MANAGERIAL ACTION AND FINANCIAL CRISIS - Polish Journal of Management Studies

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MANAGERIAL ACTION AND FINANCIAL CRISIS

Abstracts > Vol 5

MANAGERIAL ACTION AND FINANCIAL CRISIS

Andreas Horsch* Andreas Horsch,

Abstract:

Much has been written about the origins and contagious processes that led to the subprime crisis of 2007 first and to the financial crisis thereafter that characterize financial markets ever since. This retrospective is designed to illustrate that it has been human action in the very entrepreneurial or managerial sense that has caused the financial crisis to emanate and spread. From this viewpoint, responsible actors can be identified not only within financial intermediaries, but as bureaucratic and political entrepreneurs within public institutions as well.

Keywords
: human action, financial crisis, financial institutions
JEL Codes: G 01, G 21, G 28

Introduction: Human action, market process, and financial crises

From an institutional or evolutionary point of view, (market) processes, driven by human action, are of seminal meaning for the economy. As LUDWIG VON MISES put it,
“[…]the market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of the actions of the various individuals […] The market process is entirely a resultant of human actions. Every market phenomenon can be traced back to definite choices of the members of the market society.” [38][26]
Consequently, incidents like economic crises should be seen as part of market processes, too, driven by human action as well. However simple, yet fundamental this principle, economic crises are rare and complex, making it difficult to analyze them
and even more difficult to solve them today and to avoid them tomorrow.
Unfortunately, comments and actions of several parties until today suggest otherwise, preferably blaming (bank) managers and their “greed” while at the same time ignoring the importance of the actions of further players and the institutional framework they set. A necessity forgotten in the wake of this simplification and activism that characterize political actors in particular is to take stock of the events that already happened. Following the fundamental principle of DOUGLASS NORTH that “history matters” [41], this article deals with the beginnings of the crisis, as they are of seminal meaning for the understanding and subsequent economic crisis management also. Adding to the growing number of economic studies [50], the fundamental importance of entrepreneurial human action is worked out.


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Conclusion

While history matters in general, and the history of crisis matters in particular, its analysis
including this paper cannot provide certainty. On the contrary, economic analysis proves that the current one is a serious, but yet another one of a succession of crises, as “history demonstrates that the cycle of financial crisis followed by regulation, followed by a new financial crisis, followed by new regulation, has continued unabated” [60]. This process of reacting and counterreacting human action of market, political and bureaucratic entrepreneurs is so institutionalized that it has been named the regulatory dialectic [29] thirty-five years ago already. What we observe since 2007 is just another proof for the appropriateness of this view. Problem is, however, that regulatory responses take place in the same environment of uncertainty as any other human action. In fact, human action being driven by free human will, human knowledge and decision and uncertainty are inseparable:
“The uncertainty of the future is already implied in the very notion of action. That man acts and that the future is uncertain are by no means two independent matters. They are only two different modes of establishing the same thing.” [38][26].

However, this means that the present round of re-regulation within the regulatory dialectic is characterized by necessities of adaption, but limited knowledge also, so that further misguided strategies and faulty managerial action (see fig. 4), now taking place on the political and bureaucratic level, are to be expected. The more overconfident political actors become, the more of pretence of knowledge in the HAYEKIAN sense they are going to show (by ignoring the knowledge of others), the more serious their mistakes will be. Being discredited by those political entrepreneurs since 2007, economists and managers alike are in no ideal position to work against these processes of the regulatory dialectic and their inherent dangers publicly. Besides trying to do so anyway, recommendable entrepreneurial and managerial action would consist of analyses of which arbitraging human action the new regulations are likely to cause and the attempt to anticipate which kind of market and sooner or later crisis processes they will cause. Because if anything can be called certain, it is that the next economic crisis is inevitable


DZIAŁANIA KIEROWNICZE I KRYZYS FINANSOWY

Abstrakt: Wiele już napisano na temat pochodzenia procesów, które doprowadziły do kryzysu typu sub-prime w roku 2007, i kryzysu późniejszego którego skutki do tej pory są odczuwalne na rynkach finansowych. Przedstawiona w niniejszym artykule retrospektywa została zaprojektowana w celu zilustrowania iż przyczyną kryzysuw było działanie człowieka bardzo przedsiębiorczego lub na stanowisku kierowniczym, spowodował on kryzys finansowy aby móc się dalej rozwijać i prowadzić działania. Z tego punktu widzenia, podmiotami odpowiedzialnymi są nie tylko pośrednicy ale także biurokraci czy polityczni przedsiębiorcy w instytucjach publicznych.


 
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