On Bowie theory and Bowie bonds

Most of the obituaries and memorials being written following David Bowie’s death will focus on his music, and rightly so. He produced a catalogue of innovative and important popular music over a long period of time, which at its best had that quality that the DJ John Peel observed marked out true musical innovation: you often couldn’t tell what he’d been listening to or what had influenced him. Or, on those occasions when you could, the style was so refracted back through his peculiar musical sensibilities that it ended up being quite distinctive in its own way. That said, and as a keen listener to his music over many years, it is important to note that there was also a fair bit of ‘filler’ amongst the ‘killer’, with decidedly prosaic music distributed throughout his back catalogue (although, unusually, I quite liked Tin Machine, but that’s another story …). I often listen to music while I’m working, and I must have cycled through his tracks thousands of times. But he has also figured directly in my academic work through important interventions made in the music industry not merely as a musician but also as a commentator and economic agent.

One example was his understanding of the implications of the internet and its likely implications for the music industry. In an interview that Bowie gave with John Pareles for the New York Times in 2002 as part of his promotion of Heathen he seemed to predict the shape of the post-MP3 crisis music industry which sees greater emphasis on live performance, the decline of royalty income and the rise of streaming services such as Spotify. “Music… is going to become like running water or electricity”, encouraging artists to “take advantage of these last few years because none of this is ever going to happen again. You’d better be prepared for doing a lot of touring because that’s really the only unique situation that’s going to be left.” He was also “fully confident that copyright … will no longer exist in 10 years”, so he wasn’t right about everything, but right enough that his thinking was later picked up by Alan Krueger as inspiration for what he described as ‘Bowie theory’, because it helped explain the rapid rise in the cost of live performance that followed the collapse of income from recorded income. Once complimentary products, where live performance was subsided by recording income as the former promoted the latter, the two products were decoupled as live performance became valorised anew. If recorded music is akin to a readily availability utility, then the unique, place-based experience of live performance becomes something worth paying for.

Several reports have also argued that his knowledge of the internet was instrument in a second important intervention, which was to securitise the rights to future income from the sales of his recorded material. For example, Dan McCrum argues in the Financial Times that Bowie’s decision to sell the rights to his back catalogue through the creation of ‘Bowie bonds’ was because ‘sharing services such as Napster were already gaining popularity as a way to listen to music for free’. However, given that Napster did not emerge until 1999, and the bonds were issued in 1997, it was more likely that the upfront payment of $55m he received for giving up such rights was a greater incentive, and is better seen as part of a wider movement to capitalise all manner of assets that might generate a regular income for investors. Bowie would no doubt have been aware of the free exchange of music in MP3 format on Internet Relay Chat networks which prefigured the development of peer-to-peer networks such as Napster and its derivatives and no doubt sensed the way in which things were going, but it would have all been a bit murky at that point. In that sense, and in retrospect, he sensibly got out at the top of the market. In life, as in music, timing is everything.

Digital “dischord”

A podcast version of the interview I gave in October 2015 for the University of Melbourne Up Close research series. Impressive media set up, especially as host Peter Clarke had actually read my book to engage with the issues. However, I must get rid of the verbal ticks of ‘absolutely’ and ‘kind of’ in future interviews.

The title’s not mine, but that of the production team.

http://upclose.unimelb.edu.au/episode/356-digital-dischord-how-technology-and-markets-are-bleeding-our-musical-artists

Why edit Handbooks?

Why edit handbooks? Well, I can tell you why I edited the one handbook I that have completed, which was undertaken in collaboration with Roger Lee, Linda McDowell and Peter Sunley (Leyshon et al, 2011) and I suspect that it is the reason most people undertake the task: because I was asked. I have edited a number of edited volumes and I was never commissioned to write any of them. Indeed, it was usually a struggle to convince publishers to publish the ones that did get completed, and I would have edited more if I and my various co-editors could have persuaded publishers that the project was both worthwhile and financially viable. I am in the process of working on another project at present, and once more it is something of a struggle to convince publishers that it will have an audience in a crowded market.

So, why are publishers more enthusiastic about Handbooks than straightforward edited volumes? I think the main reason is that handbooks approximate an academic journal but in book form: handbooks can be framed as ‘must have’ publications, the absence of which reflects badly on a library and which, if linked into a series of similar Handbooks across cognate areas, as was the one that I edited, can generate linked sales for archival purposes. As such Handbooks, like some journals, can be priced at levels that can be off-putting to the individual buyer: they are akin to an academic brand, an essential resource that must adorn the stacks of any decent University library.

To be sure, if the editors of Handbooks do their jobs properly, then their higher desirability compared to run of the mill edited volumes, which can be idiosyncratic and of variable quality, also comes from their curatory function. We managed to get a wonderful collection of authors who were willing to contribute chapters and, having contributed as an invited author myself to various Handbooks in the past, there can be a degree of esteem and prestige in receiving such an invitation to contribute, and a willingness to write for a book that may become a key reference within a discipline.

In accepting the brief to produce a Handbook on economic geography, my fellow editors and I were well aware that we were entering a market already populated by early movers in the form of The Oxford Handbook of Economic Geography (Clark et al, 2000) and A Companion to Economic Geography (Sheppard and Barnes, 2000), so we wanted to try and create something distinctive. The route we chose was to explore the contingent and contextual nature of research in economic geography, and to explore the economic geography ‘problematic’ through time and space. This was an interesting if challenging project. It was collaborative, a process which I always enjoy, working with people whose research I respect and admire. If we judge the success of the project by the reviews the book has received, then it was reasonably successful and reviewers appreciated the way the book was structured to reflect different types of economic geography research. But this carefully constructed structure was also a weakness, in the development process at least, because as all editors know, a multi-authored, multi-chapter project such as this – there were 25 chapters in all – only moves as fast as the slowest authors. Some of the originally commissioned authors dropped out, for all kinds of reasons, and in some cases their replacements did too. Due to the structure, we opted to replace rather than cut. This had some impact on the distribution of contributors, and reviewers rightly highlighted how skewed the contributions were towards Anglo-American geography, and this would need to be addressed if there was ever to be second edition.

However, I would have to think long and hard before taking on such a task or indeed of editing another Handbook. A project of this kind requires a careful balance between fitting all the components together and ensuring that it is delivered in a timely fashion. I think it safe to say that we erred more towards the former than the latter which means that this took a long time to complete, and then when we had finally closed the door on outstanding chapters, it took a good chunk of a period of research leave on my part to turn the manuscript into a manageable enough beast that the other editors could work on it. By then it had gone on so long that some of the authors that had delivered their chapters on time and to the brief we had given them rightly became restless about the disappearance of their chapters into a pre-production limbo.

Just as I sat down to write this, the publisher of the Handbook, SAGE, sent me royalty statements for the two books I have edited for them: the Handbook and Alternative Economic Spaces (Leyshon et al, 2003), and they confirm why publishers are keener on Handbooks than edited volumes. Even though Alternative Economic Spaces was published 10 years ago, accumulated royalties have still not covered the costs of contributors’ advances and indexing. Indeed, it looks like it will be at least another two years before it breaks even. However, after two years all such costs for the Handbook have been covered and the book is even generating modest editor royalties, which of course reflects a much higher royalty rate for the publisher. That’s why publishers like Handbooks, and that’s why they will continue to commission academics to edit them: they make money.

References

Clark GL, Gertler MP, and Feldman MP, eds, 2000, The Oxford Handbook of Economic Geography, Oxford University Press, Oxford.

Leyshon A, Lee R, McDowell L, and Sunley P, eds, 2011, The SAGE Handbook of Economic Geography, SAGE, London.

Leyshon A, Lee R, and Williams C, eds, Alternative Economic Spaces, SAGE, London.

Sheppard E and Barnes T, eds, 2000, A Companion to Economic Geography, Blackwell, Oxford.

[This commentary was commisioned by Päivi Oinas for a special section of Regional Studies, abd will be published shortly].

Mark Carney’s economic geography lesson

Mark Carney’s choice of Nottingham for his first speech as governor of the Bank of England on August 28th at the University’s conference centre was, in his own words, ‘not by accident’.  The East Midlands, it emerged, is a bellwether region for the Bank based on the broad base of its regional economy, ‘with leaders in retail, manufacturing, engineering, logistics, information services, biosciences and education, Nottingham and the East Midlands are integral to the success of the UK economy’.  Moreover, Carney made it clear that he placed great store in the importance of obtaining local information from businesses and other economic actors in order to take stock of the economy.  So, not just abstract theorising for him.  At one level, this gentle flattery of the audience, in this case business leaders from the region, is the kind of thing any clued up visiting speaker says at the start of their talk – and Carney’s CV would suggested he is clued up and, on this performance, has star quality and charisma to burn – as it is a tried and tested route to get at least part of the audience onside from the start.  But beyond that, there is clearly some truth to what Carney claimed: the East Midlands might indeed be seen as an aspirational region for those trying to direct the UK economy to a more productive and competitive future.  Although not short of problems, the region has a long tradition of manufacturing and engineering and, in the form of Rolls Royce, has the kind of truly globally competitive engineering firm that employs very highly skilled ‘real’ engineers of the kind that, in the wake of the global financial crisis, a former Business Secretary wished would replace the UK economy’s surfeit of financial engineers.

Carney also used the phrase ‘real economy’ to refer to the kinds of businesses that the Bank was trying to support through its policy of forward guidance on interest rates which would be kept low until unemployment fell below 7%, and indicated that even this target would not necessarily be a trigger for increasing rates (but nor would high unemployment be a deterrent if other conditions dictated an interest rate rise, which at least gave him a get out in an emergency).  But through forward guidance Carney wants to encourage banks to lend to businesses for productive uses to enable the economy to grow in a stable and sustainable manner over the long-term.

This will no doubt be pleasing to the ‘real economy’ firms that Carney wishes to cultivate.  But the fear is that what the low interest rate regime is fuelling is not so much long term investment and improvements in productivity given the reported reluctance of banks to lend against such activities. Rather, as the economy begins to show signs of growth, what low interest rates appear to be fuelling is economic growth in the form of asset inflation in the property market.  Carney had the sense to recognise the importance of the UK housing market in his speech, and how it overshadows so much else, and assured his audience that the Bank now had mechanisms of intervention in the market beyond mere interest rates.  Perhaps, but these need to be tested in action, although the Bank may not have that long to wait to see how effective such mechanisms are.

There are already signs that the UK housing market is moving through the gears, fuelled in large part by that other bellwether UK region that is a city, London.  For example, in the year to June 2013 house prices in the UK increased by 3.1%, but in London they increased at more than twice that rate, by as much 8.1% (compared to only 0.9% in the East Midlands, for example).  All UK housing market booms start in London and trickle out from there as people decide to cash in and move out, while those that are priced out buy as close to the wave of house price rises as is affordable.  However, this nascent boom contains an additional and emergent small business sector that first came to the fore in the period of economic growth up to 2008, and that is the Buy-to-Let (BTL) landlord.  In part a product of changed expectations about welfare, entitlements and pensions, the BTL market was considered by many to have been destroyed in the wake of the crisis, not least because many of the specialist lenders that funded this market encountered considerable difficulty in the global financial crisis as the they were no longer able to access funding in wholesale markets.  However, the crisis also benefitted the BTL sector, as low interest rates cut the costs of borrowing, conservative lending practices raised the level of deposits needed by first time buyers, while job losses and the growth of precarious employment practices have made it more difficult for prospective home owners to enter the market and chose to rent.  Gross lending for new BTL mortgages increased by 19% between 2011 and 2012, while BTL investors have also benefited considerably from the introduction of the Funding for Lending Scheme (FLS) which helped double BTL mortgage applications and which, ironically, is backed by the Bank of England.

So, it’s good that by visiting Nottingham Carney recognises the significance of economic geography, and that he looked to what passes as a manufacturing region in the UK for his first major speech to symbolise the kinds of activities the Bank wishes to support.  But he also needs to keep an eye on property inflation in his own backyard from his position at the heart of the City of London.  There is one area of London property price inflation that Carney will find it difficult to control, and that is the inflow of hot money from overseas which is being used to buy up expensive properties for speculative or safe-haven reasons.  One of the reasons that foreign purchases has proceeded apace is the decline in the value of sterling in foreign exchange markets, which in turn is a product of low interest rates.  To raise the value of sterling to counteract these inflows the Bank would have to raise interest rates, which would go against forward guidance.  Tricky.  At least Carney, a Canadian, is exempt from one the main criticisms that has been aimed at ex-pats buying up expensive London mansions that are fuelling house price inflation:  he actually lives in his.

Andrew Leyshon. 28 August 2013

The devil is in the detail: lies, damned lies and accounting for the value of banking

The devil is in the detail: lies, damned lies and accounting for the value of banking

Christophers, Brett. 2013. Banking Across Boundaries: placing finance in capitalism.  London: Wiley-Blackwell

In the normal course of events I imagine that there are few points of contact between the social orbits of scholars of national accounting and investment bankers. However, as this excellent book by Brett Christophers makes clear, bankers should be hosting regular events in honour of the national accountancy community in gratitude for the unglamorous and painstaking work required to formulate measures such as GDP, GNP, and GVA, and in particular for the way in which banking is now recorded in such statistics.  In 2010, some 18 months after the breaking of the global financial crisis, Andrew Haldene, the Executive Director for Financial Stability at the Bank of England, drew attention to a statistical curiosity that suggested that even as the crisis unfolded in 2008 the official statistics seemed to indicate that British banks were achieving levels of productiveness not seen since the 1980s. Given the scale of the damage caused in the UK by the collapse of the banking sector, which included a double-dip recession, and the fact that the industry is reliant on a taxpayer subsidy estimated to be somewhere between £30 billion and £120 billion (MacKenzie, 2013), the claim that the industry was making a contribution to the national economy might appear seem to be a little fanciful.  It certainly seemed so to Haldene and, in turn, to Christophers, and as such it served as the catalyst for this innovative excursion into the looking glass world of banking and value.  The book seeks to explain how an industry in crisis and which had caused such significant collateral damage to the wider economy could, in the official statistics at least, be considered not only to be productive but at the very moment of crisis, to be exceptionally so.

Given the book’s motivation, it is not surprising that this is in many ways an academic detective story as Christophers sets off to solve the mystery of how banking killed the economy but, despite all the circumstantial evidence, ended up being exonerated by the official data. Indeed, Christophers displays many of the skills required of a good detective, being both forensic in his approach and resolute in his persistence: his refusal to let claims go unchallenged or data unexamined is an admirable feature throughout.

To solve the productivity puzzle, Christophers explores the history of national statistics, in which the ‘banking problem’ – how to adequately account for the economic role of banking within an economy – looms large.  Arriving at the overlooked field of critical accounting and, in particular, its focus on national accounting statistics and the conceptual struggles over the work that banking does within an economy, Christophers argues that until relatively recently, banking was not afforded much value in such data. Although its role in providing circulation and intermediation was recognised, banking was seen more as a necessary service for the rest of the economy than an actual contribution in itself.  Here national statisticians cleaved to traditional views of the role of money and banking, which can be traced back to antiquity, through and up to physiocratic and political economy understandings of the role of money and finance in the creation of economic value.  This remained the case for some considerable time, and it has been only recently that banking crossed the boundary from the unproductive to the productive in such statistics.  That it managed to do so was in part a result of the second element of boundary-crossing that Christophers attends to – the internationalisation of banking and, in particular, the arguments made to include banking in trade discussions from the 1970s onwards that opened up national economies to (mainly US) banks.  As the book reveals, it was during this time that the phrase ‘financial services’ itself first emerged, designed to more easily translate what were considered circulation functions into international trade negotiation packages that dealt with services more generally.  Thus, it was not until the early 1990s that banking finally entered the world of the productive within the official statistics, with the value of banking institutions being attributed to their disproportionate ability to assume risk by setting interest rates that differed from a nominal background average.  The more banks could offer rates that diverged from the norm – which effectively represented their appetite for risk – the more value banks added to the economy.  This is a significant and important observation, because as banks productivity became based on their ability to bear risk and to manage it, so it became an incentive for banks to take on riskier assets – that is, charging higher than average interest rates to higher risk borrowers – and to use the additional profits derived from such assets to support higher than average interest rates on their liabilities.  Thus, whereas the financialization literature to date has – rightly in my view – attributed the decline in global interest rates from the mid-1990s onwards as a major factor in the accumulation of riskier assets, as banks sought ways of beating the norm to meet performance targets, Christophers reveals that the official statistics also contained within them a feedback mechanism that in effect gave official sanction and encouragement for what they were doing.  As banks absorbed more risk, with all that implies, the better they were seen to be performing.

This argument alone deserves a much wider audience, and provides further evidence of how important academic work is to the performance and management of the economy.  The debunking of Reinhart and Rogoff’s recent analysis of the relationship between high levels of national debt and low levels of economic growth which, in the words of John Cassidy (2013), has been seized upon by ’conservative politicians around the world … to justify penny-pinching policies’, is a particularly good example of this.  However, Reinhart and Rogoff’s errors were reasonably transparent, in that they were uncovered by a graduate student who spotted simple omissions in an excel file that the authors provided in good spirit in order to be helpful.  However, as Christophers painstakingly demonstrates, it takes rather more work to find the hidden sources of banking productivity in the national accounting literature and, partly for the same reason, it will also take more effort to bring the skew towards risk to the attention to a wider audience, although that does not mean that it should not or could not be done.  The book is yet another example of the explanatory power possible from detailed social and historical analyses of economic ideas and practices inspired by the likes of Callon, MacKenzie and others.

It should be clear by now that I think this book is a major contribution. However, that is not to day that I do not have the odd quibble.  Christophers seems very reluctant to engage with the issue of capital mobility.  This is partly a result of a strategy to sharpen the analytical lens, and is in some ways in understandable, as to cover this issue in at the same level as he does banking would make the book considerably longer than it is and perhaps undermine the power of the banking problem.  However, the geographical mobility of money and investment is surely critical to an understanding of banking and financial services as it is the source of much of its power through its fungibility and leverage through financial markets such as foreign exchange and various kinds of securities.  On several occasions the argument begins to move towards the issue of capital mobility but is then abruptly reined in by the author on grounds of remit and scope. One can only hope that this critically important issue of boundary crossing is dealt with in subsequent publications.  It is rather difficult to ‘place banking in capitalism’ without a consideration of this matter.  Finally, I also have to take issue with the author’s framing of my book with Nigel Thrift, Money/Space (Leyshon and Thrift, 1997), which he accuses of being dismissive of a material approach in favour of a discursive one, and that we ‘depicted matters in either/or terms’ (Banking Across Boundaries, page 12). Christophers upbraids us for this, arguing that what we need to do is ‘critically to analyze the material motions of capital and … to understand the work of ideas in framing and constituting the capitalistic environment’ (ibid., original emphasis).  Christophers’ claims about our pro-discursive anti-materialist position seems to derive from the penultimate page of the preface to Money/Space in which we state that ‘we have thrown away many of the Marxian traces’ to move towards a more discursive approach.  I would stress the word many; that does not mean all.  Later, on the same page, we argue that, ‘We have become suspicious of accounts that try to make a clear distinction between the economic sphere (to which money is often confined) and other spheres (onto which the economic sphere is too often unproblematically mapped), on the grounds that such a distinction itself often presumes cultural norms which may indeed be constitutive but by no means need to be regarded as inevitable’ (Leyshon and Thrift, 1997, page xv).  This seems to be much more in accordance with what Christophers argues throughout this book, and I think more connects the two works than divides them.  However, both these points are relatively minor and should not detract from what is clearly a major contribution to the field.

References

Cassidy, J., 2013. The Reinhart and Rogoff controversy: a summing up. The New Yorker [Online], 29th April. Available from http://www.newyorker.com/online/blogs/johncassidy/2013/04/the-rogoff-and-reinhart-controversy-a-summing-up.html#entry-more [Accessed 4 May, 2013].

Leyshon, A. and Thrift, N., 1997. Money/Space: geographies of monetary transformation. London: Routledge

MacKenzie, D., 2013. The Magic Lever. London Review of Books [Online] vol. 35 no. 9 pp. 16-19. Available from http://www.lrb.co.uk/v35/n09/donald-mackenzie/the-magic-lever [Accessed 4 May 2013].

Andrew Leyshon, School of Geography, University of Nottingham, Nottingham, NG7 2RD

June 2013

This piece was written for a Book Review Symposium for Progress in Human Geography.

Branching out

This is a blog that was originally published on the GovToday website on on Friday, 20 July 2012 14:52: http://www.govtoday.co.uk/local-government/19-economic-growth/11966-branching-out?feature=1

During the 1990s the reservations that earlier incarnations of Labour might have had about the financial services industry were cast aside. As Peter Mandelson famously observed, Labour was “intensely relaxed” about people becoming filthy rich, as long as they paid their taxes.In the wake of a financial crisis and the loss of office, however, it seems Labour has shifted its position – not least because its turns out many of the filthy rich were doing all they could to pay as little tax as possible. Responding to growing public distaste for financial excesses and malfeasance in an era of austerity, Ed Miliband and Ed Balls used the latest UK financial scandal – the fixing of LIBOR rates by employees of Barclays – to launch their reconsideration of the social and economic role of the banking sector. They began by arguing that retail and investment (or “casino”) banking should be forcibly divided along the lines of the 2011 Independent Commission on Banking’s recommendations. This, they said, would free the state from the responsibility of bailing out banks “too big to fail” and allow retail banking to be recast as a more benign supportive activity for the rest of the economy – “stewardship banking”, as Miliband called it. Thus banking would once again become a trusted and respected profession and public servant, on a par with teaching, medicine and law.Crucially, Balls and Miliband also called for a more competitive retail financial sector in the UK. Reasoning that such a move would improve the lot of consumers, they proposed the formation of at least two “challenger banks” that could be given a head start by forcing incumbents to hand over some of their branches to create a ready-made network.This suggests Labour is returning to the issues of financial exclusion and inclusion. Miliband referred indirectly to the US Community Reinvestment Act, hinting that government could force UK banks to disclose information on the geography of their lending behaviour to identify socio-spatial exclusionary practices at a time when, as he put it, “some of the most deprived areas of the country are almost entirely excluded from banking services”.This refocusing is undoubtedly to be welcomed. Academics from Nottingham University Business School’s Financial Services Research Forum have carried out significant research into this subject and have revealed how financial institutions’ pruning of their branch networks has concentrated disproportionately on areas of economic and social deprivation.And yet Labour’s recommendation that leading banks be compelled to hand over a significant proportion of their branches to new “challenger banks” may not be as punitive a sanction as it first appears. The enforced sale of branches to new competition may mean the loss of a few prime locations, but the erosion of physical infrastructure hardly goes against the grain of the UK retail banking industry. Branch divestment has been an objective of the leading banks for the past 25 years. Any such policy would therefore have to be careful not to expedite the shedding of locations that banks would be all too happy to abandon or where they may be maintaining a presence in part to avoid the bad publicity generated when they close the last branch in a community. This latter process has been well documented over many years by the Campaign for Community Banking. In addition, even if challenger banks inherited a representative sample of branches, banking is nowadays more than simply managing a portfolio of real estate. There was a time when branch networks acted as an effective barrier to entry within retail banking, because it was in branches that the key work of the business went on, where credit risks were assessed, money was deposited and loans were made; but those days are gone.The truth is that branches are no longer central to banking business. In the past 20 years or so their power has ebbed away. Now the core competencies of retail banking are having effective credit scoring and customer relation management systems, both of which enable banks to manage their clients at a distance. Moreover, banks are now not so reliant on branches for raising funds in the first place, as these can be raised directly in financial markets.The bottom line – and bottom lines, after all, are what banking is all about – is that the gift of a ready-made branch network, although obviously helpful, would not be sufficient in itself for any new “challenger bank”. Labour’s reconsideration of the banking sector certainly has the potential to be an important break point in public policy, but to be effective it requires close and consistent attention to the uneven geographies of financial provision and the contemporary practices of 21st-century retail banking.