Robert Skidelsky
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In Regulation We Trust?
Robert Skidelsky
Project Syndicate | Monday, December 21, 2009

 
LONDON – From next year, on swearing allegiance to the Queen, all members of Britain’s House of Lords – and I am one of them – will be required to sign a written commitment to honesty and integrity. Unexceptionable principles, one might say. But, until recently, it was assumed that persons appointed to advise the sovereign were already of sufficient honesty and integrity to do so. They were assumed to be recruited from groups with internalized codes of honor.
 
No more. All peers must now publicly promise to be honest. Only one had the guts to stand up and say that he found the new procedure degrading.
 
The trigger for imposing this code of conduct was a scandal over MPs’ expenses, which rocked Britain’s political class for much of 2009.
 
It was a scandal with deep historical roots. Until 1910, British legislators were unpaid. Payments were then started, but kept below the professional level, on the ground that members of parliament ought to be willing to make some personal sacrifice in the service of their country.
 
During the inflationary 1970’s, a byzantine system of “allowances” was instituted to supplement lagging parliamentary salaries. Parliamentarians were allowed to claim expenses for the upkeep of properties connected with their official duties. Supervision was lax, and, human nature being what it is, all sorts of minor abuses crept in.
 
In May of this year, London’s Daily Telegraph began publishing details of MPs’ expenses claims. In an aggressive campaign of “naming and shaming,” the paper showed how MPs had been exploiting loose regulation to their advantage.
 
Most offenses were trivial, and only a few were illegal. Upwardly mobile MPs from the ruling Labour Party claimed the trappings of their newly-acquired middle-class status: second homes, mock-tudor beams, and plasma screen televisions.
 
By contrast, the rich grandees of the Conservative Party claimed reimbursement for such things as repairs to swimming pool boilers, moat cleaning, and hanging chandeliers. Revelations about such behavior has already forced over 100 legislators out of public life. Personal honor can no longer be relied upon to keep legislators straight.
 
The expenses scandal is a symptom of a society in which money has replaced honor. The new assumption is that individuals will act not honorably, but gainfully: they will never miss an opportunity to turn a profit. In a money-obsessed society, the only way to restrain this proclivity is by externally imposed sanctions. The older language of trust has been replaced by a new language of “accountability” and “transparency.” People must be regulated into good behavior.
 
The market has been insidiously creeping into many spheres of society traditionally governed by non-market norms. Duties of government, like fighting wars, educating children, or punishing criminals, are being outsourced to private companies. The United States employs over 100,000 private “military contractors” in Iraq. The ethic of public service is being replaced by contracts and financial incentives.
 
The market logic of individual choice has been busy destroying the social logic of community. Formerly, leaders of the people were leaders of their communities, often personally known to those whom they served, and jealous of their reputations for probity and fair dealing. Trust was based on local knowledge fortified by continuous contact. The erosion of these powerful constraints on bad behavior was bound to produce a growing demand for public “accountability.”
 
The quest for market efficiency has also led to a frightening rise in complexity. Today, the systems by which most services are provided have become almost completely opaque to their users. People who call for greater “transparency” do not understand that complexity is the enemy of transparency, just as simplicity is the hallmark of trust. Complexity, by leading to moral ambiguities, forces relationships onto a contractual footing.
 
Parliamentarians are by no means the only, or chief, victims of the cold blast of public mistrust. Some of the most respected banks have been exposed as perpetrators of moral fraud: hence the demand for a new regulatory framework. But pervasive mistrust of politicians is more dangerous, because it undermines the basis of a free society.
 
A low-trust society is the enemy of freedom. It will produce a juggernaut of escalating regulation and surveillance, which will reduce trust further and encourage cheating. After all, human nature is not only inherently gainful, but also takes satisfaction in gain cunningly achieved – for example, by finding ways round regulations. A free society requires a high degree of trust to reduce the burden of monitoring and control, and trust requires internalized standards of honor, truthfulness, and fairness.
 
Systems in which people are trusted to behave well are more likely to produce good behavior than systems in which they are compelled to do so by regulation or fear of legal sanctions. Liberal societies must tolerate some degree of crime and corruption. But there will be less of it than in societies run by bureaucrats, courts, and policeman. In the former communist countries, private crime was virtually non-existent, but state crime was rampant.
 
There is nothing inevitable about the disappearance of trust. We have a choice. Societies can decide to protect trust-based ways of life by limiting the scope of developments that undermine it. The law, for example, could be used to favor institutions (like the family) that incubate commitment, and to decentralize decision-making to the maximum practicable extent. Politicians should stop treating religious belief as a “problem” rather than as a powerful social resource for good behavior.
 
The role of a free press should be to put pressure on public officials to behave better. But it is counterproductive to whip up such popular resentment at “abuses” as to produce precipitate changes in law or regulation, as has happened in Britain. After any such media-stoked scandal, there should be a pause to allow better norms to take root. Legislation or regulation aimed at restoring faith in the political class should be a last, not a first, resort
 
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Comments:

By Paul K. Little (U.S.A. Penna.) on Sat 09 Jan 2010 - 13:59

Dear Lord Skidelsky: I am in the process of reading your book Keynes: The Return of the Master. I was curious about you and wanted to ask some questions when I finished the book.However, having read the above article on ethics and regulation I could not resist contacting you about this issue. I think it runs counter to Keynes’ philosophy of regulation of “animal spirits” which you are vividly describing in your book and have also done so with Mr. Silliman on PBS Newhour.
Would like to have discussion about the contradiction even though I agree with the premise of your article. grin
Paul Little.

By Siddharth Bhattacharya (India) on Thu 24 Dec 2009 - 1:07

It is fascinating how Professor Skidelsky constructs such a new world. Democracy shall obviously malfunction, as it has been easier over the years to convince people of the genuinity of Government’s aims. In turn, sometimes in order to win votes Government has to act stupidly against its will as per people’s demands.
However, yours was a great vision which I shall try to implement within me and let others know about it as well.

By Burk (Marin, California) on Mon 21 Dec 2009 - 10:12

Thank you for a wonderful column (and a great interview on the PBS NewsHour, by the way!)

Isn’t the surveillance function of the modern press and media very much like the community surveillance function of the small town, gossip circle, and pillars of the church that you refer to as the font of earlier probity? It is not only complexity, but the anonymity of large organizations that allow malfeasance to fester.

So one strong antidote would be to raise the libel standard, allowing the press to bring more transparency to government and business. Another would be to break up media empires and restrict concentrated ownership so that competition in media remains about who does the best job uncovering news, rather than who pleases their corporate (or government) owners the most.

By Rob Schneider (Edinburgh) on Mon 21 Dec 2009 - 6:21

Well stated. The “gotcha” mentality is now the over-arching way to live.

By Barry Kelly (London) on Mon 21 Dec 2009 - 5:31

FWIW, I think “internalized codes of honor” is bunk. It seems predicated on a highly dubious assumption: that people with certain parents, or a certain level of wealth, or in a certain profession, are intrinsically less likely to lie. I suspect you are nostalgic for a time that never existed. I don’t believe there ever was a time where those with the power to do so didn’t use it for their own gain, directly or indirectly. Character isn’t what makes someone honest; circumstances do.

If I recall correctly, one of the key advantages the British had against the French in the 19th century was open tender for war supplies. Rather than relying on the “internalized code of honor” that lead to ministers using their budget to stuff their own pockets, an open mechanism permitted market forces to take hold and give Britain’s supply chain a competitive advantage. But as the historian, I’m sure you can tell this particular story much better than I can, as I can’t remember the details or find the correct sources.

 
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