Our tri-focused perspective, in this blog, is likely to be distinctive in the first two ways outlined below and hopes to make unique contributions to the third.
The Modified Polycentric Governance Framework
In her award-winning work, the political economist Elinor Ostrom highlighted two main critiques of the standard economic perspective – both of which are relevant to the issues that are addressed here.
Her first and primary critique was that the standard framework had falsely limited itself to either [a] an individual private property driven market view or [b] to a centralized governmental approach – in regulating goods & services with significant externalities and/or spillover effects. She won the Nobel Prize for demonstrating – theoretically and empirically – human beings’ capability to evolve different kinds of institutional arrangements to solve these ‘commons’ and ‘public goods’ problems.
We shall be building on this ‘institutional economics’ perspective in our approach to the Global Financial Regulatory issues. For example, we shall be critiquing how the current architecture – that places the nation-states centered Financial Stability Board at the center of providing Global Finance’s systemic stability – will neither provide stability nor be successful in monitoring and regulating us through the ongoing FinTech Revolution. We hope to expand on this theme in our future posts, by incorporating different perspectives on cooperation, conflict, competition and co-opetition – including those from the socio-biological tradition.
Ostrom’s second and equally strong critique, was directed to the idea of the rational economic maximising man model of human nature as being too restrictive and limited; and she articulated a framework that builds on the ‘bounded rational’ view of human beings who are prone to biases, use heuristics and depend on ‘trusted’ relationships as a way to deal with complexity and uncertainty. We shall be building on this critique as well, especially on behaviour and institutions that help promote ‘trust’.
Integrating Ostrom’s (as well as those of many, many others) critique of the standard institutionally-challenged and behaviorally limited analytical framework and building on the generalized version of the evolutionary framework for cooperation-conflict-competition-coopetition issues will be the distinctive intellectual framework for this blog. We will, of course, be focusing on the appropriate 21st century GFR architecture from this perspective – and hope to persuade our peers of some of our unique insights. In particular, we will be identifying the core GFR problem as a Coordination Failure issue and will be articulating the Modified Polycentric Governance framework as a solution to the problem. [For help in adapting this perspective for your organisation, go here].
The Moral Foundations of Ethics in Finance
To the above two ‘institutional and behavioral economics’ critiques, we will be adding a third of our own. And the driving force of this critique is that – almost all of the human sciences [social and sociobiological], including that of academic economics and its finance sibling, have ignored the role of the ‘Moral Structure to man’s Inner Cosmos’. They have ignored that some individuals chose to act as if they believe in a ‘moral structure to life’. This existentially founded values-based belief, that a good number of human beings possess, has a significant role to play in explaining [a] socio-economic outcomes, [b] the evolution of institutions, as well as being [c] a potential guide for action. We shall frequently be pointing out how [un] ethical behavior, founded on a moral underpinning [or lack thereof], is an integral part of understanding the financial system’s successes [and failures]. Watering the moral roots of ethical behaviour in a society, is a pre-requisite for its well-functioning financial system and flourishing economy. We will be frequently commenting on this fundamental ‘moral’ driver – of both a sustainable global civil society and of Earthlings’ welfare.
Finally, a very important focus of this blog will be on the role of Global Regulation in promoting Financial Inclusion; especially on breaking down the rural-urban divide in the provision of financial services. We deeply believe that it is on this issue that the FinTech revolution holds the promise of achieving the greatest gains in promoting global socio-economic welfare. It is also on this intricate and challenging issue that we will be focusing a good portion of our energies, in looking for innovative solutions. For when this under-banked/under-financed problem is well solved, the future of all of mankind is assured.
The rationale for this seeming hyperbole is relatively straightforward: In a world in which growth in total factor productivity is anemic at best – and non-existent at worst – the best hope for continuing 21st century growth in world GDP per capita and human well-being lies in bringing socio-economic growth to the world’s poor and especially in the rural areas, where most of them live. This growth in those under-developed areas will also have the added benefit of being a source of stability to the world economy, for it will add additional layers of geographical, sectoral and cyclical diversification. However, it should be obvious that, it would be impossible to have this ‘bottom-billions’ growth without solving the under-financing problem.