Norms, Legitimacy, and Global Financial Governance

Geoffrey Underhill and Xiaoke Zhang
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Geoffrey Underhill: University of Amsterdam
Xiaoke Zhang: University of Nottingham

No 13, WEF Working Papers from ESRC World Economy and Finance Research Programme, Birkbeck, University of London

Abstract: Despite regular and serious systemic volatility, reform of international financial architecture remains limited, retaining market-oriented characteristics and adjustment mechanisms. A failure of the architecture to focus on the political underpinnings of global financial and monetary governance yields crucial deficiencies. The article defends three propositions implying a serious challenge to political legitimacy in contemporary financial governance: i) external financial constraints conflict with a range of potential domestic, particularly democratic, political imperatives; ii) developed state initiated global financial integration strengthens private interests in the policy process, narrowing the definition of the public interest in a democratic context; iii) market-friendly institutional reforms put pressure on domestic socio-political arrangements underpinning longer run political legitimacy. The article first analyses norms and legitimacy in global financial governance; then outlines the constraints on public policy of global financial market integration in the light of the foregoing analysis of legitimacy; thirdly it discusses possible solutions.

Date: 2006-09
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