Dubnick, Melvin J., “Accountability, Adam Smith and Policy Choice In World Financial Markets.” Prepared for Presentation at WEF/ESRC Workshop on Incentives and Governance in Global Finance, July 18-20, 2008, Radcliff House, University of Warwick UK.
Author’s Note:
For a more studied (i.e., corrected) version of my take on Smith and accountability see my 2010 paper: https://dubnick.net/papewrs-remarks-etc/2010-a-moral-being-is-an-accountable-being-adam-smith-and-the-ethical-foundations/.
AI-Generated Summary:
This document explores the reasons behind the emphasis on accountability in global financial market reforms and examines the various forms and justifications for accountability mechanisms.
The Concept of Accountability in Financial Markets
- Many reform efforts aim to make corporate actors in global finance accountable.
- The term “accountability” is broad, polymorphic, and lacks a clear, specific form.
Types and Promises of Accountability Solutions
- Solutions focus on inputs, processes, or outcomes, with promises of control, ethics, performance, integrity, legitimacy, and justice.
- Instrumental solutions include control mechanisms, regulatory standards, and performance monitoring; intrinsic solutions emphasize trustworthiness, transparency, and social responsibility.
Rational Choice and Its Limitations
- Policy choices are often explained by rational choice theory, emphasizing control, delegation, oversight.
- Critics argue it lacks empirical credibility and neglects normative principles and moral sentiments.
Adam Smith’s Moral Sentiments and Social Theory
- Smith viewed moral beings as inherently accountable, rooted in social relationships and empathy.
- Accountability arises from mutual respect and reciprocity within moral communities, especially close relationships.
Smith’s Moral Psychology and Sympathy
- Sympathy, including empathy, is central to Smith’s moral theory, fostering mutual accountability.
- Proximity in space and time strengthens empathetic bonds, influencing trust and moral standards.
Moral Communities and Market Dynamics
- Markets are embedded in moral communities; their stability depends on shared norms and mutual respect.
- Technological or infrastructural changes require moral community adjustments to sustain market extent and function.
Social and Natural Adaptations of Moral Communities
- Adaptations occur naturally through social dynamics or intentionally via technological and organizational reforms.
- These adjustments are driven by the social relationships and moral standards that underpin markets.
Implications for Policy and Market Reform
- Moral community-based reforms focus on strengthening social bonds and shared norms.
- Resistance to change can hinder market adaptation, emphasizing the importance of moral and social cohesion in reform efforts.
Strategies for Protecting Moral Communities
- Communities may isolate themselves physically or culturally to shield from external pressures.
- Examples include uncontacted Amazon groups and groups like the Amish that segregate to preserve identity.
Public Policies and Market Norms Modification
- Governments use legal tools like property and contract law to influence market practices.
- Policy options include control mechanisms, performance standards, and accountability reforms to shape norms.
Role of Accountability-Based Reforms
- These reforms aim to enforce control, ethics, or standards, often through “forced alteration.”
- Examples include reengineering organizations and performance measurement systems to improve productivity and compliance.
Intrinsic Values and Social Norms in Reform
- Reforms based on intrinsic values promote justice, legitimacy, and integrity within moral communities.
- Corporate social responsibility efforts, like Nike’s, exemplify legitimacy-based accountability.
Rational Choice Theory and Its Limitations
- RCT models assume actors are rational, self-interested, and make decisions based on known options and outcomes.
- They focus on factuality and instrumentality, often neglecting social and normative influences.
Moral Sentiments Model as an Alternative
- This model incorporates bounded rationality and embeddedness, emphasizing social and normative constraints.
- Preferences are shaped by community standards and reactive attitudes like resentment or gratitude.
Social Construction of Choices and Moral Values
- Choices are socially constructed and valued both intrinsically and instrumentally within communities.
- Acts are judged by reactive attitudes, which influence moral decision-making beyond utility.
Market Panics and Social Dynamics
- Market crises follow phases: mania, distress, and panic, driven by social rituals and norms.
- Panics are influenced by community responses, attribution of blame, and regulation efforts rooted in social memory.
Social Construction of Market Crises
- Crises involve action, attribution, and regulation stages, all embedded in social norms and collective memory.
- Reforms tend to focus on restoring rules and punishing misconduct to prevent future panics.
Challenges of Globalization in Financial Markets
- Globalization introduces economic, political, cognitive, and social challenges.
- Crises in emerging markets highlight issues like mismanagement, ideological biases, and regime mismatches.
Social Perspective on Globalization
- International regimes are social institutions based on shared norms, principles, and legitimacy.
- Changes in regimes reflect complex interactions of political power and social expectations.
Impact of Globalization on Moral Communities
- Global markets weaken local bonds of sympathy, challenging the development of transnational moral communities.
- Crises like 2007-2008 reflect tensions between global integration and social trust.
Accountability in Global Financial Regulation
- Accountability mechanisms are crucial for overseeing cross-border banking and investments.
- Laws against manipulation and insider trading aim to reinforce responsible behavior in a global context.
Theoretical Biases in Policy Approaches
- Rational choice models favor control and performance-based reforms driven by instrumental values.
- Moral sentiments models prioritize intrinsic values, community norms, and legitimacy in reform efforts.