Managerialism, Structuralism, and Moral Judgment: Law, Reform Discourse, and the Pathologies of Financial Reform in Historical Perspective

Abstract

Five years after the financial crisis, it remains unclear the degree to which regulatory reforms have succeeded in addressing the root causes of the financial crisis. This paper argues that ongoing policy debates about financial reform are undermined by a tension not between pro- and anti-regulatory views, but rather a deeper tension within reform discourse between two rival conceptual frameworks of how financial regulation should operate. The predominant approach to financial regulation in the United States, especially on matters of systemic risk and financial stability has revolved around a “managerial” approach, that relies heavily on the ability of insulated expert regulators to optimize and manage the vicissitudes of the financial system. Although this approach may seem logical, it is nevertheless at odds with a rival reform discourse present today, and historically. In this rival approach, the emphasis is less on expert macroeconomic management, and more on “structural” regulations: reforms that impose strict constraints on the size and powers of financial firms, potentially at greater cost to industry but also more easily implemented.

This paper identifies this disjuncture between managerial and structural approaches in financial regulation discourse today (Part I). It then traces historically how the managerial ethic comes to dominate financial reform law and policy over the last century (Part II). In short, I argue that the gravitation towards managerialism stems from an underlying unease with making moral judgments about the social value of finance, and an overeager deference to financial innovation as an unqualified good. This avoidance of moral judgment in turn has created pathologies in the law of financial regulation, displacing a fundamentally moral and substantive judgment about the value of various financial firms and activities into proxy debates over, for example, agency jurisdiction, centralization, or the quality of regulatory expertise (Part III). These pathologies continue to constrain the effective implementation of financial reform in the United States. The paper then returns to some of the major financial regulation debates today to suggest that addressing issues like “too-big-to-fail” or new financial instruments necessarily requires making a moral judgment about the social value of finance — and that such judgments, once embraced, open up a range of more structural, rather than managerial, approaches to financial reform (Part IV).