One of the enduring expectations about cyberspace is that it would erase the importance of place in commerce. A group of designers working in ateliers and studios in Nairobi, Munich, Buenos Aires and Perth, financed by money pulled together in Silicon Valley, would create products sourced to factories in Malaysia and China, thence to be sold in Seoul, Mumbai, Toronto… you get the picture. Talent was what would matter in this world. Place wouldn’t.
Ironically, you can make the case that the trend toward placelessness has been most evident in manufacturing, though it’s been so for a combination of brutal economic rather than utopian technological reasons, and has required an enormous amount of labor to make those transfers work. Put another way, manufacturing has become more placeless not because technology has made place irrelevent, but because it’s helped connect multinationals to mouth-wateringly cheap labor markets. But it hasn’t been a matter of effortlessly transferring zeroes and ones around the world at the speed: to make this system work, you’ve got to put a lot of engineers on planes to Shanghai, just as you need to get a lot of farmers’ kids into the cities.
Placelessness has also had a mixed record in finance, the most abstract of economic activities. On one hand, I can transfer money between my checking and savings account on my iPhone. On the other, the financial centers in New York and London are now even more tightly connected together, and process a greater portion of the world’s wealth, than ever before. (And as recent events have shown, they have a greater capacity to destroy it, too.) So place continues to matter in finance, even as technology makes some kinds of transactions easier to conduct in a wider variety of places.
This trend is something that’s interested a number of cultural and economic geographers, though they’re still lots to do on the subject. As Caitlin Zaloom, an amazingly smart observer of the enduring materiality and social nature of financial markets, says,
Globalization theorists such as David Harvey and Manuel Castells argue that under neoliberalism, capitalist institutions have used information technology to flatten the distinctions among places, reducing the significance of spatial distance and temporal difference. They claim that this is nowhere more true than in the sphere of global finance, since economic networks are bound together with technological systems that permit institutions to coordinate activity in real time on a planetary scale, and that allow modern financial instruments to turn commodities—oranges, grain, Treasury bonds, and the like—into abstractions that are bought and sold thousands of times without ever moving an inch. Even global skeptics, it seems, are willing to admit that the speed and scale of financial markets enabled by innovative communications technologies is something new and profound. Never before have financial actors been able to trade with dealers from Frankfurt to Singapore at any time of the day or night. However, these depictions often overstate the role of technology, leading observers to believe that such interconnections were inevitable, a narrative that obscures the human activities that propel money through technological channels, including the labors, false starts, and complex histories of the social and technical forms of global work. (Zaloom, “Markets and Machines: Work in the Technological Sensoryscapes of Finance,” American Quarterly 58:3 (September 2006) 815-837, quote on 816.)
Today I ran across another example of how place continues to matter in finance, but at a very small scale: high-frequency trading. If the concentration of wealth and financial services in places like New York and London is like gravity, high-frequency trading is like the strong force in particle physics: it operates at very small scales, but at that scale is incredibly powerful. As the New York Times explains in a July article, “in 1998, the Securities and Exchange Commission authorized electronic exchanges to compete with marketplaces like the New York Stock Exchange. The intent was to open markets to anyone with a desktop computer and a fresh idea.” But things have’t quite worked out that way:
But as new marketplaces have emerged, PCs have been unable to compete with Wall Street’s computers. Powerful algorithms — “algos,” in industry parlance — execute millions of orders a second and scan dozens of public and private marketplaces simultaneously. They can spot trends before other investors can blink, changing orders and strategies within milliseconds.
High-frequency traders often confound other investors by issuing and then canceling orders almost simultaneously. Loopholes in market rules give high-speed investors an early glance at how others are trading. And their computers can essentially bully slower investors into giving up profits — and then disappear before anyone even knows they were there.
High-frequency traders also benefit from competition among the various exchanges, which pay small fees that are often collected by the biggest and most active traders — typically a quarter of a cent per share to whoever arrives first. Those small payments, spread over millions of shares, help high-speed investors profit simply by trading enormous numbers of shares, even if they buy or sell at a modest loss.
In this world, as UCSD graduate student Martha Poon observes,
The trades are so fast that materiality matters. ‘Co-location’, which involves situating the trading room next to the exchange so that the wires and cables running between them are as short as possible, actually confers an advantage to high frequency traders.
As a result, LSE lecturer Yuval Millo points out,
In a world where every millisecond counts, event at light-speed speeds, physical distance counts. In fact, we should say ‘physical distance’ counts AGAIN. Yes, physical distance, which used to be an all-important factor in the face-to-face trading pits, is now making a comeback in the form of vicinity from the exchanges’ servers.
This, of course, brings back the issues about the politics embedded in market spatiality. Kate Zaloom shows how important were the top steps of the trading pit in the Chicago futures exchanges, and, consequently, how the political (and sometimes physical!) struggles for these coveted locations. Can we expect similar fights to rage over positions in the electronic communication network that transmits trading orders? Judging from the evolving competition for ‘electronic proximity’ the answer is positive. For example, Wall Street & Technology reports that in 2007 about a 100 trading firms relocated their serves into Nasdaq’s trading headquarters, just to be close to the executing servers and to shave off about 7-35 milliseconds from the communication time (depending on previous location of trading servers). Similar trend is evident in NYSE and the Chicago futures markets.
What does trend teach about the techno-social nature of markets? From an actor-network perspective, this is yet another evidence that markets, just like any other social institution, do not exist in a baboon society. That is, materiality, in general, and tools and devices, in particular, are delineating and indeed, shaping social interaction. There is at least one more insight to be gleaned here, though. It is true that physical space is reintroduced to markets through the relocation that comes along with HFT, but something much more important is being introduced to market with it: the rich, nuanced information that used to be the lifeblood of face-to-face trading and the infrastructure of liquidity supply is now communicated electronically.
This last point is kind of subtle, but it’s interesting to think of algorithmically-executed orders as a form of “rich, nuanced information.”
So what can we conclude? Place still matters because there’s money to be made in occupying distinct physical locations; and it matters even in electronically-driven finance because, at bottom, this is still a physical activity: while it’s easy and fashionable to think of modern finance as just a bunch of digitized signifers, the reality is that those zeroes and ones exist on servers, move through Ethernet cables, and are analyzed and responded to by software sitting on computers. Under some conditions we can ignore all that; but the fact is that even in the most information-intensive, abstract activities, materiality is still there.
[To the tune of Isabelle Antena, “Nothing To Lose,” from the album Versions (I give it 2 stars).]