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Unelected power

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You probably haven’t noticed because it’s so subtle. But it’s real and it’s gathering pace. Over recent years there has been a faint but powerful transfer of public power from elected politicians to unelected officials. This delegation of authority to unelected technical experts and independent authorities is occurring around the globe.

The world is moving towards a more distributed power structure where non-government organisations (NGOs) are gaining influence at the expense of nation-states. NGOs have moved from backstage to centre stage in world politics. Their influence in international relations and policymaking is largely uncontested and is transforming politics.

The war on terrorism, the fallout from the Global Financial Crisis (GFC) and action on climate change have all contributed to an increase in the power of unelected officials. Our planet may be divided into 193 sovereign nations, but we live in a world that is deeply interconnected and interdependent. The threats we face are common and require a co-ordinated, collective response. 

Given this, we are increasingly turning to experts outside of government and inside of NGOs to guide and shape state decision-making. Consequently, there has been a proliferation of international standards over recent years which most governments have simply incorporated in their national laws. In the words of one academic:

Every-day life of businesses and consumers is pervaded by the references to global private standards: from the cars we drive to the computers we use, from the food we eat to the movies we watch. Private rule-making at the transnational level is increasingly gaining scope and traction, quickly expanding in both old and new territories, from e-commerce to data protection, from food safety to human rights protection, from financial markets to environment, from professional regulation to corruption and anti-money laundering, from civil aviation to private security.

NGOs are a worldwide phenomenon and can push around even the largest governments. Some label this power shift to unelected technocrats as “illegitimate authority” and a danger to domestic sovereignty. Others see the growing prominence of specialised unelected bodies as an integral and positive part of modern democratic life.

Globalisation has spawned the growth in organisations that regulate and control activity on a global scale. An example is the activities of the International Accounting Standards Board. It sets transnational financial reporting rules that corporations around the world follow, making it a powerful (but private) de facto global regulator of accounting standards.

Many believe that an even more powerful body is the Basel Committee on Banking Supervision. This Committee, which is headquartered at the Bank for International Settlements in Basel, Switzerland makes decisions which affect every man, woman and child on the planet. Yet few know of the existence of this unelected and (some would add) unaccountable group of central bankers and banking supervisors.

The Basel Committee does not possess any formal supranational authority and its decisions do not have legal force. Yet its views hold great sway, enabling it to impose stringent rules and standards on the global financial system. The Economist magazine described central bankers as “more powerful than politicians, holding the destiny of the global economy in their hands”.

Beyond banking and accounting, NGOs address every conceivable issue and operate in virtually every part of the globe. From buying bananas at the supermarket (the World Trade Organisation governs how bananas are traded) to obtaining medicine at the chemist (the World Health Organisation issues standards for prescription drugs), international laws impact our daily lives.

Imagine flying overseas to watch a major sporting event. The operation of the plane that transports you is regulated by the International Civil Aviation Authority. On arriving at your destination, you drive to your hotel by following standardised road signs developed by the UN Convention on Road Traffic. Following check-in, you phone home and this global connectivity is facilitated by a treaty on International Telecommunication Regulations.

You leave your hotel and use your credit card to buy a jumper and this transaction is governed by technical requirements issued by the Payment Card Industry Security Standards Council. With your jumper to keep you warm, you then watch an outdoor event (as part of the Olympic Games) where athletes are subject to mandatory drug testing by the World Anti-Doping Agency.

NGOs are a worldwide phenomenon and there is no turning back the clock. I accept that these non-state actors (to use the language of academics) are essential to the smooth working of our globalised world. However, I also add my voice to those who believe that NGOs should be more transparent in their decision making and subject to greater checks and balances. The underlying question here is: Who regulates the regulators?

The reality is that those who write the rules in international private organisations encounter little push back. This is acknowledged by Tim Büthe & Walter Mattli, authors of The New Global Rulers: The Privatization of Regulation in the World Economy. They note:

An ever-increasing share of economic activity is governed by international rather than domestic rules or standards, often developed by private bodies. Frequently, such global private regulation entails no market competition among multiple rule-makers. Instead, a single organization serves as the clear institutional focal point in its area of expertise and is largely uncontested in making the rules for global markets. As a result, once such a private-sector body develops a standard, it becomes the global rule.

While I understand the motivation to have one set of common rules for global markets, I nonetheless express concern about the one-size-fits-all approach as has occurred with banking regulation. The Basel Accords were primarily intended for internationally active and systemically important banks. But the same regulatory standards have been applied to smaller financial institutions like credit unions.

The efforts by regulators to bolster financial system stability and avoid a repeat of the GFC turmoil are laudable. Few would challenge the goal of a more resilient banking sector. But care must be taken not to punish those, like credit unions, which did not engage in the reckless behaviour that contributed to the GFC.

 

Regards
Paul J. Thomas, CEO

Comments

avatar John Clark
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Well done Paul.
This is something that very few people understand or comprehend the true implications of.
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CEO Paul Thomas