America’s Regulation/Supervision Paradox
When it comes to financial markets, why is supervision as crucial as regulation — if not more so?
- Capitalism whithers if there is not enough push-back against the rule breakers and underminers.
- A culture that fails on the supervisory front cannot save itself by enacting more rules.
- U.S. civil servants or public appointees have an anticipatory desire to please those with the real money by not standing in the way of the powers that be.
In the ultimate analysis, a financial culture is only as good as those who monitor its practices, styles and traditions — and these individuals must be empowered and determined to ensure that certain rules are followed.
In a word, it's mostly about supervision — and not so much about regulation. A culture that fails on the supervisory front cannot save itself by enacting more rules.
How is it possible that the United States — the very country which invented the bureaucratic, deeply resourced mega-corporation and sought to run and staff its government in a similar fashion — should fail in this task?
That is indeed a question that has puzzled many smart people outside the United States for some time. The likely answer to this seeming riddle has five components:
In any bureaucratic entity, there comes a point when the internal complexity is such that a smoothly functioning management of decision-making processes is no longer possible. The intra- and inter-agency coordination process in the United States — with the budget-wasting addition of tens of thousands of government contractors and consultants — has taken on gigantic proportions.
Governments, like all humans, do make mistakes — and they do so the world over. But it seems a peculiar American blood sport to vilify and denigrate civil servants who, in reality, are overwhelmingly well-intentioned and high-performing.
In the reported pages of major U.S. newspapers, one can find increasing references to government bureaucrats(!), not civil servants or government employees — without any quotation marks, mind you.
Third: Culture of accommodation.
Contrary to the perception of an overly rigorous, rule-bound U.S. bureaucratic system, wherever real tough business interests collide, U.S. civil servants tend to be quite, if not very, accommodating — at least when compared to virtually all of their international counterparts in the OECD area.
The reason for this accommodativeness is rooted in the relatively low status which civil servants maintain in the United States. By and large, they are regarded as basically akin to soldiers in Western European societies (“We know we need to have some of them around, but preferably none in my own social company…”).
The large U.S. banks were also able to run roughshod over any existing regulations because the civil servants or public appointees — in their anticipatory desire to please those with the real money — sought to signal their adaptability by not standing in the way of the powers that be.
Whether it was Alan Greenspan or a bank examiner who is hoping to get a better-paying job on the compliance side of Citigroup or Bank of America soon, they showed little backbone.
The U.S. culture, viewed from the outside, has a strong reputation as being decision-oriented. In reality, however, that sense of strong determination is quite off the mark.
As Alan Greenspan understood so superbly, and disastrously, it's much more about going along to get along. And it's about never standing in the way of the winning ways of Team America. If “we” lead the world in finance, we have to do what it takes to defend our role — even if that means playing loose with the rules.
Getting private businesses involved to allay many of the ills described above was the philosophy of the George W. Bush Administration.
Ideology aside, it had a very real reason to pursue that approach because, apart from health care, government outsourcing was pretty much the only reliable job engine during its years in office.
But the more troublesome consequence of its overall approach is that it made the existing ills much worse. Corporations keen on getting business from government, perversely, had a compelling reason to badmouth civil servants (aka government bureaucrats).
Using that pejorative made it clear to all why more outsourcing was needed. Never mind that it further added to the over-complexity of the process, as well as the desire to please fellow business interests.
In the end, the only way out is to supervise more — more determinedly, even more ruthlessly, with the head held high and smaller staffing numbers.
Capitalism whithers if there is not enough push-back against the rule breakers and underminers.