I’m being very speculative as well as a bit anecdotal here.
The amount of time many academics spend applying for funding, while knowing in advance how slim their chances of getting it are, is nicely illustrative of a general problem in what I’m calling shallow markets. The term in my usage is not primarily about the number of market participants nor about liquidity. A shallow market is, very briefly, a market which fulfills two criteria:
- most producers have a good deal of control over the levels of negative externality generated by their activity; and
- there is a fairly reliable inverse relationship between the level of negative externality and the value which they can deliver within the market.
The shallow market is a useful tool for thinking about situations in which some important factors of productions are hard to define in money terms. For instance, human capital, social capital, entrepreneurial capital, and technology are often treated as factors of production, but they are hard to identify and evaluate unless we first just go ahead and assume that they are present in the market. But what if they’re not as present as we think? The idea of the shallow market introduces the possibility that such factors of production may have been replaced by (or mixed up with) the practice of adjusting levels and types of negative externality as and when needed.
Some shallow markets may be confusing and opaque, until you realize its agents’ behaviors may relate to events in the markets where they have the option of offloading negative externalities, and/or to those agents’ need to control the risk, timing and circumstances of their exit from the shallow market. Other shallow markets may seem easy to understand, although in truth what appears like a consistent set of behaviors is accomplished through underlying volatility in the level and type of negative externality generated.
Some other characteristics which may be associated with a shallow market include:
- markets with fairly high churn: producers come and go;
- markets with relatively few barriers to entry;
- in particular markets with the possibility of easy hand-over of relationships and other capital from an exiting producer to an entrant (although this may also contribute to the “deepening” of the market in the long term);
- markets with a wide variety of potential negative externalities whose associated functionality is interchangeable within the shallow market;
- markets whose producers do directly or indirectly bear some or all of the costs or risks of the negative “externalities” which they sometimes generate, only not in their capacity as producers in that particular market;
- markets which receive incentive structures from and/or deliver incentive structures to other markets from which they are otherwise comparably isolated (e.g. in supply chains);
- markets with intensive casual, volunteer, trainee and/or intern involvement;
- young or recently radically overhauled markets;
- perhaps markets with an associated skill glut;
- markets in the process of adapting to significant new regulation;
- markets conspicuously shaped by the principal-agent problem;
- “internal” markets and/or markets made possible by creating new currencies and/or other formal media; or
- platform capitalism, piece work, gamification, unbundling, so-called “peer-to-peer” markets, the “sharing” economy, or anything that can be described as “Uber but for x.”
The allocation of academic research funding may be a nice example of a shallow market, since the unit cost of each application (or at a finer grain, of each desirable feature of each application) in money terms is low or perhaps even zero. (People do sometimes get teaching relief in order to work on big bids, of course; and sometimes roles are created specifically to generate and/or support funding bids. But let’s just concentrate on the lecturer who is also expected to attract funding to get some teaching buy-out in order to do some research).
Now, you might try to argue that the market for funded academic research actually isn’t a shallow one, just a market dominated by human, social, and intellectual capital. Of course, you might say, a certain amount of duplication occurs, but that isn’t unusual in a competitive market, and it’s worth it because of the benefits that competition brings.
Well, I think this line would be acceptable, more-or-less, if you could show that the market really is retaining incentive structures which are selecting for high quality intangible capital. You’d need to impose a set of plausible criteria for what constitutes “high quality” from the outside: you can’t just take the volume and variety of funding proposals as a sign of quality without begging the question. If you were making such an argument, you should be trying to compare the market both to other similar markets, if they exist, and to a variety of speculative institutional reconfigurations of the market itself.
Alternatively, you could see the market for funded academic research as a shallow market. On this view, the costs of producing funding proposals are dumped elsewhere, e.g. within the university system as lost time for teaching preparation, for original research, for keeping tabs on developments in the field, for student feedback, dealing with student queries, proactively spotting and offering support to students with particular issues, pastoral care, for administrative duties, professional development, conference attendance, informal collegiate contributions to research environment, for editorial work, for organizational work; costs are also more nebulously transferred outside of the university system. You’re not supposed to cut corners on these things in order to make time for writing funding proposals, but you can cut corners, and it’s very difficult to measure if you do. Perhaps that’s where producers pick up their inputs, rather than magically milking various kinds of intangibles such as human, social, and entrepreneurial capital.
In other words, you may suspect that there may be real spillover effects that are not adequately reflected in the cost of creating funding applications. You may also suspect that the incentives supposed to promote the quality of research proposals have a tendency to leak away, through the very same channels through which that costs are externalised. Who applies for what, and with what level of care, is shaped not so much by supply and demand within the market, as by researchers’ different capacities and inclinations to make trade-offs, heavily influenced by factors outside of the market.
But can we say a bit more about that, maybe? What is this “leakage” mechanism? And how can we spot it? Well, one thing is that the negative externalities are actually highly visible in the form of a huge number of failed proposals. In a deep enough market, in which the iterated process of failure and improvement / replacement was largely contained within the market, failed applications might not suggest negative externalities. They might by and large signal the market’s competitiveness. The mechanisms linking failure and competitiveness could be myriad: the application process itself can function as research, training, career development, networking, building collective social capital, etc. In a deep enough market, the volume of total applications would be roughly proportional to the measurable quality of those applications that did get funded.
In a shallow enough market however, a high volume of failed proposals does not indicate that the market is competitive. Given a few extra plausible assumptions, it indicates just the opposite. For instance, a university is competing to offer value on multiple, interconnected fronts: if the average result of a failed bid in terms of overall competitiveness is negative (if, say, the negative impact due to squeezed teaching preparation time outweighs the positive impact of building expertise and social capital) then it’s highly likely that the more failed bids, the less competitive the sector as a whole.
But shallow markets also give us another lens on this phenomenon. A high volume of failed proposals in a shallow market is a sign that the market is uncompetitive, because it means that a high volume of producers are encountering incentives to adjust their offering. Such incentives are the leading edge of competition. But remember that the producers in such a market, instead of a stark choice between either furnishing the requisite human capital, social capital, entrepreneurial capital, and technology, or exiting the market, always have the option of adjusting upward their negative externalities. When they do that, the incentives which provoke them to it — instead of sticking around to sustain existing and generate new innovation, craft, and scrupulousness — get dumped together with the externalized costs. We might see such lost incentives drifting into a strange afterlife, circulating through a stack of shallow markets, perhaps gathering scraps of value by absorbing some of the benefit of innovations in whose formation they played no part, or by seeking particularly illegitimate rents from fresh entrants temporarily capable of sustaining them, until the displaced value debt has been paid back, and the by now thoroughly corrupt and arbitrary incentives with which that debt is woven can finally vanish.
Note on externalities: When thinking about shallow markets, it’s important to realize that while the negative externality is strictly speaking a cost that is not borne by the supplier as a structure in the market, but the same underlying agent may ultimately have to bear all or some of that cost, perhaps at a later date, and/or in their capacity as an actor in another market. While the legal shape of an externality (say in tort) requires we identify discrete “third parties” who bear the spillover costs, the concept’s analytic usefulness is limited unless we’re a bit more flexible (e.g. as in discussions of systemic risk as a negative externality). But “positive and negative externalities” in general may prove too rigid a framework to understand the flow and transformation of value between and within modern markets.
Note on who the supplier is: In a similar vein, note that “control over” does not always imply any kind of social or psychological empowerment. The actor in this example probably isn’t the lone academic, so much as the academic embedded in their department, their university, and the institution of academia. As an individual, the academic may well have little choice but to keep churning undiscerningly through applications with a low chance of success. It is because the academic as an individual is disempowered that the academic-embedded-in-their-institutions can exercise calculative control over their negative externalities; the sacrifice would otherwise be unthinkable. Note that I can say “sacrifice” because I am conceiving of academia as a set of interconnected markets and market-like phenomena, where an agent in one is usually an agent in many, and may be forced into unhappy trade-offs. By contrast, if agents immediately zoom to some upper limit of negative externality and happily stay there, they are not really exercising control. This is how the notion of control is closely linked with the notion of incentive retention. If agents generally have the option of rejecting an incentive structure which is supposed to promote quality and innovation by jettisoning it to another market, then we’re probably in a shallow market.
Note on what might happen to a shallow market: Waves of regulation or institutional tinkering, top-down or bottom-up — bottom-up, for instance, if a trade union or professional association were to find ways to limit time spend writing proposals; or even if a culture of “enough is enough” were to become widespread and stable — whether or not they have the express purpose of preventing externalities, may end up “deepening” a shallow market. One obvious observation about academic funding is that the market would likely deepen insofar as the application process could come to resemble the first stages of the project for which funding is required. The argument could be made that a detailed plan, a case for support, an impact statement etc. do comprise the first stage of any project, but there may be a disconnect here between humanities research and other kinds of research. What constitutes the first stage of research should be grounded in actual practice, not a top-down idealization. Of course everyone has their own style, but most humanities research projects really get going when the investigator starts reading a lot and gathering notes. So imagine that a literature review took a more central role in the initial application, and that a much more directed process took place after funding was (provisionally) awarded in order to establish knowledge of and conformity with the various standards, agendas and best practices that are implicit in most current application frameworks.
Stray notes on churn: I am interested in linking the control of negative externality in order to remain active in a market with the reasons that actors come and go, and the extent to which such traffic does or doesn’t reshape persistent market forces. It would also be useful to join up this thinking with the more Darwinist notions of the benefits of competitive markets. It’s also important to watch out for a mystical conviction in a cosmic balance, as if all value is necessarily paid for somewhere. Actually value transforms into non-value and vice-versa. I am tacitly treating the researchers as producers and the product as research proposals, although you could treat each research proposal itself as a one-off producer; you could also try taking a more matching market perspective, as though researchers and funders were trying to “find” each other.
Stray notes on pancakes: It is Pancake Day. It strikes me that some markets have a kind of irresistible self-definition, and with other markets, you can draw the boundaries in different ways. This comes up a lot in competition law, of course (how you define the market may determine whether you have a monopoly in it). But one reason for the choice of the term shallow market, and for my choice of example, is my sense that a particular market may usefully be analytically disintegrated into smaller interconnected markets and/or integrated into other markets; it may be useful to focus on a particular “slice” of a market as a market in its own right. Certain kinds of shallow markets stacked create a deep market. Many standard definitions of a market are curiously humanistic — as if “buyers” and “sellers” were ever more than mere fragments of humans.
Last stray notes: I of course don’t mean to suggest that shallow markets are intrinsically more or less oppressive than deep markets that are more able to corral themselves effectively. Constructive or even unconstructive criticism as always very welcome.