By Professor Melvin Dubnick, University of New Hampshire

Those of us engaged in thinking about the (ongoing) global financial crisis (GFC) are an "enlightened" bunch -- daughters and sons of an Enlightenment who won't rest until the cause of every problem is uncovered and workable solutions that deal with those causes are found. But we are also an impatient people, often too willing to accept simple explanations that will allow us to "get on with it" by developing equally simple solutions.

Of course, any academic analyst worthy of the designation will acknowledge the complexities involved in determining why something like the GFC occurred and would (when talking among themselves) raise questions about the simplistic policy responses being seriously considered. Our problem is that we are prone to be too responsive to the public clamor for answers, and thus fall into the trap set by those who want all discussions of policy problems and solutions reduced to easy explanations and quick policy solutions.

If you step back and examine the general policy debate that has entrapped us, you can see at least two false dichotomies. On the one hand is the choice between regulation and markets -- as if there was nothing in between. The cause is either too much regulation or not enough, with too much (or too little) reliance on markets as the mirror view of cause and solution. On the other hand has been the choice between blaming the GFC on systemic factors or pointing the finger at individual misfeasance or malfeasance. As the pressure to don our "expert" punditry hats increases, we begin to talk as if these two simplistic and fallacious dichotomies ring true -- and worse yet, we begin to believe them to be true and abandon our objectivity for advocacy. "Speaking truth to power" is part of our job -- but we ought to make certain it is the truth we find credible rather than the truth policymakers want to hear.

Which brings me to the focus of the Oxford Project -- a well meaning effort to refocus attention on the "micro-foundations" of the financial markets with the explicit theme that issues underlying the GFC are matters related to "trust." The brilliance of this agenda is that it bridges and combines the regulation/markets and systemic/individual discourses by highlighting a pivotal aspect of both. Enhancing the trustworthiness of financial market decisions and decision makers clearly reduces (but does not eliminate) the need for regulation, and creating professional (moral) communities promotes ethicality and thus offsets some systemic pressures the can prove dysfunctional.

What has drawn the attention of those who have responded to the initial post on the Project by David Vines has been its call for the reintroduction of professional and ethical standards. However, the central question of the Project as expressed by Professor Vines seems to preempt further exploration of those micro-foundation by asking "what framework of moral obligations could and should be imposed on employees within financial institutions. What should the resulting ‘integrity system' of professional obligation look like?" Without knowing the data generated in support of the implied contention that the problem is reducible to a question of trustworthiness, I can only assume there is more than anecdotal evidence to back it. If not, we have a logically begged question, and we have moved from false dichotomies to a false trichotomy (regulation, market and trust) that might draw us even further into the distraction of policy debates shaped as much by partisanship and ideologies as by the credible understanding of the problems policies should be addressing. 

The case for the Oxford Project does have strong philosophical roots, and specifically in the work of no less a figure than Adam Smith -- not the Smith of economic legend, but the ethicist author of The Theory of Moral Sentiments (TMS) who made the case for the foundational role of trust in 1759 with the declaration that a "Moral Being is an Accountable Being."   And as anyone who has read TMS knows, Smith made a concerted effort to analyze both the nature and limitations of trusting relationships. He knew, for example, that trust built on accountability was critical to social life, but he also knew that extending that trust beyond the local community was possible but ultimately tenuous. Trust, like all other factors of human behavior and interaction, is as complicated as it is critical, and attempting to use it as a foundation for public policy is a risky business. Designing policies that seek to "impose" trust through so-called "integrity systems" would likely have the Smith of TMS extremely anxious, if not frustrated -- an error that ignores our natural empathy and inclinations. 

In lieu of designing and imposing integrity systems, perhaps we should devote more attention to broadening our understanding the nature and dynamics of those "micro-foundations" and delve even deeper into the social milieu of financial markets. Focusing on professionalism and ethical solutions is worthwhile but might prove too narrow as a solution. What we are likely to need is a mixed approach to designing policies for dealing with (and most importantly, preventing) future GFCs -- some regulatory, some managerial, some ethical, etc.. Markets and moral communities don't just emerge -- they are constituted by the trusting and accountable relationships which underlie current practices. Thus, while we often speak of reform, what we are really advocating is "reconstituting" ongoing relationships. We need to know more about those relationships before we take a stand on solutions.