Why Economic Management Models Do Not Foster Morals

Taking the Floor: Models, Morals, and Management in a Wall Street Trading Room By Beunza, Daniel ( Princeton University Press, 2019) When Daniel Beunza entered the equity derivatives trading floor of International Securities, an international bank on Wall Street, in the late 1990s, he surprisingly realized that the bustling and screaming of 1980s Wall Street traders had gone quiet. The financial market's digitalized, quantitative tools fostered this silence, as they made screaming an obsolete form of communication. Acknowledging that such tools transformed personal interaction in financial markets, Beunza's detailed and rich ethnography explores their effects on traders' morality. In Taking the Floor: Models, Morals, and Management in a Wall Street Trading Room, he brings the reader along on his journey through the interactions and experiences of quantitative finance, a journey where he seeks to answer to the question “what are the effects of economic models on morality in financial organizations?” (p. 12). Taking the Floor is in many ways a personal book. Exploring its guiding question, the book covers Beunza's 20 years of detailed fieldwork of Wall Street management. Throughout the book's argument, we revisit Bob-the manager who first welcomed Beunza to do ethnographic research on the equity derivatives trading floor of International Securities. Bob's management strategies, and their relation to Bob's personality, is a recurring riddle in the book. In many ways, Bob becomes the avatar of the study object: Beunza's struggles to explain the dynamic of morals and economic models in financial market management reflects in his struggle to explain the cause and nature of Bob's management practices. The book consists of 13 chapters, encompassing the two parts of Beunza's argument. The first part, consisting of chapters 2-7, draws on Beunza's original fieldwork in the trading room of International Securities. This part focuses on the role of quantitative modeling, computers, and the room's physical environment in the management of quantitative finance. The argument explores the performativity of economic knowledge, but also the control of knowledge sharing through the physical environment's configuration: the patterns of desks, screens, and people. Entering International Securities, we meet Bob and get to scrutinize his analytical approach to management, inspired by the latest findings in behavioral science and resulting in constant reorganization of the trading room. Here, Beunza's studies seek to understand how Bob managed the trading floor of International Securities, and through that understanding explain the value of a trading floor. The interim conclusion is that the trading floor is organized to exploit the “performative spiral” of economic models and financial properties: to connect the right markets at the right moment to profit from different performative effects of models on properties markets. A few years after the initial study, Beunza realizes that he might have been mistaken about Bob, and consequently how the management of quantitative finance work. Meeting with Bob again, it dawns on him that he completely ignored Bob's personal values and morality-and that they might have been more important for the trading floor's organization than his early studies suggest. The book's second part, chapters 8-12, thus focus on norms and morals, seeking to explain the dynamics of models and morals on the trading floor. Doing so, Beunza interviews Bob on several occasions regarding his experiences from Wall Street, and many of Bob's old colleagues and subordinates to understand Bob as a moral creature. Finding out more about Bob's conservative leanings, Beunza's image of a rationalist and scientifically oriented manager erodes, bit by bit. To some extent, the second part implies that he might have developed a slight obsession with understanding Bob's nature, but it is in this part that Beunza's theoretical argument starts to gain momentum. By relating his findings to existing explanations of the 2008 financial crisis, Beunza's conclusion about how models affect morality in financial markets present two highly interesting concepts: “model based moral disengagement” and “proximate control.” By “model based moral disengagement,” Beunza refers to the idea that “the introduction of economic models for the purpose of organizational control impairs self-sanctioning behavior, leading to moral disengagement” (p. 275). Such moral disengagement-its effects ranging from causing financial crises to impoverishing the world's poorest-is often attributed to the financial industry. The problem is, however, not the models themselves but that when the models substitute for management, they foster amoral and opportunistic behavior. To avoid moral disengagement, Beunza proposes that managers exercise “proximate control.” While this concept is a bit vague, relating to an open-ended range of practices, discourses, and strategies which may promote moral and responsible behavior, it holds significant insights for anyone interested in the organization of economy in society. Proximate control is the opposite of the Foucauldian concept “governmentality,” referring to how modern technologies render human subjects governable through auditory technologies and the impression of constant surveillance. To the contrary, proximate control emphasizes that human interaction is essential for financial market management to work, implying that financial traders risk disengaging from any organizational or societal morality without such interaction. Consequently, management in financial markets can only rely on audits and economic models “in a way that complements, rather than substitutes for, management” (p. 279). By joining morals and models in the management of quantitative finance, Taking the Floor points to an existing issue in economic sociology: the dynamics of the performativity of economic knowledge and the social and moral orders embedding markets, including but not limited to financial ones (see also Bååth 2020). Beunza's argument presents some important, first steps toward unifying these perspectives on economy in society. Throughout the book's second part, Beunza shows how economic models of management interact with norms and morality, showing that both these parts of financial market management must be considered in order to explain how financial markets work. Proximate control also entails that the management of financial markets must devise a practice that maximizes synergies, or at least minimizes conflicts, between the desired morality and the models used for managing the trading floor. Such practices are essential for the management of financial organizations, because model-based moral disengagement, while not fostering any morals, still cultivates a social order: an order of unchecked opportunism, where might makes right. Jonas Bååth is a postdoctoral researcher at the Department for Service Studies at Lund University, Sweden, and holds a PhD in sociology from Uppsala University, Sweden. He does research on economy, knowledge, and food in society

Sociology · Economic Theory and Institutions · Management and Organizational Studies · Psychology