Fast and footloose finance

Traditional theories of location agglomeration and path dependence are increasingly inadequate in examining the present climate of globalisation, spurred on by ever-changing technologies and instant communication. This collection of essays, grouped into four equal sections - changing geographies of banking, financial centres, money and the local economy, and retreat of the state - sets out out to prove just how and why they are now obsolete.

Geographies of banking have changed from local to regional to national to global in response to changing technology. But while banking at the seaboards of the east and the west of the United States is increasingly global, community banking remains relevant to the rest of America. This tension, centripetal versus centrifugal, is mirrored throughout the book. As the financially successful segment of society spends more time interacting with people at a distance, the local economy is increasingly neglected. A conclusion gives attention to this neglect. "Second-class citizens" get left behind as bank branches are closed, as dotcom intermediaries take over and the hypermobile get their instant wishes. Hypermobility of capital results in the collapse of the caring state. Market efficiency gains at the expense of allocational efficiency. Advantages of mobility are heavily advertised, disadvantages of hypermobility receive much less attention. E-commerce and the internet deliver goods and services required by the wealthy faster, but destroy the community by missing out human interaction. Classical economics (like classical science) emphasised stability and equilibrium. Now we discover fluctuations, instabilities and evolutionary pattern at all levels. With the advent of self-organising phenomena like the internet, we have to find a narrow passage between the Scylla of determinism and the Charybdis of randomness.

To be able to address the imbalances of globalisation, we need to look to the structure of international organisations such as the International Monetary Fund, the World Bank and the World Trade Organisation. In the real sector, the rising integration of world markets has brought with it a disintegration of the production process, in which manufacturing or service activities undertaken abroad are combined with those performed at home. Companies now find it profitable to outsource production (domestic or foreign). This represents a breakdown in the vertically integrated mode of production. This disintegration of production itself leads to more trade, as intermediate inputs cross borders several times during the manufacturing process. Financial intermediaries have followed a similar path.

Financial systems are regulatory spaces. As deregulation becomes endemic, the regulatory barriers come down and nations vie as to who can deregulate fastest. Grey markets, after-hours trading, cross listing in security exchanges across time zones and the proliferation of tax shelters bear witness to this deregulation craze. Deregulation is in the interest of those who are efficient, have money to move around and are interested in paying the least tax, and those who have put the interest of capital above all other factor inputs.

Theodor Adorno and Max Horkheimer argued that the logic that hides behind Enlightenment rationality is a logic of domination and oppression. Globalisation of capital markets has been similarly accused. We need to understand the underlying forces in globalisation and spread its benefits in an orderly fashion. This can be done by reducing systemic risk through cross-country cooperation and by fostering deregulation in world trade. Money and the Space Economy is a collection of thought-provoking papers that enhances our understanding of this modern phenomenon of footloose money.

Bimal Prodhan is senior lecturer in finance, University of Hull.