Hierarchies and Government Versus Networks and Governance: Competing Regulatory Paradigms in Global Economic Regulation
| Author | Lawrence Tshuma |
| DOI | 10.1177/096466390000900106 |
| Date | 01 March 2000 |
| Published date | 01 March 2000 |
| Subject Matter | Articles |
HIERARCHIES AND
GOVERNMENT VERSUS
NETWORKS AND
GOVERNANCE: COMPETING
REGULATORY PARADIGMS IN
GLOBAL ECONOMIC
REGULATION*
LAWRENCE TSHUMA
International Development Institute, Rome, Italy
ABSTRACT
This article examines issues regarding economic policy co-ordination and regulation,
using proposals for the reform of the international financial architecture as a case
study of different paradigms for global economic co-ordination and regulation.
Developments in global financial markets exemplify how the search for a regulatory
paradigm for global capitalism is linked to the transformation that capitalism has
undergone since the early 1970s. The contrast between hierarchical and network
forms of regulation is examined, as are different conceptions of networks using inter-
national financial regulation as an example. The problems of legitimacy, account-
ability, and implementation in the network paradigm of regulation suggest that it
remains an open question whether regulatory networks are capable of resolving
fundamental problems of global capitalism.
SOCIAL &LEGAL STUDIES 0964 6639 (200003) 9:1 Copyright © 2000
SAGE Publications, London, Thousand Oaks, CA and New Delhi,
Vol. 9(1), 115–142; 011675
* This article was first published in the electronic journal LSJGD, and when cited the following
reference should be used: Tshuma, L. (1999) ‘Hierarchies and Government versus Networks and
Governance: Competing Regulatory Paradigms in Global Economic Regulation’, Law, Social
Justice and Global Development, Issue 1999–1.
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INTRODUCTION
CONTAGION OR negative spill-over effects from recent financial
crises in Mexico in 1994–5 and in Asia from 1997 have highlighted the
growing structural integration of global financial markets and the
incapacity of national and global regulatory regimes to cope with the con-
comitant problems and challenges. Responses to the crises have dramatized
the inadequacy of the Bretton Woods regulatory system, as it has evolved
since the collapse of the fixed-exchange rate system in the early 1970s, to co-
ordinate monetary policy and resolve problems emanating from the liberal-
ized financial markets of the 1990s. Not surprisingly, in the light of the
debilitating economic effects and huge social costs of the financial crises on
the countries concerned and those that caught the contagious effects, there
have been numerous calls to redesign the global financial architecture.1Criti-
cism of the International Monetary Fund (IMF) for the manner in which it
handled or bungled the crises in some of the countries concerned and conse-
quent calls for its reform, seem to have a ring of poetic justice given the IMF’s
crusading role in the liberalization of the financial markets of developing and
so-called transition economy countries.
The crises have highlighted that liberalization crusaders had, in their zeal,
overlooked a simple but fundamental fact that liberalized financial markets
require robust regulatory regimes capable of mitigating risks inherent in the
very nature of their operations. Given the inherent volatility of financial
markets, the oversight was bound to come to grief, unfortunately at great cost
to the countries concerned and their citizens.2Since financial flows have
become quintessentially global and more integrated than any other economic
activity, the financial crises provide an excellent backdrop for examining
some of the most pressing regulatory concerns of our time. These concerns
arise from growing economic interdependence and globalization and the con-
sequent difficulties facing the state in making policy and regulating economic
activities that increasingly transcend borders, on the one hand, and the inad-
equacies of existing forms of international economic policy co-ordination
and regulation, on the other.
This article examines issues regarding economic policy co-ordination and
regulation and uses proposals for the reform of the international financial
architecture as a case study of different paradigms for global economic co-
ordination and regulation. There is yet another reason why the financial
sector is an excellent case study for competing regulatory paradigms. In ad-
dition to being the most global of economic activities, the emergence of global
financial markets in the late 1960s and early 1970s also marked the end of
what seems to have been, from the vantage point of the end of the millen-
nium, the halcyon days of the capitalist world economy. In the wake of two
related catastrophes which threatened the foundations of capitalism – the
great depression of the late 1920s and 1930s and the Second World War – a
seemingly durable arrangement for regulating capitalist accumulation, both
nationally and internationally, had been instituted in 1945. Nationally,
116 SOCIAL & LEGAL STUDIES 9(1)
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