In person icon Rethinking the Governance of Financial Integration from the Bottom Up: Beyond the Debates on Financialisation and Post-Crisis Reform

The financial crash and the Great Recession sparked much debate about and critique of globally-integrated financial markets, of banks, and of the regulatory and supervisory governance of the sector. These debates associate the dynamics of liberal finance with negative economic and political outcomes and governance failures. Negative consequences or not, the financial system as a gatekeeper to the expansion of investment, housing and insurance is here to stay. Furthermore, the current literature tends to underestimate the extent to which developments in other policy domains, such as the privatisation of social insurance and the promotion of home ownership, have contributed to financialisation and instability in financial markets. There are welfare state reforms which try to mobilise private finance for social policy which shift the risk on individuals rather than create larger risk pools. The literature leaves out some particularly fundamental issues that require further exploration. How can we better understand the problem of financial and monetary stability as an ongoing problem with important and potentially negative spin-offs into other policy domains? Are supranational venues for financial regulation and supervision supporting better financial governance or are they, despite their best efforts, unable to overcome the selective interest representation in this field of public policy? Why is financial stability apparently more easily achievable in some countries than in others? What is missing is a genuine ‘stock-taking’ exercise with the benefit of hindsight – a back-to-basics analysis of the problems, both conceptual and in terms of public policy, that are central to the governance of globally integrated financial markets and their roots in domestic monetary and financial systems. Why, after generations of critical reflection, is financial stability and its relationship to monetary governance still such a chronic problem even in advanced economies, despite the advent of democratically accountable systems of financial governance? We know what to expect of the consequences of persistent governance failures, yet ongoing reforms have yet to assure us that there has been a sea-change in how financial institutions are allowed to expand and innovate. The effects of Quantitative Easing and other crisis-born experiments in financial and monetary governance have yet properly to be analysed by scholars of political economy and public policy. We seem to be stuck in an unexplored policy space that continues to produce surprises and unintended consequences. What are the political forces that maintain this state of affairs? Why have those calling for fundamental change not been more effective, especially when such calls come from the heart of the policy establishment such as the chief economists of the Bank of England, Andrew Haldane, and the BIS, Claudio Borio? This workshop calls for papers that address three essential sets of questions that require both scholarly and practical consideration in terms of public policy: 1. What are the gaps in our understanding of monetary and financial governance, including the link between the domain of monetary policy and financial stability? What indeed do we mean by ‘financial stability’, if that is what we say we want? The adoption of macroprudential approaches to financial regulation is of particular significance in this context but also the new awareness that financial cycles may be more disruptive for stability than wage-price dynamics. 2. Based on an enhanced understanding of the political economy of finance, what are the obstacles to better macroeconomic governance? What is stopping sophisticated advanced economies from ‘getting it right'? What has been done in the reform process and what remains unexplored? And how might we better understand the tensions between financial markets, financial innovations, and the fiscal position of governments? 3. How might we better understand the relationship between the provision of financial and monetary stability, on the one hand, and related policy domains involving the long-term needs of public finance? What is the relationship between the imperatives of stable financial and monetary governance and the long-term provision of collective goods aimed at addressing policy issues such as redistribution and inequality (including jurisdictional arbitrage and tax evasion); the effects of longer life-spans and ageing (pensions, long-term care); or the rising demands of infrastructural investment and adaptation to emerging technologies? Are there only tragic efficiency-redistribution trade-offs to be made or are there less dismal options for the satisfaction of the political and social imperatives of open-economy democracies, along the lines of the new welfare economics. These broad questions open up the space for a deeply innovative and interdisciplinary workshop. 4. Participant Profile and Anticipated Papers This workshop is therefore looking for participants with a capacity for synthesis and the crossing of the boundaries that so often constrain our understanding in the social sciences and the domain of the economy. Contributions are invited from political economy and economic sociology, but also heterodox, institutional and behavioural economics. Historical approaches would be as welcome as those that tackle innovations of which the outcome is still somewhat uncertain. The contributions we are looking for include theoretical and comparative case study work on transnational governance. The workshop would also benefit from policy studies that investigate new issues such as the macroprudential turn, monetary policy experiments and financialising welfare state or public finance reforms. The kind of questions we would like to see answered include: • Have central bank practices changed after the North-Atlantic financial crisis, given their expanded mandates on financial stability? What do we really know about ‘the macroprudential turn’ in financial and macroeconomic governance and the first attempts at implementation? How sound are its intellectual foundations? • The financial sector is a source of well-paid service sector jobs and tax revenue but also a massive contingent liability for the public purse. How has this played out in different countries? Fiscal authorities have experimented with financial innovation, such as swaps for debt management, to ease the pain of budget cuts, especially at the local level. And they have underwritten the creation of new insurance markets for social policy purposes, such as long-term care. What are the experiences with these financial-fiscal policies? How can we best address the provision of public and collective goods under conditions of financial integration? • Financial stability does not follow easily predictable patterns. So why are financial cycles more volatile in some countries than in others, the fallout of house price and mortgage credit collapse on households more or less severe, the investment crash following a banking crisis more or less deep? The space for debate that we wish to open up is of course much broader and deeper than the tentative list above, but there is an urgent need to find out what the best scholars are thinking on this crucial workshop topic.