Andrew Baker is a political economist for whom I have a lot of time. Formerly at Queen's University, Belfast he is now a professorial fellow at the Sheffield Political Economy Research Institute (SPERI) for whom he has written a blog on what he calls silo governance. Of this he says:
The most distinguishing feature of the macroeconomic governance frameworks that emerged throughout the world in the 1990s was the creation of a number of narrowly focused institutional silos (fiscal, monetary and financial regulation). In the aftermath of the financial crash of 2008, the boundaries, this silo form of governance represent, have come under increasing pressure.
The problem that he points out is obvious:
[T]he real game changer and biggest challenge to silo governance, comes from the recognition that financial stability is a macro, rather than a microeconomic issue.
The absurdity is that we are asking a wide range of bodies, each with a narrow remit, and all modelled (in my opinion) on a corporate model of assessment, to undertake tasks that have macro consequences which they are not properly tasked with considering, or which they specifically ignore because it was not written into their brief to do so.
As Andrew concludes:
Silo governance is consequently revealed as resting on institutional fictions of declining relevance in the contemporary context, given messy complex current realities. The lens of silo governance does however illuminate the need for wholesale institutional re-design of macroeconomic governance. Unfortunately, many political and intellectual elites remain oblivious, or in denial. Acknowledging the redundancy of silo governance, would however be a vital first step in edging us closer to the kind of new macroeconomic thinking and governance arrangements the current context requires.
Where to begin? The Bank of England would be an appropriate location. But so too would the FCA, and then the FRC, and the micro focus of BIS (or BEIS as it now is) that ensures it is utterly unable to think about the role of business beyond supposedly making profit, all be high on the agenda for reform to ensure that we have regulation fit for the twenty first century, which is a long way from where we are now.
The blog is worth reading in full.
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The blog is indeed worth reading in full.
I’ve seen the limitations – and a serious failure – of silo governance within a major institution first-hand; and I recall the crisis unfolding in 2009 and 2010, when it became clear that the disconnected baronies of Britain’s regulatory apparatus had all the pieces of the puzzle that they needed – and all the powers, had they used them pre-emptively – but none of it joined up in time.
Silo governance is just so neo-liberal in my view.
The blog is well worth reading indeed.
The resent system seems predicated on the efficient markets hypothesis – that all the actors (inlcuding the regulators) will be working for their own rational self-interest so as not to hurt the system they operate in which in theory makes the system stronger, robust and self-governing.
What reality actually tells us is that the so-called ‘rationality’ operates much more narrowly and that the market actors are actually thinking about themselves and not the collective system they are a part of.
This means that in terms of market makers, they will bend rules and take huge risks that can (and does) bring the system into disrepute. And the so-called regulatory bodies will just tinker within their own area of expertise as defined at their inception without considering what effect it has on other parts fo the same sector. It is a proven recipe for disaster.
Thanks for highlighting it Richard.