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Jerome Lyle Rappaport

Jerome Lyle Rappaport
Founder and Board Member
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Edward Glaeser

Edward Glaeser
Professor of Economics at Harvard University
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Stephen P. Johnson

Stephen P. Johnson
Executive Director of Phyllis and Jerome Lyle Rappaport Foundation
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Greg Massing

Greg Massing
Executive Director for the Rappaport Center for Law and Public Service
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Alasdair Roberts

Alasdair Roberts
Professor of Law and Public Policy at Suffolk University Law School
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Joseph Curtatone

Joseph Curtatone
Mayor, City of Somerville
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Tim H. Davis

Tim H. Davis
Independent Research Consultant
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Scott Harshbarger

Scott Harshbarger
Senior Counsel, Proskauer Rose LLP
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Vivien Li

Vivien Li
Executive Director of The Boston Harbor Association
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Guest contributors

Monika Bandyopadhyay
Suffolk University Law Student

David Barron
Harvard Law School and former Deputy Counsel for the Office of Legal Counsel in the US Department of Justice

Linda Bilmes
Senior lecturer in public policy at the Harvard Kennedy School. Assistant Secretary of Commerce during the Clinton Administration.

Brandy H.M. Brooks
Director, Rudy Bruner Award for Urban Excellence, Bruner Foundation

Felicia Cote
Rappaport Fellow, Harvard Law School/Harvard Kennedy School.

Amanda Eden
Suffolk University Law School student

Sara Farnum
Student, Suffolk Univ. Law School

Kristin Faucette
Student at Suffolk University Law School

Benjamin Forman
Research Director, MassINC

Arthur Hardy-Doubleday
JD/MBA student at Suffolk University Law School and the Sawyer School of Business

Theodore Kalivas
Boston Green Blog, Dukakis Center for Urban & Regional Policy

David Linhart
Student, Boston University School of Law

Antoniya Owens
Research Analyst, Mathematica Policy Research, Inc.

Susan Prosnitz
Senior Advisor, TSA, Washington, DC

Ben Thomas
Boston Green Blog, Dukakis Center for Urban & Regional Policy

Matthew Todaro
Student at Boston College Law School

Alexander von Hoffman
Senior Researcher, Joint Center for Housing Studies

Brett Walker
Student, Boston College Law School

Margarita Warren
Student at Suffolk University Law School

The Dangers of Guardian Rule

Tuesday, January 12th, 2010
By Alasdair Roberts

Here is one of the great paradoxes of the past 30 years: while we celebrated the idea of popular sovereignty, we gave an extraordinary amount of power to technocrats who were carefully shielded from public influence. But the financial crisis has reminded us about the limitations and dangers of guardian rule.

The era of economic liberalisation – spanning roughly 1978 to 2007 – was often hailed as a period of widespread democratisation as well. Pundits celebrated the "unabashed victory" of democratic principles.

At a conference in Warsaw in 2000, representatives from 100 nations affirmed that the will of the people was the only true basis of government. We believed in the "wisdom of crowds," as James Surowiecki called it in 2004.

In practice, though, governments adopted reforms that reflected deep scepticism about popular sovereignty. There was a "quiet revolution" in monetary policy as countries shifted power to independent central banks. The justification was that elected officials and voters could not be trusted to make the painful decisions necessary to deter inflation.

The modern central bank, Paul Bowles and Gordon White have written, became the "embodiment of the Platonic guardian . . . above and beyond the normal political pressures and requirements of democratic societies".

In many countries, the power of finance ministry technocrats increased as well. A 2005 World Bank studyconveyed the "consensual view" that fiscal discipline was achieved by keeping budget responsibility "under the tight steering of the finance ministry."

Economic and financial crises – endemic in the era of liberalisation – often became the pretext for the execution of Treasury coups. "We did not create crises," a New Zealand Treasury official said, "But we weren't above taking advantage of them."

Reforms in other fields often drew explicitly on the model of central banks. Governments established independent regulators that were intended to be "technocratic rather than political orientation," in the words of researcher Fabrizio Gilardi.

'Major ports and airports were given autonomy, on the premise that they could not cope with surging trade so long as they were under the thumb of politicians'

Major ports and airports were given autonomy, on the premise that they could not cope with surging trade so long as they were under the thumb of politicians. Other critical infrastructure was given to private operators who would be shielded from undue political influence. Heavily indebted countries promised freedom to tax collectors so they could raise revenue more aggressively.

In short, the era of liberalisation was also an era of guardian rule. In a globalised economy, certain goals – price stability, fiscal discipline, the free flow of trade, fair treatment of investors, prompt repayment of government debts – were too important to be left to democratic processes.

The crowd could not be trusted to make hard choices and stick with them for the long term. Technocrats, operating in carefully constructed bastions, would do a better job.

This, at any rate, was the argument, pushed hard by commercial and financial interests and by international institutions such as the World Bank.

In practice, the campaign for technocratic power had three great limitations. The first was that it was often very difficult to entrench guardian influence. A study of supposedly independent tax agencies in Africa found "very little loosening of the political and bureaucratic grip of central executive authorities". A review of independent regulators in Latin America reported that "practice is significantly different from what legal provisions would lead one to expect."

A second problem had to do with backlash from legislators and voters who took the rhetoric of democratisation seriously. Frustration with New Zealand's Treasury coup fueled a movement for significant electoral reforms.

Canadians rebelled against the "friendly dictatorship" established after a 1994 financial crisis. In the UK, critics railed against the "Stalinist ruthlessness" with which Treasury power was exercised under the chancellor Gordon Brown. Some Americans dubbed US Treasury Secretary Paulson "King Henry" when he sought expansive powers in Autumn 2008.

And now there is a third problem: guardians have proved to be fallible. All the brainpower massed within major central banks failed to anticipate the crisis of 2007-2009. Economist Robert Shiller says "concerns about professional stature" quieted sceptics who worried about market bubbles.

"The signs were perfectly clear," William White, the retired chief economist for the Bank of International Settlements, said in 2009. "The point is that people didn't want to respond to the warnings."

In August 2009 the announced that "the era of economic theocracy, in which unelected experts ran the global economy, is over"

Perhaps that is just as well. Old notions about the virtues of rule by guardians cannot survive in an era in which citizens are captivated by the rhetoric of democratisation. And it is no longer clear that technocrats, left to their own devices, will produce the one thing that justifies the delegation of power: unambiguously better decisions on critical questions of public policy.

For the full text of this article click here.


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