Every once in a while I read something and say to myself “this one’s a keeper” in the sense that it goes to the shelf to be drawn on again as an important source of knowledge. This book earned that status early in the read and it earned it again and again as the read went on. Indeed, I may be this book’s ideal reader for the very reason that I’m a domestic business law academic. To be sure, the book follows from and addresses a number of international law literatures and so addresses itself in the first instance to the international legal cohort, both to international law writ large and the group’s business and financial subset. But the learning curve is much steeper for me than for those primary addressees. Here we find the whole cast of international financial characters–bankers, cops, securities and insurance regulators, auditors, politicians, bureaucrats, technocrats, and their international and domestic organizations–all carefully and neatly laid out with their histories, structures, and outputs juxtaposed and categorized. My revelation lay not in the fact that I’d never heard of them (although I must admit that one or two were new to me), but in the fact that my institutional knowledge was full of holes, particularly as regards the book’s comparison to other, treaty-based international organizations.
When I picked up the book I wrote down three general observations, touchstone points to assist in evaluation. They are:
- Globalization implies downward regulatory pressure.
- Soft law will always disappoint you.
- Reputational sanctions are unreliable.
First, globalization and downward regulatory pressure. More particularly, what’s the interface between the book’s account and regulatory competition–race to the top, race to the bottom, law as product, or whatever you want to call it? In fact, there’s not much in the book about downward competitive pressure. It’s more a background factor that pops up on the screen when pertinent. Even so, I think it’s an important part of what the book is about. I think back fifteen years or so to a discourse that posed international regulatory competition as against international regulatory co-ordination. The competition side of the binary was heavily theorized where the co-ordination side was not. The competition side drew on economic theory going back to Tiebout and had negative things to say about co-ordination, which it cast as rent seeking. There wasn’t a whole lot on the coordination side. Since then international lawyers have been slowly filling in the picture. This is where I locate the book. For me it fills in the empty set with an exhaustive description of the international co-ordinative effort. Theory can now start over.
Second, soft law will always disappoint you. The book does nothing to refute this assertion, even as its author makes his enthusiasm for soft law abundantly clear. Herein lies another source of value. Although soft law will always disappoint, there’s no point in railing about its softness when it’s all you’re going to get. And, says Brummer, international soft law is harder than you think. The key lies in the capaciousness of the soft law set described. It is not just IOSCO, or BIS and Basel. It’s not just the G-20 plus the FSB. It’s all of them plus the cops at the Financial Action Task Force (who appear to be pretty good at beating up on rogue states), the nasty lenders at World Bank and IMF, and the triumphant standard setters at the IASB. The cohort, taken as a whole, held out more than enough to reckon with before 2008 and since then it has been very much in motion. The book’s last part is a tour de force that shows the system in action, sector by sector, in the wake of the financial crisis. No, these regulators have not solved the problem of systemic risk. And, yes, their regulatory output very much follows from national-level initiatives. But national level reforms are all the stronger in light of the cross-border supplement.
Third assertion: Reputational sanctions are unreliable. This is a point I learned back in the 1980s when American management breached what the law and economics people called “implicit contracts” between corporations and constituents like labor and creditors. Implicit meant unenforceable at law but to some extent binding in practice. But the glue came from reputation and management overnight threw out reputational stakes built up across several decades as costs and benefits changed in a dynamic environment. So I brought a bottomless store of skepticism to the book’s positive case for the binding impact of reputational stakes in international soft law. I accept the book’s positive case at face value–a constraint is indeed in place. But for me that only opens the bidding. That said, I note that the book is unremitting in its discussion of systemic shortcomings. Although it manifestly makes a case, it does not over-claim.
So if you know all sorts of things about international finance but the entirety remains murky for you, get yourself a copy of Chris Brummer’s book. Pronto.