Dubnick, Melvin J. “Fixing Financial Markets: The Role of Accountability Regimes”. Prepared for delivery at 2010 Annual Meeting of the Midwest Political Science Association, April 22-25, 2010, Chicago IL.
Abstract: After a brief consideration of the dynamics of the “blame games” that generate and shape the current reform agenda for fixing financial markets, I argue for an approach that goes beyond mere tinkering with traditional regulatory mechanisms and instead focuses on the need to reform the “governance regimes” of the financial sector. In the process I make the case for the existence to two interrelated regimes within the domain of governance requiring attention if we are to make headway in the design of relevant and effective reforms. One of those regimes — the regulatory, which focuses on governance through control — has received considerable attention from analysts, and I highlight one effort [by Hood, Rothstein and Baldwin (2001), hereafter designated as HRB] at framing the elements of that regime. The other regime — accountability, which fosters governance through the creation, allocation and management of expectations — requires more analytic attention, and I offer the foundations for a framework related to that regime that seeks to emulate the logic of the HRB effort. I then articulate some basic “design principles” that need to be kept in mind as we deal with the future of financial market governance.
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Complexity of Financial and Political Risks
- Financial crises are caused by both mechanical failures and purposeful actions.
- Risks include natural disasters, weather, and human interventions like fraud or conspiracy.
Causes of Financial and Political Disruptions
- Disruptions stem from accidental events, such as weather or machines running amok.
- Intentional causes involve deliberate acts like assaults, oppression, or conspiracies.
Role of Governance and Regulation
- Governance serves multiple purposes including oversight, legitimacy, and accountability.
- Regulatory approaches vary from active information seeking to technical feasibility and cost-benefit analysis.
Media and Public Attitudes Toward Risks
- Media attitudes influence public perception of risks, often framing regimes negatively.
- Risks assessed by individuals are low cost, while professional assessment involves high costs and complexity.
Organizational and Regulatory Content
- Organizational structures and regulator attitudes shape risk management strategies.
- Approaches include price signals versus command controls, and active versus passive information gathering.
Theoretical Foundations and Policy Implications
- Theories from scholars like Cohen, March, Olsen, and Ruggie inform understanding of governance.
- Effective governance balances multiple purposes and adapts to complex risk environments.
Historical and Analytical Context
- The discussion of risks and governance has evolved from academic to public discourse.
- Theories emphasize the importance of understanding both normative and practical aspects of regulation.
Summary
- Risks in financial and political systems are multifaceted, involving accidental and purposeful causes.
- Governance and regulation are central to managing these risks, influenced by media and public perception.
- Theoretical insights guide policy, emphasizing balance and adaptability in complex environments.
Nature of Social Relationships and Accountability
- Social relationships are fundamental mechanisms, often perceived narrowly as formal or legal.
- They can be horizontal or vertical, bottom-up or top-down, based on expectations rather than actions.
Types and Frameworks of Accountability
- Accountability mechanisms include constitutive (norm-based), managerial (performance-based), regulative (oversight), and performative (meeting expectations).
- These are embedded within different regimes: normative expectations, objective standards, external oversight, and market trust.
Accountability Regimes Framing
- The regime involves content (actions, narratives, rules), context (media, laws, markets), and conditions (scandals, performance issues, market failures).
- Different regimes emphasize setting norms, creating oversight, or ensuring actions meet expectations.
Theoretical Foundations and Key Scholars
- Classic works by Berle and Means, Polanyi, and others explore managerialism, embeddedness, and corporate governance.
- Elinor Ostrom’s research on common pool resources offers solutions to collective action problems and governance.
Role of Expectations and Anticipation
- Effectiveness depends on expectations about who will be accountable, for what, and when.
- Anticipated responses influence social and organizational relationships significantly.
Accountability in Public and Private Sectors
- Private sector managerialism originated with Berle, emphasizing corporate responsibility to investors and stakeholders.
- Public sector reforms, including New Public Management, focus on accountability, performance, and managerialism.
Regulatory and Governance Approaches
- Regulation involves external oversight, sanctions, and standards to control agent actions.
- Governance extends beyond formal regulation to include norms, cultural factors, and social embeddedness.
Cultural and Cross-National Influences
- Cultural values shape organizational practices and perceptions of accountability.
- Cross-national studies compare regulatory regimes and their legitimacy, especially in Europe and the US.
Market Failures and Externalities
- Market failures such as externalities, public goods, and information asymmetries justify regulation.
- Failures can lead to crises, requiring reforms and new accountability mechanisms.
Role of Norms, Symbols, and Rituals
- Normative expectations are reinforced through narratives, rituals, and symbolic gestures.
- These practices help internalize standards and foster organizational identity.
Challenges and Critiques of Accountability
- Multiple, conflicting expectations create complexity in accountability regimes.
- Blame avoidance, risk regulation, and political blame-shifting are ongoing issues.
Influence of Political and Cultural Contexts
- Political regimes, cultural values, and societal norms influence accountability structures.
- Theories like cultural relativity and embeddedness explain variations across contexts.
Contributions of Key Scholars and Literature
- Works by Hofstede, Granovetter, Hood, and others analyze cultural dimensions, embeddedness, and regulation.
- Critical studies examine the legitimacy, effectiveness, and cultural constraints of governance.
Market and Organizational Failures
- Market and organizational failures often trigger reforms and accountability measures.
- Failures are linked to malfeasance, misfeasance, and non-compliance, prompting oversight.
Internal Norms and Standards Development
- Internalized norms and standards develop through narratives, rituals, and organizational culture.
- These norms guide behavior and reinforce accountability internally.
Role of Media and Publicity
- Media and publicity serve as mediums for carrying out and reinforcing accountability actions.
- Public scrutiny influences organizational behavior and legitimacy.
Theoretical and Practical Implications
- Theories from sociology, political science, and management inform understanding of accountability.
- Practical reforms aim to balance expectations, norms, and oversight for better governance.
Word count: approximately 580 words
Problem Definition and Policy Shaping
- Focuses on how issues are framed to influence policy agendas.
- Highlights the importance of problem perception in governance.
Government and Control Theories
- Examines mechanisms of authority beyond the state.
- Discusses models of governing and public policy priorities.
International Regimes and Global Governance
- Analyzes postwar economic order and international institutions.
- Explores global financial regulation and regime dynamics.
Regulatory and Market Failures
- Addresses incentive design and regulatory responses.
- Critiques market failure concept and government intervention limits.