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There were, of course, many other forms of institution in the world of finance — friendly societies, mutual societies, trustee savings banks and so on — that developed from within the community itself in the 19th century. In each and every case they had their own special forms of corporate governance designed to address specific problems that arise within financial markets. Just to give one example, in the days before central bank- backed deposit insurance, introduced in the UK in 1979, the Trustee Savings Banks offered deposits that were 100 per cent backed by government treasury bills. Deposit insurance for commercial banks completely removed their comparative advantage and they disappeared.

These are all examples of the principle of subsidiarity at work. These were forms of very effective regulation that had nothing to do with government. And there are many more examples, such as the way in which, until 1986, an industry body of insurance companies limited commission payments to prevent financial advisers mis-selling products; or the way in which defined benefit pension funds operated before the 1986 Social Security Act.

These institutions were successful in regulating behaviour in financial markets. So, what happened?

With regard to the stock exchange (and also as it happens, the agreement to limit commission payments to which I have just referred), the government used competition law to effectively abolish and make illegal many of the regulatory powers the stock exchange had. This was the process known as “big bang” in 1986. Indeed, the fact that these private systems of regulation were so much more comprehensive than government systems is indicated by the fact that big bang is often described as “deregulation”. In fact, big bang was the government prohibition of the use of powers by a private regulatory body.

In many of these cases where the state acted to prohibit civil society and market-based forms of regulation in the 1980s, the problems that have been left behind remain still unsolved by the Financial Services Authority and its successor three decades on.

I also want to discuss the role of civil society in the regulation of environmental resources because I think that this was a huge omission from Pope Francis’s recent encyclical on environmental issues, Laudato Si’, which was full of much theological and practical wisdom. Elinor Ostrom won her Nobel Prize in economics in 2009 for her work in this field. She is the only female winner of that Nobel Prize and her work is widely admired on all sides of the political spectrum. Ostrom’s thesis is simple. Communities from the bottom up — and her work was mainly with poor communities — are extraordinarily effective in developing forms of regulation to control the use of environmental resources such as fish and forests. They develop their own systems of enforcement and governance to ensure conservation and sustainability. Ostrom’s study of these mechanisms involved examining how people in the real world actually solve their own problems, given the realities of human nature and the imperfections inherent in political institutions. They are potentially very important not just in political economy, but also for developing Catholic social teaching.

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