1.1 Introduction
This book focuses on how we should regulate the financial system after the recent devastating crisis. Any serious attempt to answer this and related questions raises normative issues of the utmost importance for individual and collective choices. The normative principles underlying financial regulation are rarely made explicit and almost never discussed in sufficient depth. The basic normative principles adopted in this book are the following: individual liberty, democracy, distributive justice, and finally what I call the criterion of “comprehensive sustainability” that encompasses the entire normative approach.1 The relevant literature defines these normative principles in different ways; therefore, to make comprehensible the message contained in this book and endow it of sound normative foundations, I have to clarify the meaning I attach to each of them and the reasons for my choice.
An example may help the reader to reach an intuitive grasp of why the normative principles mentioned above are involved in any discussion and decision on the (de-)regulation of the financial system. Let us take the example of the central bank, which in most countries is the pivot of monetary and financial system.2 The normative principles mentioned above have significant implications for the choice of the central bank’s regulation and supervision rules and their actual implementation. First, central banks have been often unable to prevent financial institutions from taking decisions that violate citizens’ liberty.3 Second, the way in which central banks’ independence has been conceived and practised in recent decades raises delicate issues of democracy because it shifted power from elected to unelected decision-makers without providing the necessary checks and balances (Tucker 2018). In particular, the desired independence from day-by-day politics to avoid undue pressures of specific interests has been often unduly extended to the ultimate control of the democratic institutions that represent citizens’ general interest. Third, the key variables controlled by central banks, such as the rate of interest and the creation of liquidity , have a crucial impact on the distribution of income, wealth, and positive liberty raising crucial issues of distributive justice. Finally, central banks decisions focus on monetary and financial stability and on the delicate trade-off between present and future, and thus impinge on the sustainability of the economic and financial system.
As mentioned above, this chapter discusses four basic normative principles the last of which—comprehensive sustainability—embeds and extends the other three. The complex relationships among these principles confirm that significant conflicts and trade-offs can arise among normative values. Though we can find solutions aimed at minimising conflicts and dealing with trade-offs, we should remain aware that these solutions are contingent to the issue under examination and the specific context of its emergence and unfolding. In other words, we cannot dream of reconciling the most important normative values within a persistent unified perspective. The pluralist approach adopted in this book aims at keeping an alert awareness of the complex normative implications of alternative choices in the field investigated.
This chapter discusses the basic normative principles underlying this book in the following order: individual liberty (Sect. 1.2), democracy (Sect. 1.3), distributive justice (Sect. 1.4), and comprehensive sustainability (Sect. 1.5). Each of these sections provides a definition of the normative principle under scrutiny focusing on the issues that are particularly relevant for the following chapters. Among the main normative issues raised by the evolution of finance, the author discusses, in particular, the decline of the positive enforcement of individual liberty, the progressive systematic violation of distributive justice, the growing democratic deficit, and the inconsistency with sustainable development. The concluding section briefly discusses the interactions between the preceding concepts within the encompassing framework of comprehensive sustainability.
1.2 Individual Liberty and the Decline of Its Positive Enforcement4
I start the discussion of the main normative principles underlying this book’s analysis by focusing on individual liberty. An important reason for starting from this fundamental value lies in the deep-seated conviction that ethics is meaningless without personal liberty that has, thus, to be defended and enriched as much as possible as a prerequisite of sound normative behaviour. In addition, a wise and comprehensive approach to individual liberty irradiates far-reaching implications on the other main normative principles mentioned in this chapter. Unfortunately, while there is a wide agreement on the desirability of personal liberty, the meaning attached to it has always been extremely controversial. Therefore, I need to clarify in what sense I adopt the normative principle of “individual liberty” and which are its main general implications.
Much of the debate developed on the value of individual liberty after WWII has been influenced by the distinction between positive and negative liberty as worked out by Isaiah Berlin in a famous essay (Berlin 1969 [1958]). Berlin’s treatment of this far-reaching distinction is brilliant and stimulating, but its meaning is far from univocal while the normative implications are questionable. For the purposes of this book, I discuss two of the meanings that the dichotomy between positive and negative liberty has assumed in the wider debate, both playing an important role in Berlin’s essay: the descriptive meaning and its normative counterpart. In what follows, I rephrase the descriptive meaning and I build on it a normative approach that differs substantially from that of Berlin. The descriptive meaning of negative freedom denotes the liberty from any undue coercion that would limit the liberty of individuals to do, be, or become what they want. This definition begins to be operational only if we define in positive terms the space of liberties that the individual could actually enjoy under given circumstances in the absence of any coercion. As human beings, we are unable to fly, but we cannot ascribe this lack of liberty to any sort of external coercion. On the contrary, since we are able to walk, the imposition by other people to stay within a narrow space against our will and without reason violates our negative liberty from undue interference, precisely because this is an unjustified limitation on our positive liberty. As this example suggests, any discourse on the personal liberty of a certain individual i requires a prior definition of the space of positive liberties actually available to i. When this space is reduced by an act of undue external coercion, we can say that the latter violates the negative liberty of i, exactly because it constrains the existing range of positive liberty of i. Therefore, from the descriptive point of view, the distinction between negative and positive liberty designates two different aspects of the same concept, rather than two different concepts. Berlin himself gets close to this assertion by recognising that the two (descriptive) senses of individual liberty indicate “no more than negative and positive ways of saying much the same thing” (Berlin 1969 [1958], 23). He is right, however, to observe that the emphasis on one or the other aspect of individual liberty correlates with diverging political perspectives, the definition of which is the ultimate purpose of Berlin’s essay. The advocates of positive liberty focus on the need to extend individual freedom, at least for particular categories of people. On the contrary, the advocates of negative liberty are mainly concerned with the definition and defence of individual liberty boundaries that no one, including the state itself, is authorised to breach. This different emphasis on the two aspects of liberty has often led to a sheer opposition of political paradigms. This happened mainly because Berlin, as many participants in the ensuing debate, focused almost exclusively on the State’s role in defending, promoting, or violating individual liberty. In Berlin’s view, the State should actively defend the negative liberty of citizens, avoiding any sort of undue coercion on them; conversely, the state should abstain from actively promoting the positive liberty of specific categories of citizens, because this would necessarily limit the negative liberty of other citizens. This point of view, which is expressed by Berlin in a cautious and nuanced way, has been advocated in a much more rigid and extreme form by the neoliberal paradigm that became dominant in politics and economic policy since the early 1980s. However, the exclusive focus on the state’s coercion as the only relevant threat to individual liberty is unjustified and misleading. This attitude reverses the influential argument by Thomas Hobbes who emphasised that the unfettered interaction between people would jeopardise their liberty and security (Hobbes 1968 [1651]). With the exception of a small number of libertarian and anarchic exponents, most political philosophers accepted in some form this argument to justify the concentration of power (sovereignty) upon an entity (the State) capable to restrain the unwise use of individual liberty. As Berlin himself maintains, “[I]f individual liberty is an ultimate end for human beings, none should be deprived from it by others” (Berlin 1969 [1958], 18). A sovereign authority cannot, thus, abstain from limiting the free action of individuals to safeguard their basic positive liberties. The crucial que...