Financial Crises and Civil Society

Abstract International financial law institutions struggle to confront financial crises effectively and flexibly, playing the role of both regulator and rescuer. At the same time, these institutions confront demands for greater legitimacy in light of the public policy implications of their actions. Some might argue that greater participation by civil society may serve to foster greater legitimacy by improving representativeness, transparency, accountability, and reasoned decision-making. But greater civil society access also has costs that can undermine both regulation and rescue efforts. I argue that we should not presume greater civil society participation lends greater legitimacy to international financial institutions. Rather, we should examine various types of civil society contributions at different points in the financial crisis and attempt to identify when and what kind of participation would be most helpful in light of the role played by the different institutions involved. As a general rule subject to certain caveats, civil soriety groups whose missions are closely related to interests affected by the institutions' actions can make their greatest contribution to policy-setting institutions while civil society groups with a high degree of expertise should be more involved with institutions when they are performing detailed rulemaking functions. I. INTRODUCTION The 2008 financial crisis challenged national and international lawmakers' capacity and legitimacy to prevent and confront financial crises. The specific challenges involved both preventative regulation and rescue measures.1 International institutions involved in these efforts faced added legitimacy challenges. This article examines civil society's involvement in the regulation and rescue efforts involved in financial crises and how that involvement may impact international financial institutions' legitimacy as well as their efforts. Any analysis of global systemic crises should distinguish the various opportunities for action as well as the need for coordination. Section II recounts the different roles that international financial institutions play at different stages of a crisis. Section II also explains why countries and institutions should coordinate efforts to prevent, contain, and resolve financial crisis. It concludes by identifying and categorizing those entities, organizations, and networks that might play a role in each phase. Understanding how society might cope with the potential for systemic failures and global financial crises quickly reveals that the means to address financial crises will likely involve policy choices and priority-setting that implicate a plethora of public concerns. Any effort to prevent, contain, or resolve financial crises will need to balance the costs and benefits of any particular level of risk or remedy in terms of economic efficiency, growth, and fairness. Choices made to prevent, contain, and resolve crises will have linkages to other important societal concerns including, but not limited to, labor, pensions, food security, and health care. Section III highlights some of the policy choices involved in setting regulator)7 standards to prevent a crisis as well as those involved in containing and resolving the crisis. When one considers the type of overarching coordination needed in light of the public policy choices, one must question the legitimacy of any efforts to regulate at each stage of a financial crisis. Legitimacy matters not just from a normative perspective, but also from a practical perspective. That which actors do not perceive as legitimate will be less likely to succeed. Section IV briefly explains how we might assess the legitimacy of global regulator}' efforts. Section IV also examines the scope of civil society participation that may be permitted and the costs and benefits of inclusion. Finally, Section IV assesses the value of participation at the different regulatory stages. …