Can one ascribe individuals a responsibility to address systemic harms? I draw on arguments developed by Young (2011) in order to show that this is indeed possible. Young develops her notion of forward-looking responsibility in the context of a broader account of ‘‘structural injustice.’’ One can understand the imposition of systemic harms as a form of structural injustice: it puts some people into positions of privilege, e.g. because they benefit from risky investment strategies, while others are put into situations of disadvantage, as they are exposed to increased risks and volatility. It is, however, unlikely that individuals can overcome the problems of systemic harms by themselves. Nor can they be held individually responsible in the sense of backward-looking responsibility. In order to understand the responsibility to prevent such injustices or harms, Young argues that we should understand responsibility not only according to the ‘‘liability model’’ of accountability for harm done by specific individuals, but also as a ‘‘forward-looking’’ notion (2011, p. 92). We have a responsibility to care about the institutions within which we live and act, ‘‘watching [them and] monitoring their effects to make sure that they are not grossly harmful’’ (2011, 88). This notion of responsibility is ‘‘essentially shared’’ and ‘‘can be discharged only through collective action’’ (2011, p. 105). In Young’s words: one has an ‘‘obligation to join with others who share that responsibility in order to transform the structural processes to make their outcomes less unjust’’ (ibid.).
Thus, it suggests itself to turn to existing collectives that could carry these responsibilities. These should be the groups of those who can jointly take steps to prevent systemic harms. Young argues that factors that help determine who should be ascribed responsibility include the power to address the problem, the fact that agent benefits from existing injustices (or harms)—and are hence under a special obligation to do something about them—, and the fact that there are already organized entities that can take action (2011, 144ff.). These factors all point to bankers as addressees of such responsibility. Even if they are not personally guilty of misbehavior, they have a responsibility, as members of the profession, to take steps to prevent systemic harms, or at least to minimize the risks of their occurrence.--Lisa Herzog ([2017] 2019) "Professional Ethics in Banking and the Logic of ‘‘Integrated Situations’’: Aligning Responsibilities, Recognition, and Incentives" J Bus Ethics, 536
Lisa Herzog is one of the leaders of a developing field in the ethics and political theory of finance.* And I often find it very useful to think my way to my own views by grappling with hers. The paper partially quoted above argues, by using what Talcott Parsons' called ‘‘integrated situations,’’ for a significant role for professional associations of folk working in finance to help confront the ethical failures of bankers and to help create the right mix of regulation, incentives, recognition, and norms to tackle a whole bunch of systemic harms that follow from financial crises in particular. While I like the spirit of Herzog's proposal -- which echoes ideas about the significance of intermediary societies I tend to ascribe to Michael Polanyi --, I am a bit skeptical about the possibility of turning finance workers/traders/bankers (etc.) into professionals of the relevant sort (which is why I proposed, once, recall (here; here and here; for background here) regular drilling and simulation-games by regulators and traders/managers, etc.). But about that some other time more. Here I want to focus, more narrowly, on the backbone of Herzog's normative argument which relies on increasingly important work by Iris Marion Young Young on structural injustice.**
Let's stipulate, for the sake of argument, that Young's argument for forward-looking responsibility is sound and convincing.+ The question, challenge, I wish to pose today whether it is right to think of the systemic harms of the sort generated by financial crises as species of structural injustice? (And my answer is, no.) To be sure, and not unimportantly, I fully grant that the policy responses to financial crises, often, in recent times, exhibit patterns of outcome that are well interpreted as structural injustice in many instances shockingly so. That is, the moral hazard involved in privatizing gains and socializing losses from the financial industry is indeed an instance of structural injustice due to rent-seeking and a kind of political blackmail. (I return to that below.) And so what follows is, perhaps, more of academic than of political interest.
It is natural to assume that members of the financial community are relative wealthy. But even the UK, which has a permissive bonus culture and a large financial sector (and, by European standards, higher political tolerance for inequality), average pay for a banker is £39,412. Since averages can hide huge distributional variance, it is likely this means means that the vast majority of bankers really should not be thought of as wealthy (by advanced economy standards). Folk working in brokerage securities as a trader make, on average, £60,000, but they do average 30K in bonuses. Obviously that's compatible with some making a lot more than this.++ And this puts traders above average, but net yet among the structurally privileged (for an economy like the UK).
In addition, bankers and traders can lose their jobs when their firms go bankrupt as happened with Lehman--in the UK alone this led to 4000 people losing their jobs. Less high profile, in the collapse of Northern Rock, an once important British mortgage bank, about 2,500 jobs were lost. So, absent political decisions, bankers and traders do have real skin in the game when their firms go bankrupt. There are also more complex issues pertaining to pension coverage.
The previous two paragraphs suggest that it is by no means obvious that we should think of the average member of the financial industry as especially privileged or immunized from the fall out in a financial crisis. That does not rule out that Herzog's argument would apply to some of the better paid members of the industry.
As an aside, I do not mean to deny that various forms of, say, deposit insurance, also involve de facto a hidden subsidy to bankers in times of crisis. But since these forms of insurance prevent systemic harms I leave them aside.
In addition, and more important, the systemic harms that accompany a major financial crisis -- characterized by liquidity crisis, bank-runs, bank-collapses, inability to complete trades at any price, the regular, automatic (etc.) imposition of circuit breakers, etc. -- are not intrinsically re-distributive from poor to privileged. As Piketty shows, en passant, in Capital, left to its devices, a financial crash, and its aftermath, tends to be a great leveller (because financial assets deflate across asset classes).1 It's only recent central bank policy -- which we can describe as the so-called Greenspan put -- and the way bailouts are now acted and priced in that has changed this historical correlation.
Now a skeptical reader may think that here I am playing the government failure card a bit easily in suggesting that the imposition of systemic harms as a form of structural injustice are a consequence of government policy and not financial crises as such. I do recognize an exception to my claim, and that is, in fact, cases where a government cannot repay its debts in the context of a financial crisis. It's quite clear that restructuring, budget cuts, and devaluations that accompany such government debt crises can frequently involve cases of structural injustice even when, in executing austerity or a devaluation the government avoids (as it often does not) targeting the poor, vulnerable, and pensioned. (In practice, we have seen shockingly large forms of structural injustice in the Greek debt restructuring where Northern European banks were bailed out at the expense of the Greek poor.)*** For, in general citizens have very ineffective control over Government debts, while the investment banks, debt market makers/specialists, and treasury officials do.
To sum up, in practice it is good to have an eye toward structural injustice given how policy de facto, alas, works. In my view this can only be solved if we end the effective blackmail of the financial industry of policymakers since Lehman and the practice of using quantitative easing as our major, almost only, policy response to financial collapses--these do have enormous redistributive effects from the underprivileged to privileged in practice. (So, we need to develop alternative policy responses.) But I also suspect that the initial harms that follow from financial collapses, while systemic in character, are not forms of structural injustice. And so these require a different kind of normative argument than the one offered by Herzog.
*Full Disclosure: Herzog is on the advisory counsel of a NWO grant on which I am a PI.
**There is a related argument, derived from Stephanie Collins, that requires the collectivization of urgent moral tasks. Herzog leaves unspecified what an urgent moral task is and so why we would have to apply Collins' argument in cases of financial crises. So I leave it aside here.
+I so wish Young, who would have been only 71 now, could live to see the significant impact of her work. But I also regret not being able to tease her that she of all people has made noblesse oblige salient again.
++I am open to the suggestion that there are selection effects in the PayScale data-base, so that for some professions (like traders) high net worth folk are left out.
1: updated note: for the present argument I do not need the strong claim of levelling. All I need is that the systemic harm of a market collapse itself does not reward pre-existing privilege. I thank Jens van 't Klooster for discussion.
***And because the Greeks opted to stay in the Euro, this has the effect of protecting the relative living standards of those who cold on to salaried income.
Professional ethics for bankers by itself isn't going to be much better than norms on high-stakes gamblers. One can demand that gamblers reveal their sources of cash, or that they should show their cards when the game requires others to do so.
But limits on what kinds of games are allowed, and whether the stakes run so high as to endanger the rest of society? These are matters for the state and its public servants staffing regulatory agencies.
Perhaps professional societies would provide a pool of well-informed and motivated people to be recruited by regulatory agencies, however, and that would be important. Also, professional societies would debate the (evolving) rules of the various games, which would make explicit some otherwise implicit rules, generating an "intelligible account" as Herzog says.
So Herzog's article is very helpful in that direction.
Posted by: Aaron Lercher | 09/21/2020 at 03:24 AM