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Global governance in crisis? Fragmentation, risk and world order
Article  in  International Politics · May 2013
DOI: 10.1057/ip.2013.9
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Original Article
Global governance in crisis? Fragmentation, risk
and world order
David Helda,* and Kevin Youngb
aSchool of Government and International Affairs, University College, Durham University, The
Castle, Durham DH1 3TU, UK.
E-mail: david.held@durham.ac.uk
bDepartment of Political Science, 200 Hicks Way, University of Massachusetts Amherst, Amherst,
MA 01003, USA.
E-mail: kevinlyoung@polsci.umass.edu
*Corresponding author.
Abstract This paper examines some of the similarities between finance and
security from a global governance perspective. We argue that finance and security
share a number of similar properties in terms of prevailing arrangements at the level
of global governance, and also a number of problems which we conceptualize
as problems of governance capacity. Such similarities, we argue, are not unique to
these domains but actually tell us something about the character of global gover-
nance as a whole. In so doing, we argue that the evolution in thinking about
governance challenges and the institutional solutions required to meet them further
underscores an already pernicious dynamic at work in global governance.
International Politics (2013) 50, 309–332. doi:10.1057/ip.2013.9
Keywords: global governance; international finance; international security;
emergent risks; governance capacity
The study of international politics often entails specialization in discrete areas
of activity. Whether it is the study of international security, trade, finance,
energy and the environment or global health, most analyses focus on specific
areas or issues. We often train students to think in this way; we certainly
govern academic departments in this way. Yet such discreteness of the different
fields of global governance is a chimera. Conceptual differentiation can be very
useful for analytical reasons, but they can also obscure important dynamics
which may exist across governance domains.
r 2013 Macmillan Publishers Ltd. 1384-5748 International Politics Vol. 50, 3, 309–332
www.palgrave-journals.com/ip/
In this article we examine two important areas of international politics which
have no shortage of scholarly attention to them but whose interrelationships
are underappreciated in existing work: finance and security. While each of
these domains are often viewed discretely and separately, finance and security
share a number of similar properties in terms of prevailing arrangements at the
level of global governance. Such similarities, we argue, are not unique to these
domains but actually tell us something about the character of global govern-
ance as a whole. Despite a rich web of institutions, norms, and formal and
informal agreements in each of these domains, governance at the global level
remains inadequate in a number of respects. While these inadequacies can be
conceptualized in a number of different ways, we conceptualize them as com-
prising a shortfall of ‘governance capacity’ – a term that we deploy to refer to the
capabilities (or lack of capabilities) of existing institutional arrangements to
effectively carry out global policies which could generate desired changes. In this
guise, we argue that the recent evolution in thinking about governance challenges
and the institutional solutions required to meet them further underscores an
already pernicious dynamic cutting across both finance and security.
Our argument proceeds as follows. Section I outlines a number of similarities
between security and finance. We first review the complex interrelationships as
posited by existing literature, and point out that both domains are concerned
with the creation and management of ‘infrastructural resources’ – resources
that make other fields of human action possible. In Section II we critically
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Has the ILC missed an opportunity? International Law and Politics 40(1): 259–306.
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continental commitment. International Politics 43: 283–304.
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tempest in a seaport? Albany Law Review 583(70): 582–624.
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and financial meltdown. New Political Economy 16(2): 185–206.
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38(3): 547–567.
Pagliari, S. (2012) Who governs finance? The shifting public–private divide in the regulation of
derivatives, rating agencies and hedge funds. European Law Journal 18(1): 44–61.
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59(3): 559–592.
Percy, S. (2007) Mercenaries: Strong norm, weak law. International Organization 61(2): 367–397.
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International Relations 18(4): 693–717.
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The Politics of International Regulatory Change. London: Routledge, pp. 21–36.
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The west’s success. Le Monde Diplomatique, August.
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economy of crisis adaptation. Security Dialogue 42(2): 143–160.
Woods, N. (2010) Global governance after the financial risis: A new multilateralism or the last gasp
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https://www.researchgate.net/publication/263326307While the
particular institutional and policy challenges are distinct, we argue that both
can be understood to share striking similarities in the form of what we call
‘governance capacity’ problems. Our argument extends to more than just a
critique of existing practices: it is an evolutionary critique. The global govern-
ance arrangements in finance and security have can and do improve upon past
shortcomings, but they also speak to a pernicious dynamic of (mis)adaptation.
Governance institutions in both finance and security are adapting in important
ways to the challenges that they face; however this adaptation is fundamentally
incremental, while the emergent risks that they seek to govern proliferate at a
much faster rate.
Interrelationships Between Security and Finance
The linkages and parallels between finance and security run deep. At a purely
conceptual level, security can be regarded as one of the quintessential public
goods that are essential to human welfare. It constitutes a field of action in and
of itself (the business of promoting security is a discrete policy area), but it also
enables many other fields of action, since without a modicum of security the
Held and Young
310 r 2013 Macmillan Publishers Ltd. 1384-5748 International Politics Vol. 50, 3, 309–332
structure of the polity changes completely. Likewise, the system of financial
flows and the management of credit in general can also be likened to a kind of
essential resource required for full participation in contemporary society.
Modern capitalist economies are largely constituted on the basis of credit
creation, and thus while financial markets and institutions can be analyzed as a
discrete field of action, they also enable much of what we callknow to be modern
economic life. As such, on one level both of these policy domains represent
collectively shared domains that tie diverse populations, interests and concerns
together into a global community of fate, the very basis of contemporary globa-
lization.
Finance and security also interrelate in important ways in terms of how public
policy are articulated and how they are politicized. Consider, for example, the
fear over the role of sovereign wealth funds from many states in the Middle East
(see Abdelal, 2000; Truman, 2008). Such changing dynamics of the global
economic landscape often emerge as ‘threats to security’ in national politics – for
example in the case of the Dubai Ports World controversy in 2006 in the United
States (see Mostaghel, 2007). Analyses of current geopolitical trajectories often
relate the fate of national currencies and financial systems to dimensions of
international security. The historical reemergence of China as a world power is
one case in point in this regard (see DresnerDrezner, 2009), as are considerations
of the future trajectory of the United States (Helleiner and Kirshner, 2009).
Indeed, many accounts directly associate the structural power of the US state in
the international system to its financial hegemony: investor confidence in US
treasury bonds is a function of the states’ ability to repay debt, which is itself a
function of the US’ place in the post-war system in which it achieved military
supremacy (see Cox, 2004; Wade, 2004).
Financial sector arrangements policies are often an integral part of security
strategies. The freezing of terrorist financial assets has been an important
part of the UN’s multilateral strategy to combat terrorist activity, and the use of
such legal means has evolved as the nature of security threats have evolved (see
Godinho, 2010). Indeed, some of the most important transnational cooperative
efforts to regulate financial markets have had their origins in security concerns.
Central in this regard is the Financial Action Task Force (FATF) – a
transnational body composed of ministers of finance which develop interna-
tional standards and recommendations for the regulation of illicit finance, in
particular money-laundering (see Sica, 2000; Roberge, 2011).1 As Tsingou (2010)
has argued, developing an international anti-money-laundering regime has also
been associated with a set of non-financial policy preoccupations. The FATF,
since its founding, has been used by its members to reign in terrorist financing
and the financing of nuclear proliferation (Amicelle, 2011).
The use of international financial efforts to achieve security objectives have
changed alongside the changing status of hegemonic security discourses – in
Global governance in crisis
311r 2013 Macmillan Publishers Ltd. 1384-5748 International Politics Vol. 50, 3, 309–332
particular the war on terror. Following the events of 9/11 efforts to combat
terrorism by means of financial regulation were stepped up considerably within
the FATF. Even before Operation Enduring Freedom was announced publically
following the September 11th terrorist attacks, the Bush regime instituted an
Executive Order to freeze terrorist assets leading to a major international
cooperative effort to intervene in the banking system (see Taylor, 2007). Other
international efforts were underway prior to 9/11, but these were relatively
muted. The United Nations International Convention for the Suppression of the
Financing of Terrorism of 1999, for example, set fourth some ambitious
initiatives but such a policy was muted by the UN Security Council Resolution
1373, which had more far-reaching implications. Since then efforts to combat
terrorist finance through multilateral cooperation have utilized the existing
international financial regulatory infrastructure to pursue security objectives.2
These amounted not only to informal cooperative efforts among the G8 but to
new formal policies and agreements among institutions such as the World Bank,
IMF as well additional as a variety of transnational financial regulatory institu-
tionsstandard-setting bodies such as the Basel Committee on Banking Super-
vision, the International Organization of Exchange Commissions and the
International Association of Insurance Supervisors (see Biersteker and Eckert,
2008, p. 241–42; Joint Forum, 2003, 2005). What is interesting from the
perspective of interrelationships between security and financial governance is
that these very international efforts to combat terrorism have mapped onto
dominant practices within the prevailing financial regulatory regime. In this
regard, international efforts to combat the financing of terrorism operated
squarely within a liberal approach to the governance of risk (see FATF 2007;
Tsingou, 2010; Amicelle, 2011).
It has of course long been acknowledged that international International
conflict and international finance and are intimately related and this has been
acknowledged in a variety of scholarship. War changes the composition of
domestic actors and interest groups, within which financial actors play an
important role, often in surprising ways (Cf. Lobell, 2006; Kirshner, 2007). Yet
in recent times the very conceptualization of objectives and frameworks of
understanding have become increasingly shared. Both domains, one can argue,
have become deeply imbibed with discourses of risk and risk management.
The conceptualization of risk in financial markets and in financial governance
has been widespread for some time, and in the security domain a similar trans-
formation has recently been at play as well. While risk has been a central feature
of financial sector governance for some time, facilitated by the quantification
of value inherent in market transactions, and the probabilistic thinking that
pervades financial dealings, an emergent discourse of risk is relatively new to
the security realm.3 As Coker (2002, p. 60) has remarked ‘[t]he language of
danger has now turned into the language of risk’. Peterson (2012, pp. 694–695)
Held and Young
312 r 2013 Macmillan Publishers Ltd. 1384-5748 International Politics Vol. 50, 3, 309–332
has recently documented this trend, showing that international relations
scholarship has increasingly utilized the concept of risk,in particular with
respect to studies of security.
When it comes to the conceptualization of risk, frameworks of analysis and
understanding within both security and finance have become increasingly
similar. Both security and finance, it would seem, are increasingly seen as
complex adaptive systems with emergent-level properties: the ‘whole’ is
greater than the sum of the institutional parts. As such, descriptions of risk
and the governance of risk are systemic rather than institutional.4 As Walker
and Cooper (2011) have pointed out, the concept of ‘resilience’ – a concept
drawn from systems ecology – has recently emerged as an operational
strategy of risk management in security operations. The very same concept
has been a mainstay of financial regulation, being operationalized by global
governance institutions such as the IMF, World Bank, and the Bank for
International Settlements (see IMF, 2005; Nsouli et al, 1995; World Bank,
2010; BIS, 2002, in Walker and Cooper, 2011, p. 144). Since 9/11, the concept
of system resilience has become a central concept among agencies charged
with generating security responses to issues such as critical infrastructure
protection, pandemics and terrorism (see Walker and Cooper, 2011, p. 144).
Since the global financial crisis, the concept of ‘macroprudentialism’
(discussed below) and systems resilience have similarly taken off. Such a
conceptualization of system resilience binds both security, broadly conceived,
and finance closer together under the same analytical discourse.
Relatedly, both security and finance have also featured a strikingly similar
shift to market-based governance rationalities. As much of the international
political economy literature has pointed out, the last two decades have featured
the prominent involvement of private actors in global financial governance
regimes, and private mercenaries have been a longstanding feature of security
arrangements in different periods Higgott et al, 2000; Haufler, 2001). However,
neoliberal norms operating over the last 30 years have allowed private actors to
take on new governance roles. In finance, this has meant the increased
integration of private sector advocacy associations in the design of regulatory
regimes (see Tsingou, 2009; Baker, 2010; Young, 2012). In security, the use
of private sector actors has similarly increased, as private firms now take
on many critical functions of security provision – – everything from basic
administrative functions to logistics to the widespread use of private security
companies to carry out combat operations (Leander, 2005, 2009; Percy, 2007).
As military operations are often conducted with and/or by private companies
there has been a commercialization and globalization of organized violence.
For instance, up to 20 000 private security personnel from sixty dif-
ferent international firms operated in Iraq in 2004 (Held and McGrew,
2007, p. 57).
Global governance in crisis
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Thus there are a number of ways in which security and finance, two
seemingly disparate and separate domains of governance, are interrelated and
share similar characteristics in terms of their governance. In what follows
below, we argue that these similarities relate to the character of global govern-
ance arrangements within both of these domains. Our argument is twofold.
Global governance arrangements in both security and finance have been
confronted with mounting governance challenges – a dynamic we highlight
with reference to the weaknesses in governance capacity.which have not been
adequately addressed. At the same time, as alluded to above, paradigmatic
shifts have begun to take place in both of these domains – shifts which further
press on and highlight existing challenges.
Drawing on earlier work which emphasized crisis across governance
domains (see Held and Young 2011), we discuss governance challenges in
both these domains under the guise of ‘governance capacity’ – the capabilities
of existing institutional arrangements to effectively carry out global public
policies suited to perceived policy challenges. Our argument is not simply that
there aren’t enough resources or enough pooled sovereignty directed at
governance in a particular area, but rather that in an increasing array of
emergent global problems, the actual ability to formulate and execute global
public policy is limited. Our argument thus proceeds at the level of the global
governance ‘architecture’ – the broader institutional complex or system which
comprises organizations, regimes, norms, regulations, and the like which are
sometimes referred to as the ‘meta-level’ of governance (see Biermann et al,
2009, p. 15).
Capacity Problems in Finance and Security
5
The global governance of finance
The recent financial crisis demonstrates an important feature of our con-
temporary world. The globalization of financial markets has integrated the
global economy in unprecedented ways, and yet the rules and institutions that
monitor and regulate financial market activity have not kept pace. The global
financial crisis, which led to what has been called the first post-war global
recession (IMF, 2009), has made it clear that the problem-solving capacity of
the global system is in many areas not effective, accountable, or rapid enough
to resolve mounting global public policy challenges.
The lack of governance capacity in global financial governance is somewhat
paradoxical. At the most basic level of international cooperation, the domain
should be seen as a considerable success: there is no shortage of institutions
that getsucceed at getting financial policymakers at the table together.
Held and Young
314 r 2013 Macmillan Publishers Ltd. 1384-5748 International Politics Vol. 50, 3, 309–332
International cooperation operates within highly formal, multi-
lateral administrative structures and within much less formal ‘club-based’
transnational governance institutions. While high-level multilateral forums
exist, such as the IMF and the G20 (see Woods, this volume), many financial
governance institutions are fundamentally ‘transnational’ in character, as they
reflect cooperative efforts not between heads of state but rather between
executive bodies such as national finance ministries, central banking authorities
and national financial regulatory authorities (see Baker, 2009). Despite the
existence of many institutions that facilitate the communication of national
financial authorities with one another, taken together the existing set of
institutions represents an arrangement which is, for most intents and purposes,
relatively weak anda loose and highly fragmented. One network-based struc-
ture. For example, a separate institution exists for the management of stock
exchangessecurities regulation (the International Organization of Securities
Commissioners), another for international accounting standards (the Inter-
national Accounting Standards Board), one a separate institution for money
laundering (the Financial Action Task Force), one for insurance (the Inter-
national Association of Insurance Supervisors), and oneanother one altogether
for banking regulation (the Basel Committee on Banking Supervision)), and
another for financial conglomerates (the Joint Forum). Some institutions, such
as the Bank for International Settlements, and the Financial Stability Forum
(now the Financial Stability Board, discussed below), have existed as over-
arching institutions which seek to monitor and conduct research on global
financial risks and disseminate ideas. Yet, their ability to guide the existing
constellation of institutions has been weak at best. As Bhattacharya (2009)
notes, this collection of institutions resembles a ‘tangled web’. Such a gover-
nance arrangement can be understood through the concept of ‘fragmentation’
(see Biermann et al, 2009). Frequently used within the global environmental
governance and legal studies literature, as well as the literatureon international
law, institutional fragmentation has come to be understood as a situation and a
process whereby different institutions pursue governance objectives in often
overlapping jurisdictional terms.
The historical evolution of global financial governance can go a long way
to explain this institutional fragmentation. While the protection of other areas
of governance such as environmental governance and international security
have had their activities ordered through UN auspices, institutions of global
financial governance have amounted to much more ad-hoc arrangements,
arising as informal informally as policy communities reactingreacted to
particular collective problems at different times. More well-known institutions
such as the International Monetary Fund (IMF) had their beginnings firmly
entrenched in the UN system, but other institutions just as vital to the govern-
ance of international finance have not. For example, the Basel Committee on
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Banking Supervision was established in 1974 in direct reaction to the contagion
effects of cross-border bank failures. Similarly, the Financial Stability Forum
was established in 1999 after widespread concerns over the contagion of
financial instability following the East Asian financial crises. Each of these
institutions have housed their secretariats in the Bank for International
Settlements, an institution originally established in 1930 with the initial remit
to manage the system of German war reparations.6 Thus theexisting financial
governance institutions that we have today reflect a slow process of institution-
building and adaptation based on particular problems as they have emerged
historically. Consolidation of institutional capacity – in the form of a centra-
lized bureaucracy or even in most cases the strength of an international treaties
to bind states’ commitments, has been generally lacking. Even in the context of
the international cooperative efforts to combat terrorist financing where, as
mentioned above, there have been considerable efforts since 9/11 for security
purposes, UN member states have expressed concerns about the problematic
duplication of UN efforts (Biersteker and Eckert, 2008, p. 252).
To be sure, existing institutions have communicated with each other in
important ways, and together these institutions have in some respects made
important advances, such as the limitation of financial regulatory competition
among states, the provision of emergency liquidity, or the occasional coordin-
ation of monetary policies. In the midst of the 2008 financial shock, central
banks were able to make use of international coordination structures that has
built up successfully in previous decades. For example, immediately after the
crash of Lehman Brothers, on 8 October 2008, the central banks of Canada,
UK, US, Sweden and Switzerland, together with the European Central Bank
jointly announced interest rate adjustments to compensate for the liquidity
shock then occurring in financial markets. This was followed by interest rate cuts
in Asia, in particular in China, and in Australia, and represented a relatively
well-coordinated policy response that probably weakened the severity of the
recession in important ways.
Yet the capacity of this system to both detect and take action on the buildup
of global financial risks has not been borne out. While the buildup of these
risks can be traced back to particularities of the Anglo-American economies, it
is notable that the existing institutions of global financial governance did not
restrain them, but rather amplified the regulatory model from these countries
and made them models for the global standard.7 Furthermore, as Mügge
(2011) has recently pointed out, at crucial junctures during the financial crisis
policy responses followed the logic of ‘dogmatism’ over ‘pragmatism’, as
entrenched ideas about financial market regulation limited and conditioned the
policy responses during the crisis. Pagliari (2012) has documented the shift in
consolidating more authority to regulate financial markets since the crisis – a
shift which has come with surprisingly strong continuity with the pre-crisis
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regulatory model. Yet even if one puts aside the policy biases of existing
governance institutions, none of them, it can be noted, has possessed much
power to actually take action on important regulatory issues, and instead have
executed what has been called ‘soft law’ (see Abbott and Snidal, 2000) through
the production of global standards and codes (see Gibbon et al, 2011; Young,
2011). It might be argued of course that the lack of supranational enforcement
power results from the refusal to cede regulatory authority to a supranational
agency (see Kahler and Lake, 2008). However another part of the problem
arguably lies with the distinct lack of a centralized institution and the ad-hoc
reliance on informal networks which are highly fragmented.
During the height of the crisis, in autumn 2008, the lack of any proper
multilateral forum to address the big global governance questions of the day
meant that a new institution, barely known and barely relevant before this
time, emerged to set the agenda: the G20. The G20 was actually a relatively ad-
hoc construction in the first place, constructed in the aftermath of the East
Asian financial crisis of 1997–1998 (see Germain, 2001). The G20 played a very
minor governance role before the global financial crisis, and this allowed it
to emerge in the context of the crisis as a high-profile institution without
being seen as already illegitimate, as might have been the case with more
technocratic transnational institutions or the IMF. The relatively greater balance
of developing countries in the G20 gave the institution more buy-in from key
emerging economies. As Li and Chen (2010, pp. 19–23) have documented, China
has seen the G20 as a much more balanced and fruitful organ of multilateral
governance than many other bodies, because it has a more representative fit
between emerging and developed economies. Countries such as the United States
and the United Kingdom have preferred the G20 as a high-level coordinating
mechanismto other competing alternatives. As Wade (2012) has argued, the
crisis saw considerable efforts within the UN General Assembly to offer high-
level coordination, analysis and recommendations on global financial reform, yet
high-level diplomatic efforts by the United States and the United Kingdom have
often sought to undercut these efforts.
Having said this, the problem with the G20 taking this the ad-hoc steering
role for global financial governance during the crisis was that it lacked the kind
of administrative structure to execute and enforce its marching orders. Rather
than enforcement power or a functional bureaucracy, most of its institu-
tional design for designed to facilitate high-profile communiques among politi-
cians directed at the public and financial markets. The broad calls for reform
that the G20 produced from September 2008 until October 2010 were taken up
by the existing international standard setting bodies, and not coordinated by a
centralized institution with a substantive administrative bureaucracy with
which to carry this out. Thus financial regulatory reform even across the G20
has been highly variegated, with some countries instituting significant reforms,
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others not. While unified approaches to the reform of banking regulation,
for example, have been generated at the global level, different national
governments (and the EU) have begun to cherry pick which of these standards
they will implement and which not – undermining the idea of a global mini-
mum floor ofstandards for financialregulation in the first place.
This is not to say that some of the reforms which have taken place have not
been significant. The IMF received a trebling of resources, as well as a general
increase in Special Drawing Rights (see Woods, 2010). The G20’s call for
participatory reform led to extensive reform of transnational bodies such as the
Basel Committee on Banking Supervision, the Committee on Payment and
Settlement Systems and the Technical Committee of the International Orga-
nization of Securities Commissions (see Helleiner and Pagliari, 2009, pp. 6–8).
These changes are not merely cosmetic: they are important reforms. In many
ways they represent a long overdue game of historical ‘catch up’, where reforms
that should have taken place many years ago are finally made.8
Probably the most significant institutional change was the transformation of
the Financial Stability Forum to the Financial Stability Board (FSB). The new
institution was afforded a small secretariat, a full-time Secretary General, a
Steering Committee, and three Standing Committees (see Germain, 2011). This
more permanent administrative structure means that the FSB is more robust
than its predecessor, but the extensity of its powers are still quite limited, as it is
left to engage in monitoring activities and to make broad recommendations
(Helleiner, 2010, p. 284). In policy terms, reforms which have taken place
have been non-systemic in nature: because the existing systems of financial
standards and codes have effectively constituted ‘soft law’ arrangements (see
Abbott and Snidal, 2000), financial governance has still relied on the (often
unreliable) collaboration of national governments to implement them, and for
financial markets to use these standards and codes as signals of credibility
and soundness (Kerwer, 2005). Incremental policy responses to govern-
ance weaknesses are channeled through existing institutions, rather than
through the generation of new ones that limit the governance weaknesses in the
first place or address its underlying causes.
For all the institutional innovation present within the system of global
financial governance, the problem of institutional fragmentation has nevertheless
persisted. An example here can be found in the way the financial crisis and the
institutional reactions to it affected global trade: when the global financial system
seized up, so did global trade financing. Yet instead of helping this situation, the
response of some global governance institutions was to (unintentionally) make it
worse. In an effort to shore up regulatory standards of banks, the design of the
new Basel III Accord put new restrictions on the ability of banks to support
flows of credit for trade financing purposes. This problem was recognized: not
by the collection of financial regulators that sat on the Basel Committee, but by
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other groups far away in their own institutional silos. It took an extensive
lobbying campaign by the International Chamber of Commerce, aided by
the World Bank and the World Trade Organization to secure a change in
new global financial regulations that addressed this problem – it wasn’t until
2011 that the new banking regulations were revised to address this problem.
While such changes can be considered positive, this example helps to highlight
the costs of institutional fragmentation. It is striking that such a negative effect
wasn’t identified in advance, especially given what we know about global
interconnectedness and the centrality of financial flows to the global economy.
Policy errors are of course nothing new. And finance is an area notoriously
difficult to effectively regulate, to say nothing of the challenges of governing
finance at the global level. Yet what is striking about global financial govern-
ance is the way in which new emergent problems are increasingly recognized
but the capacity to systematically address them is not generated. In this regard,
two particular areas stand out. The first of these is the now mainstream
recognition that effective financial regulation has to take place on a macropru-
dential basis.
There is an increased recognition that financial crisis and financial regulation
should be understood through the prism of ‘macroprudentialism’ (see Baker,
2012). What this means is that rather than seeking to regulate the activities of a
single financial institution, the best way to regulate finance is to understand the
banking system as a coherent, changing whole. The rise of macroprudentialism
represents the recognition of a harder problem in that it is technically more
difficult but requires much more coordination among different areas of finance
and different national jurisdictions. Regulating a single bank is challenging
enough, in particular when the bank is large, engages in complex transactions
in many different countries. But regulating the banking system as a whole is
even more challenging, because it means taking stock of banks’ interrelation-
ships to the economy as a whole and seeing the ‘emergent-level’ processes at
work in the complex adaptive system that is the financial system (see Haldane
and May, 2011; Baker, 2012). Importantly, this new ‘macroprudential challenge’
befalling financial regulators cannot be tackled exclusively at the national level,
because of the extreme interconnectivity of financial activity worldwide. Thus
the concept naturally puts stress on the global dimension. In this vein, tackling
financial regulation in a macroprudential way necessarily requires a certain level
of global-level monitoring, regulation and enforcement that is very challenging
under a highly fragmented global financial governance system which features a
lack of enforcement capacity.
A second governance challenge that has been put into much sharper relief
since the crisis is the problematic nature of the relationship in world savings
and demand – a problem often referred to as ‘global imbalances’. This problem
is expressed in the disjointed pattern of current account deficits and surpluses
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which have built up in the global economy in the last decade and a half. It
reflects a disjuncture between the high consumption and demand of countries
in Western Europe and North America and the low level of consumption in
East Asia. Such a systemic problem has been widely recognized as ‘one of the
main challenges facing the global economy and world community’ (Trichet,
quoted in Reuters, 2011). Since the financial crisis, structural imbalances have
been at the forefront of policy debates, and many have also made the argument
that these imbalances contributed in a significant way to the financial crisis
itself, as deficit countries were able to fuel their credit booms in large part
thanks to high-saving surplus flows from East Asia.9 Despite this increasingly
recognized problem, the capacity to address or even manage the problem of
structural imbalances have proved severely wanting. A variety of policymakers
from the IMF, the FSB, and leading states have all concluded that these global
imbalances are extremely serious, and that ‘[l]eft unresolved, these problems
could even sow the seeds of the next crisis’10 Transnational financial governance
institutions such as the BIS and the FSB increasingly generate knowledge about
how perverse the problem is: but there is a distinct lack of capacity to deal with
the problem itself (see Bank for International Settlements, 2011). At the G20
meeting in Paris a much more modest proposal was accepted – specifically that
countries would agree to a Mutual Assessment Process (MAP) in which public
debt, fiscal deficits and private debt would constitute a set of warning indicators
(IMF, 2011). There is no enforcement mechanism available, however.
It is especially in this last regard that security sharesa common dynamic with
finance. Just as in financial governance there has been an increased intellectual
recognition of harder problems in our midst, so too in the security domain a
shift in our paradigm of security has not been met with a commensurate
institutional response. Where new and harder governance challenges have
emerged, there has been some institutional adaptation – but this increasingly
lags behind the increased recognition of the problem itself.
Capacity problems in global security governance
If the global financial system integrates a common infrastructure for the
management and containment of creditfinancial crisis, the international
security system ensures an arrangement for the management of conflict and
violence. This domain of our shared existence, in Yet on a different plane,
governance within both of these domains entails the reproduction of
something more fundamental. While financial governance generates the
infrastructural resource of credit which is essential to the functioning of
modern capitalist economies, security provides the necessary means by which an
even wider range of human capacities can thrive. In contrast to finance, financial
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governance, international security has a more well-known set of institutions and
rules which govern it. Governance institutions in security are also much more
formal than the network of mostly transnational institutions that pervade global
financial governance. Reflecting a similar capacity problem to that in finance,
these institutions have evolved over time, but most of their as new governance
challenges have arisen. Yet in contrast to financial governance, which is relatively
more fluid and changeable (perhaps because of its highly informal structure), most
of the structure and content reflectsof international security arrangements reflect
security dilemmas identified for a world which has passed in many decisive
respects.
From the period following the Second World War until 1989, the nature of
national security was shaped decisively by the contest between the United
States and the Soviet Union. The dominance of the US and the USSR as world
powers, and the operation of alliances like NATO and the Warsaw Pact
constrained decision-making for many states in the post-war years. In the
post-Cold War world of the 1990s and the 2000s, the constraints upon state
security policy have not been eradicated but reconfigured. Instead of bipolarity,
the global system now exhibits more of the characteristics of a multipolar
distribution of political-economic power. With the rise of many developing
countries, in particular China, India and Brazil, there has been a marked shift
away from the dominant positions of the US and Russia in the global order.
Increasing multipolarity intersects with old power structures to create a much
more contested and uncertain global politics. Within this more complex
structure, while the strategic and foreign policy options confronting an individual
state are still shaped by its location in the global power hierarchy, there is a great
deal more indeterminacy and volatility in the system. This can be seen in the
failure of many international negotiations, from Doha to Copenhagen, and in the
fractious attempts to manage many armed conflicts, where dissensus and a clash
of positions is much more common than a shared framework of interests.
The governance of security is characterised by much more long established
institutions than in finance, and there is a greater modicum of centralized
control through UN auspices, from the UN Security Council to a plethora of
related institutions and agencies. Yet, there is still considerable institutional
fragmentation. There is now a widespread recognition that international law is
applied inconsistently applied and has become an increasingly fragmented
terrain (see Koskenniemi, 2006; Leathley, 2007). Moreover, informal group-
ings of states proliferated in the 1990s in reaction to the increasing demands
on the UN to adapt to the post-cold War world (Prantl, 2005). In the context
of the failure of leading members of the UN to alter its formal and
constitutional structures, these groups sought to establish alternative policy
fora and regulatory initiatives, which often overlapped and competed with each
other (see Hale and Held, 2011).
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Furthermore, the actual infrastructure of security provision, at an operational
level, is itself highly dispersed: militaries remain organized on a national, rather
than regional or multilateral basis, with vast duplication, overlap and waste of
resources. In countries like the UK and the US, spending levels are now far in
excess of any plausible defensive needs. With the exception perhaps of the US
and China, however, no country is capable of acting independently in major
conflicts or of intervening against regimes that threaten global peace and
security – which makes existing defence positions and tactics quite baroque in
some respects.11 Against this background, the way we conduct and organize
military spending looks increasingly anachronistic – for example, total global
spending on multilateral operations such as peacekeeping forces is less than 1 per
cent of total global military expenditures, despite the growing and intense
pressure on such forces12 In addition, the increased recognition of complex
problems which now confront many security agendas – from terrorism and
piracy to failed states and humanitarian disasters – are beyond the scope of a
single nation-state to address; they are transborder, ‘intermestic’ problems
(Rosenau, 1996). Yet the division of protective labor, i.e., security forces, is
inadequately focused on addressing the new security challenges, and on the
protection and maintenance of individual agency, i.e., upholding human rights
and democratic standards. This further highlights the capacity gap between
existing military capacities and those required by the demands placed upon it.
Despite the evident failures of the Bush Doctrine to win consent and peace in
Afghanistan and Iraq after 9/11, the capacity problem in global security runs
deeper than disregard for effective multilateralism.13 The very instruments of
international security provision are perversely oriented for a world that we no
longer live in. Our military capacity and technologies are all geared to fighting
wars in terms of combating physical forces in discrete and bounded space and
time. At the present time, this model cannot deliver in many areas where
security is most needed – , and as such there is a need to create military capacity
which is based on cooperation and collaboration of armed forces. This poses
not only important questions about the collaboration of, and sharing of,
personnel, technology and intelligence. It also poses serious issues about how
to link international security to human security more broadly – through
commitments to sustainable development and social justice. The emphasis has
to be not just on fighting wars, but securing the safety of human beings more
generally (see Kaldor, 1998). In other words, substantial institutional capacity
exists, but it is all too often the wrong kind of capacity.14
These problems point to a dynamic similar to that which has begun to
emerge in financial governance. Changing modes of thinking and the
recognition of complex global problems have served to raise urgent questions
about the relevant capacities of existing institutional arrangements. This is
underscored by the inadequacy of institutions which are oriented toward the
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new emergent paradigm in security human security. The principle of human
security was first introduced by the UNDP World Development Report in
1994,but has been amended and refined since its inception.15 At its core, it
sets out an agenda concerned to protect the basic prerequisites of human life.
Alkire points out that ‘it does not cover all necessary, important, and
profound aspects of human living. Rather, it identifies and protects a limited
vital core of human activities and abilities’; namely, the ability to sustain life
within a framework of the rule of law and according to human rights
standards (Alkire, 2003, p. 3). This emerging paradigm has served, in
principle, to subordinate state sovereignty in relation to human security
concerns, whereby the vital interests of human beings are given priority over
those of the state itself.
The human security paradigm has significant earlier roots, which illuminate
further aspects of its meaning. In the early decades of the postwar period the
geopolitical position of the 1945 victors was protected and nurtured through
the UN system itself, which entrenched their power while it claimed to
represent all states on an equal basis (Held, 1995). Yet, within this affirmation
of state power, sovereignty and interests, the seeds were laid for a new meaning
of security and a reframed interstate order. The laws of war were increasingly
complemented by the conventions on human rights which, in principle, recast
the meaning of sovereignty itself (Held, 2004). Sovereignty was reshaped and
reconceived, no longer as effective power, but as rightful authority; that is,
authority that upholds fundamental democratic values and human rights
standards. The law of war and the human rights regime combined to reform
the meaning of power and violence in the postwar order, delimiting in principle
not only the behavior of states during times of war, but of all state and non-
state actors. Thus, the beginnings were established to rethink the meaning
of security. In this context, security no longer means the protection of state
interests and bounded territories in the interest of settled power relations.
Rather, security comes to mean the protection and nurturing of each and every
person’s interest in self-determination, human rights and fundamental
freedoms. Accordingly, the history of security since 1945 is the history of the
development of new conceptions which sought to unsettle the understanding
of security as state security, and refocus it on the security of each and every
person – on human security. The globalization process has nurtured these new
modes of thinking, because of the new security threats and challenges it brings.
As Cha (2000) has argued, globalization has changed the way we think about
security, with dimensions such as non-physical security, the diversification of
threats and the salience of identity now key factors in the way security is
conceived.
Over the past two decades the emerging paradigm of human security has
increasingly become a driving force behind the UN’s official discourse (see
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Thérien, 2012; Owens, 2012). While many have pointed out thatthe gap between
rhetoric and actual global policies is enormous (see Chandler, 2008), this shift is
not entirely insignificant, not least of all because it has opened up a serious break
in the traditional paradigm underlying the traditional conception of security
(Thérien, 2012). The UN Trust Fund for Human Security administers nearly
two hundred projects around the world that promote particular governance
challenges related to the human security approach. Furthermore, there now
exists an extensive network of governmental, academic and civil society organiza-
tions all dedicated to funding and implementing the human security agenda
(see Owens, 2012, p. 548; MacFarlane and Khong, 2006). Yet, these resources
and institutional developments still pale in comparison to the size and continued
gravity of the traditional, state-centric security agenda. Despite these the
important shifts in thinking undergirding the human security approach, the
capacity of existing global governance arrangements to implement a robust
human security agenda is very limited. Existing military capacities remain drawn
along state lines despite the growing need for multilateral forces more appro-
priately designed to address contemporary security demands. The figure below
illustrates this point by the scale of state-based military effortsby comparing the
respective military expenditures (expressed in $million) of the five Permanent
Members of the UN Security Council (P-5). countries. United States military
expenditure has been increasing consistently since 1998. Of the P-5 countries
France is the only one that has gradually decreased their military allocations over
the past two decades. That observation aside, the trend is clearly one of
increasing state military expenditureover the last decade; its spending remains
vast and dwarfs the allocations made by other leading states. While France
and the UK have contained their military allocations (made possible in part by
expansive US military capacity) aggregate expenditure levels remain substantial
(Table 1).
These figures are in stark contrast to the resources allocated to collective
forces, where total global spending on multilateral operations, such as
peacekeeping, was recently recorded at just $8.2 billion, or 0.56 per cent of
total military expenditures (SIPRI, 2010 in Held, 2010, p. 197). This paints an
overall picture of the basic incongruence between the existing security
capacities in the world, and the emerging demands placed upon it. Changing
forms of conflict, as well as changing notions of security, require an updated
capacity that is designed for context specific concerns; however, the inter-
national community has yet to implement the kind of innovations that this
would entail. The result has been the persistence and indeed expansive growth
of nation-state militaries in lieu of effective investment in collective forces. This
situation stands In in stark contrast to reality that of the 16 major armed
conflicts that were active in 15 locations around the world in 2008, not one was
a major interstate conflict (SIPRI, 2009, p. 69).
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The mismatch between existing capacity for addressing security and the
demands placed before it is a daunting challenge. States’ interests remain
aligned along sovereign lines delineating their control and autonomy. Thus,
attempting to build consensus around practical reforms and alternative
capacities has been too difficult a task for the international community. This
is a problem highlighted by the confrontation of state-centric interests with
prevailing universal human rights standards; wherein global governance of
collective security is administered by supranational bodies and focused on the
protection of individual sovereignty. The contemporary management of
security is at a considerable distance from being appropriately designed to
uphold both the laws of war and human right regimes. While elements of a
universal constitutional framework exist, military capacity is neither appro-
priately designed nor operationalized to uphold them adequately. Hence, while
the emergence of the human security paradigm represents a major paradig-
matic transformation, it has remained all too often a shift of principle only.
The situation on the ground often falls short of what has been proclaimed as a
new universal mission. The realities of security are far more complex; a
commitment to protect individuals from pervasive illegitimate violence,
pushing state security into a subordinate position to individual security, has
yet to be fulfilled in any systematic and impartial way.
Conclusion
This article has examined some of the similarities between security and
finance from a global governance perspective. We have highlighted a number
of interrelationships in these two seeminglydisparate domains: both concern
the governance of what we have called ‘infrastructural’ resources, and gover-
nance in both domains has featured an increasingly ‘risk-based’ discourse
focused on complex global challenges..and market-based governance rationalities.
Table 1: Military expenditures by country (P-5), in $million
Country 1990 1995 2000 2005 2010
China 17 200 20 000 32 100 62 100 114 300
France 67 930 62 566 59 508 62 724 61 285
Russia 232 546 29 427 25 977 38 669 52 586
UK 57 874 48 447 45 549 52 579 57 424
USA 502 749 392 601 375 893 552 966 687 105
Source: SIPRI Military Expenditure Database 2011; Figures are in millions of US dollars, at
constant 2009 prices and exchange rates, except for the last column which is in 2010 prices and
exchange rates.
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The most important similarity, however, has been with respect to the inade-
quacies of existing global governance arrangements. Our analysis focused on
what we called capacity problems – resulting not just from weaknesses of
centralized authority as such, but from broader problems of governance
capacity. The capacity problems characterizing both security and finance, we
have argued, have become more severe in recent years due to the emergence
of new emergent paradigms in the way that risk and governance are conceived.
In this guise, global governance arrangements in security and finance have
improved upon past shortcomings in recent years, but such improvements are
incremental while the governance challenges they face call for more deep-seated,
structural reform.
The fact that new paradigmatic challenges to prevailing ways of thinking have
emerged in both finance and security highlights a feature which may extend to
broader dynamics within contemporary global governance. Two features
stand out in this regard. First, new ways of thinking such as macroprudentialism
in finance and the human security paradigm in security increasingly stand
in stark contrast to prevailing governance arrangements. Both can be sutured
onto existing governance arrangements to a certain extent, but to fulfill the task
of either the macroprudential turn or true human security a broader
transformation of governance practices is warranted. Existing institutional
arrangements within the institutions of global governance no doubt benefit a
whole host of vested interests; thus actors seeking to realize new paradigmatic
shifts will need an appropriate coalition of interests behind them in order to
forge real and meaningful transformations in the way governance institutions
operate.
Second, the mounting capacity problems in finance and security are,
paradoxically, a result of the very success of the previous post-war institutional
order. It is important to recall that the UN system can legitimately claim some
credit for preventing another calamitous world war, and that the multilateral
order, more broadly, allowed for decades of relative uninterrupted prosperity.
Set against the backdrop of persisting tensions of the Cold War, the UN’s
mechanisms, institutions and laws bound states together in a common frame-
work that created sufficient geo-political stability for the continued acceleration
of global interdependence: and, although there were many serious conflicts, they
did not develop into major global conflagrations. This basic stability became the
foundation for unprecedented economic integration, which in turn created new
challenges for regulation and design. The security crisis of the World War II
catalyzed a degree of cooperation among states greater than ever before. As this
cooperation was institutionalized, global interdependence grew, in both its
intensity and extensity – resulting in ever more complex forms of interconnect-
edness. As such, the governance challenges highlighted here in finance and
security – and indeed in other domains as well – are not problems which simply
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326 r 2013 Macmillan Publishers Ltd. 1384-5748 International Politics Vol. 50, 3, 309–332
underscore the need for international cooperation per se In the face of new
emergent risks, the problems of governance capacity highlighted here are pro-
blems of success and need to be conceptualized as such.
While the post-war institutional structure can be credited with many succes-
ses, it has also given rise to a new set of challenges that its designers could not
have foreseen. These challenges span a series of pressing global concerns includ-
ing the issues that have preoccupied this article: financial market instability and
changing forms of insecurity. The manner in which these problems are addressed
is contingent on proceeding institutional innovations. While these institutions
help create a problem-solving context for some issues, they create failures
elsewhere. We currently face serious shortcomings in the institutional capacities
of global governance arrangements for finance and security, which prevent the
new challenges of the contemporary period being met. As a result, institutional
failures and persistent capacity shortcomings will continue to haunt policy
makers in both of these domains.
About the Authors
David Held is Master of University College, Durham and Professor of
Politics and International Relations at Durham University. His main research
interests include the study of globalization, changing forms of democracy and
the prospects of regional and global governance. Among his most recent
publications are Gridlock: Why Global Cooperation is Failing When We Need
It Most (2013), Cosmopolitanism: Ideals and Realities (2010), Globalisation/
Anti-Globalisation (2007), Models of Democracy (2006), Global Covenant
(2004), Global Transformations: Politics, Economics and Culture (1999), and
Democracy and the Global Order: From the Modern State to Cosmopolitan
Governance (1995).
Kevin Young is Assistant Professor in the Department of Political Science at
the University of Massachusetts Amherst. His research focuses on interna-
tional political economy, in particular the role of interest groups in financial
regulation and transnational policy networks. His research appears in Public
Administration, Review of International Political Economy and Regulation and
Governance.
Notes
1 As Tsingou (2010, p. 623) has pointed out, the IMF has only been a reluctant participant in
anti-money-laundering efforts, often simply ‘piggy-backing’ money laundering issues on top of
their other efforts.
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327r 2013 Macmillan Publishers Ltd. 1384-5748 International Politics Vol. 50, 3, 309–332
2 As Biersteker and Eckert (2008, p. 252) document, proposals to put together a new institution
within the US system to specifically target terrorist finance have been disregarded both by the
G8 and by the UN Secretary General.
3 See Diprose et al (2008); Debrix and Lacy (2009, pp. 4–5). As Aradau et al (2008) have
reminded us, the concept of risk within the study of international security emerged at the end of
the Cold War when major states as well as international organizations such as NATO and the
UN increasingly referred to the collective security environment in terms of risks where they had
once referred to dangers and threats.
4 Rather than a simple set of institutions or rather just a system of institutions, both security and
finance are characterized by webs of institutions, operating much like the ‘regime complex’
notion increasingly foregrounding discussions of the changing global order (see Raustiala and
Victor, 2004).
5 Some of the empirical examples in this section draw from Hale, Held and Young (2013) and
Held and Young (2011), in which we have explored the concept of fragmentation more
thoroughly in these and other governance domains, as well as other institutional-organizational
problems of global governance.
6 In subsequent decades it expanded to focus on international financial cooperation among
centralbankers, and to conduct research and disseminate monetary policy ideas.
7 For example, strong confidence in banks’ own internal risk assessments was a cornerstone of
both the Federal Reserve in the US and the Financial Services Authority in the UK, and this
confidence was often translated into the global regulatory standards for banking in the Basel II
Capital Accord.
8 See Held and Young 2011.
9 For a useful review, see Borio and Disyatat, 2011. Their argument, a variation on a common
theme, is that the excess elasticity of the international financial system failed to restrain the
build-up of unsustainable credit and asset price booms.
10 Strauss-Kahn quoted in IFC Review (2011)
11 See, for example, the early critique in Kaldor (1982).
12 According to data for 2008, total global spending on multilateral operations such as
peacekeeping forces was just $8.2 billion, or 0.56 per cent of total global military expenditures
(SIPRI, 2009).
13 On the consequences of US multilateralism, and it’s dynamic relationship with the decline of US
soft power in international affairs, see Cox and Quinn (2008, p. 204–213) and Slaughter and
Hale (2008, pp. 176–186).
14 Learning has been slow but now some of the world’s most senior military figures have taken up
the challenge and are changing the way warfare is being conceived. For example, see Petraeus
(2010)
15 The UNDP Human Development Report’s initial articulation of human security included two
distinct elements: ‘1) Safety from chronic threats such as hunger, disease and repression. 2)
Protection from sudden and hurtful disruptions in the patterns of daily life – whether in jobs, in
homes or in communities’: that is freedom from want and freedom from fear (see UNDP, 1994
and Alkire, 2003 for reference).
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