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Financial governance and transnational deliberative democracy

Published online by Cambridge University Press:  23 April 2010

RANDALL GERMAIN
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Abstract

Recent concern with the institutional underpinning of the international financial architecture has intersected with broader debates concerning the possibility of achieving an adequate deliberative context for decisions involving transnational economic governance. Scholars working within traditions associated with international political economy, deliberative democracy, cosmopolitanism and critical theory have informed this broader debate. This article uses this debate to ask whether the structure of financial governance at the global level exhibits the necessary conditions to support deliberative democracy. In particular, it considers the extent to which publicness and a public sphere have become part of the broader structure of financial governance. Although in some ways financial governance is a hard case for this debate, an argument can be made that a public sphere has emerged as an important element of the international financial architecture. At the same time, the analysis of the role of the public sphere in financial governance reveals important lessons which public sphere theorists and deliberative democracy advocates need to consider in order to extend their analysis into the realm of global political economy.

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Type
Research Article
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Review of International Studies , Volume 36 , Issue 2 , April 2010, pp. 493 - 509
Copyright
Copyright © British International Studies Association 2010

Introduction: the problem of financial governance

How to finance economic growth and development, tempered with some degree of social equity and political autonomy, has been a mainstay of academic and practitioner interest since the Industrial Revolution spread beyond the shores of Great Britain in the 18th century. The debates spawned by the problem of how to make finance serve economic, political and social goals, however, have up until quite recently been framed in national terms, as debates posed either within the confines of national borders or within the parameters of how to achieve inter-national cooperation. That is to say, the political economy of finance, and especially of financial governance, has been predominantly organised around nations, national economies and their interactions. Although finance itself – whether rendered as combinations of institutional networks, specific market formations or bundles of transactions – has long moved seamlessly between and among such nationally-constituted ‘economies’, the ‘problem’ of financial governance has been framed historically in national terms, or within a national context.

This formulation has become problematic, for two reasons. First, the practical day-to-day organisation of finance has become so suffused by a global scale that simply to be effective financial governance must at the very least be able to accommodate and/or respond to globally organised dynamics, pressures and interests. The history of financial governance over the past thirty years has been largely about states grappling with this trajectory.Footnote 1 Second, the organisational logic of finance, financial institutions and financial markets has come increasingly to undermine or subvert the organisational logic of territorially-determined authorities. The logic of the former is heterogeneous and operational on a global scale, while the logic of the latter is homogenous and operational on a territorial scale.Footnote 2 That is, as a totality, even though finance responds to dynamics and incentives which cut across and flow through (in order to take advantage of) boundary-induced differences – often identified as arbitrage – its organisational form is heavily predicated upon a global or world logic that swallows up such national divisions. In this sense, financial arbitrage demands multiple jurisdictions for the possibility of gain to be present, even as it subsumes these differences within its own operational logic. As finance has come to be organised on a world scale, so too have governance efforts been inclined in that direction: they remain incomplete and handicapped when directed solely at the national level.

At the same time, even if the problem of financial governance demands a global scale, we should refuse to frame it entirely in global terms. There is a strong and enduring national dimension to financial governance that remains robust in the face of global dynamics.Footnote 3 One element of this national dimension can be described as outward-oriented self-interest, in the sense that governments have a clear interest in framing international regulatory and competitive norms and rules in a manner favourable to themselves and the interests of their leading financial institutions. Financial governance is always going to be at least in part about the politics of national self-interest, of extracting relative gains that benefit the home side as much as possible. The other element of this national dimension can be described as inward-oriented self-interest, in that governments and their leading financial institutions will often have a direct and tangible material incentive to resist the imposition of international norms and rules where these conflict with established practices and the existing (national) systemic distribution of costs and benefits (or rewards and penalties).Footnote 4 A strong and resistant national response to such norms is always a possibility. And finally, both of the elements that sustain a national framework of financial governance are reinforced by the many and manifold connections between the organisation of finance and that of money, through which all finance flows. In the end, finance requires currencies if the wealth it represents is to be realised, and currencies in turn depend for their value upon the authority of (territorially-bound) states.Footnote 5 Currencies are value-less without the sanction and support of national authorities, even if such authorities do not always control the day-to-day fluctuations in their monies as closely as they would like.

The problem of financial governance thus has a conceptual muddle at its core that derives in part from the critical historical juncture we now face: the practices and institutions of finance are increasingly driven by globalised dynamics that surround the influence of nation-state based authorities, yet such authorities are absolutely crucial to the possibility of governing such practices and institutions effectively; indeed, they are integral elements of their very organisation. Compounding this historical problematic is a more theoretically abstract one: although the classical and neo-classical economic traditions broadly equate investment with savings, in fact there is a lively debate about the capacity of credit to be created and used to finance activities and investments independent of savings.Footnote 6 In other words, if finance – or credit – is considered more as a resource to be fashioned than a ‘thing’ already in existence, it should be conceived as a product whose materiality depends as much upon credibility and perception for its value as upon the tangible assets it supposedly represents or is based upon. In this sense the conceptual problem at the core of financial governance involves questions about organisation, form and process that are every bit as important as the more technical questions about capitalisation, market share and disclosure rules that currently dominate discussions of governance. Governance is as much about controlling the meaning of credit – and what actually constitutes such a resource – as it is about controlling a pre-existing thing called finance.

We can formulate the problem of financial governance within this context. It has two inter-connected elements. The first element is conceptual, and revolves around the need to consider how a structure of governance enables authoritative rules to be generated that allow finance to be created within and flow throughout the global economy; indeed, we may identify this problem as how a structure of governance authorises, constitutes and valorises credit in the first place. The second element is more historically construed insofar as it revolves around an assessment of the constraints and opportunities that face specific governance arrangements at determinate points in time. Bringing the two together, we may outline the problem of financial governance today as ‘which authorities are involved in governing finance as an organized system of activity that spans national economies’ and ‘how can their efforts best generate an accountable, legitimate, effective and fair governance structure’? Such a formulation directs our attention both to the kinds of authorities involved in governing finance, and to the particular arrangements they arrive at to structure their interactions: it is these which ultimately generate the rules and norms that ‘govern’ financial activity. For in finance as in other walks of social life, it is by these rules and norms that we come to recognise and ‘know’ certain kinds of activities as being financial in nature, and thus subject to such governance as may be deemed appropriate.

When viewed in these terms, the debate over the evolving structure of financial governance can be further extended by an interrogation with the rich set of questions that the agenda of deliberative democracy possesses. In particular, we can ask to what extent a crucial element of deliberative democracy – the emergence and operationalisation of a public sphere – is applicable within the context of financial governance. This is so because the debate about how to establish and extend a public sphere is precisely a debate about the role and force of publicity and participation in political decision-making processes, which are crucial to the problem of financial governance. This article therefore explores the partial emergence of a global financial public sphere as one element of the puzzle of how to make financial governance more accountable and therefore ‘legitimate’ at the global level. The idea of making financial governance more democratically accountable globally is very attractive, for the operation of financial markets and their consequences are often portrayed as being removed from popular pressures and resistant to sustained considerations of fair and ethical treatment. Deliberative democracy, if organised globally or transnationally, provides a mechanism by which finance can be made to serve both social and developmental goals.

In this article I develop an argument which suggests that the outlines of an operational global financial public sphere can in fact be seen, and that this is an important achievement with significant implications for financial governance. In particular, the increased publicness of debates about the norms and rules of financial governance which a public sphere facilitates has helped to leverage the structure of governance from a highly secretive and closed architecture to a more open and inclusive one. This important development is nevertheless incomplete, and at present its connection to other attributes of deliberative democracy remains weak. There are few formal institutional venues within which all aspects of financial governance can be fully linked and adequately deliberated upon, and the capacity to translate operational logic into institutional accountability is highly truncated. For these reasons financial governance is a hard case for the proponents of transnational deliberative democracy, for it occurs within an environment that is systematically skewed against many of its central precepts. At the same time, exploring this environment allows us to reflect upon the way in which deliberative democracy advocates consider the nature and place of capitalism as part of the operative dynamics of democracy at the global level. Crucially, the link between power and the organisation of capitalism needs to be recognised as a central concern of debates on deliberative democracy and the public sphere.

The article proceeds in four steps. First, the link between deliberative democracy and financial governance is established by highlighting the nexus of public authority and publicness on a global scale. Second, within this context the connection between deliberative democracy and a public sphere is explored, both generally and then within the specific contours of financial governance. Third, the idea and contours of a global financial public sphere are examined in terms of the publicness outlined in the first section, and then challenges to this argument are considered. Finally, the relationship outlined between deliberative democracy and the public sphere within the context of financial governance is considered in terms of the theoretical understanding of the possibility of deliberative democracy at the global level. Overall, a guardedly optimistic assessment of the possibility of entrenching a more accountable and therefore legitimate structure of financial governance is offered, but with the caveat that it will require careful development within the constraints of the peculiar institutional conditions which mark out the global financial system.

Financial governance and transnational deliberative democracy

The technical and democratic deficits of financial governance are no secret. The most visible manifestation of technical deficits is the long string of financial crises that have rocked the world on a regular basis.Footnote 7 Within national financial systems, however, financial crises have led to improvements in governance structures and arrangements. Indeed, the 20th century stands as a tribute to how financial crises within nation-states have produced reform efforts that have made such systems sounder, fairer and ultimately more effective economically and developmentally.Footnote 8 It is also arguably the case that the series of international financial crises that hit the world's financial system during the 1990s has yielded technical lessons that have strengthened it in certain respects.Footnote 9

It is however much harder to make the case that the democratic deficit has been satisfactorily addressed, or even fully acknowledged. The ‘democratic deficit’ of financial governance is entirely about who should govern and what kinds of arrangements such governance should take.Footnote 10 At its core this debate concerns the appropriate structure through which relevant authorities should work to establish norms and rules, monitor their observance, and reward compliance and/or punish non-compliance. In other words it is a debate about who should make decisions and how those decisions should be implemented. This debate is only secondarily about what kinds of rules and norms should be established, and how the costs and benefits of compliance should be distributed, although these issues are not unimportant. For this reason the debate over financial governance is very amenable to a consideration in terms of the issues associated with deliberative democracy.

There is a growing literature on deliberative democracy in terms of both national and transnational contexts.Footnote 11 Most basically, deliberative democracy theorists ask how political decisions can be taken in large, stratified, and complex societies in ways that respect the autonomy of individuals while reaching for a conception of the common good that is pursued through collective action.Footnote 12 Developed in the contemporary period within the context of mass democracies, deliberative democracy advocates investigate the conditions under which political decisions can be made without abandoning the grounds of politics to technical administration; they are intent on preserving the inherently political nature of collective life by ensuring that the most important and wide-ranging questions of how to live politically are subject to an informed democratic debate through which consensus-formation and negotiation is as far as possible protected from coercive influence and demagogic rhetoric.Footnote 13 It is most importantly about establishing an arena within which debate can proceed in order to result in a decision that even those who oppose it can accept as legitimate and fully discussed. In James Bohman's formulation, it is about developing a rationality of ‘the forum’ over and beyond that of ‘the market’.Footnote 14

Within this context, the role of publicity or publicness is crucial. At a general procedural level, one important strand of deliberative democracy stresses the argumentative and agonistic aspect of decision-making, where the manner in which decisions are taken reduces as far as possible the coercive potential which agents may bring to bear on their deliberations. When issues and problems of a collective political nature are discussed in public, it is the deployment of reason, logic and evidence which bears significant weight when deciding the merits of contending positions, rather than the power and capacity of some to force agreement. Publicity and publicness are a key defence (albeit not an iron-clad one) against manipulation and the deployment of coercion; thus deliberative democracy advocates devote considerable attention to establishing both the need for and requirements of some kind of public sphere as a crucial aid in achieving adequate deliberative democratic procedures.Footnote 15

At a more substantive level, publicity and publicness are especially important where the formation of norms and principles are critical components of the guiding framework within which governance occurs. When norms and principles reflect specific combinations of preferences, a public debate is crucial to establish the legitimacy of a governance framework because it is the public airing of reasons for one over another set of norms and principles that enables all to agree to any particular outcome.Footnote 16 Public deliberation here is a substantive as well as a procedural element of deliberative democracy; it forms a necessary part of its logical core.

Deliberative democracy at the global or transnational level incorporates many of these same elements.Footnote 17 To address the twin deficits of a lack of democratic accountability and the need to govern social, political and economic developments beyond the nation-state (but without over-riding the democratic advances achieved by nation-states), deliberative democracy advocates point to the need to make institutional reforms at the global or transnational level that confront contemporary challenges. These include most importantly making the Security Council of the UN, various international economic and financial institutions and certain international political institutions more democratically responsible and accountable. They also involve somehow ensuring that nation-states take global concerns into account when formulating apparently ‘domestic’ economic and political policies. It is for this reason that a key plank of almost all such advocates is for greater publicity to attend to the deliberations of global institutions.Footnote 18

Thus we have in the arguments for greater deliberative democracy at the transnational level a specific demand that publicness form a critical component of democratic deliberation. This demand most often takes the form of a call to entrench a public sphere or spheres at the global level as the means by which deliberative democracy can be extended. A public sphere, it is argued, can give voice to stakeholders and enable citizen participation in political life beyond the narrow and often rigid parameters of state institutions. Providing for a public sphere allows the political aspect of collective life to escape the domination of technique and administration that rules so much of mass society. There is of course much debate over the scale and scope of the public sphere, and whether its guiding ethos should follow the formulations of Hannah Arendt, Jürgen Habermas, John Dewey or other theorists.Footnote 19 For our purposes here, however, the main concern is with the public sphere as an element of deliberative democracy within the context of financial governance. And for that purpose, two aspects of the public sphere must be examined: 1) its conceptual and empirical possibility in terms of a global formulation; and 2) its relevance for financial governance.

Deliberative democracy and the public sphere: towards a global formulation

The idea of the public sphere is an attractive one for deliberative democracy advocates because it is within a public sphere that dialogue among citizens occurs as an integral if not formal element of democracy. Although it is not the only means of realising dialogue within a political community, a public sphere is the chief means by which active citizens can engage in democratic discussion about issues that are under decision within a formal deliberative process. The public sphere is thus part arena, part institutional milieu, and part site of active consensus-formation. It is, as James Bohman indicates, where ‘publicity’ gains entry into the political process under specific conditions.Footnote 20 These conditions include allowing social and cultural criticism to take place, and providing for a form of communication directed at indefinite audiences that span many dimensions of social difference. Public spheres thus foster what Bohman calls ‘wide public reasoning’ and in doing so allow political decision-making to acquire a genuine form of legitimacy. Within this context, the idea of the public sphere has been considered most often at the national level, within established polities that have accepted frameworks of laws and institutions.Footnote 21

To move beyond the nation-state is to ask whether the public sphere can be globalised. Several scholars have posed this question, and two issues have emerged as key in this consideration: 1) whether the institutional conditions of the public sphere exist at the global level; and if so, 2) whether the public sphere is singular or multiple in its realisation.Footnote 22 Both of these issues, however, depend on being able to distinguish between a public sphere and public space, or what Nancy Fraser identifies as a ‘strong’ versus a ‘weak’ public, where a ‘strong’ public contributes to actual decision-making in some way, while a ‘weak’ public does not.Footnote 23 In his formulation, Hauke Brunkhorst labels a weak public that which only carries moral influence or weight, while a ‘strong’ public adds to this administrative or political influence.Footnote 24 For Bohman, the real question is whether a public sphere enables meaningful participation to occur. A public space may allow for some debate, but a public sphere extends this to encompass ‘deliberation’, a political activity that is capable of bestowing authority onto decisions.Footnote 25

If we begin with Dana Villa's representation of the public sphere as an ‘institutionally bounded discursive arena that is home to citizen debate, deliberation, agreement and action’, how can we conceptualise it at the global level?Footnote 26 Scholars have suggested that we look for several conditions that may indicate whether a public sphere has come into being. First, following Bohman, we need to recognise a multiplicity of audiences as critical to a public sphere's operation. A public sphere counter-poses itself to a small group of policy-makers that deliberates and decides in private; it has multiple audiences that span different social hierarchies and who participate through various media. At the global level this would involve audiences across borders and social classes, at the very least. Second, it requires some kind of institutional anchor that both has access to but is not entirely defined by the state. At the global level this may be identified with international organisations or multilateral diplomacy: a public sphere can only be recognised to exist where some kind of inter-state component is activated. We may think of this as the administrative aspect of a public sphere at the global level. Third, we need to see in its operation the use of what Villa considers to be the rules of non-coercive negotiated agreement, or what Bohman calls ‘wide public reasoning’. Here, as Held notes, deliberation must involve mutually-accepted codes of conduct based upon rationality and the use of evidence before a public sphere can be recognised to be operational. And finally, as Bohman further suggests, there would in all likelihood be no difference in the operation of this aspect of a public sphere at the national or global level, even given different cultural traditions.Footnote 27

A further condition under which a public sphere is able to come into being and operate is a form of media that enables communication between engaged citizens and decision-makers to proceed. In the contemporary era this is of course the media in all its forms as well as the possibility of mobilisation through public demonstrations. Another way of stating this condition is in terms of information-exchange, meaning that a public sphere requires the possibility of information being made available in multiple forms and through channels which are not controlled or unduly impeded in a manner that compromises the integrity or limits the types of information available. From the early part of the 20th century, this has involved mass communications and most crucially broadcast media in all its manifestations. Such concerns have produced arguments for public broadcasting and limits to media ownership as crucial conditions for the actualisation of a public sphere.Footnote 28 At the global level, of course, strictures against media concentration are more difficult to enact because of the multiple and competing legal jurisdictions at play. At the same time, given the global scope of any potential public sphere, the sheer number of media outlets provides some relief from the spectre of over-concentration. At any rate, a public sphere – whether national or global – must provide some way for citizens both to gain access to relevant information and to contribute to the development of such information for any subsequent deliberation to enjoy a ‘public’ character.

If we move from the consideration of a public sphere more generally to the specific case of finance, we may add one additional condition that is necessary for the actualisation of a public sphere, but not identified as such in the literature. This condition is an environment of decentralised power, where no single agent or institutional matrix is able to exert undue influence over the entire structure of governance. The centralisation of power renders the operation of a public sphere irrelevant, either because a dominant financial power holds such sway that it can dictate agendas and rules for the international activities of financial institutions, led in the first instance by financial institutions based in its national economy, or because a single financial market is so dominant that its core financial institutions are able to exert a paramount influence over credit practices. In either case governance need not involve many agents or actors in its conception and exercise, precisely because the main players are small in number, cohesive in their activities and homogenous in their organisation and outlook.

For example, a public sphere was not necessary for the operation of the global financial system during either the pre-1914 period of the international gold standard, or in the post-1945 Bretton Woods period. In the former period, the role of the London markets enabled London-based financial institutions such as the Rothschild and Baring banks to exercise dominant influence over financial governance practices, while in the latter period the US government, by virtue of its central position at the heart of public international finance, was able to direct the development of global financial regulation along a trajectory that disproportionately benefited the US economy and US financial institutions.Footnote 29 We no longer live under the global shadow of the London markets or under the international thumb of US regulators, with the result that the possibility of a (global) financial public sphere has emerged.

A corollary of this condition is that financial markets themselves must display a sufficient degree of competition to maintain a decentralised dispersion of power. Where financial markets are organised along monopolistic or – more usually – oligopolistic lines, the establishment of a public sphere becomes much more difficult to organise precisely because the dispersal of power on which deliberative democracy thrives is compromised. In the case of finance such a structure of power is associated with decentralised financial markets that are resistant to the direction and guidance of major financial institutions acting in a cartel-like manner. This issue will be taken up below when challenges to the argument that a global financial public sphere has indeed come into being are considered.

As this discussion indicates, there is no inherent reason why a public sphere cannot be conceptualised at the global level. Wide public reasoning can be established as the via media across borders as well as within; differences within the social hierarchy are similarly present across borders as well as within; and institutional structures exist globally as well as nationally. Publicity and publicness are therefore as central for decision-making globally as nationally. And the information requirements of a public sphere do not change with an increase in scale. This difference in scale, however, has prompted most scholars who write about the public sphere to accept that at the global level it should be conceived in plural rather than singular terms: we should look for public spheres rather than one over-arching public sphere.Footnote 30 The reasoning behind this is that public spheres are issue-specific, and the modalities of different issues will configure public spheres along separate (albeit inter-connected) lines.

There is a certain logic to this line of argument. Different issues may well demand lines of argumentation and reasoning which follow alternative pathways, or they may call into being quite distinct citizen groups. Moreover, the principle institutional anchors may be configured separately from issue to issue. The main implication for theorising public spheres at the global level is precisely that we should look for issue-specific instances of governance where decisions depend upon information-rich environments. At the same time, precisely how issue-specific a public sphere can or should be remains open to question. For example, is global economic governance an issue-specific domain itself, or is it further sub-divided into more specific areas such as finance? Although this question does have important institutional implications, for present purposes it will be left aside in order to assume that a public sphere is in some part determined by quite specific issues, and therefore that our focus is on a plurality of public spheres.

Earlier, the problem of financial governance was identified as revolving around the question of who governs financial institutions that operate across borders, and how do these authorities combine to generate a structure of governance. The idea of a public sphere maps onto this problematic very well, for several reasons. First, finance itself is an information-rich activity that relies upon certain norms of reasoning for the very constitution of its materiel. Credit, after all, is dependent upon an agreed upon determination of its value to have any force or meaning, and information is a crucial (albeit not the only) component of this determination. Second, insofar as finance is global, it relies upon certain negotiated agreements as to how its principal institutions are regulated or controlled when their activities span borders. These agreements can of course be negotiated in secret, but increasingly since the mid-1970s they have been undertaken in public fora that have subjected the terms under discussion to increasingly rigorous critique. Third, there is a decentralised aspect to the organisation of political and financial power at the global level that reinforces the demands of negotiation for governance arrangements. Put in slightly different terms, a wide variety of agents that span the world's social hierarchies (political, economic and societal) are now involved in contesting governance arrangements, and their locus of interaction may be taken as constituting at least in part a ‘public’ sphere. And finally, state authorities are very much involved in governing finance, and it is their deliberations that are the target of all who claim to represent stakeholders involved in the operation of financial systems. There is in other words a very strong and clear public ‘administrative’ anchor to financial governance.

There is thus a prima facia case to be made that a public sphere is at work in the context of financial governance at the global level. We may call this a ‘global financial public sphere’, and it has four mutually-supportive components: an inter-state institutional framework, globally-oriented financial markets, a globally-active media, and the globally-oriented activities of what many now call civil society. These components have been mapped elsewhere.Footnote 31 Here the focus will be on the new degree of publicness consequent upon the development of a public sphere, which I argue maps very clearly onto one of the conditions of possibility required by a public sphere: the use of what Bohman call's ‘wide public reason’. This mode of public reasoning now informs much of the dialogue concerning governance issues.

For example, a public authority no less than former Managing Director of the IMF, Michel Camdessus, has spoken about the world's financial system as a ‘global public good’ – a good that is undiminished through consumption, nonexcludable and provided for the benefit of all.Footnote 32 Such a claim can only be invoked within the context of a clear mode of public reasoning. In this case, legitimating the claim of a ‘public good’ only makes sense if evidence is privileged over assertion, if the different starting points of participants (for example, developed versus emerging markets) are acknowledged, and if the historical record of governance is used to adjudicate competing claims about its legitimacy and effectiveness. In other words, the claim that the world's financial system is a ‘public good’ only makes sense within the operational context of a public sphere, where it can be challenged and evaluated according to acceptable rules of critical engagement that follow a public mode of reasoning.

We can also see such a public mode of reasoning operating in the case of the Highly Indebted Poor Countries Initiative (HIPC), initially launched by the IMF and World Bank in 1996. HIPC itself was at first resisted by the Fund and the Bank (and their main shareholders), but concerted pressure from a wide range of non-state actors – chiefly organisations we might characterise as belonging to civil society – and more sympathetic governments eventually prevailed in extracting a coordinated multilateral response to debt relief. Whether it was the activities of Jubilee 2000 (a group formed to argue for the enhancement of the HIPC initiative), Bono (the former rock star who has made debt relief a personal crusade), Christian activist groups in the US, or the pressure of the British and Canadian governments to push the debt relief agenda forward, is less important than the awkward public way in which the debate about debt relief evolved.Footnote 33 On this reading, the primary significance of Jubilee 2000's activities (and that of other advocacy groups) lies precisely in terms of their continued capacity to engage critically with multilateral institutions and states, and thereby to shape the debate by force of argument, reason and evidence. It is unlikely that this train of events would have occurred had they not taken place within a ‘public sphere’.

We can additionally see a clear mode of public reasoning at work in the Basel II process to revamp international capital adequacy guidelines. Basel II began in earnest in 1999 with the publication of a framework document that set out how to address the pitfalls of the original 1988 Capital Adequacy Accord, which had itself been modified on several occasions. This process was centered in the Basel Committee on Banking Supervision (BCBS), but involved increasingly extensive discussions among a widening set of perceived stakeholders. At the center of the debate were questions associated with how much capital financial institutions (principally internationally-active banks) need to hold in reserve, the composition of this capital, and how the risks faced by the institutions should be determined (so as to know how much capital to hold). The discussions that shaped these issues took place among regulators, industry participants and academics, from 1999 until 2006, when Basel II was initially introduced. The trajectory of these debates switched tracks on several occasions, and the final framework departed significantly from the initial template. Most importantly, at every stage of the process much of the debate was public and the results of tests undertaken to gauge the effects of Basel II were made publicly available. Indeed, the negotiations were in essence driven by the vociferous complaints of the banking industry to the results of the BCBS's own tests. Although there are many critics of the Basel II process – both within the financial industry and among regulators, academics as well certain NGOs – what is distinctive about the Basel II process was its unprecedented openness together with the expanded number of ‘participants’. We may say then that here was a mode of public reasoning in operation that had a significant impact upon the evolution of the whole process.Footnote 34

There is thus a plausible argument to be made that a global financial public sphere has empirical purchase and now serves as part of the deliberative process for financial governance. Care should be taken, however, when evaluating the robustness of this claim. I do not want to claim that financial governance is synonymous with a public sphere, much less that the process of deliberation is entirely organised around a public sphere. Rather, I wish to advance a more limited set of claims: 1) that a public sphere can be charted at the global level as part of the overall structure of financial governance; and 2) that incorporating this recognition into our understanding of financial governance helps us to comprehend how governance in fact proceeds.

Challenging the idea of a global financial public sphere

The idea that the growing publicness of financial governance has salutary effects can be challenged. Here, some might dispute the degree of publicness of financial governance, arguing instead that financial governance remains the preserve of power politics and secretive or unaccountable decision-making. In other words, the empirical plausibility of this argument can be contested. Louis Pauly, for example, is adamant that financial governance follows in the wake of actions by powerful states.Footnote 35 In the contemporary period this means first and foremost that financial governance is organised primarily around the needs and interests of the US, as shaped and influenced by US financial interests. As such, when we look to the internationalisation or globalisation of financial governance and especially arguments for a new publicness to this governance, we should be alive to the way in which this process is fundamentally driven by the American government's interests and those of its financial community. There is a further element to this argument, namely that we cannot conceive of governance structures and processes that are not anchored by powerful states, which means ultimately that any publicness that may develop is relatively controlled and prescribed by the holders of power within the system. Although the idea of a public sphere may be normatively attractive, it will be derivative of the underlying power dynamic through which pressures for particular types of governance arrangements are worked out.

There is much to this challenge, for power has never been absent from the structure and process of financial governance. The important question, however, concerns how this power is organised, and through what kinds of media it is constituted and exercised. And here the empirical features discussed above must be seen as part and parcel of the reconfiguration and even reconstitution of financial power in the contemporary period. Not only has the US government lost its position as the final arbiter of the global financial agenda, it is no longer able to dictate the pace and direction of financial reform. This can be seen for example in the direction of financial regulation, which is running counter to expressed US interests in several ways. The Basel II process pitted the American regulatory preference for a higher ratio of Tier 1 capital against British, European and Asian preferences for a more variegated set of capital requirements, and while US demands were not ignored, in the end they bent in several important respects towards a ‘global’ standard that did not faithfully reflect American preferences.Footnote 36 A similar development has occurred with respect to accounting standards, where a standoff between America's FASB and its GAAP standards and IASB standards is now swinging in the ISAB's direction.Footnote 37 What both sets of developments suggest is that American preferences are no longer the powerful and universal guides they once were, and that other regulatory authorities are either challenging the authority of such preferences or refusing to follow in the train of American decisions.Footnote 38

Where such a critique is on firmer ground is in its recognition that no aspect of financial governance is immune to the exercise of American power, whether through governmental or private sector agents. The US, in terms of market size, financial institutional density and governmental leadership, remains at the heart of the global financial system. It contains the deepest, most liquid markets that are driven by some of the world's largest, most innovative and dynamic financial institutions, and American regulators cannot be ignored as significant drivers of international financial standards.Footnote 39 Furthermore, two of the world's leading international financial institutions are located in Washington, and are thus sensitive to American interests and debates. Nevertheless, recognising the prevalence of American interests and influences is a far cry from considering these interests and influences to be overwhelmingly dominant. Perhaps it is more accurate to consider American power in terms of wielding vetoes rather than setting agendas. The reconfiguration of America's role is one reason why a global financial public sphere has taken shape, namely because such a realm becomes possible when power is not concentrated and subject to the dictat of any one agent. I believe this decentralised structure more accurately describes the current global financial system; hence the emergence of a governance structure that is much more public than previously the case.

Conclusion: deliberative democracy, the public sphere and financial governance at the global level

It has been argued above that a public sphere has begun to emerge with respect to global finance, and that this is a novel if uncompleted achievement. It remains to ask whether it will persist, and what implications this argument holds for deliberative democracy advocates more generally. In other words, how firmly anchored is the global financial public sphere, what is its likely future relationship to financial governance, and how does this relate to broader currents of transnational democratic developments?

There are three developments that are capable of stunting the consolidation of the public sphere. Global financial markets could once again become highly centralised, in the manner of the late 19th century, allowing governance to become the product of multiple decisions made by private financial institutions operating out of a particular ‘world’ financial center, or possibly a series of tightly linked globally-oriented financial centers. Financial governance, in this sense, would become in effect the by-product of market decisions, as occurred under the rubric of London's City bankers during the 19th century gold standard. Private authority would substitute for public authority. This is, however, unlikely to occur. With the continued development of global financial markets anchored in different financial centers and led by different kinds of financial institutions, the centralisation of the financial system under the direction of one set or type of financial institution is remote. Instead, it is more likely that decentralised globalisation will remain a key structural feature of the world's financial system for some time to come, thereby reinforcing the demand for a robust public sphere to operate as part of the structure of financial governance.

A second possibility would be if the US were to regain its post-1945 position as a genuine financial hegemon. In this case, de facto financial governance could once again proceed without recourse to a ‘global’ public sphere. Such governance would not require as wide a consensus on rules, standards and benchmarks as is now demanded, simply because the overweening power of the US to set the rules, produce the standards and enforce the benchmarks would be re-established. A slightly different version of this argument could also be made, in which a reconstructed transnational and neoliberal hegemony emerges to form a hegemonic structure that would obviate the need for a public sphere.Footnote 40 However, the former possibility must be seen to be remote, while the latter would in all likelihood still require a public sphere, simply in order to instantiate a particular understanding of identity and citizenship which could underpin such a refashioned hegemony.

A third possibility would be the collapse of globalised financial markets and a relapse into regional governance arrangements. While the effects of the 2008/2009 credit crisis for a moment presented this possibility as a de facto alternative, the political mechanisms through which the major governments directed their response to the crisis would seem now to forestall this development as one with significant staying power. The G8 has been reconfigured as the G20; the IMF has been reanimated after a decade of withered influence; and the world's trading and financial systems have continued their progressive entanglement: all these suggest that even if American power is less than it was and globalisation hits a roadblock, a regionalised set of financial governance arrangements will not be the result as long as a significant degree of financial activity remains international or global in orientation. In other words, the problematic of financial governance will continue to be framed on a global scale and demand a global form of negotiation.Footnote 41

Thus, the conditions encouraging the continued consolidation of a public sphere will most likely persist into the medium-term future. At the same time, the debates surrounding the idea of the public sphere are themselves premised on the continued vitality of global capitalism as the background canvas over which the thematic concerns of governance are played out. As much as proponents of the public sphere might contend, the public sphere in effect relies on the dispersion of formal power that capitalism promotes in its liberal and competitive phase. Where capitalism operates to create and distribute wealth according to comparative (and even competitive) advantage, enabling development to spread and inhibiting highly unequal concentrations of wealth to form, governance will rely on broad participation and a relatively egalitarian process of consensus formation. Should capitalism as an overarching social system evolve too far beyond this form, then the process of consensus-formation of which the public sphere is such an important part might well become undermined and possibly collapse.

This conclusion holds two lessons for public sphere theorists and deliberative democracy advocates. The first lesson, for public sphere theorists, is that power and markets must be seen as fundamental constituent elements of a public sphere, for two reasons. First, the effective operation of a public sphere relies on a distribution of power – a balance of power if you will – that is decentralised and fragmented, and is able to withhold overwhelming influence from one or a few agents. It is only within this context that the need for negotiation and consensus-formation acquires political and administrative purchase. Without such a balance of power among stakeholders, a public sphere becomes superfluous; thus power needs to be made more conceptually central to public sphere theory. Second, certain forms of market organisation under capitalism actually promote such decentralisation. Capitalism in its liberal and competitive phase does this, but not in a manner that is naturally self-sustaining. Thus a public sphere must itself become a venue through which instability and inequality can be addressed if it is to promote and perpetuate the conditions under which it can operate.Footnote 42

The second lesson, for deliberative democracy advocates, is in some ways tougher. This lesson is how to widen the circle of stakeholders sufficiently to promote a healthy dialogue that does not impede effective action. In the case of finance, the list of stakeholders is potentially endless, meaning that some means must be found to extend the audience of financial governance beyond its technocratic base, but yet without paralysing the actual machinery of governance. The public sphere has to date played a role in this, but it is one compromised by the peculiar institutional accountability of the institutions of financial governance at the global level. Thus the lesson for deliberative democracy advocates is how to fashion participation and accountability of these institutions in such a way as to widen participation while maintaining strong connections between national regulators, global markets and governments. The answer to this has yet to be definitively found, but at least the framework within which these connections can be fostered is developing along the lines indicated in this article. And while to some this may look more like a glass half empty rather than half full, there is a strong argument to be made that it is half full and filling at a judicious pace.

References

1 Geoffrey G. D. R. Underhill, and Xiaoke Zhang (eds), International Financial Governance Under Stress: global structures versus national imperatives (Cambridge: Cambridge University Press, 2003); and Duncan Wood, Governing Global Banking (Aldershot: Ashgate, 2005).

2 Louis W. Pauly, Who Elected the Bankers? (Ithaca: Cornell University Press, 1997); and Philip G. Cerny, ‘Webs of Governance and the Privatization of Transnational Regulation’, in David M. Andrews, C. Randall Henning and Louis W. Pauly (eds), Governing the World's Money (Ithaca: Cornell University Press, 2003).

3 This national dimension is explored in Randall Germain, Global Politics and Financial Governance (Basingstoke: Palgrave, forthcoming 2010).

4 See for example Andrew Walter, Governing Finance: east Asia's adoption of international standards (Ithaca: Cornell University Press, 2008); and David Andrew Singer, Regulating Capital: setting standards for the international financial system (Ithaca: Cornell University Press, 2007).

5 Jonathan Kirshner, ‘The inescapable politics of money’, in Jonathan Kirshner (ed.), Monetary Orders: ambiguous economics, ubiquitous politics (Ithaca: Cornell University Press, 2003).

6 Susan Strange, Mad Money (Manchester: Manchester University Press, 1998); and Randall D. Germain, ‘Globalising Accountability within the International Organisation of Credit: financial governance and the public sphere’, Global Society, 18:3 (2004), pp. 217–42.

7 See for example, Charles P. Kindleberger, Manias, Panics, and Crashes: a history of financial crises (New York: Basic Books, 1978); Strange, Mad Money; Pauly, Who Elected the Bankers?; Michael Moran, The Politics of Banking, 2nd edition (London: Macmillan, 1986); and Anastasia Nesvetailova, Fragile Finance: Debt, Speculation and Crisis in the Age of Global Credit (Basingstoke: Palgrave, 2007). This literature will be significantly expanded over the next few years as scholars digest the governance implications of the 2008/2009 credit crisis.

8 For example, the 1907 and 1932 financial crises in the US produced the Federal Reserve system and the separation of commercial from investment banks respectively; the secondary banking crisis in the UK in the 1970s resulted in a much stronger supervisory regime separate from the Bank of England; and the international banking crisis of 1974, which claimed the Franklin National Bank in the US and Bankhaus Herstatt in Germany, culminated in the formation of the Basle Committee on Banking Supervision (BCBS). For relevant histories, see Randall D. Germain, The International Organization of Credit (Cambridge: Cambridge University Press, 1997); Richard J. Herring and Robert E. Litan, Financial Regulation in the Global Economy (Washington: The Brookings Institution, 1995); and Wood, Governing Global Banking.

9 As Barry Eichengreen carefully explains, although financial crises will undoubtedly be with us as long as capitalism survives, there is much we can do to ameliorate their worst consequences with suitable reforms. Barry Eichengreen, Financial Crises and What to do About Them (Oxford: Oxford University Press, 2002).

10 Much research has been published recently on this subject: William D. Coleman and Tony Porter, ‘International Institutions, Globalisation and Democracy: assessing the challenges’, Global Society, 14:3 (2000), pp. 377–98; Randall D. Germain, ‘Global Financial Governance and the Problem of Inclusion’, Global Governance, 7:4 (2001), pp. 411–26; Tony Porter and Duncan Wood, ‘Reform Without Representation: the international and transnational dialogue on the global financial architecture’, in Leslie Elliot Armijio (ed.), Debating the Global Financial Architecture (Albany: State University of New York Press, 2002); Susanne Soederberg, The Politics of the New International Financial Architecture (London: Zed Books, 2004); Jacqueline Best, The Limits of Transparency: Ambiguity and the History of International Finance (Ithaca: Cornell University Press, 2005); Tony Porter, Globalization and Finance (Cambridge: Polity Press, 2005); Ngaire Woods, The Globalizers: the IMF, the World Bank and their Borrowers (Ithaca: Cornell University Press, 2006); and Andrew Baker, ‘Deliberative Equality and the Transgovernmental Politics of the Global Financial Architecture’, Global Governance, 15:2 (2009), pp. 195–218.

11 See for example, David Held, Democracy and the Global Order: from the modern state to cosmopolitan governance (Cambridge: Polity Press, 1995); James Anderson (ed.), Transnational Democracy: political spaces and border crossings (London: Routledge, 2002); Bruce Morrison (ed.), Transnational Democracy in Critical and Comparative Perspective (Aldershot: Ashgate, 2003); and James Fishkin and Peter Laslett (eds), Debating Deliberative Democracy (Oxford: Blackwell, 2003).

12 Mark Warren, ‘Deliberative Democracy’, in April Carter and Geoffrey Stokes (eds), Democratic Theory Today: Challenges for the 21st Century (Cambridge: Polity Press, 2002).

13 See Philip Petitt, ‘Deliberative Democracy, the Discursive Dilemma, and Republican Theory’, in Fishkin and Laslett, Debating Deliberative Democracy; and Simone Chambers, ‘Behind Closed Doors: publicity, secrecy and the quality of deliberation’, Journal of Political Philosophy, 12:4 (2004), pp. 389–410.

14 James Bohman, ‘The Coming Age of Deliberative Democracy’, Journal of Political Philosophy, 6:4 (1998), p. 400.

15 See for example the arguments in Craig Calhoun (ed.), Habermas and the Public Sphere (Cambridge: MIT Press, 1992). Simone Chambers provides a useful qualification to such arguments by recognising that the claim for publicity also contains within itself the possibility of a slide towards what she identifies as plebiscatory reasoning. Chambers, ‘Behind Closed Doors’.

16 Amy Gutmann and Dennis Thompson, ‘Deliberative Democracy Beyond Process’, in Fishkin and Laslett, Debating Deliberative Democracy.

17 See for example Held, Democracy and the Global Order; Anthony McGrew, ‘Transnational Democracy,’ in Carter and Stokes, Democratic Theory Today; and Danielle Archibugi, ‘Cosmopolitan Democracy and Its Critics,’ in Morrison, Transnational Democracy.

18 McGrew, ‘Transnational Democracy’. Some scholars may hold to a distinction between deliberative and cosmopolitan democracy advocates at the transnational level. While this may have some merit, both are concerned with the role of publicity and the public sphere as part of the solution to the problems they identify. For my purposes, therefore, I will consider them interchangeable.

19 For formulations along these lines, see Calhoun, Habermas and the Public Sphere; Dana R. Villa, ‘Postmodernism and the public sphere’, American Political Science Review, 86:3 (1992), pp. 712–21; and Molly Cochrane, ‘Conceptualizing International Public Spheres’, paper presented to the annual meeting of the International Studies Association, Chicago (2001).

20 James Bohman, ‘Citizenship and norms of publicity: wide public reason in cosmopolitan societies’, Political Theory, 27:2 (1999), p. 183.

21 The seminal volume edited by Craig Calhoun, for example, remains focused exclusively on the national level. Calhoun, Habermas and the Public Sphere.

22 See for example, James Bohman, ‘The globalization of the public sphere’, Philosophy and Social Criticism, 24:2/3 (1998), pp. 199–216; Marc Lynch, ‘The Dialogue of Civilisations and International Public Spheres’, Millennium, 29:2 (2000), pp. 307–30; and Jennifer Mitzen, ‘Reading Habermas in Anarchy: multilateral diplomacy and global public spheres’, American Political Science Review, 99:3 (2005), pp. 401–17.

23 Nancy Fraser, ‘Rethinking the Public Sphere: a contribution to the critique of actually existing democracy’, pp. 132–34, in Calhoun, Habermas and the Public Sphere.

24 Hauke Brunkhorst, ‘Globalising Democracy Without a State: weak public, strong public, global constitutionalism’, Millennium, 31:3 (2002), pp. 676–80.

25 James Bohman, ‘Cosmopolitan Republicanism: citizenship, freedom and global political authority’, The Monist, 84:1 (2001), pp. 3–21.

26 Villa, ‘Postmodernism and the Public Sphere’, p. 712. This representation is preferred over those who advance a conception of a public sphere without any clear institutional components. John Keane, for example, sees a public sphere in operation whenever a dialogic relationship between two or more citizens emerges, which is a definition that strips the public sphere of any kind of deliberative context. Simone Chambers, on the other hand, while including a strong deliberative dimension, abandons the necessity of an institutional context by identifying the democratic public sphere as a ‘huge and amorphous entity’. While useful in their different ways, both reduce a public sphere to a public space. John, Keane, Civil Society: old images, new visions (Cambridge: Polity Press, 1998), pp. 169–70; and Chambers, ‘Behind Closed Doors’, p. 409.

27 This paragraph draws on Lynch, ‘Dialogue of Civilisations’; Mitzen, ‘Reading Habermas in Anarchy’; Bohman, ‘Globalization and the Public Sphere’; Bohman, ‘Citizenship and norms of publicity’; Villa, ‘Postmodernism and the Public Sphere’; and Held, Democracy and the Global Order.

28 These themes are pursued in Nicholas Garnham, ‘The Media and the Public Sphere’, in Calhoun, Habermas and the Public Sphere; Keane, Civil Society; and Nick Stevenson, ‘Media, Cultural Citizenship and the Global Public Sphere’, in Randall D. Germain and Michael Kenny (eds), The Idea of Global Civil Society: politics and ethics in a globalizing era (London: Routledge, 2005).

29 Paul Langley, World Financial Orders (London: Routledge, 2002); and Germain, The International Organization of Credit.

30 See especially Bohman, ‘Globalization and the Public Sphere’; Lynch, ‘Dialogue of Civilisations’; and Mitzen, ‘Reading Habermas in Anarchy’.

31 Germain, ‘Globalising Accountability’; and Randall D. Germain, ‘Financial governance and the public sphere: towards a global modality of governance’, Policy and Society, 23:3 (2004), pp. 68–90.

32 Michel Camdessus, ‘International Financial and Monetary Stability: a global public good?’, remarks to the IMF conference Key Issues in Reform of the International Monetary and Financial System (Washington, 28 May 1999), accessed 15 January 2008 at {http://www.imf.org/external/np/speeches/1999/052899.html}; cf Inge Kaul, Isabelle Grunberg and Marc Stern (eds), Global Public Goods (Oxford: Oxford University Press, 1999).

33 See for example Geoffrey Cameron and Eric Helleiner, ‘Another World Order? The Bush Administration and HIPC Debt Cancellation’, New Political Economy, 11:1 (2006), pp. 125–40; Andrea Durbin and Carol Welch, ‘The Environmental Movement and Global Finance’, in Jan Aart Scholte and Albrecht Schnabel (eds), Civil Society and Global Finance (London: Routledge, 2002); and Zie Gariyo, ‘Civil Society and Global Finance in Africa: the PRSP process in Uganda’, in Scholte and Schnabel (eds), Civil Society and Global Finance.

34 See for example Ethan Kapstein, Governing the Global Economy (Cambridge: Harvard University Press, 1994); Michael R. King and Timothy J. Sinclair, ‘Private Actors and Public Policy: requiem for the new Basel Capital Accord’, International Political Science Review, 24:3 (2003), pp. 345–62; and Wood, Governing Global Banking. Furthermore, we can see a mode of public reasoning also at work in debates about capital account liberalisation and prudential supervision. See for example, Tony Porter, ‘The Democratic Deficit in the Institutional Arrangements for Regulating Global Finance’, Global Governance, 7:4 (2001), pp. 427–39; Joseph Stiglitz, Globalization and Its Discontents (New York: WW Norton & Company, 2002); and Rawi Abdelal, Capital Rules: the construction of global finance (Cambridge: Harvard University Press, 2007).

35 Louis W. Pauly, ‘Good Governance and Bad Policy: the perils of international organization overextension’, Review of International Political Economy, 6:4 (1999), pp. 401–24; cf Pauly, Who Elected the Bankers?.

36 The evolution of American power in this regard is an important part of the narrative provided by Wood, Governing Global Banking.

37 Sarah Eaton, ‘Crisis and the Consolidation of International Accounting Standards: Enron, the IASB, and America’, Business and Politics, 7:3 (2005), 4th article.

38 Recent developments in the wake of the 2008/2009 credit crisis with respect to financial regulation reform reaffirm this conclusion: American, British and Euro-area authorities are all pulling in quite different directions. See for example, The Economist, 34:8667 (30 January – 5 February 2010), pp. 79–83. For a broader consideration of this crisis see Randall Germain, ‘Financial Order and World Politics: crisis, change and continuity’, International Affairs, 85;4 (2009), pp. 669–87.

39 John Braithwaite and Peter Drahos, Global Business Regulation (Cambridge: Cambridge University Press, 2000).

40 See for example, Kees van der Pijl, Transnational Classes and International Relations (London: Routledge, 1998); Stephen Gill, Power and Resistance in the New World Order (Basingstoke: Palgrave, 2003); and William Robinson, A Theory of Global Capitalism (Baltimore: Johns Hopkins University Press, 2004).

41 Many of these themes are pursued in Germain, Global Politics and Financial Governance; see also ‘Special Forum: crisis and the future of global financial governance’, Global Governance, 15:1 (2009), pp. 1–28.

42 This conclusion echoes the call recently put forward by Andrew Baker to make ‘deliberative equality’ a central feature of financial governance reform. Baker, ‘Deliberative Equality’, p. 215.