Financial Regulation: From Commodification to Public Action

Abstract

This article seeks to address one of the major pillars of the financial liberalization process from the 1980s onward, namely the commodification of financial supervision and regulation. This process can be regarded as the great transformation of the overall institutional framework of capitalist finance that resulted in the financialization of the economy. Such a transformation replaced public regulation by self-regulation and gave rise to a highly speculative and macro-economically perverse regime of accumulation that resulted in the 2007–2008 crisis. From an institutionalist perspective, this article maintains that contrary to the usual doctrinal assertions, market-related liberal regulation prevents finance from contributing to economic development and restrains public action from supervising markets without generating social dilemmas. Without an appropriate organization and supervision, financial markets do not lead to a social optimum since they suffer several inconsistencies like the discrepancy between micro-rationality and macro-coherence, cognitive bias, and the publicness of financial stability. The viability of market economies depends on the sustainability of financial operations that requires specific public action aimed at systemic stability. In order to prevent the catastrophic consequences of financialization, financial regulation must be decommodified and financial stability must be handled as a common good.