Limits of legitimacy and the primacy of politics in financial governance

What makes institutions that govern global finance legitimate? Contemporary debates, fuelled by the recent crisis, commonly draw on the concepts of input and output legitimacy to answer this question. As this article argues, however, this distinction is as difficult to apply in practice as it may be sensible in theory. Limitations in input legitimacy, which covers the inclusiveness and fairness of policy goal definition, cannot be compensated by higher output legitimacy, for example through supranational or global institutions. Whether such institutions are appropriate venues for producing policy hinges on the specific goals that they are charged to realize. And if these goals do not emerge from a deliberation process that can itself be considered legitimate, such institutions will do little to make policy outcomes more legitimate per se. After all, a supranational body might excel in the pursuit of one particular policy goal, but be wholly unsuitable to another. In short, this article argues that rather than seeking legitimacy of financial governance in the institutions through which it is made, we should focus on the desirability of specific policy outcomes and distribution of their costs and benefits when deciding how and by whom policy should be made. This argument is demonstrated using the case of capital market policy in the European Union, a case for which this article exposes serious legitimacy deficits, largely owing to an excessive influence of the financial industry compared to other societal stakeholders.