Archive for January 22nd, 2010

I apologize for this post coming five days after it was promised in my post on the first review – other events intervened. I have two other reviews to cover on David A. Westbrook’s Out of Crisis: Rethinking Our Financial Markets. The first is by Lyman Johnson, a law professor at Washington & Lee University and University of St. Thomas. Johnson focuses on Westbrook’s suggestion that,

we break out of the conventional analytical dichotomy between emphasizing one or the other of “the (free) market” and “the (regulating) government.”  Rather, markets themselves are one mode of shared governance and they should be deliberately and democratically constructed to achieve certain societal goals and avoid certain perils.

According to Johnson, Westbrook’s book seeks to challenge mainstream accounts of the financial crisis.

what Bert calls the standard narratives [evade] a more fundamental examination of root causes, one not easily reducible to a clean storyline or obvious policy prescription.  Bert sees the crisis as an occasion of such colossal failure that it demands a bold rethinking of how we conceive finance, regulatory policy and modern capitalism itself…

The book, early on, states that it seeks to revive and extend a “social understanding of markets” running back to Veblen, Weber, Durkheim and other social theorists though, in fact, Bert later seems to equate “social” with “political,” a point to which I will return.  He also early on makes the critical, often lost, distinction between “uncertainty” and “risk,” and he clearly states why he is extremely skeptical of self-regulation grounded on claims of market efficiency and human rationality.

Johnson sees the book as an entry point into a broader discussion:

Bert’s wonderful book would be even better had he not emphasized only the government as a “social” actor.  Our social terrain – and so our thinking about markets – can be more intentionally and beneficially shaped by other civic institutions…Broadening the conversation Bert seeks will give more of us a voice in how to shape markets as well as heighten our own sense of responsibility…To democratize capitalism requires, to be sure, renewed thinking about government’s role in finance but it also demands fresh thinking about finance in many other venues.

Now onto the final review (I’ll comment on both at the end), by Larry Cunningham, Professor of Law at George Washington University. Cunningham sees the book as one that avoids ideological tugs-of-war between markets and regulation. This insight, according to Cunningham, is enabled by a broad methodology:

They are also insightful, offering perspectives not only from law and finance but from political science, sociology and philosophy…, it enables the book to develop and defend its broader thesis, a trait that distinguishes this book from most others attempting to explain the crisis and prescribe corrections.

What’s especially distinctive about Westbrook’s account is how it offers to locate both diagnoses and prescriptions arising from prevailing calamities in a broader framework of social and political organization and institutional design. It shows how inadequate attention to this larger conception misleads debate, both before and since the crisis, into false dichotomies…

The false dichotomies arise because of preconceptions about distinctions between government and markets. Those can obscure the deeper reality that both are products of social organization…

It conceives the relation between regulation and markets differently than prevailing talk. Markets do not arise or arrive bearing inevitable or immutable traits, rules or roles…

People must appreciate that markets are social and political products and that participants in effect choose what design features particular markets should offer. The book at this stage announces its modesty and does not labor over exactly what corrections or changes should be made or how…

There seems to be a consensus (at least among The Conglomerate‘s guest reviewers) regarding Westbrook’s broad (some might say eclectic) approach, as well as his efforts to show that the market and society are linked and that markets are not homogeneous entities. These aspects are extremely important, and I’d like to offer my own take on them after I read the book (which I will hopefully complete this weekend).

In an e-mail, Westbrook also emphasizes his desire that the book serve as a “political intervention.” Based on the reviews, Westbrook seems to offer more of a structural framework than a set of prescriptions. As a political intervention, this framework will prove invaluable.  Indeed, yesterday was a seemingly important day for regulation, as Obama proposed measures on the banks widely described as “populist.” However, a number of commentaries argue that the new regulations miss the point.

Probably more important was the SCOTUS decision, which could dramatically alter the way the corporations hold government policies captive. In a sense, this sort of direct advertising could enable banks, insurers, et al. to create markets of their own design. Rethinking the role of the government in markets is going to become a more pressing matter in years to come

Given these concerns, it is especially important that we begin with the correct premises on regulatory reform. Next week, I’ll offer my own take on how Westbrook’s book and how successful he is in challenging our current framework of thought and pointing toward a new one. I’d especially like to get a sense of the discursive elements of such a framework, although I fear I may be wading into the deep end…

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