Stylised facts and close dialogue redux

Abstract

We reprise Clark’s influential 1998 article on ‘stylized facts and close dialogue’ to reflect on the state of both and their status in economic geography 25 years later. While close dialogue has been embraced by economic geographers, the notion of stylised facts has been neglected. In making the case for more explicit consideration of stylised facts, we highlight their importance in the research process as a catalyst for interaction between theory and empirical evidence and as a facilitator of academic communication across disciplines, methods and the public. The importance of stylised facts is illustrated by focusing on global financial networks and the efficient market hypothesis. In a time of uncertainty, locally and globally, there is increasing demand for close dialogue as well as new stylised facts – new ways of conceptualising the economic geography of the 21st century.

Introduction

Published in 1998 in the Annals of AAG, ‘Stylized Facts and Close Dialogue: Methodology in Economic Geography’ has become one of the most influential articles on methodology in human geography. Its impact has also gone beyond geography, urban and regional studies, with citations in economics, business and management studies, environmental and development studies, as well as political science. Kwan (2010) listed it among the most cited method articles published in the Annals between 1965 and 2000. Brakman et al. (2011) feature it among the most cited articles in the interdisciplinary field of economic geography of the 2000s.

Its influence is still felt today. Bathelt and Li (2020), for example, noted it was one of the relatively few works that emphasise the need to develop more rigorous methods in economic geography. It is in the spirit of promoting methodological innovation and clarity in economic geography, that we bring the issues of stylised facts and close dialogue back into view. We show that scholars have embraced close dialogue and neglected stylised facts or even treated them antagonistically in the theory and practice of economic geography. In doing so, they have overlooked the complementarity between stylised facts and close dialogue, essential to the research process, as originally stressed by Clark (1998). This one-sided application of Clark’s argument reflects the trajectory of economic geography over the last quarter century, revealing its fashions, strengths and weaknesses. Revisiting ‘Stylized Facts and Close Dialogue’ also offers lessons for the future of the subdiscipline.

Let us start by defining the key terms. The notion of stylised facts was first coined by macroeconomist Nicholas Kaldor to deal with the challenges associated with generating economic theory in the context of imprecise data: ‘Since facts, as recorded by statisticians, are always subject to numerous snags and qualifications, and for that reason are incapable of being accurately summarized, the theorist, in my view, should be free to start off with a “stylized” view of the facts—i.e. concentrate on broad tendencies, ignoring individual detail, and proceed on the “as if” method, i.e. construct a hypothesis that could account for these “stylized” facts, without necessarily committing himself on the historical accuracy, or sufficiency, of the facts or tendencies thus summarized’ (Kaldor, 1961: 178). In the same work, he proposed a set of stylised facts on economic growth, including statements that capital and labour have captured stable shares of national income and that among fast-growing countries, there is a variation in the rate of growth of the order of 2%–5%. While Kaldor focused on quantitative data, stylised facts can also be based on qualitative data, and defined in the words of sociologist Daniel Hirschman (2016: 606) as ‘simple empirical regularities in need of explanation’.

Clark’s definition of stylised facts, which is the principal reference point in this article, has a broader scope than Kaldor’s or Hirschman’s. In his view, stylised facts should be understood as simple representations of the observed world drawn from empirical evidence and/or theory. For Clark, reference to theory as the source of stylised facts is exemplified by the stylised facts of geographical economics, spearheaded by Paul Krugman (1991), including increasing returns to scale in economic activity, crucial to Krugman’s core-periphery models explaining the spatial concentration of manufacturing. Clark criticised what he called theory-enslaved stylised facts such as increasing returns and contrasted the significance that many economists attach to stylised facts with geographers’ attachment to the diversity of economic life. At the same time, however, Clark highlighted the role of stylised facts as ‘a reference point for assessing the significance of empirical observations drawn from a wide range of circumstances’; ‘a test of the relevance of empirical observations, structuring the scope of empirical analysis given unbounded possibilities’ and ‘a form of commonly accepted coherence, encouraging systematic research over-and-against the threat of anarchy’ (p.76). These features of significance, relevance and coherence of stylised facts ‘encourage the incremental development of disciplinary research programs’ (p.76).

Clark (1998: 73) defined close dialogue as ‘a mode of case-study research, one that uses structured and unstructured interviews in the context of relationships between nominal equals to reveal the actual logic of decision making’. In coining the term, he captured the spirit of the time building on the emerging use of corporate interviews as a legitimate method of research in economic geography (e.g. Schoenberger, 1991; Yeung, 1995).

Central to our argument in this article is a reminder that Clark’s original point was not about juxtaposing close dialogue with stylised facts. Rather, it was about their relationship. He claimed that ‘(s)tylized facts and empirical observation are part and parcel of an inevitable and never-ending test of claims in the construction of social knowledge’ (p.78). To illustrate, he used John McDowell’s (1994) seesaw metaphor, with theory-enslaved stylised facts occupying one end of the seesaw and unanchored empirical observations, such as those sourced through close dialogue, the other. Clark saw threats in geographers’ over-reliance on close dialogue. In his view, ‘(t)he problem with close dialogue is its lack of cross-referencing with other cases. While it is a powerful strategy for interrogating the claims of stylized facts, it is hardly adequate as a strategy for coalition building’ (Clark, 1998: 83). Consequently, ‘(t)here is a real danger that the intrigue and intimacy of close dialogue displaces our sense of collective commitment. Not only may we be seduced by the choreography of intimate dialogue, but we may also be seduced by the special circumstances of separate case studies’ (Clark, 1998: 83).

The article proceeds in five sections. We start by examining how and why economic geographers have gone off stylised facts. Second, we explain why this is a mistake and why stylised facts should be revived and recognised where appropropriate. In the following two sections, we use two examples from financial geography – global financial networks (GFNs) and efficient market hypothesis – to show how a critical engagement with both stylised facts and close dialogue matters. We end by reflecting on the significance of stylised facts and close dialogue for the future of economic geography.

What happened to stylised facts and close dialogue?

How did the popularity of Clark’s 1998 article manifest itself in economic and financial geography? Most authors cite Stylized Facts and Close Dialogue to justify the use of corporate, expert or elite interviews as a method of research (see Beaverstock, 2004; Stam, 2007, as impactful examples). Linda McDowell (2001) endorsed and refined Clark’s approach by focusing on the diversity of experts in finance depending on their functional roles (e.g. back-office workers versus traders) in addition to gender (see also McDowell, 1998). Rice (2010) stressed the need to acknowledge and negotiate the power relations in elite interviews while Faulconbridge (2012) suggested that close dialogue was a useful method for studying power relations. Weller (2020) discussed privacy, disclosure and ever-stricter research ethics protocols as challenges facing access to key informants and close dialogue.

In financial geography, interviews have become an important source of data and, in their absolute majority, they are expert interviews conducted in the name of close dialogue (Wójcik, 2022). Even calls for more ethnographic research in geography cite Clark’s (1998) article. As Herbert (2000: 552) put it, ‘Ethnographers must occupy the perspective of the actors under study and the perspective of a theoretically informed and logically rigorous social scientist; one empathetically gathers data, yet engages those data in an ongoing, reflexive conversation with comparatively ‘cold-hearted’ theory’. Research on global production networks has also embraced close dialogue as a method of research (see Hess and Yeung, 2006).

From a philosophical perspective, Barnes (2001: 551) associated close dialogue with a hermeneutic approach to theorising as ‘a creative and open-ended process of interpretation that is circular, reflexive, indeterminate, and perspectival’ representing the cultural turn in human geography. Bell et al. (2015) criticised stylised facts as intellectual compromises stripped of real-world complexity and used multilevel modelling to empirically debunk economists’ claim that once the debt-to-gross domestic product (GDP) ratio of a country exceeds a certain level, growth falls. Peck (2003, 2005) argued for close dialogue and case study methodology as a means of distinguishing economic geography from economics. A simple Web of Science exercise shows that approximately 80% of articles using the term stylised fact come from economics and business studies, with the rest mainly in mathematics, physics and computer science, and very few in the social sciences. Hirschman (2016) arrived at very similar results, showing that while more than 1% of all economics articles use the term, less than 0.1% of sociology articles do.

The main reason for the embrace of close dialogue and neglect of stylised facts seems clear. As most economic and other human geographers embarked on a mission to throw off the alleged shackles of positivism and shun formal theory that smacks too much of universal law-like statements and a god’s eye view on the world, they embraced qualitative data and methods and demoted quantitative ones (Sheppard, 2014). Stylised facts, associated with the products of deduction from formal theories and/or induction from regular patterns revealed by quantitative analysis, had little chance to survive in the process. Close dialogue, on the contrary, appeared very attractive to the mission. Consequently, it has been enlisted in the service of the cultural turn in economic geography (Barnes, 2001).

Few, however, seemed to notice Clark’s argument about the necessary and productive relationship between stylised facts and close dialogue. Exceptions include Pinch et al. (2003: 374), for whom stylised facts were a means of ‘seek(ing) a “middle way” for theory construction between a detailed sectoral case study and abstract modelling’. Scott (2004: 485), while dismissing the stylised facts of Krugman’s geographical economics, argued that ‘a scientifically meaningful and politically progressive economic geography can scarcely allow itself to be reduced to close dialogue’. In what is probably the most direct engagement with Clark’s (1998) article, Yeung (2003) discussed close dialogue and stylised facts, but neither term seemed important enough to him to enter into his process-based methodological framework as a key building block.

The COVID-19 pandemic has also shaken confidence in stylised facts; for example, the indispensability of proximity in some markets and organisations (Bratton and Wójcik, 2022) just as it has changed the nature of close dialogue. The transaction costs related to arranging interviews have declined. Demand, due to the uncertainty facing experts has increased, though this increase is tempered by online-meeting fatigue. As one person can conduct five online interviews around the world in a day without leaving home and spending a cent, close dialogue has become more efficient. Performance (what you wear, body language, etc.) has arguably become less important in online settings, so power relations and hierarchy may matter less (Weller, 2017). However, the quality and effectiveness of close dialogue are at risk. Many geographic and ethnographic elements (where is the office and what it looks like, how people relate to each other in the office, etc.) have been lost. It is more difficult to assess how your interview partner views the world if you cannot approach the office window with them telling you how they literally view the world in front of them.

To summarise, the concept of close dialogue has had an overwhelmingly positive reception in economic geography, notwithstanding important warnings that studies should not rely on too few and too selective interviews (e.g. Martin and Sunley, 2001). By contrast, stylised facts have received less attention and rather cold treatment as something that economists do and geographers should beware of given the costs of ungrounded abstraction in theories that have little purchase on the world of practice and (worse) impose a worldview that has significant costs (e.g. the efficient markets hypothesis (EMH)). Stylised facts have fallen victim of the cultural turn and rising dominance of qualitative data and methods. The next section discusses arguments in favour of reviving them.

Reviving stylised facts

There are many reasons why stylised facts should be revived to restore a more balanced relationship between them and close dialogue in economic geography and beyond. Our discussion starts with stylised facts over history and time, the nature of social phenomena and the precision of language needed to research them. We then proceed to the relationship between qualitative and quantitative research strategies and the role of literature reviews and exploratory research. We finish with education and other research impacts beyond academia.

To start with, the history of research shows that stylised facts matter. They have been around in geography and social sciences, including economics, for a long time, and are here to stay even if we do not recognise them as such. As Hirschman (2016) showed for sociology, Max Weber’s theory of protestant ethic and its affinity with capitalism was based largely on the stylised fact that most skilled workers and business leaders in Germany were overwhelmingly protestant. Kaldor’s reasons for recommending the use of stylised facts are still relevant today, particularly if we extend them from the realm of quantitative to qualitative data. Observations recorded in both quantitative and qualitative data are fraught with problems such as gaps in coverage and incomparability due to the role of subjective evaluation, different definitions and measurement techniques. Hence, as proposed by Kaldor (1961) and highlighted by Clark (1998) for economic geography and Hirschman (2016) for sociology, it is helpful to formulate stylised facts that capture broad patterns, which typically concern associations, rates of incidence and trends. Economic geographical examples include statements like stricter environmental regulation leads to more environmentally-friendly innovation (association); an absolute majority of startups fail (incidence) and domestic regional inequalities around the world have grown in the last decade (trend).

Stylised facts are transitory in nature. As Christophers (2017) noted, Kaldor’s stylised fact that capital and labour have captured stable shares of national income was proven incorrect over the second half of the 20th century in the United Kingdom, United States and elsewhere (Piketty and Saez, 2006). Stylised facts in economics have also shifted focus from physical to human capital. According to Jones and Romer (2010: 225), the new key stylised facts include statements like ‘human capital per worker is rising dramatically throughout the world’ and that ‘the rising quantity of human capital, relative to unskilled labour, has not been matched by a sustained decline in its relative price’. Both represent examples of stylised facts describing trends and illustrate a broader point that stylised facts do not need to be fixed in time and pretend to be laws of nature. Even in economics, often accused of the rigidity of its theories, they change with times and adjust (Rodrik, 2015).

Stylised facts commonly, if not universally, occur in economic geography under the guise of phenomena. As an example, Yeung’s (2024) new treaty on theory and explanation in geography never mentions stylised facts, while the term phenomenon (in singular or plural) appears on every second page, over 100 times in total. According to Yeung, geography explains phenomena, such as inner-city decline, globalisation, neoliberalisation, strategic coupling, neoliberalism with Chinese characteristics, growth of city regions and so on. The global production networks approach, in turn, is presented as a theory explaining some of these phenomena, including globalisation and strategic coupling. However, the almost universal use of the term ‘phenomenon’ is problematic, as it blurs the difference between empirical observations as facts and stylised views of these facts. As such, it neglects profound differences between natural and social sciences.

Natural science has facts based on natural phenomena and scientific experiments where there is a clear separation between object and subject. By contrast, humans and societies react to, interact and change in the process of being observed. Consider the following example. The growth of outsourced and offshored financial services in Bangalore can be established as a fact (or a phenomenon) confirmed by data on employment and firm registers. However, a much more general statement we could propose that many technology centres have become significant financial centres over the last 10–15 years is a stylised fact in need of theory which may focus on offshoring and outsourcing. Globalisation, neoliberalisation, growth of city regions and so on described by Yeung and many others as phenomena are patently and importantly stylised facts, which can be contested with alternative stylised facts such as glocalisation (e.g. Brenner, 2004).

Calling stylised facts by their name is not a trivial question of semantics. Recognition and use of stylised facts can contribute to the integration of quantitative and qualitative research strategies. It is a common mistake to associate stylised facts with quantitative data and methods only. Inspiring calls for mixed methods and triangulation notwithstanding (e.g. Pike et al., 2016; Yeung, 2003), the growing importance of qualitative methods in economic and financial geography has been accompanied with growing isolation of the (rising) qualitative and (shrinking) quantitative camps of the subdiscipline, with detrimental effects. As stylised facts can arise from and be tested with both quantitative and qualitative evidence, they can provide an intellectual bridge or shared reference point. For example, arguments in favour of the financialisation of daily life based on ethnographic research (e.g. Martin, 2002), that do not provide quantitative evidence, can support the stylised fact of financialisation just as econometric studies can do so as well.

Stylised facts can also contribute to literature reviews. In economic geography, such reviews are mostly narrative or descriptive in nature. They typically describe main topics, identify controversies and propose agendas for future research. Sometimes, they are augmented with frequency distributions, cluster analysis or network analysis of citations (see, e.g. Gibadulina, 2021 on financial geography). The diversity of economic geographical research asking different questions, about different places and about different time periods, often produces results that are not sufficiently compatible to draw firm conclusions in literature reviews. Stylised facts come to rescue to offer a middle-ground solution. In using this device, we can compare not just topics, but also empirical results, without expecting the latter to be perfectly comparable. As such, literature reviews using stylised facts can lead to better-stylised facts and ultimately contribute to both inductive theory building and the testing of theories by comparing the explanatory power of competing stylised facts (Houy et al., 2015).

Stylised facts can also help in the recognition of exploratory research in economic and financial geography and beyond. Such research is often based on new data, whether quantitative or qualitative, including those collected through close dialogue. Authors of such research often struggle to link their exploratory research with theory within the limits of a single article (typically 8000 words). What is commonly expected by the high-ranking journals is that empirical work is first deduced from theory and then fed back to theory, all within one article. Instead of being required to perform such acrobatics, authors of exploratory and descriptive research based on genuinely ‘new’ data could focus on addressing established or contributing new stylised facts, leaving the effort of linking these facts to theory to separate articles. In other words, stylised facts create a two-way intermediate link between theory and empirical evidence. If we truly believe in the diversity and contextuality of human, including economic, life, which geography can help explain, we should strive for theoretical works that generate empirically testable stylised facts, and for empirical works that make stylised facts available for theoretical examination. In this sense, stylised facts can also help interdisciplinary conversations in that they can anchor conversations about shared interests without dissolving into claims and counter-claims about theory for its own sake.

Moving to education, teaching geography and the social sciences also rests to a large extent on stylised facts. When we teach about the extraction of surplus value from labour or the spatial fix of capitalism, do we make our students read Marx’s Capital or David Harvey’s Limits to Capital? When we teach Krugman’s geographical economics, for example few of us read, let alone make students read, the details of his theoretical exposition. We rely instead on a critique of its assumptions, its lack of geographical scale and specificity and other shortcomings. There are limited opportunities in university courses to teach theory. Typically, we rely on stylised facts to represent theories that are not central to the course leaving the logic and/or justification for theory or (more grandly) theoretical principles to another time. The point here is that our reliance on stylised facts is not a problem or an unjustified shortcut. As long we engage ourselves and our students about the nature and limits of stylised facts, indicating their theoretical foundations and philosophical roots while teaching robust methodologies to interrogate stylised facts, including close dialogue as one of the methods of interrogation, we fulfil our duties as educators.

Finally, stylised facts are important for producing and understanding the impact of research beyond academia–in media, strategy and policy. With little time for theory, these three realms are full of stylised facts, which they embrace for their simplicity and clarity. It is arguably through stylised facts that the public engages with social science and science more generally. Importantly, stylised facts from empirical observations or theory do not just travel in one way traffic from science to media, strategy and policy. Instead, they can be co-produced and increasingly so in the era when more research funding comes from industry, while public research grant institutions require more knowledge exchange between academics and practitioners and more research impact beyond academia. In summary, stylised facts serve as an important means of communication between academia and the rest of the world, and as such, they should be used as a means to an end (of better science and better world) rather than an end in itself.

Global financial networks

The GFNs approach serves as an example of an attempt to tie various stylised facts about the geography of global finance together in one theory. GFNs are financial and business services firms, governments, financial centres and offshore jurisdictions ‘that come together to manufacture the product of money in the world economy’ (Haberly and Wójcik, 2022: 7). In this context, money is ‘a more or less liquid financial instrument with a more or less credible guarantee of value – thus allowing it to more or less reliably fulfil the medium of exchange, unit of account, and store of value functions’ (p. 25). While money can be created easily by anyone and anywhere as IOUs, GFNs give money quality and shape the hierarchy of money flows.

GFNs play important roles in ‘manufacturing’ the quantity and quality of money. Financial centres host markets that allow money and other financial instruments to be reliably valued and exchanged (thereby rendering them liquid) and generate credit through the centralised integration of information and trust. Offshore jurisdictions typically offer related services such as the financial and legal ‘coding’ process whereby instruments are ‘packaged as credible contractual devices that afford their holders maximal legal flexibility to achieve particular aims, and maximal legal protection of their claims’ (Haberly and Wójcik, 2022: 7).

Financial and business services companies ‘serve as trusted financial intermediaries, engineers, and standard setters, who play a crucial role in resolving the informational and relational dilemmas inherent to financial market operation, and in managing esoteric legal contractual coding and creative accounting strategies spanning large numbers of jurisdictions’ (p.7). Finally, governments ‘with a high capacity to project extraterritorial authority, extend their indispensable umbrellas of sovereign “protection” over these geographically far-flung financial actors and centres. This involves, most importantly, picking up the pieces when the world of private markets and contracts inevitably misfires thereby creating a bedrock of confidence that money can be constructed upon’ (p.7).

The theory of GFNs highlights the paradoxical nature of the global financial system. On one hand ‘(m)onetary instruments are simply conjured into existence as needed, in endlessly innovative paper or electronic forms, in an endogenous process that arises out of economic activity and investment itself’ (p.82). Their very abstraction and immateriality, however, create the necessity to continuously affirm and ground their credibility in GFNs as the ‘solid ground’ of finance. As the institutions and networks constituting GFNs take a long time to build; once they are built, they tend to persist even in the face of global financial crises. As such, their value is as much about what they do as it is about how they adapt to changing (exogenous and endogenous) conditions.

The ‘sticky power’ of GFNs leads us to the first stylised fact – the relative stability of the global hierarchy of financial centres. This stylised fact is based on both induction from empirical evidence and deduction from theories. Nobody alive has witnessed the world without New York and London being the two leading global financial centres. Historical empirical evidence confirms the longevity of leading financial centres, at least in Europe. Before London, Amsterdam was the hub of international finance in Europe in the 17th and the first half of the 18th centuries, while Antwerp played a similar role in the 16th century (Cassis, 2006). As Braudel (2019: 88) observed ‘a financial center can generally be counted on to survive’. Research has also noted a related stylised fact – the delay between the economic decline of major cities and the decline of their role as financial centres (Dalio, 2021; Spufford, 2006).

The relative stability of the hierarchy of financial centres can be derived from other theories than the GFN itself. For some, their persistence relies on agglomeration and network economies – concepts drawn from economics and economic geography (Pazitka et al., 2021). In political science and political economy, it is associated with the theory of hegemonic stability and world systems theory (Cohen, 2008). It can also be allied with Marxian theories that emphasise long cycles of capital accumulation and overaccumulation (Arrighi, 1994). If a stylised fact is consistent with and can be supported by multiple theories from different disciplines, this only adds to its strength. It also speaks to the point raised in the preceding section that stylised facts can contribute to interdisciplinary conversations. At the same time, the stylised fact in question is not a done-and-dusted fact. The landscape of financial centres in Asia, for example, is in a state of flux, without a single dominant hub, and its history (at least that written in English) is less well known than that in Europe or North America (Lai et al., 2020).

A second stylised fact of the GFN theory is that offshore jurisdictions are an integral part of global finance and the world economy. These are ‘are specialized jurisdictions that host the registration and booking of financial entities and contracts whose owners, managers, contracting parties, and/or assets are located elsewhere’ (Haberly and Wójcik, 2022: 9). We use the term offshore jurisdiction ‘rather than tax haven or offshore financial center, as these places are not just about tax or regulatory arbitrage as narrowly defined, but rather about offering financial entities and contracts what can be described as a multidimensional legal, regulatory, and fiscal “flexibility” (see Palan et al., 2010; Sharman, 2006). They are not “black holes” in the global financial system. Rather, they are geographical toolboxes that can play a pervasive role in the structuring of legitimate and illegitimate activities alike, with the boundary between the two often not altogether clear’ (Haberly and Wójcik, 2022: 9).

The prevalence of offshore jurisdictions as a stylised fact is based on both empirical evidence and theory. On the empirical front, studies of corporate legal structures and their role in cross-border financial flows demonstrate over and over again that the map of global finance is peppered with offshore jurisdictions. Historical and geographical research motivated by this stylised fact shows that offshore jurisdictions were used by the Soviet Union and are routinely used not only by Chinese private companies and wealthy individuals but also by Chinese state-owned companies (Wójcik and Camilleri, 2015). The offshore jurisdictions most frequently used by Chinese companies are British-dependent territories; yet another demonstration of the value attributed by financial institutions to English common law and the ‘stickiness’ of GFNs. Recent studies also show the shallow and uneven progress towards global financial transparency due to the strategy of minimalistic compliance practised by most offshore jurisdictions (Jansky et al., 2023). Offshore finance seems to move around the world but never disappears.

The theoretical basis for the prevalence of offshore jurisdictions can be found in the political and international political economy. According to Tiebout (1956), the existence of tax havens derives from the competition between states for capital, which helps countries optimise the combination of public goods provision and taxation to pay for them. According to Palan (2002), offshore finance is the consequence of capital mobility and economic integration combined with political fragmentation. As the amount of footloose capital grows, attracting it (with low taxes, flexible regulation and secrecy) becomes a strategy of a growing number of jurisdictions. The contribution of the GFN is to bring those and other theoretical insights together in a geographically focused theoretical framework that shows the position and dynamics of offshore jurisdictions in conjunction with financial and business services, financial centres and governments.

Close dialogue can help interrogate both stylised facts. Interviews conducted in financial and non-financial centres in the core and the periphery of the GFN can help establish what makes the world dependent on financial centres and sustains their longevity. Close dialogue focused on offshore finance and offshore jurisdictions can help examine motivations behind and processes of establishing offshore financial entities and conducting offshore transactions. In both cases, close dialogue should be conducted broadly, in both the public and private sector, domestic and foreign companies and a wide array of financial and business services. As the GFN perspective emphasises, finance is made in accounting and law. Accountants, for example, those working in big four companies, corporate lawyers, and also strategy consultants can often talk about financial processes more freely than financiers themselves who are involved in financial transactions more directly. From our experience, corporate lawyers are also much more accessible to close dialogue. Their names, bios and email addresses are typically listed on corporate websites. Bankers, insurers, asset managers and real estate developers typically remain anonymous.

The efficient markets hypothesis

Clark’s (1998) article focused, in part, upon Paul Krugman’s (1991) economic geography, being at once a recognition of its significance inside and outside of economics and a critique of its reliance upon the stylised fact of increasing returns to scale. He observed that Krugman’s use of this stylised fact was joined with related analytical methods to produce an explanation of the persistence of spatial economic differentiation. Whereas Clark’s article was critical of this analytical strategy, the article also stressed the importance of Krugman’s intervention for the field of economic geography whether occupied by economists and/or geographers – witness Krugman’s (2000) contribution, and those of other economists, to the first edition of the Oxford Handbook of Economic Geography.

The article also referred to another stylised fact that had, at the time, become central to the theory and practice of investment management and, crucially, the performance and regulation of financial markets – namely the EMH. Like other stylised facts, the EMH can be simply stated and is (or was) found in financial journals, handbooks of financial theory and practice and the coursework programmes that dominate MBA schools devoted to investment management. Ho and Lee (2004: 692) drew upon Fama (1965) to define efficient capital markets as those markets where the price of a traded security ‘fully reflects all the (available) information’. Whereas this comment refers to market efficiency as if it is contingent, in fact, advocates of the EMH believed (as the Chairman of the US Fed believed) that the hypothesis represented the longer-term performance of stock markets (in the United Kingdom and the United States) (Epstein, 2024).

In Clark’s (1998) assessment of the status and significance of the EMH as a stylised fact, he extended Kaldor’s conception of the term noting that it is, or was, used by many theorists and policymakers to represent the ‘normal’ performance of financial markets over time and space. Put slightly differently, he noted the distinction made in the academic literature and among certain policymakers (notably Alan Greenspan) between short-term volatility that has a significant stochastic element and the longer-term trajectory of financial markets populated by market participants that seek value rather than just premium on happenstance. In effect, theorists contended that traders who seek to exploit pricing anomalies do not thrive over the long-term because, in the end, ‘if financial market prices fully incorporate all relevant information already, trying to beat the market is a hopeless task’ (Lo, 2017: 2). As such, the hegemony of the EMH was such that successful trading was deemed to be less about ‘performing finance’ and more about observing the imperatives associated with market pricing over the short-term in relation to the long-term (compare Arjaliès et al. (2017) who show that ‘making’ finance relies on chains of intermediaries that require coordination and management in relation to market structure and volatility).

In this vein, Michael Jensen (1978: 95), a student of Fama’s, once wrote ‘I believe there is no other proposition in economics which has more solid empirical evidence supporting it than the EMH’. His claims were supported by others such as Malkiel (1973) who had demonstrated the inability of investment managers who pick stocks based on technical or fundamental analysis to consistently outperform the market. Consequently, the premiums paid by the clients of investment management firms for active investment strategies were discounted as clients were encouraged to switch from ‘active’ investment strategies to cost-efficient ‘passive’ investment strategies designed to match the market rather than beat the market. The EMH and allied investment strategies came to dominate Anglo-American financial markets to the advantage of large investment companies that had the management and technological capabilities to match market movements and take advantage of those investors not so endowed (Haberly et al., 2019).

The EMH also claimed centre-stage in the regulation of financial markets, financial institutions and the logic underpinning rate-setting and the oversight of market trading by central banks (witness Bernanke, 2015 on the aftermath of the global financial crisis of 2008–2012). Indeed, it became a rhetorical ‘weapon’ used by self-interested financial institutions to claim increasing scope and scale for their trading strategies on a global basis. Whereas counter-claims were made about the possible costs of the ever-expanding scope and scale of institutions’ trading strategies, the EMH was invoked as an uncontested stylised fact that was underwritten by academic research emanating from leading US universities notably the University of Chicago which was heavily influenced by Milton Friedman’s neoliberal fundamentalism (see Phelps, 2023).

As such, the EMH as a stylised fact became the rationale for both sides of financial markets reinforced by regulators who willingly or otherwise provided market participants a degree of discretion that, in retrospect, was wholly unjustified. Here, then, are three revealing features of stylised facts. Notwithstanding Kaldor’s (1961) use of empirical regularities to underpin his selection of stylised facts, it is arguable that the EMH was both a claim about the observed world, a business model for the global financial services industry and a (the) reference point for Anglo-American financial regulators. As such, it was used to legitimate financial institutions and regulators up until it failed catastrophically. As the EMH claimed increasing shares of assets under management, it became clear that market volatility prompted by ‘random’ shocks was a significant factor in disturbing financial market equilibrium, often to the detriment of passive investment strategies.

Notwithstanding the significance of Anglo-American markets, as global financial integration accelerated, these markets were increasingly vulnerable to shocks originating in peripheral markets (Asia, Africa and Latin America) and in those European markets whose governments had encouraged the unwinding of domestic allocations, known as ‘home bias’, in anticipation of the introduction of the Euro (Wójcik, 2002). Global financial integration brought to Anglo-American financial markets increasing heterogeneity in market expectations and behaviour. As such, the assumptions underpinning the proclamation of the EMH as an incontestable stylised fact (witness Jensen, 1978) evaporated.

Through the global financial crisis of 2008, financial markets and participants coped with and adjusted to a series of ‘external’ shocks that, at once, unsettled market expectations and, paradoxically, reinforced confidence in the capacity of Anglo-American markets to adjust to and accommodate the unexpected. The impact of the Asian financial crisis of 1997–1998, for example while devastating for East Asia and other emerging markets, including Brazil and Russia, did not have persistent adverse effects in Anglo-American markets at the time, while the dot-com bubble driven by Silicon Valley fuelled another wave of investment in the United States (Clark and Wójcik, 2001). Nonetheless, in terms of academic research, close dialogue was increasingly welcomed by financial market participants for a variety of reasons.

Knowing something about other markets and market participants was deemed increasingly valuable in that senior investors sitting in London and New York financial institutions often did not have the capacity or connections to reach beyond what they knew and who they knew. Senior investors were increasingly conscious of the costs and consequences of following the herd – that is following market leaders who knew little about the origins of shocks and, indeed, the institutional factors driving shocks from the periphery to the core of global financial markets. In any event, as our research became visible, interviews began to take on the qualities of a shared conversation where insights were exchanged rather than information provided by one party to the other.

The causes of the 2008 global financial crisis were many and are widely debated (Clark, 2011). Given knowledge and experience of market behaviour and institutions, three related factors were associated with the crisis and drove its’ effects through to 2012 and beyond. First, whereas the EMH dominated many investors’ sentiment and expectations, investment institutions had increasingly sought ways of enhancing market returns for competitive purposes. Second, investment institutions increasingly relied upon borrowed money and hence leverage to ‘add value’ without acknowledging the scope and scale of leverage within and across markets. Running parallel to established markets were modes of trading that were often outside of the formal regulatory system and were more willing to use leverage against the market to realise their objectives. Third, national and international differences between financial institutions and regulations were both opportunities to reap a premium on investment and, as it turns out, were factors that amplified the crisis.

Financial regulators were also blind to the emerging problems in US regional housing markets believing these problems were neither systemic nor of importance to their responsibilities of ensuring market stability. Alan Greenspan, at the helm of the US Federal Reserve System, reassured market participants of his belief in the EMH while questioning regulators’ ability to recognise a financial bubble other than retrospectively. Out-of-sight were companies like AIG, notionally an insurance company headquartered in New York and subject to the New York state insurance regulator, that used its offshore base in London to create and sell financial derivatives products that were designed to take advantage of US housing market volatility. Looking back, Bernanke (2015: 273) contended that the AIG Financial Product ‘was effectively unregulated . . . nor did it take precautions on its own, which left it unprepared for the shock of the crisis’.

UK and US securities market regulators were largely unaware of the significance of these operations for United Kingdom, European and North American investors and for the stability of the global financial system at large. When the UK branch of Lehman Brothers collapsed into bankruptcy – the UK’s version of the US government’s Chapter 7 bankruptcy (immediate liquidation) – policymakers in Washington DC were astonished at this turn of events: It ‘added fuel to a fire’ already out of control (Blinder, 2013). Whereas offshore financial centres were, and are, acknowledged as elements in a complex map of global finance and nation-state interests, it was widely assumed these centres were reliant upon UK and US markets rather than ‘players’ in their own right. In any event, it was widely assumed that these types of companies had internal controls consistent with the geographical spread and concentration of their market risks. A stylised fact that went unquestioned until too late.

Economic geographers were aware of the problems facing US regional housing markets just as they were aware of the use of jurisdictional arbitrage by financial institutions to operate out-of-sight and out-of-mind. This is evident in research on regional housing markets and financialisation and the realisation that jurisdictional arbitrage was an integral to market trading strategies. As such, and with the benefit of hindsight, jurisdictional arbitrage is surely a stylised fact which emerged in opposition to belief in the EMH (e.g. Smart and Lee, 2003). Research on offshore financial centres, in turn, has highlighted their negative effects on global financial governance and stability (e.g. Sarre, 2007).

In Clark (1998), it was noted that stylised facts perform ‘two interrelated functions’. First, they economise on reality – that is they narrow the available set of possibilities to one or a small set of ‘realities’ that can be formalised in a set of golden rules. Second, stylised facts evolve incrementally rather than radically adapting commitments through accommodation rather than revolution. It could also have been observed, moreover, that stylised facts are promoted by those individuals and institutions that have an interest in their widespread acceptance. Put differently, there is a politics of stylised facts, which like stylised facts themselves, should be recognised explicitly in research. It is not a coincidence that the birthplace of EMH was the University of Chicago Graduate School of Business, which has been identified as the cradle of neoliberalism (Fourcade and Khurana, 2013).

There remains, of course, a market for financial innovation. However, that market relies on the juxtaposition of stylised facts with information about market behaviour that runs counter to expectations and, most importantly, counter to the rewards that come with honouring convention and ‘performing’ stylised facts (MacKenzie, 2006). By implication, the market for stylised facts about market behaviour and performance gathers momentum when established stylised facts fail. As Krugman (2009: 165) noted ‘the belief in efficient market hypothesis blinded many if not most economists to the emergence of the biggest bubble in history’, while George Soros, an investment guru, opined that ‘the demise of Lehman Brothers conclusively falsifies the efficient market hypothesis’. From ‘one of the most hotly contested propositions in all the social sciences’, EMH became the social sciences’ most criticised stylised fact (Lo, 2007: 1).

Heterodox economists used the crisis to revive the popularity of Hyman Minsky’s (2008) financial instability hypothesis, as well as Marxist theories of the internal contradictions of capitalism (see Harvey, 2010). Mainstream economics responded through the revival of behaviouralism and behavioural finance with its own set of stylised facts. For example, it is now believed that financial asset prices are more volatile than the variability of underlying fundamentals would suggest (Shiller, 1981) and that financial markets overreact to new information (De Bondt and Thaler, 1985). However, neither of these stylised facts nor behavioural finance as a whole has had the (previous) influence of the EMH. ¹ Nonetheless, contestation of the EMH is a benchmark for cross-disciplinary and international research that challenges the efficacy of well-established stylised facts (Wójcik et al., 2013).

Based on hundreds of expert interviews conducted by the authors of this article over the last 30 years or so, the nature of close dialogue has changed, just as the ground under stylised facts has disappeared. One-way communication, from expert to researcher, which dominated in 1998, has evolved into a closer dialogue with more two-way communication. Even those in the investment industry, never short of self-confidence, no longer claim to know virtually everything. Investment recipes circulate and are full of stylised facts (Dalio, 2021). However, it is hard to claim possession of the winning formula for producing investment returns. Instead, trading houses constantly look for insights among their own clients, as well as research partners in academia. As such, the premium on close dialogue has grown and dialogue has become increasingly institutionalised. This has affected not only investment and finance, but also consulting, and other professional services including academia.

Conclusions

Clark’s (1998) article sought to engage with economists’ economic geography focusing upon the status and significance of stylised facts in economic reasoning set against, in part, the virtues of close dialogue. In large part, Clark welcomed the ambitions behind Krugman’s engagement with economic geography but picked up on the limits of stylised facts derived from formal mathematical models as an intellectual device and as a means of representing the world in all its diversity. His argument in favour of close dialogue was a reflection of the premium attributed by economic geographers to fieldwork and related methods of engagement with economic agents whose actions and expectations are, more often than not, anchored in time and place. However, at the same time, Clark’s point was that stylised facts can also be deduced from theories other than formal mathematical models, as well as induced from empirical regularities, based on both quantitative and qualitative data, including close dialogue itself.

In the quarter century since the publication of Stylized Facts and Close Dialogue, economics has changed. It continues to deduce ‘facts’ from theory but is more engaged in induction from empirical evidence. This trend has been stimulated by more data, including big data, and technology that enables the quick collection and processing of data which can meet the demands of industry strategists and policymakers grappling with uncertainty and diminishing confidence in established economic theories. The Economist (2021) has referred to this phenomenon as ‘third-wave economics’, being data- and policy-driven as well as more reliant upon collaborative research, following the first and second waves focused on theory and conventional statistics. Qualitative methods, including close dialogue, are rarer in economics despite their uptake in areas such as health economics (Starr, 2014) and their popularity in business studies’ case studies.

In economic geography, the momentum created by the cultural turn has been sustained even though the term is rarely invoked these days. After taking this turn, economic geography has shifted further away from quantitative methods and numerical literacy towards qualitative methods, including close dialogue. In the process, the quest for analysing global patterns and relationships has given way to idiosyncratic case studies. In financial geography, which abounds with data and lends itself to quantitative analysis, the latter has become dominated by qualitative research strategies particularly over the last several years (Wójcik, 2022). As urban and regional economics has moved closer to the human geography predisposition in favour of inductive research, economic geography has moved further away from economics towards critical theory and related movements in social theory.

While close dialogue has been embraced by geographers, its relationship to stylised facts has been neglected in much of economic geography and beyond. In our view, this has been to the detriment of economic geography, its dialogue with other disciplines (and not only economics) and its impact beyond academia. As we argued, stylised facts, particularly when applied explicitly help establish relationships between theory and empirical evidence through both induction and deduction and with the use of both quantitative and qualitative methods. As such these devices can help evaluate and advance research progress both within and across disciplines. In addition, they can help communicate research results through media, to those who can apply it in the public and private sector, as well as communicate in the other direction, by collecting and testing stylised facts created by industry, government and the public at large.

Revisiting Clark’s 1998 seesaw metaphor, we could go further and consider stylised facts the fulcrum between theory and evidence as the ends of the seesaw. Theory and evidence collected through diverse methods can interact effectively when they focus on an explicitly recognised stylised fact, just as the beam needs a simple but solid point of support for the seesaw to work. The interaction can happen through induction and deduction, and arguments in favour and against the stylised fact can be exchanged and accumulated. Methods, evidence and theories used to approach the stylised fact can change, just as the users of a seesaw do. The work involved is grinding, and the fulcrum can break through wear and tear. Alternatively, the fulcrum can disintegrate under the impact of an event, such as the emergence of exceptionally forceful and sheer empirical evidence. When that happens, a repair or a new fulcrum is needed for the seesaw to work again.

In the realm of finance and economics the EMH has been damaged but not entirely dislodged by financial instability. As we discussed, many theorists rely, even if in opposition, on theories and empirical evidence that question stylised facts without a programme to replace the latter. The exception has been the success of the behavioural turn in finance. Here, a set of stylised facts has replaced the assumption of ‘rational economic man’ referencing observations that people are, on average, myopic, short-term oriented, partial in their selection of data and reactive not consistent over time and space (see Lo, 2017 with Scheinkman, 2014). In economic geography, many stylised facts have been shaken by the forces of global warming and the environmental crisis, the shifting and fracturing of geopolitical stability and the pandemic which highlighted global biological insecurity. With uncertainty, there is a growing market for new stylised facts just as there is a need for new empirical evidence and theories. We hope that economic geographers recognise the opportunities and threats of both stylised facts and close dialogue and the need for their development in tandem and in balance with each other.