Have you noticed that people only give economic explanations for the current economic crisis? Well, actually a few people give non-economic explanations, like greed, for instance.

            Likewise, in trying to predict our economic future, have you noticed that mostly the arguments are grounded in economics, politics, and a little bit of psychology?

            Put on a lens of a sociologist or anthropologist for a few moments to see things a bit differently. Enter, Karen Ho, an anthropology professor at the U of M. Dr. Ho got a job on Wall Street in an investment bank for nearly a year in order to study the culture and organization of Wall Street, particularly with regard to dealing with financial crises.

            You can read some of her views in a Star Tribune interview, and a more in-depth analysis of her research in the academic journal, Cultural Anthropology (Vol. 20, #1, pp. 68-96, 2005). Or you can wait for her book to be published in July 2009.

            In her article, her interviews and public presentations, Karen Ho gives a compelling description of how Wall Street (the network of financial institutions) beginning about 1980, transformed and dominated American business by successfully campaigning for what she calls a “culture of liquidity,” by which she means organizational turnover and instability. A common tactic was takeover in order to liquidate a company’s assets. She concludes that Wall Street, with the control of capital, forced American businesses to continually restructure, downsize, outsource, and otherwise focus on short term planning, and the bottom line.

            Furthermore, Wall Street followed its own liquidity prescription for American business. In addition, Wall Street in its excitement took the primrose but deadly path of hedge funds, derivatives, securitizations, credit default swaps, and other elements of shadow banking.

            In her scenario, little by little the global economic system bought into the Wall Street model, seduced by the overvalued financial instruments and financial culture that appeared to be economic nirvana. Wall Street shadow banks marketed giant ponzi schemes and the remainder of the world didn’t want to lose out on the party.

            The tragedy of the culture of liquidity was the corporate sell off and neglect of organizational capital, human capital, research and development, and other resources with long-term value.

            Her view, and I subscribe to it, is that Wall Street has left us with a bankrupt financial sector and ailing manufacturing industries with greatly eroded capacity and value. Professor Karen Ho points out that companies like GM were the darling of Wall Street while they were downsizing, buying mortgage businesses, and designing bigger and bigger SUVs. GM and other such American businesses are now left with a relatively uneducated, poorly skilled workforce, and little capacity to innovate.

            The state of education and job training in American cannot be blamed on corporate America alone.  The politics of unequal, discriminatory financing of K-12 education have done much to hold it hostage, while the quality of learning in our trading-partner nations improves.

            Karen Ho does not argue this, but I think it follows that to compete in the global economy over the long-term, Americans and American businesses need a financial 12-step program to overcome addiction to self-centered consumption and investment growth-at-any-cost.

            Corporate America needs some time to reflect on what it can do best, do it with impeccable quality, and give good jobs and benefits to as many Americans as possible. Corporate America cannot do that with Wall Street breathing down its neck, so to speak. From their self-serving behavior in the past six months, it is clear that neither Wall Street nor Corporate America will reform on their own. It is up to the Federal Government to exert new leadership.

            Ironically, the Secretary of the Treasury for the first two years of the last Bush Administration, Paul O’Neill, holds a similar view of the Wall Street. On CNN’s GPS Program he recently called for truth and transparency on Wall Street. He would order the top 19 financial institutions to put the ratings classes of all their assets on the Internet for the public to see. He then would create quarantine accounts for the bad assets, only allowing public funds to be spent on the non-quarantined assets.

            Even if such reforms were made, the road to recovery will be rocky because we have come to expect the material comforts of living in financial bubbles. As millions of pensions have been converted to individual 401k accounts, the majority of Americans have a finger in Wall Street. Even if our daily moods don’t swing with the markets, we still pray for our retirement accounts to soar again.

            How then do we get out of the spiraling culture of corporate liquidity?  Establishing a modern, effective regulation system and other reforms in Washington DC will help. However, it is doubtful that we can successfully complete its financial addiction recovery program without learning to live with less, without accepting the need to sacrifice for the greater good. It is the perfect time to study Marc Lesser’s 2009 book, Less: Accomplishing More by Doing Less.

            Those with jobs and a retirement fund can afford to allow the economy to slowly recover from its ailments. But those unemployed, underemployed, or otherwise suffering from the lack of means to acquire necessities, cannot afford the luxury of a long, slow recovery. The rest of us must empathize with them and be generous, both personally and through public policy.

            For long-term prosperity, we need to work for the economy to stabilize itself without depending on another big bubble. This is the time to re-define patriotism to include sacrifice, modest lifestyles, and acting as a “Good Samaritan” to those around the world who are truly in pain and suffering.

            Should you be skeptical of my advice on returning to the ethics of the Good Samaritan, read the wonderful 2008 book by Deborah Stone, The Samaritan’s Dilemma: Should Government Help Your Neighbor? Professor of government Deborah Stone began advocating for an altruistic government long before the latest financial bubble burst. With the deep recession leaving so many jobless, hungry, and otherwise suffering, her powerful call for a moral awakening is even more urgent.

Most view the current global economic crisis as simply an economic crisis, but the secondary effects may be much broader. As noted in my blog post “Social Loss for Job Loss,” loss of social capital (empowerment from participation in community and civic affairs) tends to follow job loss in early or mid-career. The unemployed person loses social capital, not so much from the community being weaker, but from personally dropping out of participation in community.  

            Sociological research among 99 randomly selected small towns in Iowa found that loss of social capital not only results from loss of jobs, but also a variety of other negative economic shocks. These economic crises in small towns may include a plant closing, a school closing, toxic environmental contamination, or a natural disaster.

            Sociologists Terry Besser, Nicholas Recker, and Kerry Agnitsch of Iowa State University studied nearly 100 small towns in 1993 and again in 2004. The results of their study were published in the academic journal Rural Sociology in December 2008 (73, 4, December, pp. 580-604). They documented the loss of social participation, and social capital more broadly, tended to follow negative economic shocks. Furthermore, they found that the loss of social capital was greater the greater, the stronger and more frequent the shocks.

            Besser, Recker and Agnitsch also found that economic crises were more detrimental when the shock exposed differences of values within the community regarding appropriate economic response. Examples of value conflicts include using tax incentives to attract a controversial factory or termination of welfare benefits for a given class of citizens. Perhaps most remarkable was their finding that a series of small shocks produced as much damage on a town’s social quality of life as did a single, large shock.

            Some make folk-wisdom claims that “hardship builds character” and “failure offers the foundation for success.” This occasionally may be true for individuals, but this research does not provide evidence that financial crises helps communities.

            What we face now is a gigantic national and global economic shock. This shock is a jolt of such mammoth proportions that the social effects may be best described as a sociological disaster or social tsunami. That does not mean that we cannot learn a great many things from it. Hopefully economists and political leaders will remember the implications of the current financial crisis for many generations to come.

One of the most important scientific findings by sociologists is that people who lose their jobs during the prime of their careers end up also losing a lot of social capital (less involvement in their communities). Such a loss is tragic not only for those unintentionally unemployed, but for their communities and societies as well.

            In my last posting, I asked the question: “Where are the sociologists in a time of financial crisis?” I found a major study that shows the type of research that can be done by sociologists to help us evaluate the full impact of the current economic crisis.

            Jennie Brand, assistant professor of sociology at UCLA, earned her PhD at the University of Wisconsin and carefully analyzed data from the Wisconsin Longitudinal Study. In her article with Sarah Burgard, which was published in the September, 2008 issue of Social Forces, she confirmed that job loss produced major drops in social capital, that is, the ability to use ties to other people to help them and others function more effectively.

            Specifically, this loss of social capital meant that people displaced from their jobs in early or mid-career became less likely to be able to network to get another job, but also to get and give social support in general.

            Jennie Brand’s study involved workers during the period of 1975 to 2004, so it does not include those unemployed during the 2008 economic crisis. And it also was limited to high school graduates, but despite these limitations, the study gives very generalizable findings because it was based upon systematically following and re-surveying many people for many years.

            The crisis in community involvement is more sociological than psychological. It consists of changes in people’s inter-connectedness to other people. Think of it as rips in the social fabric.

            During the past year, 1.9 million Americans lost their jobs, with 533,000 losing them last month. That is the largest loss of jobs in any one month since 1974, according to the BLS report. The percent underemployed now is 12.5%. The underemployed are those who are unemployed or working part-time but seeking full-time work, but not including those unemployed but no longer looking for work. Another way of looking at the situation is that one in eight American workers is partly or fully displaced from their jobs.

            The principal conclusion from all of these data is that not only will the period ahead be one of financial crisis but one of social crisis as well.