On the forces of policy change and joint causation: insights from the banker’s bonus case
| Published date | 01 December 2017 |
| Date | 01 December 2017 |
| Author | Martijn van der Steen,Jorren Scherpenisse,Caelesta Braun,Mark J.W. van Twist |
| DOI | 10.1177/0020852315599046 |
| Subject Matter | Articles |
Review of
Administrative
Article
Sciences
International Review of
Administrative Sciences
2017, Vol. 83(4) 738–756
On the forces of policy change
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and joint causation: insights
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DOI: 10.1177/0020852315599046
from the banker’s bonus case
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Caelesta Braun
Leiden University, The Netherlands
Jorren Scherpenisse
The Netherlands School of Public Administration,
The Netherlands
Martijn van der Steen
The Netherlands School of Public Administration,
The Netherlands and Erasmus University Rotterdam,
The Netherlands
Mark J.W. van Twist
Erasmus University Rotterdam, The Netherlands and the
Netherlands School of Public Administration, The Netherlands
Abstract
One of the few robust findings in the public policy literature is that policy dynamics are
both a function of stability and volatility. And although most theories of public policy
making posit the occurrence of policy junctures as necessary conditions for significant
change, studies that set out to unravel the underlying mechanisms of such policy
junctures remain relatively rare. This article further develops the idea of policy
junctures, commonly hypothesized to initiate significant change, as essentially entailing
joint causation. We illustrate the joint and reinforcing nature of forces of change with a
case study of bonus regulation. Based on document analysis and a political claim analysis,
this article shows that most changes in bonus regulation were of a marginal nature. We
argue that the intrinsically attractive nature of performance rewards that a bonus prac-
tice entails combined with a sheer lack of alternatives supported by a strong coalition
on how to curb risk appetite in financial markets seem to count for the resilience of
bonus practices. Theoretically, the case study contributes to theory development on
joint causation that causes major policy change. Empirically, it unravels a key mechanism
employed by the financial sector to resist reforms: offering an alternative no one
can refuse.
Corresponding author:
Caelesta Braun, Leiden University, The Netherlands.
Email: c.braun@cdh.leidenuniv.nl
Braun et al.
739
Points for practitioners
There is a broad consensus in the policy literature that policy change usually results
from multiple forces. We identify this crucial jointly causal nature of policy change and
suggest that among the forces of change a strong policy alternative capable of uniting a
broad coalition of stakeholders is a necessary condition for policy change. Financial
reforms, in particular the practice of bonus payment, are thus not likely to result from
tight regulation, but rather from real alternatives on how to reward professional
excellence and curb risk appetite.
Keywords
corporate governance regulation, framing, policy making
Introduction
Corporate bonus payment in the financial sector is common practice, and has
continued as an industry norm in spite of recent global economic and financial
turbulence. Its continued prevalence is surprising, given that it is generally regarded
as one of the primary contributing factors to the most recent financial crisis, and
credited with fostering institutional tendencies for uncontrolled, high risk taking
(den Butter, 2009; Zalm, 2009). The crisis revealed the serious potential for adverse
consequences in a highly interconnected financial system where excessive risk
taking was stimulated by flexible, output-dependent remuneration (Luyendijk,
2012). Given the asymmetry in private gains and public losses as a result of nega-
tive externalities, politicians and regulators around the world engaged in serious
attempts to increase regulation on bonuses in the financial sector. However, in spite
of these efforts, not much has changed; several years later, most of the major
private and state-owned (investment) banks continue providing huge bonus
payments (New York Times, 2010a, 2010b).
For society, the resilience of bonus payments should be worrying. Its wholesale
survival as a practice is indicative of failing reforms in the financial sector
(Luyendijk, 2013a; Moulds, 2012; Robinson, 2012). The resilience of bonus pay-
ments is representative of a complex and unsolved theoretical puzzle. It prompts
consideration of the conditions necessary for major policy reform, given the abun-
dant presence of all the integral components necessary for major policy change at
the time these policy initiatives were being considered and proposed. First, we
witnessed a severe performance crisis. Second, the crisis was widely believed to
have resulted from significant endogenous error accumulation (inherent to the
asymmetry of rewards for risk taking and a lack of consequence for losses), com-
bined with strong political and public opposition to the practice of excessive bonus
payments. Despite this will for reform, efforts to limit corporate bonus payment
practices were mostly technical in nature and thus permitted corporations and
financial institutions to continue their practices. Apparently, the momentum
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International Review of Administrative Sciences 83(4)
typical of major policy junctures stalled. Social cascading and positive feedback
loops, which are commonly considered crucial mechanisms for significant policy
change, never fully transpired to provide momentum to the reform process
(Baumgartner et al., 2008; Jones and Baumgartner, 2005; Donnelly and Hogan,
2012; Hogan and Doyle, 2007; Mahoney, 2000; Pierson, 2004). Accordingly, the
crucial theoretical question is why did this happen?
Theories of policy dynamics and institutional change suggest that significant
policy change results from a multiplicity of individual causes that, when combined,
create positive feedback or social cascading processes (Arthur, 1990; Baumgartner
et al., 2009b; Kingdon, 2003 [1984], Mahoney, 2000; Pierson, 2004). The underlying
mechanism for such processes is essentially joint causation and implies that
particular combinations of forces of change either stall or initiate significant
policy disturbances. The resilience of bonus payment, by virtue of its deviance
from (see Gerring, 2006) common theories surrounding the mechanics of major
policy change, constitutes a unique opportunity to develop hypotheses on the joint
conditions of policy change. Our primary intent in writing this article is to con-
tribute to policy literature by theorizing on the joint causation of multiple forces of
change, as identified in current studies of policy reforms. To do this, we first review
the relative importance of several key forces of change, specifically the value of the
status quo, the power of ideas and stakeholder constellations. Based on document
analysis and a political claim analysis of bonus payment regulation in the
Netherlands, we illustrate the importance of these elements in the instance of
bonus payment and show that most changes in practice were of a marginal
nature. We argue that the resilience of bonus payments can be explained by the
intrinsically attractive principle of performance reward (of which bonuses are a
consummate example), combined with a lack of alternatives for curbing risk appe-
tite in financial markets and a status quo that favored self-regulation. Together,
these factors are responsible for the continuity of ‘failing’ bonus practices. These
findings illustrate the complex joint causation that makes up value in the current
status quo; they also reveal the power of ideas and which stakeholder constellations
surround any given policy issue. We conclude that this combination suggests a
variety of individual and paired forces with the potential to provoke change by
means of policy reform.
Forces of change and joint causation
One of the few robust findings in public policy literature is that policy dynamics are
a function of both stability and volatility. How policy processes unfold is neither
the unique result of policy entrepreneurship nor (institutional) crises. Likewise,
policy reform is neither confined to gradual changes, nor is it uniquely the result
of the prevailing status quo or associated institutional stickiness (Baumgartner
et al., 2009b; Breeman et al., 2009; Breunig, 2006; Jones et al., 2009). So, under-
standing policy dynamics essentially requires understanding ‘stick-slip dynamics’,
as Jones and Baumgartner (2012: 8) put it. Typically, major forces of change
Braun et al.
741
(‘slip’ dynamics), like policy advocacy coalitions (Weible and Sabatier, 2005;
Weible et al., 2011), policy frames or ideas (Baumgartner and Mahoney, 2008;
Schneider and Ingram, 1993), exogenous shocks or institutional crises (Boin
et al., 2009; Kingdon, 2003 [1984]) and endogenous error accumulation
(Meijerink, 2005; Workman et al., 2009) are associated with issue-specific charac-
teristics, while major sources of stability (‘stick’ dynamics) are associated with
institutional characteristics of political-administrative systems (Mahoney and
Rueschemeyer, 2003; Pierson, 2004). Most policy change theory emphasizes these
issue-characteristics as the most decisive and influential factors in determining the
odds of successful change. The emphasis is reminiscent of Kingdon’s (1984) theory,
which hypothesized that either institutional or exogenous opportunities facilitate
the junction of policy solutions, policy problems and the political situation. We
proceed from this classic idea of policy change involving multiple forces and ask
exactly which combination(s) of forces of change or resilience cause a given policy
...
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