Abstract
The evolution of the financial system and its regulation raises normative issues of the utmost importance for individual and collective choices. The author discusses the basic normative concepts underlying the hot debate on the regulation of the financial system after the Great Financial Crisis of 2007–2009: liberty, democracy, distributive justice, and finally the encompassing concept of comprehensive sustainability. These principles are mentioned in mainstream analyses, policy proposals, and communiqués of relevant institutions, but their meaning and role remain often only implicit. The author provides a definition for each of these normative principles focusing on the issues that are particularly relevant for a critical appraisal of contemporary finance. Among the main normative issues raised by the evolution of finance, the author discusses, in particular, the decline of the positive enforcement of individual liberty, the progressive systematic violation of distributive justice, the growing democratic deficit, and the inconsistency with sustainable development.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
References to these principles are not absent in mainstream analyses, policy proposals, and communiqués of financial institutions , policymakers, and regulators but their meaning remains often implicit or insufficiently specified.
- 2.
This crucial role has been recognised since long. For example, already in 1796, the eminent banker Francis Baring maintained that the Bank of England was the “pivot for the purpose of enabling every part of the [monetary or credit] machine to move” (quoted in Tucker 2018, 391).
- 3.
See Chap. 5.
- 4.
The normative distinction between positive and negative rights plays a crucial role in economic and political theory. For example, the libertarians are eager to deny that the state may have positive duties to protect, empower, and repair the rights of citizens. On the contrary, the social liberalism inspired by Keynes and Beveridge focuses on these positive duties.
- 5.
Within the liberal tradition, the crucial role of this set of liberties has been clearly argued by Locke who maintained that “every man has a Property in his own Person”, and thus “has a right to decide what would become of himself and what he would do, and as having a right to reap the benefits of what he did” (Locke, Second Treatise, chapter V). The libertarian approach reduces individual liberties to those guaranteeing “self-ownership” in a way more radical than classical liberalism does (Nozick 1974).
- 6.
A well-known exception is Oscar Wilde who asserted, “For the recognition of private property has really harmed Individualism, and obscured it, by confusing a man with what he possesses” (Wilde 1891).
- 7.
A polity is any kind of political entity, namely a group of people united by one or more cohesive forces and organised by some form of institutional arrangement (see Ferguson and Mansbach 1996).
- 8.
We can interpret this choice set as a generalisation of the individual choice sets that play a crucial role in standard microeconomics.
- 9.
I will discuss these three arguments in Sect. 1.4.
- 10.
In Sect. 1.5, I will add a further important area underlying the comprehensive sustainability of a community.
- 11.
While concepts such as majoritarianism are descriptive concepts that refer to particular decision-making procedures, we should conceive the concept of democracy as a normative concept based on substantive values, namely deontological values that no one should violate in any circumstances.
- 12.
As Norberto Bobbio lucidly asserted, “Democratic forms of government are those in which the laws are made by the same people to whom they apply (and for that reason they are autonomous norms), while in autocratic forms of government the law-makers are different from those to whom the laws are addressed (and are therefore heteronomous norms)” (Bobbio 1989, 137). Post (2005) has assumed this point of view as the “unobjectionable premise” of his own influential analysis.
- 13.
See Post (2005).
- 14.
Ibidem.
- 15.
Amartya Sen provides a compelling example of this argument maintaining that “no substantial famine has ever occurred in any independent country with a democratic form of government and a relatively free press” (Sen 1999, 152).
- 16.
I expressed my views on this subject in my recent book (Vercelli 2017).
- 17.
As for the decision rule, we adopt here the usual majority rule providing the necessary safeguards for minorities. A discussion of the strength and shortcomings of the majority rule is beyond the boundaries of this book. The pluralist point of view advocated in this book implies effective protection of the minorities’ rights.
- 18.
Global democracy is concerned with how transnational decision-making can be justified and who should be entitled to participate in the formation of global rules, laws, and regulations (Kuyper 2016).
- 19.
See, for example Sassen (2003).
- 20.
- 21.
See Crouch (2016).
- 22.
Particularly important is the way in which some economies have become dependent on what has been called “privatised Keynesianism” (Crouch 2004), namely on growing personal debts in order to sustain living standards at a time of stagnant real incomes.
- 23.
Plato’s Republic is a conspicuous example of this approach.
- 24.
Rawls (1999, 3).
- 25.
Most religions advocated this sort of assistance to the needy: Gospel and Koran are significant examples.
- 26.
For example, Rawls (1999) establishes a lexicographic order between civic and political liberties and the fair equal opportunity principle (second condition of the difference principle). This establishes a hierarchy between the two normative principles that is too rigid, as it does not take into account in the proper way the feedbacks of the second principle on the first.
- 27.
See, for example Piketty (2014).
- 28.
As Krueger maintains: “Higher income inequality would be less of a concern if low-income earners became high-income earners at some point in their career, or if children of low-income parents had a good chance of climbing up the income scales when they grow up” (Krueger 2012, 3).
- 29.
See Aaronson and Bhashkar (2008, 139).
- 30.
- 31.
As is well known, the Great Gatsby, the main character of the eponym novel by Scott Fitzgerald (1925), is an iconic example of social mobility.
- 32.
See Roemer and Trannoy (2016).
- 33.
See Chetty et al. (2014).
- 34.
See, for example, Vasak (1977).
- 35.
See WCED (1987).
- 36.
As is well known, according to the much-quoted definition of the Bruntland Commission, development is sustainable only if “meets the needs of the present without compromising the ability of future generations to meet their own needs” (WCED 1987, 44).
- 37.
See , for example De George (1981, 161).
- 38.
See Meyer (2016) for a concise survey.
- 39.
We may further refine this approach by taking into account the long waves of history that may force a restriction of the effective opportunities during the downturns, a restriction that we have to minimize according to fair criteria. However, I am here concerned only with the possible extension of the normative approach argued in the preceding sections for coexisting individuals to overlapping generations that may not coexist.
- 40.
See Borghesi and Vercelli (2008).
References
Aaronson, Daniel, and Mazumder Bhashkar. 2008. Intergenerational Economic Mobility in the United States, 1940 to 2000. The Journal of Human Resources 43 (1): 139–172.
Archibugi, Daniele, Mathias Koenig-Archibugi, and Raffaele Marchetti, eds. 2012. Global Democracy Normative and Empirical Perspectives. Cambridge: Cambridge University Press.
Bäckstrand, Karin. 2006. Democratizing Global Environmental Governance? Stakeholder Democracy After the World Summit on Sustainable Development. European Journal of International Relations 12 (4): 467–498.
Berlin, Isaiah. 1969 [1958]. Two Concepts of Liberty. In Four Essays on Liberty, ed. Isaiah Berlin, 118–172. London: Oxford University Press.
Bobbio, Norberto. 1989. Democracy and Dictatorship: The Nature and Limits of State Power. Trans. Peter Kennealy, Cambridge: Polity Press.
Borghesi, Simone, and Alessandro Vercelli. 2008. Global Sustainability: Social and Environmental Conditions. New York: Palgrave Macmillan.
Chetty, Raj, Hendren, Nathaniel, Kline, Patrick, and Emmanuel Saez. 2014. Where Is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States. NBER Working Paper No. 19843.
Corak, Miles. 2013a. Income Inequality, Equality of Opportunity and Intergenerational Mobility. Journal of Economic Perspectives 27 (3): 79–102.
———. 2013b. Inequality from Generation to Generation: The United States in Comparison. Chapter 6 in The Economics of Inequality, Poverty, and Discrimination in the 21st Century, edited by Robert S. Rycroft. Santa Barbara, CA: ABC – CLIO.
Crouch, Colin. 2004. Post-democracy. Cambridge: Polity Press.
———. 2016. The March Towards Post-Democracy, Ten Years On. The Political Quarterly 87 (1): 71–75.
De George, Richard. 1981. The Environment, Rights, and Future Generations. In Responsibilities to Future Generations. Environmental Ethics, ed. Ernest Partridge, 157–166. New York: Prometheus Books.
Ferguson, Yale H., and Richard W. Mansbach. 1996. Polities: Authority, Identities, and Change. Columbia, SC: University of South Carolina Press.
Fitzgerald, Scott F. 1925. The Great Gatsby. New York: Scribne.
Goodin, Robert E. 2007. Enfranchising All Affected Interests, and Its Alternatives. Philosophy and Public Affairs 35 (1): 40–68. https://doi.org/10.1111/j.1088-4963.2007.00098.x.
Hobbes, Thomas, 1968 [1651], Leviathan. Ed. C.B. MacPherson. Harmondsworth: Penguin Books.
Hufe, Paul, and Andreas Peichl. 2018. Inequality and Unfairness in Europe. CESifo Forum 19 (2): 26–34. https://www.cesifo-group.de/DocDL/CESifo-Forum-2018-2-hufe-peichl-inequality-june.pdf. Accessed 11 Sept 2018.
Kant, Immanuel. 1991 [1795]. Idea for a Universal History with a Cosmopolitan Purpose and Perpetual Peace: A Philosophical Sketch. In Political Writings, trans. H.B. Nisbet, ed. Hans Reiss, 2nd ed. New York: Cambridge University Press, 41–53 and 93–130.
Kelsen, Hans. 1973 [1945]. General Theory of Law and State. Trans. Anders Wedberg. New York: Russell & Russell.
Krueger, Alan. 2012. The Rise and Consequences of Inequality in the United States. Presentation made to the Center for American Progress, January 12. https://obamawhitehouse.archives.gov/sites/default/files/krueger_cap_speech_final_remarks.pdf. Accesses 10 Sept 2018.
Kuyper, Jonathan W. 2014. Global Democratization and International Regime Complexity. European Journal of International Relations 20 (3): 620–646.
Kuyper, Jonathan. 2016. Global Democracy. The Stanford Encyclopedia of Philosophy (Winter 2016 edition), ed. Edward N. Zalta. https://plato.stanford.edu/archives/win2016/entries/global-democracy/.
Macdonald, Terry. 2008. Global Stakeholder Democracy: Power and Representation Beyond Liberal States. Oxford: Oxford University Press.
Meyer, Lukas. 2016. Intergenerational Justice. The Stanford Encyclopedia of Philosophy (Summer 2016 edition), Edward N. Zalta, ed. https://plato.stanford.edu/archives/sum2016/entries/justice-intergenerational/. Accessed 11 Sept 2018.
Mill, John Stuart. 1991 [1861]. Considerations on Representative Government. Buffalo, NY: Prometheus Books.
Nozick, Robert. 1974. Anarchy, State, and Utopia. New York: Basic Books.
Piketty, Thomas. 2014. Capital in the Twenty-First Century. Trans. Arthur Goldhammer. Cambridge, MA: Belknap Press of Harvard University Press.
Post, Robert. 2005. Democracy and Equality, in Law, Culture and the Humanities 1 (2): 142–153. Available at SSRN: https://ssrn.com/abstract=857425. Accessed 1 Apr 2019.
Rawls, John. 1999. A Theory of Justice. Boston: Belknap Press of Harvard University Press.
Roemer, John E., and Alain Trannoy. 2016. Equality of Opportunity: Theory and Measurement. Journal of Economic Literature 54 (4): 1288–1332.
Sassen, Saskia. 2003. Globalization or Denationalization? Review of International Political Economy 10 (1): 1–22.
Sen, Amartya. 1999. Development as Freedom. New York: Knopf.
———. 2006. What Do We Want from a Theory of Justice? The Journal of Philosophy 103 (5): 215–238.
Smith, Adam. 1776 [1977]. An Inquiry into the Nature and Causes of the Wealth of Nations. Ed. Edwin Cannan. Chicago: University of Chicago Press.
Tucker, Paul. 2018. Unelected Power. The Quest for Legitimacy in Central Banking and the Regulatory State. Princeton and Oxford: Princeton University Press.
Vasak, Karel. 1977. Human Rights: A Thirty-Year Struggle: The Sustained Efforts to Give Force of law to the Universal Declaration of Human Rights. UNESCO Courier 30:11, Paris.
Vercelli, Alessandro. 2017. Crisis and Sustainability. The Delusion of Free Markets. London: Palgrave Macmillan.
WCED. 1987. Our Common Future. Report of the World Commission on Environment and Development. New York, Oxford University Press (“Bruntland Report”).
Wilde, Oscar. 1891. The Soul of Man under Socialism. http://theanarchistlibrary.org/library/oscar-wilde-the-soul-of-man-under-socialism. Accessed 23 Aug 2018.
Zürn, Michael. 2000. Democratic Governance Beyond the Nation-State: The EU and Other International Institutions. European Journal of International Relations 6 (2): 183–221.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
Copyright information
© 2019 The Author(s)
About this chapter
Cite this chapter
Vercelli, A. (2019). Normative Foundations. In: Finance and Democracy. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-27912-7_1
Download citation
DOI: https://doi.org/10.1007/978-3-030-27912-7_1
Published:
Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-030-27911-0
Online ISBN: 978-3-030-27912-7
eBook Packages: Economics and FinanceEconomics and Finance (R0)