Enter the Economic Sociologists

Like out-of-control Godzillas, financial markets have become monsters that eat everything. Why do they do this, and how can they be controlled? Sociologists want to know.

Most analyses of the current economic morass start and end with finance. Maybe it was unruly lending to home borrowers, or maybe it was new financial instruments that we didn't understand but now must love — just like Dr. Strangelove and the bomb. Many now believe that capitalism has undergone a "Copernican revolution" in which financial markets are now the core of our economic system — giving the boot to the centrality of corporations.

In reaction, sociologists are taking their turn in the explanatory arena. Sociology is about understanding how societies operate and where meaning and values are found. What are the nonfinancial impacts of the ascendency of finance? Economic sociology is now the fastest-growing field in sociology and is elbowing its way into finance and business departments.

In early August, the American Sociological Association held its yearly meeting in San Francisco. In connection, a workshop bringing together many of the best sociologists of finance from around the world was held at UC Berkeley. Like other academic disciplines, sociology has become globalized — and some of the papers at this conference were fascinating. To take one example, Alya Guseva of Boston University examined the credit card industry in Russia and the Ukraine. Credit card companies in Russia qualify those to whom they issue cards by visually inspecting their consumption, and not their income. Since tax cheating and gray-market income is so high there, credit card companies have no way to verify income. So instead, they dispatch employees to the homes of its potential clientele. There, they gently quiz potential borrowers about things such as their vacation plans. Zeroing in on the location of the alleged vacation, the creditors engage in seemingly normal chit chat to expose any puffery on the part of the would-be borrower.

But, the real action in this discipline is in trying to discover where the politics lie in financial markets. If one is interested in controlling the voracious behemoth that is today's financial markets, the workshop's competing visions were helpful. According to the organizers of the Berkeley panel, entitled "The Politics of Markets," economic sociology has usually looked at human financial interactions as being "embedded" in political institutions or culture. That is, if you were trying to figure out how to understand and affect what was going on in commercial or financial relationships among people, understanding their culture and the relationships was key. But some in the profession now claim these lenses are too primitive. For them, it is the tools and devices that financiers use that deserve most scrutiny. The technological medium contains the political message, they argue.

Columbia professor Daniel Beunza and others argue that it is in the construction and use of the tools in which politics, meaning, and morals are to be found, not in the political and regulatory environment in which they operate. So for people like me who think that moral issues in finance are important, they claim that the locus of inquiry should be the actual tools and not the overall political system or even the regulatory system. Because once the tools do their thing, the barn door is already open and the animals are out, and no amount of governmental effort can bring them all back in to account for the damage they have wreaked.

One example to consider is the controversy over what is a "socially responsible" investment. Money held for our benefit in health and pension funds is often invested in companies that do not respect our values and may in fact directly oppose them. We want our investments to be "socially responsible," yet competing visions of that term's meaning conflict in several arenas. Fisticuffs can be seen in law concerning the fiduciary duties of those who invest pension money, and similar disputes emerge in politics over questions such as whether Wal-Mart's labor practices should play a part in decisions to allow it to open new stores. But for Beunza and others, the important area of inquiry is in the actual computer interfaces used by people who buy and sell financial products for pension funds. These new economic sociologists argue that the morality lies in the technology.

The sociologists at this conference understood that if they are going to make such finely grained arguments, they need to practice some old-fashioned ethnography. So, many have been sitting down with arbitrage traders and other finance types to figure out why they act the way they do and how they make and use their tools. Thinking of some poor graduate student observing traders who pull down salaries a hundred times as large is interesting to ponder. The mounds of cash their subjects earn must make a career change awfully tempting.

It was unsettling to hear at the conference that many of the research projects these sociologists are embarking upon sound eerily like standard business school classes on how to make money. For example, sociologists are trying to figure out why certain hedge funds have produced outsized financial returns and others less so. I guess there will soon be sociologists working for asset managers to help them decide which managers to hire. But simply being enablers of the primacy of finance seems a waste of this discipline. So I hope that economic sociologists will use their training to help steer finance in a good direction. If not, they will be no more than tools themselves.