The Credit Rating Agencies and the Subprime Mess: Greedy,Ignorant, and Stressed?

The credit rating agencies (CRAs) were an important component of the subprime mess. This article describes what the CRAs are, what they do, what roles they play, and how they fit into the regulatory system. It outlines the types of mortgage securities that the CRAs rate and outlines the evolution of the subprime mess. It then assesses three prime suspects in the CRAs' problems: incentives, ignorance, and stress. The author concludes that all three factors were important, that public officials were slow to react, and that additional safeguards have been put into place to prevent such problems in the future.

I feel that the rating agencies are somewhat of a mystically anointed monopoly, not unlike our good friends Fannie and Freddie, but with even less accountability.
—Representative Richard H. Baker, 2005
Everyone assumed the credit agencies knew what they were doing.
—Joseph Mason, credit expert at Drexel University, 2008

     

Legitimacy and the Rise of NGOs: the Global and Local in South Asia

We extend sociological institutionalist theory and draw on evidence from South Asia to develop a research agenda for studying how nongovernmental organization (NGO) legitimacy plays out in national and local arenas. After first presenting a sociological institutionalist approach to nongovernmental organizing, we extend it into three areas: national laws governing international and domestic NGOs, growth in domestic NGOs, and the situated interactions among international organizations, nation-states, local organizations, and other actors. (1) International and domestic NGOs are governed by national laws, and we sketch the history of such laws in South Asia to hypothesize a pattern of legal change leading to the present social concern about accountability. (2) Sociological institutionalism suggests that domestic NGO growth is related to the presence of international NGOs and can be interpreted as the diffusion of formal organization. (3) We conceptualize the situated interactions of the plethora of actors as a meso realm at the interface of the global and local. The interrelations of these actors are marked by tensions and conflict. There are many permutations of how they coalesce, not always along a global—local cleavage, and there is a need to examine the full range of interactions. We explore some of these and it seems that actors use accountability strategically in their conflicts with others. The ‘uses of accountability’ in contesting legitimacy within such situations is proposed as a fruitful research direction.     

Can non‐state global governance be legitimate? An analytical framework

In the absence of effective national and intergovernmental regulation to ameliorate global environmental and social problems, “private” alternatives have proliferated, including self‐regulation, corporate social responsibility, and public–private partnerships. Of the alternatives, “non‐state market driven” (NSMD) governance systems deserve greater attention because they offer the strongest regulation and potential to socially embed global markets. NSMD systems encourage compliance by recognizing and tracking, along the market’s supply chain, responsibly produced goods and services. They aim to establish “political legitimacy” whereby firms, social actors, and stakeholders are united into a community that accepts “shared rule as appropriate and justified.” Drawing inductively on evidence from a range of NSMD systems, and deductively on theories of institutions and learning, we develop an analytical framework and a preliminary set of causal propositions to explicate whether and how political legitimacy might be achieved. The framework corrects the existing literature’s inattention to the conditioning effects of global social structure, and its tendency to treat actor evaluations of NSMD systems as static and strategic. It identifies a three‐phase process through which NSMD systems might gain political legitimacy. It posits that a “logic of consequences” alone cannot explain actor evaluations: the explanation requires greater reference to a “logic of appropriateness” as systems progress through the phases. The framework aims to guide future empirical work to assess the potential of NSMD systems to socially embed global markets.     

Constructing and contesting legitimacy and accountability in polycentric regulatory regimes

The legitimacy and accountability of polycentric regulatory regimes, particularly at the transnational level, has been severely criticized, and the search is on to find ways in which they can be enhanced. This paper argues that before developing even more proposals, we need to pay far greater attention to the dynamics of accountability and legitimacy relationships, and to how those in regulatory regimes respond to them. The article thus first seeks to develop a closer analysis of three key elements of legitimacy and accountability relationships which it suggests are central to these dynamics: The role of the institutional environment in the construction of legitimacy, the dialectical nature of accountability relationships, and the communicative structures through which accountability occurs and legitimacy is constructed. Second, the article explores how organizations in regulatory regimes respond, or are likely to respond, to multiple legitimacy and accountability claims, and how they themselves seek to build legitimacy in complex and dynamic situations. The arguments developed here are not normative: There is no “grand solution” proposed to the normative questions of when regulators should be considered legitimate or how to make them so. Rather, the article seeks to analyse the dynamics of legitimacy and accountability relationships as they occur in an attempt to build a more realistic foundation on which grander “how to” proposals can be built. For until we understand these dynamics, the grander, normative arguments risk being simply pipe dreams – diverting, but in the end making little difference.     

Toward “hardened” accountability? Analyzing the European Union's hybrid transnational governance in timber and biofuel supply chains

The voluntary/mandatory divide is a constant feature of scholarly debates on corporate accountability for sustainability in global supply chains. A widely held assumption is that the addition of state authority to private transnational governance in global supply chains will “harden” accountability and, thus, promote more sustainable production. The state's ability to set legally binding requirements is expected to coerce companies into complying. The hybridization of private and state authority is seen to strengthen good practice in private authority. This empirical study questions these assumptions based on an analysis of two hybrid governance arrangements for sustainability in global supply chains: the EU's Timber Regulation (EUTR) and Renewable Energy Directive (RED). The results demonstrate that both EUTR and EU-RED yield sector wide efforts of compliance and to this extent can be seen as enhancing accountability in the sense of answerability. At the same time, we find that the policies in both cases are not more demanding, nor enforced strictly, the latter putting into question their potential to coerce companies. Further, a “hardening” of accountability is at least obscured as both EUTR and EU-RED have stripped private authority they employ in their hybrid transnational governance from the need to establish legitimacy with a broader audience. This makes legal compliance and cost-effectiveness the core factor for companies’ efforts to demonstrate compliance. Our findings hence question whether the EUTR and EU-RED have led to “hardened” accountability compared to private transnational governance, and ask for an empirical, more nuanced understanding of what there is to gain or lose from hybridizing private and state authority in transnational governance.     

Problems in the Theorisation of Global Civil Society

Existing theories of global civil society are problematical for two reasons. First, they assume that transnational organisations can assist world-wide democratisation without questioning either the representativeness of such organisations, or their accountability, or the potentially negative ramifications of their actions for international political equality. Second, despite placing new emphasis on political agency outside of the state, many accounts of global civil society ultimately reproduce statist discourse by reducing action in global civil society to a struggle for rights. This misrepresents global civil society since arguments for rights are, inter alia , arguments for the state, whereas the agency of global civil society immanently questions the legitimacy of the state.     

The Market Turn in EU Governance—The Emergence of Public–Private Collaboration

The question asked here is how the horizontal relationship between public and private actors, with the overall aim of delivering public service, is squared with the requirement of democratic accountability according to the traditional model of command and control. Empirical analysis of the European satellite navigation program (Galileo), the European Investment Bank and health, and the European Financial market (the Lamfalussy model) shows that efficiency is at the forefront of the collaborations. Democratic accountability is assumed to take place because there is a formal chain of delegation. However, the private actors are not part of that chain and their accountability is never addressed. The market turn in European Union governance has opened up for private authority and emphasis of output legitimacy. It has not opened up for democratic reforms according to the very authority system of governance. We are dealing with a governance turn and yet it is still government.     

E‐participation Opportunities and the Ambiguous Role of Corruption: A Model of Municipal Responsiveness to Sociopolitical Factors

Municipalities ostensibly scale the ladder of e‐participation improvement to gain legitimacy. However, research has not yet addressed how e‐participation initiatives are affected by serious legitimacy concerns such as corruption. One municipal response to corruption is to use e‐participation offerings as a remedial effort to gain citizen trust, but window‐dressing strategies might also be used. In this article, the authors attempt to make sense of this ambiguity by hypothesizing that the effects of perceived corruption on e‐participation offerings depend on the type of e‐participation as well as the level of local social capital and local public accountability demand. Analysis of data from 104 municipal websites in South Africa between 2013 and 2017 reveals support for two moderation mechanisms: (1) a positive remedial response to corruption in the presence of strong social capital and (2) a negative avoidance response to corruption in the presence of high demand for accountability.     

Cooperative forms of governance: Problems of democratic accountability in complex environments

Abstract. Various schools of research in public policy (the literature on 'governance' and its continental counterparts) are converging to focus on the growth of policy styles based on cooperation and partnership in networks, instead of on vertical control by the state. This article focuses on issues of democratic accountability and responsiveness with these governance arrangements. It argues that until recently the legitimacy of governance networks was not at the forefront of theoretical developments, even though the 'democratic deficit' of governance is problematic both for normative and for pragmatic reasons. There is now increased sensitivity to this problem, but the remedies presented in the literature are unsatisfactory, and critiques of governance presuppose a somewhat idealised image of representative democracy in terms of accountability or responsiveness of decision-makers. They also fail to offer adequate solutions to some of the central legitimacy problems of policy-making in complex societies.     

PRODUCTIVITY MEASUREMENT AND THE PUBLIC ORGANIZATION

This article applies a broad theoretical framework identifying factors which provide an understanding of the relationship between electoral politics, organizational reform and institutional change. In focusing upon product i v i t y reforms undertaken in the 1970's and early 1980's. the authors find that political conflicts over measures of public performance may contribute to a life cycle in which organizational structures are reconstituted and subjects of regulation o r services redefined in ways that are potentially inconsistent with the demand for public accountability. The conjunction of such factors may contribute to a crisis of legitimacy resulting in the redefinition of the boundaries between public and private realms of responsibility, as expressed in the electoral process. Today liberal reformers are confronted by a dilemma of productivity and legitimacy involved in the cycle of reform and retrenchment in which the goal of public accountability is undermined by erosion of the rights of the subject. The attempt to break this bind requires, in part, an explicitness on the part of liberals about the presuppositions regarding the subject underpining the measures and strategies by which organizational reforms are undertaken.     

Dynamics of NGO legitimacy: how organising betrays core missions of INGOs

International non‐governmental organisations (INGOs) are prominent actors in the international arena, aiming to improve the life of disadvantaged people. However, INGOs often do not succeed in doing this. Consequently, INGO legitimacy is regularly questioned. Increased transparency and tightened accountability mechanisms are often‐mentioned solutions to this problem. Based on an analysis of four dimensions of INGO legitimacy—normative, regulatory, cognitive and output legitimacy—we argue that this is not necessarily adequate. We conclude that INGO mission statements create a normative source of legitimacy, but that this, in itself, is not enough to ground INGO legitimacy: it also needs to be institutionalised and organised. However, as a result of power relations and resulting pressures for accountability and transparency, as defined by their external stakeholders, INGOs experience a permanent struggle to reconcile their mission with the requirements for regulatory, cognitive and output legitimacy. The more these stakeholders press for increased organisation of INGO work, the more the pursuit of the core objectives of INGOs is obstructed. We illustrate this argument with the case of the post‐Tsunami humanitarian intervention (2004/2005). Copyright © 2008 John Wiley & Sons, Ltd.     

Accountability and global governance: The view from paternalism

A standard view is that global governance institutions require strong accountability mechanisms to perform effectively and legitimately. Yet these institutions are much better at preaching than practicing accountability. A standard explanation for this gap references interests. For various reasons, institutions and their creators would rather be less than more accountable, and they are quite content to live with the hypocrisy. This article points to an alternative possibility: the public interest. An article of faith is that modern governance should be staffed by relatively autonomous experts who use their specialized knowledge for the greater good; accordingly, they cannot be accountable to those who are affected by their decisions. Too much democracy, therefore, can be a source of dysfunction. Yet expert authority's virtues also can become vices; namely, insulation from those affected by their decisions can also be a source of dysfunction, most closely associated with the “iron cage.” Although the possibility that expertise is both a virtue (effectiveness) and a vice (dysfunction) is well known in the literature on domestic governance, it has been neglected in discussions of global governance. Indeed, the dangers of, and dysfunctions associated with the iron cage might be greater in global governance than in domestic governance precisely because of the absence of institutional checks that often are produced by a preexisting social contract between the rulers and the ruled. I probe this possibility in the area of humanitarian governance.     

Markets in a Democracy

The global financial – and now economic – crisis has demonstrated that markets, and particularly financial markets, are not self-correcting and that, if left unregulated, they will inevitably overreach themselves and lead to excess. Governments have a duty to regulate markets in the public interest but where (as in the case of recession) markets produce adverse outcomes, governments also have a duty to lean against market logic in order to minimise those outcomes. These lessons extend well beyond purely economic matters. Unregulated markets will inevitably produce social and environmental outcomes that reflect narrow and short-term individual and sectoral interests rather than those of society as a whole. The whole point of democracy is that it allows the less powerful majority to use the power and legitimacy of government to offset and counteract the economic power of a minority. If the market cannot be or is not challenged, democracy itself is weakened, loses its point and forfeits the confidence of the people it is meant to serve.     

Globalisation,Legitimacy, and Pacification: The Emergence of a Global Welfare Regime

The globalisation-induced rollback of social expenditures, and the concomitant increase in inequality and unemployment in developed as well as developing countries, are leading to a crisis of legitimacy for the national capitalist state and the capitalist system as whole. It is argued that the global capitalist class will attempt to offset this crisis of legitimacy through the development of a "global welfare regime" to perform the functions that the nation-state is increasingly unable to fulfil, namely, those of pacifying populations through the handing out of material and symbolic rewards. This article will formulate a working definition of legitimacy, show that this legitimacy is being threatened by globalisation, and then present empirical support for this hypothesis of a crisis of legitimacy. Finally, it will analyse in detail the policies of the international governmental organisations that are predicted to constitute a global welfare regime, showing that they are moving to shore up the faltering stability of unregulated global capitalism.     

The importance of input and output legitimacy in democratic governance: Evidence from a population-based survey experiment in four West European countries

The study of subjective democratic legitimacy from a citizens’ perspective has become an important strand of research in political science. Echoing the well-known distinction between ‘input-oriented’ and ‘output-oriented’ legitimacy, the scientific debate on this topic has coined two opposed views. Some scholars find that citizens have a strong and intrinsic preference for meaningful participation in collective decision making. But others argue, to the contrary, that citizens prefer ‘stealth democracy’ because they care mainly about the substance of decisions, but much less about the procedures leading to them. In this article, citizens’ preferences regarding democratic governance are explored, focusing on their evaluations of a public policy according to criteria related to various legitimacy dimensions, as well as on the (tense) relationship among them. Data from a population-based conjoint experiment conducted in eight metropolitan areas in France, Germany, Switzerland and the United Kingdom is used. By analysing 5,000 respondents’ preferences for different governance arrangements, which were randomly varied with respect to their input, throughput and output quality as well as their scope of authority, light is shed on the relative importance of different aspects of democratic governance. It is found, first, that output evaluations are the most important driver for citizens’ choice of a governance arrangement; second, consistent positive effects of criteria of input and throughput legitimacy that operate largely independent of output evaluations can be discerned; and third, democratic input, but not democratic throughput, is considered somewhat more important when a governance body holds a high level of formal authority. These findings run counter to a central tenet of the ‘stealth democracy’ argument. While they indeed suggest that political actors and institutions can gain legitimacy primarily through the provision of ‘good output’, citizens’ demand for input and throughput do not seem to be conditioned by the quality of output as advocates of stealth democratic theory suggest. Democratic input and throughput remain important secondary features of democratic governance.     

Capturing the Moment? Crisis,Market Accountability,and the Limits of Legitimation

This article extends the concept of regulatory capture to a prominent element of responses to the 2007–2008 global financial crisis overlooked in political science: the out-of-court settlements undertaken between regulators and financial firms. In outsourcing accountability to markets and diverging from previous crisis responses, these billion dollar agreements have remained highly controversial. How have financial regulators sought to legitimate this novel approach to post-crisis accountability? Contrasting material and cognitive conceptions of regulatory capture, I illustrate how American financial regulators have persistently prioritized market values in self-legitimating post-crisis financial accountability. Inconsistencies in the stress on transparency and growth, however, are shown to undermine the wider legitimation of this market-based approach. These limits underpin the scepticism with which post-crisis settlements have been received, as well as to the broader sense that accountability for the most severe period of volatility since the Great Depression has remained lacking.     

Legitimacy beyond the state: institutional purposes and contextual constraints

ABSTRACT

The essays collected in this special issue explore what legitimacy means for actors and institutions that do not function like traditional states but nevertheless wield significant power in the global realm. They are connected by the idea that the specific purposes of non-state actors and the contexts in which they operate shape what it means for them to be legitimate and so shape the standards of justification that they have to meet. In this introduction, we develop this guiding methodology further and show how the special issue’s individual contributions apply it to their cases. In the first section, we provide a sketch of our purpose-dependent theory of legitimacy beyond the state. We then highlight two features of the institutional context beyond the state that set it apart from the domestic case: problems of feasibility and the structure of international law.     

Does E‐Government Promote Accountability? A Comparative Analysis of Website Openness and Government Accountability

Under the global pressure of information technology, the adoption of web-based technologies in public administration has created a new government-and-citizen interface. However, whether e-government will unambiguously lead to a more transparent, interactive, open and hence, accountable, government remains a central question. Applying a framework of global pressure effects on bureaucratic change, this paper conducts an empirical study on website openness and accountability in fourteen countries. Even when overall accountability levels rise, the accountability gap between different national bureaucracies often remains intact as web-based technologies typically maintain or reinforce the existing practices. The question of whether e-government promotes accountability depends on what kind of bureaucracy one is referring to in the first place. In the current debate about global convergence and national divergence on the effect of globalization on public bureaucracies, the spread of e-government provides a case of convergence in practice rather than in results.     

What do Australian Foundations Do – Who Knows and Who Cares?

This article explores governance and accountability demands on foundations in Australia and compares these with requirements in the US. The article begins by discussing the meaning of, and rise of concern with, governance and accountability, the nature and variety of foundations and their status as organisations in the public domain. The second and third sections compare the formal and informal requirements relating to governance and accountability of foundations in the US and Australia. It is suggested that US foundations are both more closely regulated and more concerned with issues of governance and accountability than Australian foundations. The fourth section identifies the drivers of demand for better governance and accountability of foundations in the US and their relevance in Australia. Finally, some possible explanations of the relative lack of concern with foundation governance in Australia are considered.     

The institution of 'consensus' in the European Union: Formal versus informal decision-making in the Council

Abstract.  Although many have studied European Union (EU) decision-making in order to evaluate where the locus of power is, most studies have relied on the formal decision-making rules in the first pillar to theorize the workings of the EU. This assumption is somewhat problematic given that the informal norms of consensus are the primary mode of decision-making (81 per cent of decisions are made by consensus). This article examines the institution of consensus in the EU. It argues that the informal norm of consensus renders implausible the fundamental assumption of the rational institutionalist literature, challenging the validity of its claims. Finally, the costs and benefits to the EU's perceived legitimacy are examined with the argument that the putative benefits of consensual decision-making do not obtain in the EU and that the institution of consensus – the lack of voting and thus accountability – actually contributes to the perception of a democratic deficit in the Council.