Governing Finance. Gordon L Clark, Centre for Employment, Work and Finance, Oxford University Centre for the Environment, South Parks Rd., Oxford OX1 3QY, UK and Labor and Worklife Program, Harvard Law School, Harvard University, Cambridge MA 02138, USA.
Abstract. Financial institutions rule-the-world: they can price all kinds of tangible assets from corporate capacity to urban infrastructure and are in the market for intangible assets like brand imagine and reputation. From the smallest unit of activity to whole nations, financial institutions price expected returns while discounting and distributing the risks of adverse outcomes. While the regulation of financial institutions and markets is the subject of extensive research and policy practice, it is apparent that regulation often comes second to governance: that is, regulation is often there to clean-up unanticipated failures of governance in the internal management and performance of private financial institutions. In part, this is because of the economic scale and geographical scope of financial institutions compared to nation-state regulators. In this paper, I develop a three-part argument about the nature and significance of the “governance” issue noting what is distinctive about financial institutions and markets as well as the problems of interest-alignment and the conflict over expertise and representation. To illustrate my argument, a set of examples are noted with the penultimate section devoted to an assessment of the issue in relation to emerging themes in globalization. Here, it is suggested that the governance of financial institutions may be more important than the nation-state regulation of financial markets for the development of the global economy.
Acknowledgements. This paper was written for the Second Global Conference on Economic Geography organised, in part, by Henry Yeung from the National University of Singapore. It is based on a series of research programmes focusing upon the competence of UK pension fund trustees, the governance of leading pension and financial institutions, and the evolution of financial markets in Europe, the UK and the USA. Here, I have been helped by the support of the National Association of Penison Funds, Watson Wyatt Worldwide, and the European Science Foundation. I would particularly like to thank my collaborators in these projects including Emiko Caerlewy-smith, John Marshall, Mike Orszag and Roger Urwin, and Dariusz Wojcik. I would also like to thank Adam Dixon, Ashby Monk, and Louis Pauly for their forbearance in listening to my thoughts on these issues over the past year.