Janine Wedel - Unaccountable - How Elite Power Brokers Corrupt Our Finances, Freedom, and Security

The modern-day power clique, composed of members in official and private roles, not only circumnavigates should-be included officials and standard processes; it also works through unconventional venues. Let’s look at how another power clique dodged military procedure, working through a new Washington think tank to shape war policy. This clique, the so-called COINdinistas, played a key role in making, executing, and justifying the post-9/11 military policy that shaped the more recent years of the wars in Afghanistan and Iraq. A collection of generals, influential military reporters, scholars, defense contractors, and think-tankers coalesced around an idea known as Counterinsurgency, or COIN. General David Petraeus, about whom we heard earlier, helped write the book on COIN (the Army and Marine Corps Counterinsurgency Field Manual, issued in 2006), which promotes deep engagement with local populations as a way to counteract terrorism. 36

To pursue the COIN strategy, Petraeus and a handful of other top leaders did an end run around the bureaucracy, using as a vehicle a think tank called the Center for a New American Security (CNAS). 37Deploying their own across the media, they swayed public and policymaker opinion to their side. By sidelining the bureaucracy and enlisting the media to help, they won the fight and left their colleagues with little choice but to walk with them. Later, we’ll explore this story as a case study in how new-style think tanks wield influence.

Modern-day power brokers are, increasingly, using outside organizations to push through their policy agendas. These entities don’t have the strictures or transparency demanded in formal government venues, not to mention the input of democratically elected lawmakers. In transnational governing, informality appears to be the ascendant MO. While power rested more in visible and rule-bound bodies in the old world, today small informal gatherings and associations are gaining global influence. Some scholars have argued that the more transnational and multi-pronged the activity, the less likely governing is to rely on traditional forms of regulation and supervision. Private actors assume a growing role. 38

A case in point is the Group of Thirty, the Consultative Group on International Economic & Monetary Affairs. Stuart Mackintosh, its executive director, tells me that the body is “a cross between an internal think tank and a very exclusive club” whose members have “multiple, overlapping associations . . . with one another.” 39Political scientist Eleni Tsingou, who studied the group, describes it in strikingly similar terms, as a “part think tank, part interest group, and part club” of “actors who write the rules.” 40Its list of members reads like a Who’s Who of those who help shape the global economy. 41“We don’t make policy,” says Mackintosh, “but you can see our recommendations ending up in policy.” 42

One example of this is the hugely consequential issue of derivatives trading and accounting of them. The G30’s study group and report on derivatives in the early 1990s helped solidify the standards for “best practices.” Tsingou and other analysts suggest that the group was closely aligned with the would-be regulated (banks) and furthered policy that closely matches their interests and biases. Here’s Tsingou on the composition of the derivatives study group and its “landmark” work: 43

All the “right” people from the private sector (technical experts, users and dealers of the instruments and representatives of the major Wall Street financial institutions) volunteered time and money and Derivatives: Practices and Principles (Global Derivatives Study Group, 1993) became another landmark in the G-30’s history. The group had firmly established itself as an organisation of experts, capable of providing authoritative proposals on the “nuts and bolts” of the financial system.

Gillian Tett, social anthropologist and Financial Times journalist, forms a parallel view. The derivative study group’s report served as a kind of preemptive strike on government intervention, she reports in Fool’s Gold : 44

On July 21, 1993, the long-awaited G30 report was finally unveiled. . . . If the report could show that the industry already had a credible internal code of conduct, there should be less need for bureaucrats to impose rules.

The G30 writers, Tett suggests, wanted a pragmatic, serious, and comprehensive guide, with the side benefit of getting in front of government interference. At the time of its release, the New York Times described the report this way: 45

A group of leading financial experts gave a relatively clean bill of health yesterday to the rapidly growing set of financial products called derivatives that some have suggested make the global financial system vulnerable to a widespread crisis.

The late Dennis Weatherstone, the man who chaired the steering committee overseeing the derivatives project that produced the 1993 report, wasn’t just an expert—he was a banker who ran JP Morgan. The banks, of course, didn’t want increased regulation on their new and emerging profit centers. The report included recommendations on how banks could best account for derivatives. But, as Tett writes: 46

Equally important was what the G30 report did not say. The tome did not suggest the government should intervene in the market, in any way. Nor did it drop any hint that the derivatives world might benefit from a centralized clearing system . . . , providing a valuable barometer of activity that signaled signs of trouble.

Of course, this laissez-faire approach would allow derivatives to lay dynamite throughout the global financial system. 47

The G30’s influence also extends to promoting a key computer-generated tool that is now blamed for encouraging risky bets by banks. JP Morgan is viewed as having invented these tools, and Morgan’s then-chief, recall, led the effort on the derivatives project. 48

Mackintosh, who has served as the G30’s executive director since 2006, said that the G30 has had a “big impact” on the Dodd-Frank regulations passed in the wake of the financial crisis. “If you read the action plans agreed to by the G20 [the official organization of the major economies’ finance ministers] in April of ’09 in London, you can see the [same] language. It’s almost a direct lift [from the G30] and that’s not coincidental. That’s a good example of how we work—almost as a think tank—but most think tanks are not as influential.” 49

Evaluating the efficacy of G30 recommendations is beyond the purview of this book. What is within our purview, though, is its modus operandi and model of influencing. The space it occupies between formal and informal, public and private, is clearly the key to its influence. “What makes it effective,” Mackintosh observes, “is that it has a spot between public and private. . . . We issue recommendations that neither the public or private sector could promulgate on their own,” he says. 50Of course, it is in that chasm that accountability stumbles.

Mackintosh told me that he is impressed by how movers and shakers in world finance are willing to give their limited time to work with the G30. 51So what do members get out of the experience? The club–think tank atmosphere feeds and bolsters their individual and collective capital. In Tsingou’s words, it “increases their shared prestige, defends their conception of honourable behavior.” 52And this further promotes the effectiveness of the group and the acceptability of the space it occupies: a sort of “rule-free zone” with increasing legitimacy. This space, of course, is beyond our accountability.

We’ve seen how close-knit, preexisting networks of influential players bridging state and private organizations can intentionally exclude the inconvenient (for them) participation of policymakers in government who do not belong to their network (the Rubin-Summers circle excluding Born). We’ve seen how informal networks, operating unconventionally through think tanks and the media and circumventing military procedure, can drive interest and consensus in a certain direction about the conduct of war (the COINdinistas). And we’ve seen how high-prestige, powerful players can increase their weight, both individually and collectively, while creating an influence-wielding venue that will outlast any individual members (the Group of Thirty). While not necessarily unethical, and while sometimes resulting in policy decisions that can be deemed to be in the public interest, all these groups are virtually beyond the authority of elected leaders and democratic processes. And most of these decisionmaking episodes could have benefited from including expertise outside their own networks; some decisions caused huge harm because they didn’t. If a broader group of voices and robust media oversight had been there to hold players accountable, perhaps the painful consequences of some of these episodes could have been mitigated, or even averted.