Democratic diversity in financial market regulation: why we don't have it and whether we should

The following summary, covering the presentation and discussion, has been kindly provided by Robert Cowley, who chaired the session. "A rather different set of issues is raised where existing markets have evaded democratic political control. Nicholas Dorn (Erasmus School of Law, Rotterdam) examined the nature of financial regulation, hypothesising that there would be some benefits if it could be democratised. He argued that convergence has led to an over-connected international system with common vulnerabilities, making it open to trans-border shock-transmissions and a tendency to bail out creditors at public cost. On this view, technocratic, global financial regulation has led to the institutionalisation of global, systemic crisis. The exposure of financial regulation to the democratic process, he argued, should introduce diversity into the international system, thus making it more robust. Several possible objections to the desirability of such diversity were acknowledged. First, the case might be made that diversity would result in a ‘race to the bottom’. Dorn questioned the likelihood of this eventuality, in that jurisdictions are just as likely in an atmosphere of regulatory competition to race ‘upwards’ or specialise. Second, an audience member questioned what the scope of national or subnational regulation might be, given the international nature of financial transactions and the corporations involved. This question, however, Dorn suggested, is exactly the sort which might usefully be put to the vote. Assuming that diversity would be desirable, one member of the audience questioned whether existing representative forms of democracy would be strong enough to achieve substantial democratic input into the process. Currently, however, proposals for democratic steering and diversity would directly contradict the international drive for greater convergence of regulatory regimes. Convergence within the single market, for example, remains the overarching agenda for the European Commission. The convergence agenda is understandable in terms of pressures upon regulators to cooperate with peers in the face of crisis, and the interests of the largest transnational firms. Additionally, the sector has long had the appearance of public regulation; Dorn argued that the construction of the 1980s ‘Big Bang’ as a paradigm shift belies the reality of structural continuity since 19th century. Meanwhile, since the 1980s, the sector has presented itself as more amenable to technocratic, rather than democratic governance; so ‘leaving things to the experts’ may still be the default public mood, even as the crisis deepens. The sector has reacted to 2008 by adopting an apparently more flexible model of ‘crisis management’. Socially disembedded, abstract ‘models’ have to some extent been tempered by the acknowledgement of the need for ‘judgement’. Yet the possibility of repatriating financial powers and regulation, and subjecting them to democratic whim, has remained outside mainstream debate. Technocratic governance seems set to become further institutionalised, deepening regulatory convergence and exacerbating market connectedness and instability."