiple localities. Local initiatives can become part of a global network of activism without losing the focus on specific local struggles. (E.g., Cleaver 1998, Espinoza 1999, Ronfeldt et al. 1998, Mele 1999).
Space for Social Struggles
Moreover, the architecture of digital networks, primed to span the world, can actually serve to intensify transactions among residents of a city or region, it can serve to make them aware of neighboring communities, gain an understanding of local issues that resonate positively or negatively with communities that are in the same city rather than with those that are at the other end of the world (Riemens and Lovink 2002). Recovering how the new digital technology can serve to support local initiatives and alliances inside a locality is important given the almost exclusive emphasis in the representation of these technologies of their global scope and deployment. Cyberspace is a far more concrete space for social struggles than that of the national political system. It becomes a place where non-formal political actors can be part of the political scene in a way that is much more difficult in national institutional channels. Nationally, politics needs to run through existing formal systems: whether the electoral political system or the judiciary (taking state agencies to court). Non-formal political actors are rendered invisible in the space of national politics. Individuals and groups that have historically been excluded from formal political systems and whose struggles can be partly enacted outside those systems, can find in cyberspace an enabling environment both for their emergence as non-formal political actors and for their struggles. We see here the potential transformation of actors Â»confinedÂ« to domestic roles, into actors in global networks without having to leave their work and roles in their communities. They do not have to become cosmopolitan in this process, and yet they are participating in emergent global politics.The most significant feature in both the case of global markets and in the case of activism is the possibility of expanded decentralization and simultaneous integration. The fact that local political initiatives can become part of a global network parallels the articulation of the capital market with a network of financial centers. Among the technical properties that produce the specific utility in each case is the possibility of being global without losing the focus on specific local conditions/resources. Insofar as the new network technologies strengthen and create new types of cross-border activities among non-state actors, they enable the constitution of a distinct and only partly digital condition. The non-digital variables differ sharply between these two cases, even as digitization is crucial to constituting the specificity of each case. The divergence is evident in the fact that the same technical properties produced greater concentration of power in the case of the capital market and greater distribution of power in the second case.