Book Review: The Heretic´s Guide to Global Finance: Hacking the Future of Money
Scott, Brett. 2013. London, Pluto Press.
An army of people dressed in limpid suits, mostly men, stroll around the City of London every day; they go back and forth between franchise coffee shops and humbling big buildings of spacious receptions decorated with expensive furniture and top-tier art pieces. They are the people working in the financial sector—and like the City of London, a world of its own within the bigger city that is Greater London, they seem to belong to a breed that is cut off from the rest of society. The world of finance is in the imagination of many a monstrous entity, one with unchecked power, that is ever smarter, faster and stronger than anyone who might attempt to stand up to it. But it is only when one fails to grasp a perceived enemy at its intimate level, understanding its complexities, its weaknesses, and also its benevolent face, that that enemy can seem as an untameable monster. This is Brett Scott’s main quest: to show us that the instruments of finance can be understood, and only through understanding them we can start to use them in our favour; but also very importantly, to stress that finance is made of humans who, like most of us, like to think of themselves as being good individuals whose work is productive and thus beneficial to society at large.
The Heretic’s Guide to Global Finance sets itself the objective of getting the general public, or rather those ‘outsiders’ to finance that are politically concerned, to feel less daunted by the financial world, and empowered to feel capable of curbing its more negative tendencies. The task is indeed a very big one, and the book achieves only partly to put forward the amount of solid arguments that would make this book a great one. But Scott’s writing is neither grandiloquent nor ambitious, and while there are some inconsistencies, this is undoubtedly a very original take on an otherwise dull topic.
The first part of the book is Exploring, a quick tour of seventy pages through the 101 of contemporary finance. Apart from a clever dumbing down of the definition of the technical elements of finance—such as the various derivatives, capital raises, open market operations, secondary capital markets and so on—in this chapter it is perhaps the anthropology background of the author that makes for the most interesting part: an entertaining account of the players and how they interact. Almost all derivatives, for example, are traded over the counter, which means that the parties involved in the trading are personally acquainted. What this entails is that there is an essential part of the business, probably the most important, that happens not behind six-screen Bloomberg terminals but at exclusive restaurants and night clubs where, filled stomach and tipsy headed, brokers, traders, fund managers and company try to curry each other’s favour. In this scenario, a sociologist’s or anthropologist’s perspective might prove more revealing (certainly more entertaining) than that of an economics professor.
Scott does well here in leaving out, despite the extensive account of the players’ libidinal attitudes, any moral judgements which would make them look like a uniform, evil inaccessible pack. A combination of some basic technical knowledge and the riddance of an automatic moral condemnation serves to blur the outsider-insider divide, which in the author’s rhetoric is crucial in order for both parts (those looking at the financial world with suspicious eyes and those working in it) to actually listen to each other and affect their ways instead of being shielded off of any interaction.
This brings us to the second part of the book: jamming—this is the part where the crux of the author’s argument is laid out. Once one has gained the practical knowledge one can actually start to put it to use to change things in a given system from within, which is always far more effective than doing so from without—the epitomizing figure of such practice being the computer hacker. Scott insists in adopting the computer hacker mentality and putting it to work in finance (the analogy is used countless times in the book). A hacker is that who, with a high level of expert knowledge, often even higher than that of computer companies’ CEOs she wishes to expose, uses that knowledge in some cases to demonstrate failures in security systems of big companies and even governments, in others to expose wrong-doings by these actors, acting as a subversive insider. Scott considers that the same should be done in ‘financial activism’; not only is it necessary to have sound knowledge about how finance works to be able to direct it to ends deemed more desirable by the activist, but in fact the only way of doing so is using finance’s own mechanisms. Scott encourages the reader to ‘suit up’ as to fit in with the guild’s uniform, and go through the City’s meeting places, hang around bank lobbies, attend conferences, overhear phone conversations. In this way learning how to mimic the financial type and gradually becoming a covert insider who has particular plans that are unsuspected by the people she wishes to surprise.
One of the author’s suggestions on this kind of financial hacktivism would be to build up an ‘activist hedge fund’ that “gradually [buys] up stakes in companies with poor human rights records, demanding accountability while using the dividends to fund the dissent”(162). This kind of approach, while logically laudable and perhaps feasible, is highly problematic. One has to think only of the continuous controversies in which big NGOs such as Greenpeace find themselves, being constantly accused of using their reputation to raise funds for misstated causes or using these in dubious ways. In organisations as big as Greenpeace is, it is inevitable to find a few bad apples. But it is hard to imagine that anyone would accept the fact of Greenpeace buying shares of BP or Shell arguing that the profit they get from the dividends is used to fund the resistance to fracking in the Amazon by these same companies.
[T]he financial system, like the internet, is a networked technology of power which can be used in unusual ways. If you feel authorities and large corporates are dominating the internet with patents, firewalls and intellectual property lawsuits, you don’t turn off the wireless, you get creative. Who’s to say that we can’t wear the garb of a notorious financial institution in a heretical fashion. (Scott, 2013: 162)
Considering Scott insists in using the analogy of the internet with finance, without really accounting on the weaknesses of such analogy, it is perhaps appropriate to make a few remarks on this. It is true that the internet was developed initially as a military initiative, but its true advent and the origins of its current form were developed in the particular ideological framework of intellectual cooperation, what is known as open source code. The founding fathers of the internet culture felt strongly for what they did not as a source of profit but as a collaborative process of technological progress for the sake of humanity. The majority of hackers identify with this vision; they are trying to reclaim an initial intention that has been captured by governments and corporations. The same can’t be said about finance. Money and its uses aren’t intrinsically bad, but the gigantic edifice of finance holds at present only an abstract relation, and often null, with its social utility. It is true that a system that serves as mediation between those who want to start a project but don’t have enough capital available to do so immediately and those that do have the capital but don’t need it immediately, is beneficial and a necessary tool for society. But when this system is not based on a philosophical principle of social cooperation (a cooperation perhaps only observable within the guild of finance itself) but rather has competition as a maxim as well as the virtually unchecked search for profit, it seems inevitable that it should turn to practices that are socially destructive, or even directly anti-social.
However, even if the analogy on which much of the argument for this part of the book rests might be flawed, the idea still holds an important value. Maybe infiltrating in the financial world in disguise to exploit it from within is less valuable in terms of actually using its own instruments against it, than of aesthetic performance—either to mock or dislocate the apparent power of finance or to report how its dynamics actually take place instead of looking at it from the outside. Precisely this latter part is what the article Global Shell Games does. Global Shell Games: Testing Money Launderers’ and Terrorist Financiers’ Access to Shell Companies is a very interesting paper/experiment that Scott mentions in his book (Findley, Nielson and Sharman, 2012). In this paper-experiment, three researchers take on a very original approach for the purpose of exploring the difficulty of purchasing the service of setting up a shell company—not very difficult, as they conclude. Posing as interested clients, they enquire via email anonymous shell corporations found on Google about their services, to then assess how willing are these companies to provide services to different profiles of clients and how much they comply with the international standards for this type of activity. The different profiles they enact include those of simple businessmen from well-reputed countries, government procurers likely to be part of a corruption scheme and citizens of countries normally related to terrorist activities consulting in the name of a Muslim charity or a similar organisation.
Shell companies are one of the main instruments by which money of dodgy purposes or origins is hidden, in order to make it impossible for national or international law enforcement bodies to trace the original owners of such money, and thus uncover where it came from or what purpose it is to be used for. Less directly criminal-related activities for which shell companies are used for are those of tax evasion. This is a phenomenon generally well-known for the wider public, but one which is perceived as being deeply engrained into the structure of the free global capital flows and therefore very difficult to regulate. Furthermore, the general feeling is that regulation to curtail such practices is difficult to implement and enforce because those looking to hide their money take advantage of countries with low political constraints on these matters. Counter to intuition however (and to the researchers’ own surprise) through this experiment the researchers have been able to find that this is not the case, as the proneness of shell companies willing to lend their services to dodgy clients is the same, if not more, in developed countries than in developing countries.
Untraceable shell companies are in practice widely available. Despite their regular pronouncements to the contrary, rich, developed countries are delinquent in enforcing the rules on corporate transparency, doing significantly worse than developing countries, and three times worse than the oft-reviled tax havens. Even customers who should be obvious corruption and terrorism financing risks to any provider exhibiting any risk-sensitivity are still regularly offered untraceable shell companies.
These results present a far more accurate and robust picture of the true state of affairs than any previous study. The cases of shell-company enabled crimes that come to the attention of law enforcement or the media are by definition unrepresentative, simply because they have become public. International organizations and government agencies often try to assess policy effectiveness by either just reading the rules on the books, which may have limited correspondence to what actually happens in practice, or by counting successful prosecutions or totals of dirty money seized, which again gives little idea as to how many violations occur without official notice. (Findley, Nielson and Sharman, 2012: 6; 25)
What makes this particular paper so valuable is the particular approach, of actually getting into the skin of the matter by posing as one of the sides involved, to get a more accurate understanding of the dynamics that take place in a given phenomenon than one would get looking at previously collected data. When one engages in the effort of writing about an issue without any type of insider knowledge, it is easy to incur in faults of giving personal appreciations of the good-bad dichotomy type and other over-simplifications. Conversely, when one tries to understand an issue from an insider’s perspective, it is common to discover that matters are more complicated and cannot be assessed as pure good or evil. This is one of Scott’s most encouraged suggestions—what he calls ‘going gonzo’, where “the [researcher] explicitly attempts to reduce the distance between themselves and the ‘object’ of their investigation”(99)—: as has been said, that to uncover the actual intricacies of the financial world and its wrongdoings we should avoid critiquing exclusively from the outside, as this reinforces the impossibility of coming to terms with it, and get into it to jam it from the inside.
Other suggestions that appear repeatedly through the book are for the reader to try and do small-scale recreations financial operations, such as getting a group of friends to lend you £5 that you promise to return with some interest after a successful investment in an ethical enterprise, in the fashion of a conscious hedge fund. This, argues the author, will help us get acquainted with the most common financial operations which we might use at some point to finance our own projects. This is what he calls ‘DIY finance’, as defended in building, the third part of the book. Society does need a sound financial system to help money circulate and reach those who need it to take up entrepreneurial initiatives. However, finance has had a tendency, ever since the deregulation processes of the 80s, to shift its main activity from funding what is known as ‘the real economy’ towards the bigger, more profitable operations such as speculation with currencies, real estate, and lending to other financial institutions.
The fact that banking and finance turn their back on the essential services they should provide, which is lending to the real economy, means its social utility (the actual meaning of their existence) is being undrmined, or even directly omitted. ‘Ordinary’ people in the form of illustrated entrepreneurs might open up the space for an alternative sphere of finance, but the system itself can’t hardly be redeemed by this; the task of reforming the financial system to make it act more in tune with the interest of the majority of society quite probably still remains the competence of big, ambitious top-down policy-making. The state does have instruments to greatly influence the attitude of the financial world, and this holds true still after government representatives publicly declare that they must obey ‘the markets’, not daring to upset the financial hegemons.
In 2008, Edinburgh’s RBS was bailed out with public money following the financial crash, which makes the UK public is its major stakeholder. In a report by Laurie MacFarlane of the New Economics Foundations, a very sound assessment of how, given that RBS is in fact mostly owned by the British public, some major changes could be introduced to the Bank’s structure and its operations, so as to make it work for the best interest of its legitimate owner. (2016) At present, less than 10% of lending in the UK goes for local businesses, with an increasing tendency towards speculative lending. The detachment of banks from SMEs means, especially in the non-urban areas of the country, that ordinary people find it very hard to get funding, hence stagnating their economic possibilities. In countries like Germany or Japan, a significant higher percentage (67% and 57% respectively) of banks are locally controlled as opposed to being oriented towards national or international banking compared to the UK (in which only 3% are controlled locally). These local or regional banks are much more prone to incentivise the real economy, and are normally more democratically managed, often as co-operatives, mutuals, and public savings banks. The report argues that, as studies show, that when the banking scene is diversified and decentralised, capital drain towards urban centers is reduced, hence regional inequality is reduced. The suggested reforms to be introduced in RBS are then along these lines: democratize the administration, making that the board of trustees be elected by employees, relevant customers such as SMEs, local charities and also political parties; direct the bank activity back to local lending, reopening local branches and imposing quotes of lending to small and medium-scale projects. In my view, an initiative like this, coming from the state and acting on such a big financial institution, would allow to create a precedent which other institutions might be drawn to imitate.
Towards the end of the book, some exotic alternatives to mainstream finance that are currently being pursued by some collectives are explored, perhaps with exaggerated enthusiasm. One of these is alternative are local currencies. An interesting article by Kristofer Dittmer analyses the experiences of such initiatives, considering to what extent they have been successful in achieving its purposes of integrating those socially and economically disadvantaged and re-localizing production. He concludes that while these attempts are well-intended and hold some theoretical value, they still remain more valuable in terms of generating discussion and raising awareness on what is the true meaning of money, and how it should be used for the greater good of society, than of actually providing a feasible alternative to state-backed fiat money. He argues, for example, much in tune—in that what is needed is strong state initiative rather than marginal activism—with the proposal for reforming RBS, that “full-reserve banking deserves more attention as a potential element of the reconfiguration of power-relations between democratic states and financial capital.” (Dittmer, 2013: 11)
The book is doubtlessly an enjoyable read, and it achieves in getting the reader to be comparatively more familiarized with the seemingly daunting world of finance than prior to reading the book, while also encouraging a more active and less conformist attitude. The optimism that Scott infuses might be purposely exaggerated, but at some points it can seem to fall into naivety, as when he considers that bankers might be satisfied to accept ‘social returns’ for an investment instead of monetary or asset-type returns, or when he elevates philanthropists comparing them with Jesus. Its weakness then is probably in not giving a more structural reflection on what are the philosophical premises that support the particular ethos of banking and finance at present, one that allows for the reward of greedy behaviours and a detachment with society’s needs.
Articles cited
Dittmer, Kristofer. 2013. “Local currencies for purposive degrowth? A quality check of some proposals for changing money-as-usual” Journal of Cleaner Production 54, 3-13.
Findley, Michael; Nielson, Daniel; Sharman, Jason. 2012. “Global Shell Games: Testing Money Launderers’ and Terrorist Financiers’ Access to Shell Companies” Centre for Governance and Public Policy.
MacFarlane Laurie. 2016. “Taking Control of RBS: People-Powered Banking that Puts Communities First” New Economics Foundation.