Monetary-credit providers are a conditional feature of any market-economy. How this important feature of capital has become institutionalised over the previous twenty years is of crucial concern to understanding our current economic crisis.
Banking has evolved into a complex systematic web of financial corporate-organisations.The abstract accounting techniques and the complex models of market-simulation are difficult to empirically examine as they require sophisticated quantitative skills. The absence of these may be a primary reason as to why the financial-system as an object of public-inquiry was absent in the public sphere over the past decade. The numbers involved, the multiplicity of transactions occurring and the many unpredictable consequences emerging make this system immensely difficult to evaluate let alone regulate. However, we now know that applying self-regulating market principles to the banking sector (and my point of analysis is Ireland’s domestic financial-regime) can produce catastrophic consequences. Furthermore, the delegation of monetary-policy to independent-central banks has depoliticised the importance of credit-provision in the economy. This raises serious questions about the public accountability of the entire financial-monetary system.
The soft touch financial-regulatory framework of Ireland during the boom created an incentive structure that failed the primary purpose of credit-provision. The rationale for removing democratic-politics from monetary policy was to ensure there was no manipulation of montary policy for political gain. This implies that private actors will have no incentive to manipulate the money supply for their own gain. The naivety of trusting banks to act in the interest of the wider economy is now obvious for all to see. Corporate governance (and any governance theory) requires an institutional framework that regulates the rights and wrongs of behaviour. Any policy that attempts to restructure the banking system needs to tackle a) the incentive structure of actors-managers within banks and b) the overall norm-governed framework of capital markets. Justin O’Brien in the Irish Times this weekend argues that effective capital markets require the “provision of a functioning legal and regulatory framework that is informed by the interaction rules, principles and norms”.
For me, this poses interesting questions between the concept (and practice) of ‘governance’ and ‘normativity’. Normative study is too often equated with a concern with exposing ‘ideology’. However, I understand ‘normative study’ as being concerned with investigating how norms become constituted as mutually agreed principles of action. A normative study is simultaneously an empirical study for it examines the process of constitutive decision-making. It is a study into the process of how rules are created. In rational-economic terms it is an inquiry into how the procedural rules of the game coordinate action. A laissez faire approach to this constitutive rule making process results in self interested profit-maximising behaviour. A behaviour that erodes the conditions that make its institutionalisation possible in the first place.