We talk to Brett Scott the alternative financial activist about the opportunities and challenges of transforming the economy.

Your work can be described as economic anthropology, an attempt to explore the historical origins and current approaches to economics. How cultural is our economic system?

I come from an anthropology background and one of the main ways anthropologists try to understand systems is by immersing themselves in them to understand the perspective of those involved. Sometimes that is called participant observation – participating in something while observing it. You can blend those elements in different ways: Hardcore anthropology can be weighted towards extreme participation with less structured observation, really immersing yourself. Some old-school anthropology is more weighted towards observation than participation, making it more prone to a ‘judging’ outlook.

The discipline of Economics has traditionally tried to fit economic activity into universal theories. The attempt to fit all societies over time into a single theory requires a level of abstraction that is often quite disconnected from actual practice, or how people experience themselves in economies. Anthropology, on the other hand, is more attuned to describing the differences between people – the specificities and variations – and more interested in showing the ways people have provisioned themselves over time, rather than just asserting that people have always traded as ‘self-interested agents’ on markets. In essence, Economics takes one form of economic activity, forged in a particular historical and political context, and implies that this is the only form of economic activity.

Also, economics as a discipline tends to make a strange distinction between economics and politics, as if the political sphere and economic sphere can be meaningfully separated from each other. Holistic forms of anthropology, though, would explore how different economic systems are formed in or imply different political or cultural systems – how they are all interlinked.

One of the insights that came out of anthropology and historical studies is that states cannot be meaningfully separated from our modern concept of markets. That is to say, market-based thinking was enabled by, or expanded by, modern states. Within traditional Economics, self-interest is presented as natural, timeless, and inevitable. If you look at the economist Adam Smith, he makes this assumption that people have always traded with each other since the beginning of time. Whereas, history and anthropology point out many instances of societies that do not rely on trade, or do not even have private property regimes, and that have completely alternative ways to provision themselves.

It is only in the context of modern state formations that you see the emergence of the modern conception of ‘markets’. In the time of Adam Smith, modern states had already formed and he was blind to the fact that many features of economies he was observing couldn’t really exist outside of that context. So economic anthropology and history will try to situate the economy within specific political and cultural epochs.

Modern academia has attempted to create discrete disciplines to describe and understand reality, such as politics, economics, psychology, and so on. But in your everyday life no-one experiences these things as separate from each other. You don’t experience your psychology as distinct from a decision to participate in a particular form of economic activity. They are all fused into one experience. So all economic activity is intensely cultural and political. It is concerned with the distribution of resources, your ability to act in a society. The idea that there is some realm of economic activity that is separate from culture is, frankly, bullshit.

If we change our culture, can we then transform the economy?

If you come from a strict Marxist background, you’d probably tend to say the material world conditions culture, or that the underlying relations of production support a ‘superstructure’ of beliefs and institutions. So the tendency – more or less – is to see cultural systems as being a reflection of the underlying economic situation. The question then is, “Can you change your underlying economic situation by altering your culture?” And yes, it probably is possible. But it is a complex process and I’m not sure I have a coherent answer. Within economic reform movements you have some people who say things like ‘all we need to do is make people think differently to effect change’, but that jars against the reality that every single day people need to enter an economy that has a particular structure, regardless of what they think. It’s not obvious what the link between changing people’s worldviews and changing economic structure is.

Take a look at small credit unions or local currencies. People are trying to think and behave differently – act out a different culture – but in reality they remain stuck within the vortex of a much more powerful economy. Sure, if everyone, at once, changed the way they behaved, you could probably change an economic system, but there is a huge coordination problem there. It seems more likely that change is a messy and contradictory process, driven by some things we consciously choose – like small changes in behaviour – and others that we do not, such as technological changes. It’s unpredictable. The Internet, for instance, has opened up new possibilities, but also created opportunities for new monopolies of power.

To shift the question slightly, we could ask, “How do you shift culture within a large financial institution, such as Goldman Sachs?” These institutions are huge, with like 35,000 employees. They have to go into work every day and keep doing the same thing. Even if individuals within the institution want to change their own personal behaviour, the day to day pressures and requirements won’t allow it. So if you wanted to change the culture you would have to press pause on the organisation for, say, three weeks, and then go around and convince everyone in it to behave differently. But there’s no way in hell that they can press pause, so any attempt to change culture has to happen on the fly, incrementally. But these cultures get locked into these institutions, and when it gets toxic they find it very hard to change it. Here’s an analogy: imagine you have a computer that has a load of viruses, but to get rid of them  will require a complete time-consuming reformatting. Now imagine you need to use it every day, and it’s not an option to be without it for a week, so you just keep using it. Likewise, we need to reformat financial institutions, but often we’re just superficially patching them up.

Access to capital is probably the most powerful dimension of our financial system. How can communities have more control over the circulation of capital at this stage?

The financial system as it stands, in most countries, operates at a large scale. It has centralising tendencies that give financial institutions lots of market power, and these large banks are also closely connected to government. In general, these banks find it easier and more profitable to deal with other large-scale players, directing capital to large corporations or large infrastructure projects, for example. Or else they invest in large numbers of standardised financial products that can be sold at scale, such as mortgages. They don’t have much ability, or desire, to sensitively respond to the niche needs of small-scale communities.

So how do you change that? Short of restructuring the entire system so such power does not exist, there are interim approaches such as banking regulation and reform. For example, you might lobby for quotas on banks to get them to support the real economy and smaller businesses.

Then there are attempts to bypass or augment the mainstream banks. This includes, for example, building community banking systems or municipal banks. Local banking advocates will insist that if you have a small financial institution rooted in an area, it is far more likely to serve local interests. In this debate, countries like Germany are often mentioned, as they have an older and more established system of local and regional banking. Co-operative banks are another approach. The idea is to change the ownership structure of banks to produce better outcomes, bearing in mind that co-operative banks often work at large scales and need not be local in orientation.

Then there are the local currency movements. This approach is not necessarily about accessing or raising capital, but creating economic exchange between people. This is different to raising money for a business. That said, mutual credit systems are currency systems, but they also provide access to short-term small-scale credit. They don’t solve the problem of accessing large-scale investment, but they can be very effective at allowing small businesses to trade on credit. Sardex in Sardinia is a good example.

A mutual credit system is when a network of people create an economic network and then set up a system to record when members give energy, labour or goods to another member of the network. The member who receives the labour goes negative, and the person who gave it goes positive. It’s essentially a ledger system for recording obligations between people. Members go in and out of credit and debt with each other. Over time, this is basically what a monetary system is: I contribute things, but I also needs things. When I contribute to the system I get positive credit, when I need things I am using up my credits or going into debt. This creates a cycle between members.You can create these networks with, say, 150 people, and I think they are one of the most undervalued approaches within local currency movements.

So there is local banking, local currencies, mutual credit, but there are also systems like community shares, which allow you to raise equity finance by offering shares to your local community. These have been relatively successful on a small scale.

You also have to bear in mind that is has been quite a while since there have been coherent communities in the UK. We often talk about ‘community’, but in London people often don’t know each other in their own neighbourhoods. There is a whole raft of work around community cohesion that is required before we even start to develop ways for communities to finance themselves.

I think with all of these things you have to have serious commitment. There are a lot of people trying to design local economic strategies that are volunteer-led or part-time. I’m not against small timebanks or other volunteer-led schemes, but they are not a serious challenges to the economic system. In the case of Sardex, it is a serious attempt to build a parallel currency system, and one that also integrates into the normal system. Recently I’ve become interested in the Greater London Mutual, and the network of new regional banks supported by the Community Savings Bank Association, which look like serious attempts to build local and co-operative banking.

If you can combine these alternatives with banking reform and policy changes, putting pressure on the existing banking system, you can then start to make a difference.

More recently you’ve been exploring what you call the ‘dash to a cashless society’. Could you explain how this offers new surveillance opportunities to private companies and governments, and how you understand the social consequences?

The term cashless society is a euphemistic way of saying the ‘bank payment society’. Within this system you need a bank account and you have to ask banks to facilitate payments. In a cashless society you always have to go through a financial institution.

Think about the traditional story given in any Economics course. A market is made up by two basic players – a buyer and a seller. The buyer gives money tokens to the seller who hands over tangible goods or services. In a cashless society, however, there is the introduction of a third player between every transaction – the money-passer, who moves money between the buyer and the seller in exchange for a fee. These payments intermediaries include the card companies and banks, who run the underlying infrastructure to allow this. So the ‘cashless society’ is an economic system that is predicated on every transaction passing through the banking system and groups like Visa and Mastercard.

There are a lot of institutions lobbying for this system – the banks themselves and digital payment companies who facilitate the movement of money between bank accounts. Then there is the state that can see many advantages to this. In particular it allows them to monitor all transactions. If you’re forced to use digital payment systems, all of your transactions are recorded and leave a data trail. This data can then be analysed. They are interested in this for anti-terrorism and crime detection, but also to monitor tax. There are also monetary policy interests, in particular the ability to introduce negative interest rates.

So the implications are far more than data about transactions, and it’s not just states that find this useful, but corporations, too. Large technology companies, like Google and Amazon, are trying to build payment infrastructure to expand their data monopolies and gain ever deeper insights into people’s economic behaviour. For example, big web platforms often are in the advertising business, but struggle to prove whether adverts convert into sales. So one endgame for some of these large technology companies is to discover the correlation between the adverts you see and how much you spend. So they have an obvious interest in receiving and analysing that data, and if they can track what you spend, they can also develop more efficient advertising.

Another endgame is machine learning and predictive analytics that try to predict, and ultimately steer, people’s behaviours. Banks themselves are interested in this approach, using data to influence behaviour.

There is no cashless society at present, but there is a big political push for it. In this context, it is interesting to explore crypto-currencies that create some form of counter power.

Blockchain technology has been offered up as one of the most recent transformative technologies, with use in supply chains, payment exchange, and its ability to decentralise the control of data. How do you see the political implications of this technology?

Blockchain is multi-layered. At its base, the original version, blockchain technology is essentially a means for a network of strangers to keep track of their positions relative to each other, without a central intermediary. In the case of Bitcoin, it is about keeping track of money tokens. The concept can be applied more broadly though.

Why is blockchain seen as a profound shift in technology? If you walk out in the street, right now, wherever you are, you are going to see a group of people you do not know – strangers. You don’t necessarily distrust them, but there is no easy way to extend your trust. Traditionally, the way we would deal with this is through state law – such as consumer protection laws – and big third-party institutions and corporations who mediate between these interactions. I can walk into a shop and buy something without needing to know the seller personally.

Then blockchain emerged as a technology that could facilitate transactions between people without requiring intermediary institutions. People have historically been able to do that in small-scale situations, but blockchain tech enables this at large scale. The first version of this was Bitcoin, which is a system that enables people to move tokens between each other without relying upon banks. Unlike the banking system, where transactions are recorded on private ledgers controlled by an oligopoly of banks, whose permission you require to move money around, Bitcoin is based on a public ledger that is updated by special players in a peer to peer network.

The second wave of blockchain – such as the Ethereum system – took the same concept, but moved towards developing more complex interactions between people beyond the exchange of money tokens. In particular they added the ability to deploy automated agents onto the network, which they – somewhat misleadingly – refer to as ‘smart contracts’. In Bitcoin you assume all players on the network are humans who make their own decisions about whether to send tokens. The automated ‘smart contract’ agents of Ethereum though, are like robots, forced to do certain things when members of the network interact with them. For example, if you want to raise money for a company, you can programme a smart contract to automatically send a share to someone who sends it money. To understand this, imagine a vending machine. It is an automated agent. You give it money and it gives you a drink. It has no choice. Now imagine this kind of thing in digital form. If you start to link these ‘smart contract’ entities together you can automate all sorts of interactions.

The third wave of blockchain tech – which is being hyped right now – is the corporate use of the technology. The first two waves were open systems in which anyone could join and, theoretically, everyone had the same rights. In wave three, which is known as private, closed or ‘permissioned’ blockchains, institutions or groups of institutions control who is able to join the system, and can give users different rights and powers within the system. This fundamentally changes the entire ethos. They’re just trying to make more efficient versions of business as usual. Banks, for example, already collectively run certain shared systems for things like payments, and they currently see private blockchain systems – or ‘distributed ledger technology’ – as just a more efficient way to do the same thing. So if American Express says it’s ‘using blockchain’, they’re going to be building a closed system, and this makes it confusing for the public, who often don’t know there is a difference between the open systems and closed systems.

So, to give an example, when I was working within the derivatives market, two traders would agree a deal – let’s say a trader at Goldman Sachs would do a deal with a trader at Barclays – but once they’d done that they report it to their separate back office staff, who would do all the dirty work of having to make the transfers and make sure both traders had recorded the same details about the deal. This takes time, and each bank has different systems that don’t necessarily jive with each other. So the interest for large banks is in finding ways to automate the coordination between themselves, so that they can fire all their back office staff who do the reconciliation work.

What is important here is the distinction between open public and closed private blockchain systems. That said, you could also use closed systems to launch co-operatives. If you were trying to create a co-operative version of Uber, a closed blockchain system could be very useful. So drivers could get together to coordinate themselves. So there is interesting potential.

With the Paradise Papers we are reminded again how tax policy and legislation is often written by the legal teams of large companies who are offshoring their assets and profits. This is a clear example of big finance’s political power. What are the opportunities for us to transform the policy and legal environment?

We are used to this tacky distinction between ‘states vs markets’, but I start from the assumption that there has always been a symbiosis between states and markets. The state creates the underlying structures that enable large-scale markets to operate. If you accept that, you can then think about which market players the state prioritises. Do they favour the large corporate players or the small players and ordinary citizens? This is kind of the historical battle between conservatives and labour: is the state there to facilitate the owners of capital, the CEOs, the elite entrepreneurs, or is it there to protect those with less market power, the employees and marginalised? The state is always going to be captured – the question really is who has captured it? Is it a corporate state, or a citizen’s state? This is a dynamic that goes back and forth.

I do think there are opportunities to transform the policy and legal landscape, and it has happened over the years. It is a fickle system, though. A positive policy change can be reversed by a new government, like a law to separate safe banking to risky banking that then gets repealed. In the long-term the ideal is to try build systems that do not rely on external regulation, but that have positive principles built into their DNA. I’d not give up on financial reform, but it’s difficult. I’ve just come back from spending time with Finance Watch in Brussels: they lobby for the public interest in finance, but they are outnumbered by highly paid private lobbyists that the financial industry deploys. They have to fight day to day against the odds.

In terms of the Paradise Papers, I feel there has been a political turn in the tax avoidance debate. I think there have been gains for tax justice groups. At the same time, there has also been a fatigue among the general public. We hear about new scandals frequently, but there is only so much outrage people can express. This is a long-term fight, not something you can win in quickly. So stick in there and enjoy the ride.

Alternative financial activists, such as the Robin Hood Co-operative and Debt Jubilee, use ‘traditional’ financial tools to challenge the system. How do you understand the strategic relationship between financial protest, financial reform, and the creation of new financial institutions, tools, and services?

Finance activism, financial reform, and alternative financial should, like you say, align with each other. I think they do, but those within these groups do not often attempt to overtly work together. Partially because of funding structures. If you are a critical artist exploring finance, like Paolo Cirio, his funding stream will come from arts funding bodies. And then if you’re FinanceWatch, your funding comes from NGOs and EU sources. This means they’re often having to play into different institutional spheres that don’t allow much overlap.

Also the energy required to work towards different campaigns means focusing obsessively on certain priorities. If your whole world is lobbying in Brussels or Westminster, you may become dismissive or intolerant of the direct action strategies of activists scaling the Houses of Parliament. There are cultural differences within financial reform and they don’t always recognise each other’s value. Sometimes because they are competing for media attention, funding and legitimacy.

But when I zoom out and think about how we will create financial change, I see all of these approaches playing a role. Financial activism and protest is very effective at getting media attention – Occupy Movement, Move your Money campaign, UK Uncut were very good at getting headlines and asking for extreme changes. This then creates space for more centrist organisations to draw up more technical proposals for financial reform. They come through with more palatable demands, which can create change.

The same with climate change movements. Earth First or Greenpeace open space for less overtly activist sustainable finance groups – like CarbonTracker – to come and make technical proposals. You have to zoom out to see the politics – take alternative finance platforms like peer-to-peer lending. Mainstream policymakers struggle to directly attack big banks, and may find it easier to support the alternative finance sector as a way to indirectly weaken banks. The alternative finance sector in the UK has actually been quite good at ‘playing the state’, presenting themselves as a useful alternative to address the shortcomings of the traditional finance giants.

On the extreme end of financial activism, there is little crossover with more ‘respectable’ alternative finance entrepreneurs. If you take Enric Duran, or the Robin Hood Co-op, they have no interest in reforming finance. They are trying to create parallel systems that do not rely on the current system. It’s not like the divestment campaigns, or ethical banking system, which are trying to reform the current system, and that’s an important distinction.

The divestment campaigns are an interesting case study. These campaigners are often criticised by those within more mainstream sustainable finance circles as lacking nuance or being counterproductive. But the divestment organisations have been great at driving the debate on unsustainable investment in a more public way. They actually indirectly support the work done by the technical sustainable finance community. The student activists are creating a space for more technical changes to be introduced.

Since I specialise in not specialising, it makes it easier for me to to see the points of intersection. There needs to be more people who hop between different approaches, overtly spending more time in different communities. The technology community, the localist community, the policy community, the artistic community, and so on. Hybrid approaches are often the most interesting.

Brett Scott is a journalist, campaigner and the author of The Heretic’s Guide to Global Finance: Hacking the Future of Money (Pluto, 2013). He writes for publications such as the Guardian, New Scientist, Wired Magazine and CNN. He is a Senior Fellow of the Finance Innovation Lab, and helps facilitate a course on power and design at the University of the Arts London.

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Published in STIR magazine no.20, Winter 2018

Illustration by Nick Taylor

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Note: I published a shorter version of this in Nesta’s magazine The Long+Short as You Are the Robots. This is a modified and extended version, published under Creative Commons

A banker in 1716 had two main tools: a ledger book and a quill pen. A customer – perhaps a prominent carpenter – would enter a branch, request a withdrawal or make a deposit, and the banker would make a careful note of it within the ledger, editing the customer’s previous entry to keep authoritative score of exactly what the bank promised to them.

ACCOUNT LEDGER BOOK OF 17th CENTURY BANKER EDWARD BACKWELL

Fast-forward to 2016 and we’ve entered into a world no longer dominated by tools, but by machines. The crucial difference between a tool and a machine is that the former relies on human energy, while and the latter relies on non-human energy channelled via a system that replicates – and accentuates – the action of a human using a tool. The carpenter is now a furniture corporation using computer-programmed CNC cutters. Likewise, the bank that keeps score of that company’s money runs humming datacentres with vast account databases. These are digital equivalents of the old ledger books, drawing upon fossil-fuel generated electricity to write and hold information as magnetised atoms on hard-drives.

THE 21st CENTURY BANKER’S LEDGER BOOK

We call the process of moving from manual tools to machines automation, and it appears in various forms within everyday financial life. The ATM, for instance, is an automated version of the bank teller of old who would have to exert energy to check your account, hand you cash, and alter your accounts. I use an interface to interact with this ATM, which gives me some form of control, but only within the inflexible rules of whatever it will allow me to do. This actually requires energy on my part, so while the machine seems to ‘do things for me’, the process also seems to be ‘self-service’.

Automation is creeping into more and more of personal finance. The glossy adverts of the financial marketing industry put an appealing spin on the future world of contactless payment, branchless banking and cashless society. They focus the mind on problems that are apparently being solved through new technology, but they simultaneously divert attention from the dark side of the automated financial regimes that are emerging around us. To get to grips with these processes of automation – and the sub-field of ‘digitisation’ – we first need to establish some definitions of machines, robots, and algorithms.

Financial machines vs. financial robots

I COME IN PEACE TO HELP YOU

Machines tend to require us to manually activate them towards a singular repeated action that they do no matter what, like the way a kettle always boils water if I manually push the ‘on’ button. The ATM is a multi-function machine that can do different things if I push different buttons on the interface, like ‘give me £30’ or ‘show me my balance’. It doesn’t, however, seem to ‘make decisions’ or have any ability to autonomously react. To make it feel like a robot, it must show some nominal agency to make decisions based on external information.

To understand what a financial robot looks like, we need to sketch some general characteristics of robots more generally. We might think of a traditional robot as a system comprised of four parts:

1. Body: An assemblage of mechanical parts
2. Mind: An algorithmic ‘mind’ that can compute or analyse information
3. Senses: Sensors that can detect external data
4. Energy source: For example, electricity

The traditional robot might take in data from sensors and compute it through an algorithmic mind that can activate the mechanical body, provided there is electricity. For example, a robot could be a vacuum cleaner (mechanical body) that receives data from photocell sensors (senses) to be processed through an algorithm (mind) to calculate its position, which in turn sends orders for the body to move around the room, thereby ‘autonomously’ vacuuming your lounge by ‘making decisions’.

Importantly, though, it may not be necessary to include the mechanical ‘body’ part at all. A robot might simply be a software-based algorithmic ‘mind’, taking in data and sending orders to other entities to act out its ‘will’. We might call this an algo-robot.

Let’s consider an Excel spreadsheet model that is used to estimate the fair price of a financial instrument like a share. A person armed with a pen and pad might take hours or even days to go through the relevant data and do the calculation manually. The spreadsheet model on the other hand, directs the electricity coursing through the hardware of a computer to do the same calculation in a fraction of the time. This is a financial machine, automating manual human calculation processes.

To make this into a robotic system, though, we must allow it to receive perceivable external data – such as a price feed from the London Stock Exchange – and allow it to process the data through its ‘mind’ of algorithmic formulas, and then give it the ability to make executive decisions based on its calculations (like the ability to send buy or sell orders back to the stock-market). And, voila, this is precisely what algorithmic automated trading is. The spreadsheet model has turned into a trader algo-robot. From this point the algorithmic coding can be developed into more ‘human’ forms, for example by equipping the robot with machine learning capacities and ‘evolutionary algorithms’ that can adapt to changing circumstances.

The algo-robotic managers of digital finance

ROBOTS: NO LONGER WORKERS and NO LONGER BODIES

‘Algo-robotic’ systems are particularly adept at accumulating power. Unlike the simple machine that offers static options via an interface, an algo-robot – or a series of linked algo-robots – have a greater ability to react in multiple ways in response to multiple data streams, and therefore to organise and co-ordinate. This trait makes senior corporate management warm to them, because, after all, reacting and co-ordinating are core elements of what a manager does.

The old hierarchy within a corporation was one where owners used managers to co-ordinate workers and machines. This gave rise to the traditional battles between owners and managers, managers and workers, and workers and machines. The emergent hierarchy is subtly different. The owners – often a disparate collection of distant shareholders – grant power to high-level management, who increasingly use algorithmic systems as ‘middle management’ to organise their workers and more basic machines.

And this is where we see the changing conception of the robotic system’s ‘body’. Rather than being a mechanical assemblage with an algorithmic ‘mind’, the robot could be an algorithmic mind co-ordinating a ‘body’ constituted out of ordinary employees, who increasingly act like machine parts. Think about the Amazon deliveryman driving the van to act out an order sent to him by an algorithm. This ‘body’ doesn’t even have to be constituted by the company’s own employees, as in the case of self-employed Uber drivers co-ordinated by the Uber algorithms.

These arrangements are often difficult to perceive, but algo-robotic systems have been embedding themselves into everyday forms of finance for decades, not necessarily ‘taking over control’ but often creating a hybrid structure in which manual human actions interact with automated machine-robot actions. For example, the investment bank trader might negotiate a derivatives deal over the phone and then book it into a partly automated back-office system.

“GOOD MORNING, HOW CAN MY MACHINE HELP YOU?”

The quintessential example, however, is the retail bank branch. You can talk with employees behind the Barclays counters, but often they are just there to enter data into a centralised system that tells them how to deal with you. To some degree these employees have agency – the ability to make quasi-autonomous decisions – but the dominant trend is for them to become subservient to the machinic system they work with, unable to operate outside the bounds set by their computer. Indeed, many bank employees cannot explain why the computers have made the decisions they have, and thus they appear as the human face put there to break the news of whatever the algorithm has decided. We might even say they are a human interface to an otherwise algo-robotic system that is accountable only to the senior corporate management, who you will never deal with.

NOTE: If you have enjoyed this so far, you might like my book

From hybrid systems to self-service digital purity

CHARLIE WAS LAID OFF FOR BEING TOO HUMAN

But, ‘human interfaces’ like that are actually quite costly to maintain. People are alive, and thus need food, sick leave, maternity leave and education. They also have a troublesome awareness of exploitation and an unpredictable ability to disobey, defraud, make mistakes or go rogue. Thus, over the years corporate managers have tried to push the power balance in this hybrid model towards the machine side. In their ideal world, bank executives would get rid of as many manual human elements as possible and replace them with software systems moving binary code around on hard drives, a process they refer to as ‘digitisation’. Corporate management is fond of digitisation – and other forms of automation – because it is a force for scale, standardisation and efficiency – and in turn lowers costs, leading to enhanced profits.

The process is perhaps most advanced in the realm of electronic payments, where money is shifted with very little human action at all. Despite recent talk of the rise of digital currencies, most money in advanced economies is digital already, and tapping your contactless payment card sets in motion an elaborate automated system of hard-drive editing that ‘moves’ your money from one bank data-centre to another. This technology underpins talk of a future ‘cashless society’. Bouncy startups like Venmo and iZettle have got into the payments game, adding friendly new layers to an underlying digital payments infrastructure that is nonetheless still dominated by the banking industry and credit card networks.

HORRIFIC DARK AGE INEFFICIENCY

In the case of retail banking, an ideal situation for banks might be to get rid of the branches altogether, and to push for a world of ‘branchless digital banking’. This generally means slowly dismantling, delegitimising and denaturalising branches in the public imagination, while simultaneously getting people accustomed to ‘self-service’. Indeed, many banks are cutting branches, and many new forms of financial services are found only online, like digital banks Fidor and Atom. Digital banking startup Kreditech claims that bank branches won’t exist 10 years hence, “and neither will cost-intensive, manual banking processes”. “We believe algorithms and automated processes are the way to customer-friendly banking,” the startup declares confidently.

Such digital banking is but one strand in the digital trajectory. Digitisation is starting to be applied to more specialist areas of finance, too, such as wealth management.Wealthfront, for example, now offers automated investment advice for wealthy individuals. In their investment white paper they state that sophisticated algorithms can “do a better job of evaluating risk than the average traditional advisor”.

Digital systems like Wealthfront are often promoted as cutting out the middleman – assumed to be human, slow, incompetent and corrupt – and therefore as cutting costs in both money and time. Some startups use this to build a narrative of the ‘democratisation of finance’. Quantopian, a system for building your own trading algorithms, comes with the tagline: “Levelling Wall Street’s playing field”. Robinhood draws on the name of the folk hero to pitch their low-fee mobile stock-trading system.

It seems uncontroversial that these systems may individually lower costs to users in a short-term sense. Nevertheless, while startup culture is fixated upon using digital technology to narrowly improve short-term efficiency in many different business settings, it is woefully inept at analysing what problems this process may accumulate in the long term. Payments startups, for example, see themselves as incrementally working towards a ‘cashless society’, a futurist buzzword laden with positive connotations of hypermodern efficiency. It describes the downfall of something ‘old’ and archaic – cash – but doesn’t actually describe what rises up in its place. If you like, ‘cashless society’ could be reframed as ‘a society in which every transaction you make will have to be approved by a private intermediary who can watch your actions and exclude you.’ It doesn’t roll off the tongue very well, and alarms the critical impulses, but nevertheless, that’s what cashless society would bring.

Forcing the ‘inevitable progress’ of digital finance

WHEN DOES ‘PROGRESS’ FINISH?

Part of the reason for the pervasive acceptance of these developments is the deeper ideological narrative underpinning them, one which is found within the tech industry more generally. It is the idea, firstly, that the automation of everything is inevitable; and that, secondly, this is ‘progress’: a step up from the inefficient, dirty services we have now. In this context, questioning the broader problems that might emerge from narrowly useful automation processes is ridiculed as Luddite, anti-progress or futile.

Of course, ‘progress’ is a contested term. If you’re cynical, you may see it as shorthand for ‘the situation an organised set of commercial interests view as desirable in the short-term’. It doesn’t necessarily mean ‘the thing that would be good for the broader public in the long term’.

Indeed, it is apparent that many people don’t respond to ‘progress’ in the way they’re supposed to. We still find people insisting on queueing to use the human cashiers at big supermarkets like Tesco, rather than diligently queueing up for the automated checkout. Likewise, we still find people stubbornly visiting the bank branches, making manual payment requests; even sending cheques.

Perhaps this is because there is something deeply deadening about interacting as a warm-blooded individual with a soulless automaton trying to sound like a human. The hollow fakeness of the cold clinical checkout voice makes you feel more alone than anything else, patronised by a machine clearly put there to cut costs as part of a faceless corporate revenue circuit.

The ongoing challenge for corporate management, therefore, is how to push automation while keeping it palatable. One key technique is to try to build more ‘human-like’ interfaces, and thus in London we find a hotbed of user-experience (UX) design firms. They are natural partners to the digitisation process, combining everything from ethnographic research to behavioural psychology to try to create banking interfaces that seem warm and inviting.

JESSICA SPENDS A SMALL FRACTION OF HER CORPORATE ENDORSEMENT EARNINGS ON COFFEE

Another key technique is marketing, because people often have to be ‘taught’ that they want something. In the case of contactless payment on the London Underground, the Mayor of London, Barclaycard, Visa and the Evening Standard have formed an unholy alliance to promote Penny for London, a thinly veiled front-group to encourage people to use the Barclaycard-run contactless payments system rather than those ancient Oyster cards. Sports stars like Jessica Ennis-Hill and Dan Carter have been co-opted into becoming the champions of automated finance. Signs have been popping up proclaiming ‘contactless is here’, as if it were something that people were supposed to be waiting for. These subtle hegemonic messages permeate every financial billboard in the city.

The dark side of digital finance

One key to developing a critical consciousness about technology is to realise that for each new innovation a new trade-off is simultaneously created. Think about the wonderful world of digital banking. A low-level bank branch manager might be subservient to the centralised system they work for, but can also deviate subtly from its rules; and can experience empathy that might override strict economic ‘rationality’. Imagine you replace such an individual with an online query form. Its dropdown menu is the digital equivalent of George Orwell’s Newspeak, forcing your nuanced, specific requests into blunt, standardised and limited options. If your problem is D, a system that only offers you solutions to A, B, or C is fundamentally callous. A carefully constructed user complaints system can build an illusion of accountability, while being coded firmly to bias the interests of the company, not the user.

Indeed, if you ever watch people around automated self-service systems, they often adopt a stance of submissive rule-abiding. The system might appear to be ‘helpful’, and yet it clearly only allows behaviour that agrees to its own terms. If you fail to interact exactly correctly, you will not make it through the digital gatekeeper, which – unlike the human gatekeeper – has no ability or desire to empathise or make a plan. It just says ‘ERROR’.

This turns out to be the perfect accountability and cost cushion for senior corporate management. The responsibility and energy required for dealing with problems gets outsourced to the users themselves. And lost revenue from unhappy customers is more than compensated by cost savings from automation. This is the world of algorithmic regulation, the subtle unaccountable violence of systems that feel no solidarity with the people who have to use it, the foundation for the perfect scaled bureaucracy.

So, in some future world of purely digital banking we find the seeds of a worrying lack of accountability and an enormous amount of user alienation. The loan you applied for online gets rejected, but nobody is there to explain what hidden calculations were done to reach that decision. To the bank management, you are nothing more than an abstract entity represented by machine-readable binary code.

THAT’S YOU, AS MAGNETIC ATOMS

So where is the financial AI?

NARCISSUS TRIES HSBC’s PLATFORM: “THEY UNDERSTAND ME SO WELL”

Of course, the banks don’t want you to feel like that. In the absence of employees, they will have to use your data to create the illusion of some type of personally tailored service. Your historical interactions with the system will be sold back to you as a ghostly caricature of yourself, fed through the user-experience filters. And it is here that we find the emergence of new forms of financial artificial intelligence.

Let’s return to the earlier – somewhat blurry – distinction between machines and robots: robots are essentially machines that take in data from sensors and process it through an algorithmic ‘mind’ in order to react or ‘make decisions’. Likewise, there is a blurry line between robots and artificial intelligence. At its most unambitious, AI it is just a term for any form of calculation done by robots. It really comes into its own, however, when referring to robots that have adaptation and learning capabilities which allow them to show creativity and unexpected behaviour. Rather than merely responding to your actions or to external stimuli, the system begins to predict things, offer things, make suggestions, and do things without explicitly being asked to do them.

Imagine, for example, an ATM booth that uses facial recognition technology to identify you as you approach and make suggestions to you. Notice how the power dynamic changes? With a normal ATM I am still an active body, choosing to trigger the machine via the interface. In this new scenario, though, I’m a passive body who triggers the machine without any explicit conscious action on my part. It seems to ‘take the initiative’ and to direct me. It’s only when we start to feel this as a power dynamic that we start to get closer to the feel of AI. The more you move towards AI, the more you feel increasingly passive relative to the robot (a passivity that is beautifully captured in this video).

CAN YOU PLEASE LET ME FINISH BEFORE INTERRUPTING?

Consider the customised ads Google feeds to us. We don’t actively try to make them appear, yet it’s still our actions that trigger the system to target us with specific information. That’s more like AI. There are many scenarios where this process could creep into finance, from machine-learning trading algorithms to creepy health insurance contracts that shift their prices according to your mobile payment data. “I see you paid for two chocolates today Brett. I will raise your premium.”

But this can go beyond a single machine. Just like a robotic system may actually be constituted by an algorithmic ‘mind’ that coordinates a ‘body’ of people – like Uber drivers acting out the will of their invisible algo-boss – so the body of an AI may be fragmented, decentralised and hard to perceive. It could be a network of interacting algo-robotic systems that direct the actions of people who are unaware they are triggering the system. No individual node may be in control, but people may collectively become locked into reliance upon the system, pulled around by forces not immediately apparent to them, being manipulated by their own data. The AI could be a ghost in the collective machine, the manipulative ‘invisible hand’ in a technologically mediated market.

WANNA PLAY?

Don’t panic, but don’t not panic either

“DON’T WORRY, YOU CAN STILL PLAY FRISBEE IN THE MATRIX”

When thinking about the future of digital finance, the issue is not necessarily whether these services are narrowly useful to an individual. Sure, maybe the contactless card is cool if I’m in a hurry and maybe I can get a decent deal from the AI insurance contract. Rather, the issue is whether they collectively imprison people in digital infrastructures that increasingly undermine personal agency and replace it with coded, inflexible bureaucracy; or whether they truly offer forms of ‘democratisation’.

It is easy to overhype these scenarios, though, because while it is true that payments, trading and retail banking are increasingly subject to automation, finance as a whole may not be especially amenable to it. Large loan financing decisions, complex multistage project-financing deals, exotic derivatives and other illiquid financial products cannot easily be standardised. They require teams of lawyers and dealmakers hashing out terms, conditions, and contingencies. Finance is an ancient politicised art of using contracts about the future to mobilise current action, and the dealmakers cannot easily be replaced with algos.

Furthermore, attempts to create more advanced and intuitive automated systems frequently fail. Semantic analysis algorithms – designed to read text – are terrible at understanding irony, sarcasm and contextual ambiguity within language. They may create feedbacks that thwart their own purposes, as in when people learn to game a credit-rating algorithm. High frequency trading falls apart under its own excesses and becomes less profitable. And there are customer backlashes: Metro Bank, the first new high-street bank in Britain for 150 years when it launched in 2010, has grown precisely because of its explicit focus on human-centred branch banking.

Nevertheless, it would be unwise to ignore the fact that the corporate trajectory is very much towards trying to automate as much as possible, and people need to come to terms with both the implications of this, and the vested interests behind it. It is not a neutral, ‘inevitable’ process. There are particular parties who seek it out. Take a moment to investigate who is on the board of Penny for London, that altruistic charity that insists contactless payment is a great way to help those in need. It includes hedge fund mogul Stanley Fink, and previously included the ex-CEO of Barclays, Bob Diamond.

So how should one respond? One approach is to ride with the technology, rather than to resist it. In intellectual leftwing circles the accelerationist sect advocates an embrace of automation, standing against sentimental calls for more human, local systems. It’s an abstract position, founded on beliefs that automation will create conditions ideal for the downfall of capitalism. At some point it intersects with the cult of the Singularity, popular among evangelical tech entrepreneurs and transhumanists.

The ideological ambiguity is perhaps most acute in the emergent field of blockchain technology. Such systems potentially offer a way for strangers to freely interact with each other without central human intermediaries getting involved in the process. They may use blockchain systems to issue shares, enter into insurance contracts and form digital co-operatives, but the systems are underpinned by an extreme version of automation, one that is essentially autonomous. Indeed, the deep-level mission of projects such as Ethereum, a decentralised platform for ‘trustless’ transactions, is the replacement of human systems of institutional trust – like the legal and political systems that normally underpin all contracts and markets – with automated ones apparently detached from the human ambitions of those who historically have run such systems (‘the politicians’, ‘the regulators’, ‘the bankers’). Libertarians long for an automated ‘Techno-Leviathan‘ to replace the human sovereigns we have now, but it is a big question as to whether such automated systems truly provide a more ‘democratic’ infrastructure for interaction.

More down-to-earth are those who want to allow more creative interaction with the existing digital infrastructure. Take the Open Bank Project, for example, which wants to facilitate third-party customisation of digitised banking processes by opening up bank APIs, in the same way that independent developers might build third-party Twitter apps that draw data from Twitter’s API.

And, finally, we have those who authentically seek to harness digital technology to bypass and challenge the standard economic rationality of large scale, short-term profit-seeking financial beasts, taking advantage of the lower startup costs of a digital setting to promote peer-to-peer finance, alternative currencies, crowdfunding platforms and non-monetary sharing platforms.

So, the scene is set. One thing is for sure: , presiding over increasingly passive and patronised users.

Photo by Tech in Asia

The post The dark side of digital finance: On financial machines, financial robots & financial AI appeared first on P2P Foundation.