Why the Density of Regulation for Global Issues is too high today

Recently I was at a conference about finance and ethics. One of the discussed topics there were regulations in the finance industry. Although the discussion was controversial there was somewhat of an overall agreement that regulation is basically necessary but that its density today is too high. I asked myself why there is on the one hand an insight that regulations are needed and on the other hand a moaning about too much regulation?

The answer, I think, is to be found in the globalization. When the West triggered the economic globalization by national and international market liberalization and deregulations one consequence was the global integration of finance and other industries. The second consequence was that especially states in the West lost control over important political instruments for regulation. And by eliminating regulative buffers, the development of economic and financial crises was facilitated because unleashed financial streams could flow nearly without control.

Besides the political instruments already given away due to deregulation and liberalization the now established economic globalization has created new realities: according to the political scientist Ch. A. Kupchan, still state-based political instruments as e.g. financial- and monetary policies have become ineffective in a globalized world because of its inherent global competition. This all shows that states – and especially Western states which carried out deregulation more thoroughly than others – aren’t able to provide solutions (alone) for global issues as the challenges in the global financial system.

Because of this inability of states and the need to solve global issues, many international and transnational regimes and organizations have come into existence or tried to expand their sphere of activity in the past two decades (e.g. OECD, WTO, Basel III, Kyoto Treaty, GRI). They aim to contribute to solutions of global issues by providing systems of regulation. Because a global coordinating authority like a world-state is not existent, this development meant that a plethora of state and private-actors, organizations, initiatives, conferences and summits try to provide regulations concerning concrete issues.

The result is that there is a mess referring regulation of global issues today. It is not very surprising therefore that regulation concerning single issues such as e.g. unleashed finance or labour conditions in producing countries has become very dense and confusing. One even can speak of a market for regulation of global issues: different international regimes and organizations etc. offer each their “regulation-package” for one and the same issue (what leads to arbitrariness instead to effective solutions).

Because the mostly unintended lack of coordination on a global level can be seen as a central reason for the high density, it is inappropriate to speak of a willfully regulation frenzy. Thus, it is better to speak of an absence of effective regulation on the level of single states as well as of an absence of coordination on a global level, which principally would be the level on which meaningful regulative solutions need to be established.

It remains to be seen if the development of institutional structures for global governance is on the way to a necessary simplification of regulations which are at the same time more binding. Solutions are the aim to which regulations are expected to contribute effectively: this is what they are needed for. Besides, also factors such as moral, (economic) Weltanschauung or mind-set play important roles for effective solutions. But regulations are an indispensable part of them.

Claude Meier

Regulations or More Moral Minds: Which Way to go concerning Global Issues?

In comments about the global economy we often can read that we need responsible capitalism today but not new regulations. But what is meant by a responsible capitalism without new regulations? One often heard answer is that such capitalism can be established through a change of mind towards more moral thinking. But it is rather unlikely that this change of mind would be so fundamental and action-guiding that the global problems, which for example became obvious with the financial crisis, can be solved in this way alone.

Let us do a short analysis of the global situation: Today there are many issues that know no boundaries (transboundary), such as the global financial crisis, climate change, migration, trade etc. The territorially bound nation-states can’t solve these issues on their own. Therefore, in the world of international relations where anarchy still rules (the monopoly of power is still on the level of the nation state: there is no ‘world-government’ or state over the nation-state) states often come together to coordinate activities and cooperate concerning global issues. But cooperation between states is insufficient today. In the concept of “global governance” of political science not only state-actors but also stakeholders from the societal sectors of business and civil society are considered to be important political actors in contributing to solutions of transboundary or global issues.

Such new global governance systems exist already (e.g. Climate-Conferences, WTO, ILO, ISO14000 or private regulation-standards in different consumer-goods industries like e.g. ETI [Ethical Trade Initiative] etc.). Although they vary widely as to the specific issues, structure, actor participation and success, there is no other way in a politically still anarchic but globalised world to try to solve global issues.

Of course, it is difficult to bring together the relevant stakeholders of an issue and it is even more difficult to achieve a constructive dialogue, cooperation and meaningful coordination among them. It is already a significant success when regulatory designs can be established and when implementation and evaluation of effectiveness of the rules is seriously done. And it is also obvious that a certain change of mind is a precondition to bring the stakeholders together. These components are all parts of building-up global institutions, and regulatory designs are one integral part thereof.

But, to propagate the development of highly skilled moral competencies of humankind which make regulations unnecessary may indeed be a noble demand but won’t work in reality. Moreover, to let a global issue drift around in an anarchic environment without trying to manage it actively is simply irresponsible. There is no way to circumvent the building-up of global institutions including regulations. On the national level states have also established rules to solve issues, i.e. to provide common goods (e.g. protecting property rights, legal certainty).

Global institutions have not the aim to restrict individual rights or freedom but to provide common goods (e.g. protection of property rights, clean air). Of course, to fight the right of the stronger, which identifies the anarchic space, it is necessary to reduce the possibilities of powerful actors to exhaust certain individual freedoms by power exclusively for their private gains and at the costs of all others. Regulatory designs thus help to provide common goods by aiming to substitute the rule of the jungle through a ‘rule of regulation’. In this way, also innovative individual freedom can be protected from anarchic arbitrariness. The building up of global institutions, based on stakeholder cooperation establishing regulatory designs, is unavoidable for a responsible handling and solving of global issues. Another question, of course – not considered here – is the democratic legitimacy of such global institutions.

Claude Meier