Creating Club Regulation
Creating Club Regulation
Abstract and Keywords
This chapter examines the Victorian regulatory state. The key features of the wider administrative culture were congruent with the ideology of cooperative, consensual regulation practised by the inspectorates for much of the 20th century. This wider administrative culture was rooted in the system of club government that dominated metropolitan politics in Britain. This was the final important mechanism in embedding Victorian settlement for the first 60 to 70 years of the 20th century.
REGULATING WITHOUT A STATE
Regulation is not a modern invention. There is ample evidence both from the distant and more recent historical past of many elaborate attempts at both economic and social regulation: of monopoly, for example, traceable back over 4000 years to the Babylonian era. Price controls and controls over production for social purposes can be traced back at least to Roman times.1 A large literature also documents the regulation of both economic exchange and social behaviour in pre-industrial Britain. In medieval England, for instance, the creation of markets and entry into exchange relations was a concession that arose from customary understanding or by explicit grant from public power. Freedom of trade, in Ogus's words, ‘was perceived as a “privilege” which in relation to, for example, markets was normally to be granted in charters and licences’.2 Hence, the widespread organization of labour into guilds that attempted to exercise control over entry and price, the extensive prescription in various public pronouncements of the obligations of workers to employers, and the establishment of local markets through the grant of Royal Charters.
All this, however, took place in a society that had no ‘state’ in any understandable sense of that word. The building of a modern state apparatus in England is conventionally identified with the ‘Tudor Revolution in Government’.3 The revolution created a ‘New Monarchy’ that ‘concentrated authority’ and subjugated institutions of civil society like the Catholic Church.4 We have ample documentation of how pervasive in the Tudor period was the reach of official regulation of economic life: under the Tudor monarchs alone, about 300 statutes were passed governing economic life.5 Regulation stretched to the creation of monopolies authorized and protected by Royal power: for instance, to encourage foreign trade and exploration; to the protection of home industries against foreign competition, as in restrictions on the import of goods as varied as daggers, cloth, and saddles. It even stretched to the use of what in modern language we would call public procurement to create employment and foster home industries: even in the eighteenth century the Royal Dockyards were by far the largest single employer in Britain.6 Above all, from the Tudor period we can date an ambitious mix of social regulation and the regulation of labour conditions. These included an attempt at a comprehensive regulation of the linked conditions of unemployment and (p.39) poverty, notably in the Statute of Apprentices (1563) ‘a general and pervasive labour code which survived for over 200 years’.7
Yet, ‘the Tudor revolution in government was only revolutionary in English terms.’8 In other words, it left the state with comparatively poor bureaucratic and financial resources. Even by 1830, ‘by continental standards England's central government seemed absurdly small.’9 By contrast, in civil society there were diffused extensive regulatory mechanisms, including a large magistracy drawn from local gentry and a web of what Arthurs calls ‘customary law’, modes of adjudication with origins in a wide range of traditional institutions of civil society beyond the conventional domain of government.10 These are all good reasons why it makes no sense to speak of a regulatory state. ‘Regulations’ took the form of a shifting mix of royal proclamation, some legislation (which was often not published), and exercises of power by local elites, some of it customary.11 Enforcement depended on a mix of cooperation by local elites and the operations of civil society—for example, through giving informers incentives to report breaches of regulations. Finally, as might be inferred from this, enforcement of regulations was commonly ineffective. Not only were the bureaucratic means of enforcement usually missing, but even the most basic information about regulation was non-existent: it was not until early in the nineteenth century, for example, that there even existed a consolidated public list of statutes.12 For the eighteenth-century, Haas's account of the attempted regulation of conditions in the Royal Dockyards shows a picture of ineffectiveness, corruption, and absence of even the most elementary information.13
We can, thus, speak of the existence of a regulated economy in pre-industrial England, but we cannot speak of a regulatory state. The beginnings of this are observable as a consequence of the great revolutionary event in modern British history: industrialism.
INDUSTRIALISM, FEAR, AND CLUB RULE
The challenges of industrialism have been aptly and famously summarized in Hobsbawm's picture of the ‘two revolutions’: the social disruption occasioned by the sheer ferocity of industrial change; and the political challenge to the old order represented by the French Revolution.14 The two were connected in early nineteenth-century Britain since many of the social forces unleashed by industrialism were inspired by ideologies, in turn, released by the French revolution.
Why and how the two revolutions led to the changes in the character of the state in Britain in the nineteenth century virtually occupies the whole historiography of the period, and are, therefore, beyond our modest scope. But three kinds of novelty are particularly important because they lay at the heart of regulatory change. The first was novel ideologies. It is the rise of these new ideologies that lies at the heart of many of the puzzles and controversies surrounding the revolution in economic and social regulation that came over Britain, especially (p.40) in the first half of the nineteenth century: for instance, the debates about how far landmark reforms such as the Poor Law Amendment Act of 1834 are best understood as acts of laissez-faire liberalism or as precursors of a new collectivism.15 The problem at its simplest may be put as follows. The most important new ideologies in the economic sphere were ideologies of economic liberalism, which attacked many of the old regulatory restraints; yet, as cases like the new Poor Law showed, the actual reforms they inspired seemed to lead in the direction of more central state control.16
A second novelty involved changes in the scale of economic activity, coupled with changes in the technologies of production. Perkin crisply summarizes these. They involved ‘the gradual replacement of the domestic system by the factory system’. These ‘increased the size, complexity and degree of organization of the real unit of production’.17 They led directly to the range of regulatory problems that produced so much institutional innovation throughout the nineteenth century: problems of regulating the new factories, especially in the interests of some notion of safety; problems of regulating the impact of the new technologies on the physical environment; problems of regulating the quality of production, as in the goods and services offered in the new markets of industrialism.
Finally, the third novelty lay in the creation of new social and economic groups, and, therefore, new interests in the regulatory process. A central theme of what follows in our substantive account of regulatory reform will not only be about the clash between new groups and interests, most obviously between workers and the new capitalists, but it will also be about the organization and regulation of new occupations that grew out of industrialism—most obviously, in what follows, new professions or newly reorganized ancient professions.
These forces—new ideologies, new technologies and forms of production, and new social and economic interests—thus helped drive the reconstruction of regulation, helping shape a Victorian regulatory state. But there were also more immediately political forces that provided important parts of the context of the new regulation. They, in turn, can be summarized as involving three revolutions: the revolution in government itself; the legal revolution; and the fear of popular revolution.
The Victorian revolution in government (to borrow MacDonagh's phrase) was, in part, a revolution in scale of central control.18 In 1830, ‘administration’ meant government through local elites by mechanisms diffused through civil society.19 But in the next 40 years, in Parris's words, there was created ‘a new pattern of central administration’.20 That centralization was accompanied by the growth of bureaucratic resources, both in numbers and capacity, the latter signalled by the growing professionalization of local government and by the shift to formal merit in recruiting and promoting in the central civil service.21 A more subtle but equally important aspect of professionalization is one identified by Macdonagh, in his landmark studies of the revolution in government: there was a great increase in both the quality and the quantity of the data which government began to assemble about the society which it was attempting to regulate. (p.41) Much of the Victorian regulatory revolution was a revolution in inspection, and it was the improvement in social data that made much of this inspection possible.22
These changes could be summarized as involving the rise of a specialized set of state institutions marked off from civil society, by contrast with the complex system of tessellation that had hitherto prevailed. This growth of specialized public domains also marked the second great contextual change, the displacement of the ideologies and institutions of customary law by specialized, centrally created legal institutions, and the development of a distinctive ideology to support these centrally created institutions. Arthurs summarizes his study of this process as it began in the 1830s: ‘there was increasing reliance on legal professionals as the standard bearers of formal law and of “law” as the vehicle of certainty, impartiality and dignity.’23 The shift echoes through the regulatory history of the century: it helped fashion the hegemony of one key profession, the law; and as we shall see shortly, it created tremendous apprehensions for business interests used to controlling their own affairs by custom and self-regulation.
These apprehensions were linked to larger fears, and these fears mark the third key contextual feature that should interest us. Victorian politics was dominated by the problem of how to integrate, or successfully exclude and control, the great new class interests created by industrialism. In particular, it was dominated by fears about the frightening spectre of popular government represented by the newly created working class.24 The narrower domains of regulation were closely shaped by these fears, and in particular by the problem of how to create regulatory institutions that could allow powerful interests to continue to control their own affairs should the threat of popular rule ever be realized. Club regulation developed in the nineteenth century to cope with this problem, and was consolidated against the rise of formal democracy early in the twentieth century. In this manner, as we shall see, the early attempts to protect elites from democratic threats continue to shape regulation in modern Britain.
THE VICTORIAN REGULATORY STATE
Like many periods, ‘the Victorian age’ is an elastic notion: it arguably began before Victoria ascended the throne, arguably ended before she died, and as far as public policy, especially regulatory policy, is concerned, certainly had little or nothing to do with her. The shorthand nevertheless conveys something important about regulatory history: that in the half-century or so from the 1830s to the 1880s there took place a large-scale construction (and in some cases reconstruction) of regulatory institutions. The couple of decades up to the mid-century were, in particular, years of extraordinary institutional creativity. Between 1833 and 1850 there was created, to name but a selection: the Factory Inspectors; the Poor Law Commissioners; the Prison Inspectorate; the Railway Board; the Mining (p.42) Inspectorate; the Lunacy Commission; the General Board of Health; the Merchant Marine Department; and the Charity Commission.25
I call all this for shorthand the creation of a regulatory state because it created, or in some instances reorganized, public institutions as regulatory bodies; it shaped a very particular kind of boundary between public and private regulation, and in so doing may be said to have been critical in defining the nature of the Victorian constitution; and it elaborated legitimizing ideologies that were to shape regulatory behaviour and institutions to the end of the twentieth century. Victorian regulatory innovation was rich, diverse, and extended over time. Sketching it in the summary manner attempted here demands extreme selectivity in choice of material. I focus on three areas. The first I call in summary ‘industrial regulation’, and the choice is probably the most self-evident of the three. From the 1830s there developed successive waves of control directed at the new industrial economy and society. As this name implies, these waves were a response to the consequences of industrialism—consequences that encompassed workers, consumers, and the wider physical environment of the whole community.
The substantive importance of these developments is obvious. Their analytical importance for this study will unfold in the description, but in summary: the single most revealing common feature of industrial regulation, as we shall see, was its cooperative character. Though formally based on statute, and on the appointment of independent public inspectorates to enforce the law, the practice of regulation soon developed into something very different: the law was marginalized; resort to sanctions was rare; and there developed an overwhelming stress on fostering trust between regulator and regulated.
The second domain examined here covers professional regulation. What are sometimes conventionally called the ancient professions—the church, the law, medicine—of course already existed before the industrial revolution, but the nineteenth century saw the establishment of a new pattern of professional regulation, one that both reformed some of the ancient professions and established a network of new ones. A widely imitated pattern was set by the Apothecaries Act of 1815, which established some statutory backing for control over education, licensing, and discipline.26 But despite the formality of legal authorization, the professions, whether new or newly organized, exhibited a powerful ideology of self-regulation: legal authorization went with a light touch from the state, an emphasis on cooperation within the profession itself and a distaste for the imposition of sanctions. The substantive importance of this part of the regulatory state lay in the central role that occupations called professions increasingly occupied in nineteenth-century economic life: ‘new professions proliferated, and organized themselves to demand the same kind of status and independence as the old: the civil engineers in 1818, the architects in 1837, the pharmacists in 1841, the mechanical engineers in 1847, and so on.’27 The analytical importance lies in the summary above: in the way the pattern of cooperative regulation, evident in the case of the industrial regulation, was replicated here.
(p.43) The third domain of cooperative regulation directs us to the special nature of British self-regulation in the financial markets, historically the most powerful part of the British economy. Above all, there developed in the Victorian era a distinctive City of London regulatory style: it rested on the internalization of cultural norms and the exercise of subtle social controls, rather than the imposition of overt sanctions—still less on the imposition of legal sanctions.
The next three sections of the chapter trace the origins of this common regulatory culture in the three very different domains of industrial inspection, professional regulation, and the regulation of financial markets. The historical conjuncture of three factors—the timing of British economic development, the timing of British political development, and the timing of the appearance of regulatory institutions—resulted in the dominance of a particular pre-modern ideal. This can be summarized as the ideal of a ‘gentleman’; and it was the notion that economic actors were ‘gentlemen’, with claims to a particular style of treatment by regulators, and with claims to gentlemanly standards that could deliver effective regulation without adversarial controls, that gave rise to, and then institutionalized, cooperative regulation.
Industrialists and Gentlemen
By the last quarter of the nineteenth century, the cooperative style of regulation was institutionalized across the British system of industrial inspection. The process of institutionalization can be traced in the historical origins of four particularly important nineteenth-century inspection systems: the Factory Inspectorate, concerned with the regulation of the characteristic institution of industrialism; the Alkali Inspectorate, the most important ancestor of modern air pollution inspection; the Railway Inspectorate, concerned with safety regulation on the most important nineteenth-century innovation in transport; and the inspection of food purity.
Modern factory law begins with legislation of 1802 (strictly, the Health and Morals of Apprentices Act), a law conspicuous by the absence of any organized system of inspection or enforcement: a typical product, in other words, of the culture of pre-industrial regulation. The Factory Act of 1833 is the first example we have of regulation occasioned by industrialism backed by a system of inspection and inspectors.28 The cooperative style was soon established. There were four inspectors and the first instructions issued by the inspector for the Midlands to superintendents who visited factories was typical: ‘Your best chance of success will be a courteous and conciliatory demeanour towards the mill-owners; and by impressing on their minds that the object of your visits is rather to assist them … than to fish out grounds for complaint.’29 Even this initial early turn to a cooperative style was soon moderated further: there was a sharp decline from even the early modest levels of prosecutions after the late 1840s, the inspectorate openly embracing a philosophy that stressed negotiated compliance over prosecution.30
(p.44) This pattern was replicated in the history of the Alkali Inspectorate, the first great effort (inaugurated in the 1863 Alkali Act) to establish an inspection system to regulate environmental pollution. The first Chief Inspector, Angus Smith, founded a dynasty: his own term of office lasted until 1884, and he trained the three successive Chief Inspectors whose tenure stretched to 1920.31 After a decade of working the Act, Angus Smith summarized his style of enforcement as follows—or, rather, summarized two styles in terms that left no doubt as to his preferences: ‘There are two modes of inspection, one is by a suspicious opponent, desirous of finding evil, and ready to make the most of it. The other is that of a friendly adviser, who treats those whom he visits as gentlemen desirous of doing right.’32
Railway safety inspection, after the appointment of the first Inspector General in 1841, showed an even more marked turn to conciliation. Both Parris and Alderman paint a picture of the avoidance of compulsion in implementing regulations; of informality and closeness in social relations between inspectors and companies; and even of the existence of business connections between inspectors and companies.33 A remark by Parris is especially telling: ‘the most striking feature of the records of the Railway Board is the number of serious accidents passed over without enquiry.’34 The whole period from 1840 to 1870 is summarized by Gourvish thus: ‘supervision was general and exhortative rather than mandatory.’35 Dobbin has illuminatingly explored the wider ideological roots of this abstentionist tradition in his comparative study of railway policy in the nineteenth century. In the British case, it arose from a presumption that company autonomy from external state interference was the prime value that should guide economic policy—a presumption of autonomy that, as we shall see in later chapters, has also shaped the wider system of business self-regulation and company law.36
Paulus's study of the control of food and drug adulteration shows a similar pattern: the absorption of the regulatory issues into the routines of the economic community itself. Until the passage of a landmark Act in 1875, the issues had been the subject of agitation turning on the defence of mass consumers who innocently consumed adulterated and/or dangerous products. From the last quarter of the nineteenth century, adulteration was transformed into an issue to do with the regulation of economic competition. From being a crime against the consumer and public interest, it became a tactic in economic competition to be fought over by competing business interests:
the State and business interests slowly evolved a modus operandi that did not cause harm to either. Although strict liability provisions were used, certain kinds of adulteration practices diminished only to be replaced by others. The general refusal on the part of magistrates to fine adulterators appreciably aided in balancing the effects of the Act. Convictions were secured but offenders were not criminalised … The intended and unintended offence became part of the cost of doing business and was soon accepted by all factions in a rather perfunctory manner.37
The effect was both to routinize any regulatory offence, washing off all moral stain, and to shift the actual enforcement process into arenas dominated by producers themselves: ‘Food adulteration as it affected the public was no longer (p.45) an important problem. The issue had shifted: how food adulteration affected the interests of producers, manufacturers and sellers of culinary articles became the central problem to be solved.’38
Why did industrial regulation take the turn described in these thumbnail sketches—away from the adversarial world of the criminal law and towards a world of consensus and cooperation? There are plainly a number of historically contingent reasons that help explain what was going on, and they link to a range of well-known analytical accounts of the forces that shape regulatory systems. Above all, they reflect two linked factors: the balance of power between different actors in the regulatory process and the balance of resources between them.
Power relations were plainly important because much of what was at issue in the early history of industrial regulation was the attempt to curb the power of business interests who simultaneously dominated the wider political and economic systems. What is more, it was an attempt at control in a legal system that historically had cordoned off business regulation from the legal system into its own systems of self-control.39 Sometimes this domination was crude and obvious: railway interests, for example, were powerfully represented in both Parliament and Cabinets throughout the second half of the nineteenth century.40 Sometimes, the presence of powerful interests frustrated the development of any system of safety regulation of dangerous new technologies. For instance, steam boiler explosions, the result of inadequate inspection of an increasingly powerful and widely used technology, killed an average of over seventy people a year from the 1840s onwards. Yet legislation—and that limited in its scope to investigations after explosions had occurred—was not placed on the statute book until 1882. The rejection of compulsory inspection was due to the lobbying power of companies and insurance societies that had a commercial interest in the existing, ineffective, system of voluntary inspection.41 When legislation was put on the statute book, its enforcement depended on arms of the state that were often controlled by the regulated interests. Magistrates, for instance, were crucial both to successful prosecution and the imposition of penalties in factory law and in food purity law; in both cases the magistracy was dominated by the very groups—the millocracy and the shopocracy—from whom offenders were drawn, and securing prosecutions and appropriate sanctions was correspondingly difficult.42 Above all, the fact that regulations were being imposed on powerful economic interests meant that regulatory doctrines had to be shaped around the needs of those interests. In the case of pollution control, this explains the emergence and endurance of the single most important enforcement doctrine: that regulation must be about the search for ‘best practicable means’ of controlling pollution in cooperation with enterprises, and not about the imposition of fixed emission standards. The development of the ‘best practicable means’ doctrine was central to the task of gaining industrial confidence in the first decade of the life of the Alkali Inpectorate following the Act of 1863; in the longer run, it became ‘the signature tune for the flexible, empirical style of pollution-control in Britain’.43
These power inequalities were reinforced by inequalities of resources, especially in the early decades of the life of the Victorian inspectorates. Effective (p.46) regulation demands that someone, somewhere, expend resources to conduct surveillance and to enforce regulatory breaches when surveillance reveals their occurrence. In regulating whole industries, the resources required are, in principle, huge. In an age when the bureaucratic state with large administrative resources was a novelty, regulatory institutions were poorly resourced. That was true even in cases when the regulation was conducted by the central state itself: for instance, the Joint Stock Companies Act of 1844, ‘inspired largely by evidence of insurance fraud, led to the creation of a staff of two, a registrar and his assistant, to try to keep track of many hundreds of companies.’44 The disparity between the scale of the regulated industries and the numbers of inspectors is a constant theme in the early history of industrial regulation.45 In some instances, the pioneering character of regulation meant that even the basic data required for surveillance did not exist. For instance, a critical purpose of early factory law was to regulate the employment of children of prescribed ages. That task presumed the existence of what was actually missing in the early decades of regulation—a systematic registry of births.46 The synoptic gaze of a regulatory state could hardly function unless it had something to gaze on. Behind these immediate problems lay the fundamental fact that there was a huge disparity in resources—in personnel, information, and technical expertise—between regulators and regulated, and this inevitably meant that regulation could not be conducted without the cooperation of the regulated industries. The Victorian revolution in inspection and data gathering was indeed impressive; but it was still puny compared with the social range demanding surveillance.
Considerations of power and resources help make sense of the origins of cooperative regulation because of the timing of British regulatory development. It is hardly surprising that systems of regulation that developed before the rise of modern democratic politics, in a society where government was controlled by an alliance of aristocratic and bourgeois interests, should have taken the path of cooperation and conciliation with powerful industrial interests. But that observation alone cannot explain the endurance of this regulatory style, for the developments of the twentieth century—the rise of democratic politics, the emergence of a state with substantial bureaucratic resources, and the development of a labour movement with strong political and industrial wings—plainly altered the environment in which regulation was conducted. A third set of factors was at work, and they lie behind the successful institutionalization of the club system, which I discuss later in this chapter. In part, the explanation does indeed lie in the ability of institutions to transmit to successive cohorts their standard operating procedures: the ‘signature tune’ of best practicable means in the Alkali Inspectorate is one instance of that. But a more fundamental feature of the meaning ascribed to industrial regulation explains the endurance of the culture of cooperation. It takes us directly to the importance of the ‘gentlemanly ideal’ in shaping regulation, and it emphasizes the traditional, pre-democratic ideologies that supported club rule.
The crux of the matter was the inevitability of regulation and inspection and the threat this posed to business interests. In a few instances—as in the case of (p.47) steam boiler safety summarized above—entrenched interests were powerful enough to resist statutory control. But the rise of regulation in Victorian Britain shows that there were irresistible structural forces creating a new regulatory state that was embodied in statute. These new laws threatened to criminalize economic activity—to create whole new fields of, not merely white-collar, but ‘gentlemanly’ crime. As one outraged mill owner remarked about the role of Inspectors under the 1833 Factory Act: ‘does the Inspector suppose that it is no punishment to a man, we will say nothing of a gentleman of education and standing in society equal to himself, to be dragged into a court of justice, tried and condemned, and to have his name entered on a register of convicts?’47 The threatening spectre of law also reflects the importance of the revolutionary legal changes described by Arthurs: the rise of ideologies of legal standardization and centralization were immensely threatening to business interests used to controlling their own affairs by customary law and self-regulation.48
How could this undesirable state of affairs be avoided? In part by means that we have seen already in the case of the laws on food adulteration: by constructing regulatory offences as mere technical breaches of rules designed to regulate competitive conditions between industrial interests, and by thus separating them from the world of the criminal law altogether. Carson's studies of an even more sensitive regulatory field—that created by factory legislation concerned with employment conditions and workplace safety—explore the process in more detail. Observance of rules was assumed to be the normal state of affairs since the subjects of regulation were gentlemen who could be trusted; most breaches of rules were thus viewed as mere formal or technical irregularities; and sanctions were reserved for a deviant minority.49 In this way, to appropriate Carson's term, factory crime and other regulatory crimes were ‘conventionalized’: were separated from the criminal law and were enforced largely through persuasion, bargaining, and warning.50 It is worth quoting Carson because he illustrates the tension between the powerful structural forces creating regulatory intervention and the prevailing powers and interests:
there was an internal dynamic or logic within the emergent order of industrialization pointing firmly toward, rather than away from, legislation … this impetus notwithstanding, the most significant forms of factory crime in this period were firmly embedded in the structure, organization, and ideology of the relevant productive processes.51
As we shall now see, this conception of the special regulation of a ‘gentlemanly’ activity also shaped the emerging style of professional regulation.
Professionals and Gentlemen
Professionalism is a mode of regulation that is simultaneously a way of controlling competition in labour markets, a form of social stratification, and an avenue of collective social mobility for the members of an occupation. The nineteenth century was the critical period in the development of this regulatory strategy in (p.48) Britain: to be more precise, in Perkin's words, ‘the mid-Victorian age …. was the key period for the emergence and consolidation of the leading professions.’52 At its core the strategy had three elements, all present in the Apothecaries Act of 1815, which, as I noted earlier, is recognized to have supplied a widely imitated pattern.53
The first was, precisely, the resort to legislation to provide a backstop to the powers exercised by the organizing occupation. The second was the use of ‘qualification’ as a mode of control over entry to the market: as Millerson's study shows, most of the occupations that now successfully claim the label of profession (and many that have not fully managed to make the claim) originally established qualifying status in the nineteenth century.54 Qualification had a dual function: it asserted the occupation's claim to possession of a systematic and distinctive body of knowledge that could only be revealed by success in some qualifying tests; and institutionally it established, through control of syllabus and testing arrangements, a means by which entry to the occupation could be controlled. The third element in the historic strategy of professionalism was the development of codes, including ethical codes—a development central to market control both because it helped foster trust among potential consumers and because it delimited areas of legitimate and illegitimate competition. The Apothecaries Act was of pioneering importance again because it established a widely imitated pattern: conferring on a self-governing occupation control over entry, of title, and of terms of competition between members, and using the power of the law to buttress those controls.55 In the succeeding decades, this model encompassed the organization of traditional professions to exploit new markets (medicine), new professions created by the technologies of industry (engineering), and new professions created by the novel demands of new forms of business organization (accountants and actuaries). Our modern, Weberian, understanding of professionalism pictures it as a quintessential example of social closure.56 But the form of social closure that it represented in nineteenth-century Britain had a number of distinctive features, all of them congruent with the emergent cooperative culture of regulation. Although the power of the state was used to help enforce closure, subsequent intervention by the state in the details of regulation was typically slight. The characteristic culture of professional government was collegial: in other words, it stressed the equality of members of the profession rather than the hierarchies of professional government.57 The cue for this came from the older professions that, already existing, were institutionally reorganized in the nineteenth century. In part, as a reflection of this collegial style, the codes that the newly emergent associations developed were typically general and skeletal rather than detailed—a contrast with, for instance, the United States of America noted by Millerson.58
Three particularly striking instances of the characteristic mode of regulation are provided by medicine, by accounting, and by actuaries. They are striking because they represent very different parts of the new professional domain. Medicine was an ‘ancient’ profession whose technologies and market opportunities were transformed by both the technological innovations of industrialism (p.49) and the new social structures of an industrial society. Accounting, as we shall see, was in essence a regulatory creation: in other words, an occupation (or, more accurately, a conglomeration of occupations) brought into existence by the regulatory requirements of the new economic world created by industrialism in nineteenth-century Britain. Actuaries are remarkable because the highly technical nature of their skills might have been expected to lead to an ‘ungentlemanly’, more meritocratic, and open mode of regulation; but even here, as we shall see, the gentlemanly ideal triumphed. What is, therefore, remarkable about all three is that, despite their very different routes to professional organization, they each exhibit clearly the culture of cooperative regulation and the gentlemanly assumptions that underlay it.
Medicine, of course, was an ‘ancient’ profession with the defining English marks of the ancient: an emphasis on the importance of social rather than technical skills as a condition of qualification; roots in the ancient universities; and, in its most prestigious parts, a set of institutions—notably the Royal College of Physicians dating from 1518—closely connected with the metropolitan state elites.59 The Medical Act of 1858 was the defining moment. It organized a modern profession to take advantage of the opportunities (and threats) posed by the new markets in medical consumption, and the new technologies of medical care, created by industrialism. It did this through the device of registration and through the creation of an institution (originally, the General Council on Medical Education and Registration, but universally abbreviated to the General Medical Council), which controlled registration. Legislation was both instrumentally and symbolically the sign that state power now stood behind those who controlled the Council. Control over registration also gave control over the title of doctor—the key sign of competence to clients—and by extension gave control over the terms of qualification (by supervision of the medical curriculum) and control over professional ethics, breaches of which were the grounds for being struck off the register.60 This system rapidly settled down to a pattern, which lasted for a century, until the profession entered a new period of turbulence in the 1960s. Having invested the Council with statutorily backed powers, the state withdrew from the regulatory arena. There were virtually no interventions in the regulatory system for a century, and those few occurred only on the rare occasions when the Council itself requested them: the inquiry by the Merrison Committee into the regulation of medicine in 1972 was the first for a century.61 Although the rules of nomination to the Council could, in principle, have allowed external institutions (the universities and the central state) to impose a majority of lay people on the Council, it was, in practice, dominated by doctors, and not until 1950 was there any statutory provision for lay membership.62 The composition of the Council itself institutionalized a collegial system of regulation in which the Council refrained from any attempts at detailed control over the institutions under its surveillance. Thus, the Council was formally responsible for supervising and approving the medical curriculum in the universities; but even in the 1970s the Merrison Report found that it had (p.50) virtually given up the business of inspection.63 The Council extended this collegial culture to the formulation and enforcement of ethical codes on individual practitioners. The rules of professional conduct and misconduct were dominated by a concern with how doctors should treat each other, rather than with their conduct towards patients. Thus, the rules governing the etiquette of relations with other medical professionals—concerning, for instance, the conditions under which doctors could give a second opinion on a medical diagnosis—were detailed and strongly enforced.64 Nor was this surprising. It was entirely consistent with the collegial conception of professional regulation, which developed from 1858. Professionalism in medicine involved the organization of an elite college of equals, and in this collegial culture detailed control over the professional judgement of the doctor, once admitted to the collegial community, was inappropriate. The fundamental purpose of regulation was to regulate relations between members of the collegial community and to preserve its solidarity. And as in any collegial conception of social life, regulation depended on harmonious, cooperative relations.
The rise of collegial, cooperative regulation in accounting is perhaps even more striking than in the case of medicine. Medicine could look backwards to its ancient origins, and indeed in institutions like the Royal College it already had a template of collegialism. By contrast, while the archaeology of modern accounting systems can be traced to the eighteenth century, the organization of the profession in the nineteenth century involved the separation of the occupation from a long trail of low-status jobs like bookkeeping.65 More important still, the profession was the product of state regulation of companies. Two stages in that regulation were critical. The Bankruptcy Acts of 1831 and 1849 made discharge from bankruptcy conditional upon the report of an official assignee, typically an accountant.66 The Companies Act of 1862 is usually labelled ‘the accountant's friend’ because, in establishing the position of official liquidator in company failure, it created a large market for any group that could claim expertise in accounting failure.67 With over 13 000 insolvencies over the following 20 years, the act created a lucrative market. The legislation of 1855, which introduced limited liability, created an even more significant market in audit through its provisions for financial reporting—more significant because it was detached from the specialist area of company failure and was a source of recurrent business from prospering firms.68
The creation of these new markets spurred professional regulation for two linked reasons: to regulate competition by excluding the ‘unqualified’; and, by this exclusion, to foster consumer confidence in the services of accountants. Separate movements to create regional associations culminated with the grant of a Royal Charter and the formation of the Institute of Chartered Accountants in 1880.69 But from the beginning professionalization was not only marked by an emphasis on the importance of self-regulation independent of the state, it also rejected detailed prescriptive rules, which would have controlled the occupational practices of accountants. The most striking instance of this is the historical refusal to prescribe what might be thought to be the heart of the (p.51) accountant's art—a single set of accounting conventions and practices. Summarizing his historical review of UK conventions, Willmott writes: ‘a variety of accounting conventions and practices were recognized, and it was left to the “expert” judgement of the accountant to determine which convention to apply.’70 As late as the 1920s, the Institute of Chartered Accountants was resisting any prescriptive form for company accounts. The nineteenth-century regulatory history of accounting is remarkable because, since the profession was the product of state regulation, one might have expected it also to be the creature of the state. But the reality was different: the model of independent collegialism, involving both independence from the state and a ‘light touch’ system of internal collegiate controls, was established.71 Kynaston perhaps exaggerates—but not by much—when he describes company annual accounts of the late nineteenth century as ‘a world of systematically concealed or distorted financial information’.72 It is an instructive background to the problems facing auditors and accountants in the twenty-first century, which we discuss in Chapter 4, that their key nineteenth-century role was to bamboozle, not enlighten, investors.
The common feature linking a reorganized ‘ancient’ profession, medicine, and a product of the age of state regulation of the new domain of company law, accounting, is, therefore, the development of the characteristic features of cooperative regulation. The state endowed regulatory institutions with authority, but then practised the lightest of light touch controls; the self-regulatory institutions themselves, in turn, adopted collegial regulation—a style that presumed control among an elite of equals, was designed to foster collegial solidarity, and relegated hierarchical controls and the exercise of sanctions to a marginal role. The two professions are chosen here as illustrations precisely because they represent very different historical routes to professionalism, yet exhibit this common cooperative culture. A remark by Reader about the older professions thus has a more general application: what they seem to have conceived of themselves as doing, he remarks, ‘was admitting educated gentlemen to small, self-governing groups of their social equals’.73 The spread of Royal Charters is particularly revealing in this respect. Before the changes in company law that allowed incorporation, a Charter was a legal necessity. Afterwards it ceased to have any functional significance, but its symbolic importance—precisely as a sign of the gentlemanly distance from trade—became critical.74 Hence, the late nineteenth-century flood of occupations acquiring Royal Charters: Accountants 1880; Surveyors 1881; Actuaries 1884; Chemists 1885; Journalists 1890; Patent Agents 1891; Librarians 1898.75
The idea of a profession as a college of gentlemen, preferably sanctified by grace of the Royal touch, raised the status of occupations that were being created, or reshaped, by industrialism. It associated new occupations, by reflection, with the prestige and institutional connections of two of the three ancient professions, law and medicine. But, in the case of accounting, it involved something more than the symbolic search for gentlemanly status or the ideological mystification of sanctification by Royalty. The rise of accounting involved not only a struggle for control within the occupation itself, but also fierce struggles for business with (p.52) lawyers, notably in the lucrative fields of insolvency and bankruptcy administration.76 Faced with a struggle with a quintessential ancient profession, the acquisition of the status of a college of gentlemen, accompanied by royal sponsorship, was a key weapon in the competition for custom.
This stress on the gentlemanly ideal, and the way it legitimized professional freedom from state control, is revealed with remarkable clarity in our third case, actuaries. It is remarkable because the actuarial profession emerged in the nineteenth century as the claimed possessor of highly technical skills of estimation, which were vital to the prudential stability of the new insurance industries, and it might, therefore, have been expected to be more modern in its regulatory ideology. Yet, Porter has shown how, faced with Parliamentary pressure to systematize actuarial knowledge and subject insurance companies to explicit rules, the spokesmen for the new profession retreated behind the gentlemanly ideal. In their responses to Parliamentary questioning, an emphasis on the importance of ‘character’ is ‘repeated like a refrain’ in the remarks of the defenders of the profession.77 Quoting a series of Parliamentary witnesses, Porter continues:
Since we must depend on the skill and integrity of the actuary to prepare the data, he might as well be trusted to make the final calculation. Actuaries are ‘gentlemen of character’, reported William Farr, and the government should leave the preparation of accounts to them. No quantitative measure of solvency can be adequate, insisted Francis Neison … There is always ‘special knowledge beyond the accounts, not appearing in the books of the institution’.78
Accountancy and the actuarial profession are particularly relevant illustrations here for an additional reason: because their regulation overlapped with the third domain examined now, the regulation of the financial markets in the City of London.
Financiers and Gentlemen
A large literature demonstrates that the City of London is special in the British economy: in its global orientation; in its weight in the global financial system; and, as we shall now see, in its system of regulation.79 The City has historically been the single most important example in the domestic economy of what is summarily called self-regulation. Until the institutional upheavals of the last 15 years—discussed in Chapter 4—regulation of City markets was a study in cooperative regulation. Although there naturally existed important differences of nuance between different markets, key features recurred: the law was of marginal importance; non-legal codes, even where they existed, generally provided broad guidelines rather than detailed rules; and, in consequence, regulation was supposed to be the product of internalized cultural restraints and the subtle exercise of social controls. This summarily describes the historical mode of regulation in securities markets, especially in the Stock Exchange; in banking markets, both in retail and in merchant banking; in the money markets; and in important commercial markets like the reinsurance markets.80 And, more than in any part (p.53) of the British economy, the City developed an explicit ideology of cooperative regulation to support its institutional practices. That ideology emphasized the supposed benefits of a cooperative style, elaborated the grounds for not creating a distinct cadre of regulators, and stressed flexibility and negotiated compliance. It also managed what professions could rarely do: it institutionalized this entire system in club-like bodies such as the Stock Exchange and the Corporation of Lloyd's.81
Many institutions and markets critical to the City system of self-regulation had ancient histories: for example, the Bank of England, which, as we shall shortly see, was the linchpin of the whole system, dated from 1694. But like much else in British economic regulation, the ‘traditional’ City system was the product of the Victorian climacteric: it was largely invented in the middle and later decades of the nineteenth century at the moment when the City was also becoming a linchpin of the global financial system. That invention was then elaborated into a stable institutional system with a legitimizing ideology in the first three decades of the twentieth century.
The Victorian story of City regulation is partly the story of the adaptation of particular institutions and markets, and partly a grander story of the rise of the Bank of England as the manager of the interests of the wider City system. For instance, in securities, the legal reforms that created joint stock companies simultaneously created opportunities for market expansion by existing exchanges and, through a succession of scandals, pushed these exchanges into reforms.82 By the turn of the twentieth-century, stock jobbing, once an occupation occupying the same sort of cultural and socially marginal reputation as racecourse bookmaking, had become a respected occupation for gentlemen. The definitive sign of its integration into an upper-class world came with the first old Etonian jobber in the 1890s.83 Even as early as the 1870s, the ideology of light touch self-regulation was already well established. Here is a Royal Commission on the Stock Exchange in 1878:
The existing body of rules and regulations have been formed with much care, and are the result of long experience and the vigilant attention of a body of persons intimately acquainted with the needs and exigencies of the community for whom they have legislated. Any attempt to reduce these rules to the limits of the ordinary law of the land, or to abolish all checks and safeguards not to be found in that law, would in our opinion be detrimental to the honest and efficient conduct of business.84
But the most important key to wider development of the system of regulation lay not in the particular markets but in the transformed regulatory role of the Bank of England. The most important transforming forces were structural. From the 1820s to the 1890s, the instability of the new banking worlds in the City created by the booming domestic economy, and by the City's central role in the wider global system, led to a succession of banking crises.85 Out of these crises the Bank virtually invented itself as a modern central bank. It emerged as the manager of systemic crises, and by extension the prudential regulator of the banking system in times of normality. The consummation was the Bank's role in (p.54) organizing the rescue of the House of Baring in the great crisis of 1890.86 The single most important feature of the Bank's role from our point of view was that it took place largely beyond the law, and indeed formally even beyond the boundaries of the state, since at that time the Bank was legally a privately owned institution, and in practice one largely controlled by a particular segment of the City elite, merchants and merchant bankers.87 Because the Bank neither had, nor sought, the formal authority of the law in this critical sphere of financial regulation, the familiar traits soon emerged: control through informal pressure; stress on the informal willingness of institutions to cooperate; and avoidance of any adversarial confrontation in favour of the private exercise of informal pressures and reliance on internalized cultural controls. In some cases, this regulatory role just emerged as a by-product of the Bank's market operations. For instance, in managing the overnight money market in London, the Bank developed close working relations with the Discount Market, culminating eventually in the organization of the Discount Houses into a self-regulatory cartel.88 Until the 1970s, indeed, the Bank's supervisory duties were run as a by-product of its Discount Office.89
As the Bank's regulatory importance grew, another critical feature of club regulation in the City developed: the Bank became the mediator between the City and the central institutions of the state. This role was the key to the development of the distinctive City form of regulation, for without the Bank as mediator it was inevitable that regulation would have taken an alternative route—via the statute book. It was the Bank's success in establishing itself as the expert on control in the City, and as the mediator between the City and departments like the Treasury, that ensured that it could claim the right both to represent the City in Whitehall and Whitehall in the City.90
The development of this distinctive City style of regulation had its roots, in part, in conditions that we have already encountered in the cases of industrial inspection and professional regulation. The timing of British economic and political development was again crucial. The development of an industrial economy; a system of corporate ownership based on joint stock companies; a complex banking system woven into both the domestic economy and the developing global financial system: all produced immensely powerful pressures for regulation. The most obvious manifestations of these pressures were the series of great Victorian financial crises: the great frauds, and above all the systemic crises in banking in 1825, 1847, 1866, and 1890.91 The publication of Bagehot's Lombard Street in 1873 marked the classic statement of central banking as a practical art.92 As in the case of industrial inspection, regulation was now unavoidable; the only issue concerned how it was to be done. The regulatory capacities of the Victorian state in the financial sphere were pitiful; by contrast, the Bank of England had performed a semi-public role virtually since its foundation. But the Bank's own regulatory resources were also primitive. It was inventing modern central banking, but had none of the resources of a modern central bank. Until Montagu Norman's long tenure (1920–44), it lacked even (p.55) a permanent governor and it neither possessed, nor desired, statutory power over the markets. Looking back at its nineteenth-century history in 1931, the Macmillan Committee put it succinctly: ‘Historically the principles of central banking were established empirically long before they received theoretical formulation.’93 All these factors pushed the regulatory system in the direction of an informal cooperative style.
But that style could only work by setting limits to competition. Unacceptable competition—to the point in some cases of fraud—was what lay at the root of the problems, which brought about pressure for regulation in the first place. The brutal, ferocious competition that had simultaneously built the City and pushed it into a series of systemic crises had, by the turn of the century, been transformed into a more gentlemanly model that was taming excessive competition.94 To support this gentlemanly culture, ascription in recruitment became an important underpinning mechanism. Lisle-Williams documents the importance of dynastic succession from 1850, and shows how these dynasties, in turn, were incorporated into surrounding aristocratic elites. In the period 1850–90, there occurred, Lisle-Williams writes:
the revival and selective reconstitution of the gentleman, a social type which was hegemonic within the propertied class. It was this ideal and the constellation of values associated with it that were grafted onto the social organization of the City by the merchant banking families in the later Victorian era.95
Industrial inspection, professional regulation, financial regulation: all were laid down in the Victorian era. But how did they manage to outlive that age?
EMBEDDING THE VICTORIAN REGULATORY STATE
What I have here been calling the ‘Victorian regulatory state’ was not a settled creation, and for the most obvious of reasons: the period of creation was not of a single piece. If we stick literally to the image of a Victorian era, then the Britain of 1837 was very different from the Britain of 1901. Not only was Victorian England a place of immense social and administrative change—it faced change of a particularly challenging and revolutionary sort. The twin challenges of democratic politics and working-class organizations seemed particularly threatening to large sections of the political elite.96
These threats were, of course, fully realized early in the following century. By 1918, over half a century of electoral reform had produced something close to universal adult suffrage. And in the General Election of December that year, the Labour Party rose as the main opponent of the Conservatives, marking the emergence of labour as a major political force. The war itself had caused a great surge of state intervention. In 1918, therefore, Victorian nightmares of popular revolution came to life: a large state, near universal adult suffrage, a popular (p.56) working class party using the rhetoric of socialist utopianism. Yet the outcome in practice resembled Burke's verdict on 1688: not a revolution achieved, but a revolution averted.
Averting this revolution involved work well beyond the concern of these pages: defending the social order is a major theme of British politics in the early decades of the twentieth century. But embedding the institutions and practices of what we have been calling Victorian regulation was an important contribution to the process. Victorian regulation could not simply be transplanted to the very different world of the twentieth century. ‘Embedding’ is a consciously chosen image: to successfully embed the old system in the new world of formal democracy often meant reshaping it to fit new surroundings. Nevertheless, one of the great political achievements of the first half of the twentieth century was to arrive at its mid-point with many of the key cultural understandings and institutional practices of the old club regulation still intact.
Embedding Self-Regulation in the City
By the beginning of the twentieth century, the culture of the City elites—gentlemanly restraint, ascriptive recruitment, and the economic closure of privileged markets—fostered a style of regulation that emphasized informality, collegiality, and cooperation. But the first three decades of the twentieth century witnessed great economic and political changes in the City's environment, and these made the maintenance of this style of regulation even more vital. The dominant regulatory culture had been created during the period of the City's—and Britain's—ascendancy in the global financial system. The First World War, British economic decline, and then the great world depression dealt fatal blows to that ascendancy. The inter-war years, in particular, were periods of great stress in the City, and the reaction—led and managed by the Bank of England—was further to suppress competition and strengthen cartels. This forged an even closer connection between economic practices and regulation. In the organization of markets, supplemented by informal pressure from the Bank of England, lay the essence of the regulatory system. Admission to the stock exchange, to the Discount Market, to the Accepting Houses Committee (the elite of merchant banks founded in 1914) entailed observance both of the rules of business and the norms of gentlemanly behaviour.97
If economic developments strengthened cooperative regulation, political developments made its maintenance vital. Late Victorian England saw the beginnings of democratic politics: successive extensions of the franchise; the rise of radical Liberalism; the organization of the industrial wing of the labour movement; and the challenge to Liberalism from labour's political wing. These developments, especially when accompanied by a rhetoric of utopian socialism, were immensely threatening to City markets.98 The ideology of cooperative regulation now began to perform an important role in protecting City interests from the threats of democratic politics, for this ideology precisely rejected the processes (p.57) associated with parliamentary democracy—notably the passage of regulatory laws, with all the potential for interference in markets that this opened up, and the potential demands for parliamentary oversight that it might entail. But providing this protective bulwark demanded a more active and organized role for the Bank of England. Under the governorship of Montagu Norman (1920–44), this transformation took place.99 The Bank became partly professionalized. The symbol of this was the transformation of the Governor's own role from that of someone selected from the City to serve a short period of office to a permanent figure who dominated the City for over 20 years. Not all the City's attempts to defend itself were successful: it took a considerable mauling, for instance, in the hearings of the Macmillan Committee.100 But its achievements were still considerable. The two landmark official enquiries in the age of club government in the twentieth century endorsed self-regulation and City autonomy. Here is the Macmillan Committee, the most important official inquiry into the financial system of the inter-war years, writing in 1931:
An important thing to bear in mind is that financial policy can only be carried into effect by those whose business it is. We have in this country a great financial and banking organization with great experience and traditions. It is through and with that organization that we have to work, for they alone are the repositories of the skill and knowledge and they alone possess the equipment necessary for the management of our financial affairs.101
And here, nearly three decades later, is the picture painted by the Radcliffe Committee, writing in this instance of the particular relations between the Bank of England and the clearing banks, the heart of the mechanism by which monetary policy was operated:
The Bank of England is in continual touch with the clearing banks both on operational matters and on questions of policy … It is on this relationship, and on the mutual trust and confidence that are the basis of the relationship, rather than on formal powers or the regular provision of statistical information that the Bank has relied in seeking to inform itself about and influence the clearing banks.102
This description of the relations with the clearing banks is particularly instructive. The clearing banks had originated outside the City's magic circles, developing from provincial origins. In some instances—the most notable being the Midland Bank, before 1914 the largest bank in the world—they were closely connected to the manufacturing sector.103 But the wave of banking amalgamations immediately after the First World War consolidated clearing banks into a metropolitan cartel: a small number of institutions controlled from London and safely integrated into the club world of the City.104
The successful embedding of the Victorian system in the very different world of the twentieth century was largely the work of the Bank of England. That success had components that may crudely be distinguished as institutional, economic, and ideological.
Institutionally, the Bank transformed itself in the 25 years or so after 1914 and did so in ways vital to the preservation of club regulation. The Bank, partly (p.58) because of its central role in managing the state's debt raising needs, emerged as a key institution within Whitehall, whereas before the First World War it had largely operated in isolation from the central machinery of the state.105 The acquisition of a central role in Whitehall, based as it was on the Bank's ability to manage the financial markets, also gave it authority to act in another key role: as the intermediary between the central state and the city markets. From this period there grew up an understanding, which endured for more than half a century, that the Bank would be the virtually sole intermediary between the City and the central state, and that this intermediary role would essentially be practised in an informal, uncodified way.106 The acquisition of this key institutional role was accompanied by important internal changes to the organization of the Bank. The most important is signified by the long career of Montagu Norman as Bank Governor. Norman's domestic achievement was internally to professionalize many of the Bank's operations. He also imprinted on it a particular style of working. This style grew out of his own temperamental dislike of intellectualizing the grounds of policy, but it fitted the need to embed the old Victorian system: dislike of formal methods of doing business; a corresponding emphasis on the importance of personal connections; a dislike of politics and politicians, especially of their presence in the City; and fierce defence of the role of the Bank as the main manager of both the City's interests and its regulatory practices. It amounted to privileging tacit knowledge over the explicit knowledge of ‘experts’.107 As Norman himself put it in his evidence to the Macmillan Committee in 1931: ‘I do not attach importance to great elaboration of statistical information.’108 Nor was this just a product of Norman's own quirky instinctiveness. Nearly 30 years later, one of his successors, responding to debate about the Bank's mode of operation prompted by the hearings of the Radcliffe inquiry into the workings of the monetary system, dismissed the utility of systematic research with the observation that ‘the Bank of England must be a Bank and not a study group’.109
The club world was reinforced by economic changes mostly prompted by the Bank in the quarter-century after 1914. There occurred a large-scale cartelization of City markets, in part because of the economic pressures arising from the destruction of the old open international financial system in which the City had prospered and, in part, because of the world slump after 1929. The Bank sponsored cartelization as a way of maintaining stability in markets; but cartelization also reinforced self-regulation, by forging a connection between membership of self-governing ‘clubs’ and the economic privileges arising from membership of the clubs.110 The outcome solidified the club structure. As the central bank Governor put it in evidence submitted to the Radcliffe Committee at the end of the 1950s: ‘If I want to talk to the representatives of the British Banks, or indeed of the whole financial community, we can usually get together in one room in about half- an-hour.’111 The connection between club regulation and cartelization was, as we shall see, to prove fatal to the club system from the 1970s onwards.
The institutional and economic structures of club regulation were underpinned by systematizing the Victorian regulatory ideology. It is not surprising (p.59) that this happened. Before the advent of formal democracy, the rise of labour, and the development of an interventionist state, the ideology could remain implicit, since it was born in an era when business values were hegemonic and the state's own ambitions and resources were limited. At a number of points in the twentieth century, by contrast, the City found itself on the defensive, having explicitly to justify its regulatory practices. It was on these occasions—for example, in evidence to the great enquiries into the financial system—that the ideology of self-regulation was systematized, in a way hardly necessary in the Victorian era. The key defence against the threat of democratic politics was the independence of the City's main protector, the Bank of England. In his evidence to the Macmillan Committee in 1929, the Deputy Governor outlined the official grounds for Bank independence from democratic government:
I think I may claim that it is an accepted principle that (the Bank) should be free from political pressure …. It has duties to the Government of the day undoubtedly, provided it is, as I suggest it should be, the banker of the Government, but its duties in that respect are the ordinary duties of banker to client. It should be free from being required to submit to political pressure and to subordinate sound finance to the dictates of political expediency. For that reason, as I say, we feel that it should be free from political control.112
The systematized ideology amounted to a rationalization of the practices of the Victorian era: an emphasis on the importance of practical knowledge as the key to effective regulation, thus privileging actors in markets in the regulatory process over any outside ‘experts’; an emphasis on the importance of regulation created and administered by actors in markets themselves, on the grounds that this was most likely to encourage full-hearted compliance with rules; and an emphasis on the superiority of such systems of regulation over more legally based modes in responding flexibly to the changing character of markets. Marginalizing the law also marginalized Parliament and the democratic forces that Parliament threatened to mobilize. And marginalizing law, Parliament, and democracy was, as we shall see later in this chapter, also a key to the wider character of club government in Britain.
Embedding Self-Regulation in the Professions
In one obvious sense, the professions were more vulnerable to the threat of external regulatory control by the twentieth-century state than was the City: they possessed no institution comparable to the Bank of England, which could simultaneously protect against the state, act as a stimulus to collective action, and systematize an appropriate regulatory ideology. And, indeed, in the twentieth century, the experience of different occupations claiming the label ‘profession’ was highly varied. Much depended on the dominant client group that the occupation served. For instance, the failure of teaching to develop strong institutions of self-regulation, and the fact that it was regulated by an inspectorate of the central state—albeit an inspectorate that practised remarkably light touch (p.60) controls—reflected the fact that the profession was almost from the beginning a client group of the state.113
What was nevertheless remarkable until well past the second half of the twentieth century was the extent to which the Victorian regulatory settlements for key high-status professions—medicine, law, accounting—‘held’ and the extent to which these settlements provided both an institutional template and a regulatory ideology that was widely copied. This is the theme to emerge most clearly from the only systematic comprehensive account of professional regulation in the years between the two world wars, that conducted by Carr-Saunders and Wilson. The date of publication, 1933, is particularly helpful because it covers the moment when the embedding of the old Victorian systems was complete. Three themes emerge: the persistence of the collegial, anti-hierarchical model of internal professional government; the widespread autonomy from external control in the practice of professional government; and the weak and limited character of public, especially Parliamentary, control, despite the fact that these institutions were typically wielding power originally derived from Parliament.114 The successful embedding of the Victorian pattern of professional regulation is all the more remarkable in view of the fact that many of the occupations that had originally developed as liberal professions—that is, small entrepreneurs making a living from cash transactions with individual clients—in the twentieth century began to derive all, or a substantial proportion, of their incomes from the state. Indeed, in general, the twentieth century saw the large-scale decline of the liberal professional and the incorporation of professions into large bureaucracies, either private or public sector.115 The economic setting of the medical profession, for instance, had been transformed by the foundation of the National Health Service in 1948. Yet, almost a quarter of a century later, the report of the Merrison Committee into the regulation of the profession still defended the Victorian ideology of professional self-regulation.116 The economic setting of the law had likewise, by the 1980s, been utterly transformed, by the rise of corporate law and by the rise of the state as a major source of income in the form of legal aid; yet, Abel could still, in that decade, characterize both the English Bar and solicitors as late nineteenth-century creations.117
The striking endurance of the Victorian professional settlement was due to three factors. The first might best be summarized, quite simply, as spillover—especially as spillover from the successful institutionalization of self-regulation in the City. The ideology of self-regulation that developed to legitimize the Victorian regulatory settlement both contributed to, and benefited from, the wider British regulatory ideology. We have been examining the different regulatory domains independently, but, of course, in practice neither their operation nor the development of their ideology took place in this fashion. The City's defence of self-regulation transcended financial markets themselves, important as they were, for the social ascendancy of the City gave to its regulatory ideology a wider prestige. There was also obvious overlap between, for example, some professional elites, such as those of the elite of commercial law, and the elites in the City; and there was in some cases an obvious overlap in occupational jurisdictions, as, for example, in the case of accounting and the law.
(p.61) A second factor is that at least some of these professions were particularly well placed to defend their autonomy against outsiders. The obvious examples again are law and medicine. The judiciary and high-status corporate bodies, like the Inns of Court, controlled key aspects of the regulation of the legal profession.118 An even more striking instance, because it represented open defence of professional prerogative, was the settlement won by the medical profession when the National Health Service was established. Not only was the nineteenth-century structure of regulation organized around the General Medical Council left largely intact, both General Practitioners and consultants were also able to establish an ‘arms length’ relationship with the state, for instance, through a special employment status that preserved the traditional independence of the liberal professional.119
The success of doctors in preserving much of the Victorian regulatory settlement at the foundation of the National Health Service also sprang from a third factor, the most fundamental of all: the central role that professionals came to play in the world of the interventionist state in the twentieth century. The new world of the interventionist state created dangers for professional autonomy, but it also offered opportunities. Perkin has charted the way the discourse of professionalism—of impartial expertise brought to bear on social problems—came to dominate debates about social reform in the first half of the century, and thus shaped the welfare state settlement of those decades.120 The welfare state was a professional state: it depended on professionals both for the expertise needed to formulate policy and to deliver that policy—a dependence illustrated to perfection by the National Health Service. Thus, for the Victorian professional settlement, the rise of the interventionist state in the twentieth century was a double-edged sword: it represented a threat, but also offered opportunities because the state relied so heavily on expertise, and professionals were recognized as key holders of expertise. Even professions that were successfully incorporated into the state apparatus—like teachers—managed to negotiate a considerable area of occupational autonomy in the first half of the twentieth century, and some more prestigious parts of the education system were able to use their strategic position in the club system to enjoy a particularly privileged autonomy.121 The most obvious examples of the latter are provided by the twin cases of the old universities and the elite of the scientific research establishment that were able to use institutions like the University Grants Committee and the Research Councils to secure public funding without any serious public accountability. It is striking that these institutions of professional protection were developed in the very years when club regulation faced its greatest threats: the original prototype of a research council (for medical research) dates from 1913, while the UGC was founded in 1919.122 (I examine these last two cases in more detail in Chapter 6.)
We have seen that even when the Victorian regulatory state developed the formal apparatus of state regulation—through inspectorates empowered by law—it nevertheless practised something that approximated to self-regulation: that is to say, it developed a style of cooperative regulation that disavowed sanctions, especially legal sanctions, in the inspection process. That style was well embedded throughout the first two-thirds of the twentieth century. A succession of inspectors, from a variety of domains, throughout this period virtually repeated word for word the regulatory philosophy of the Victorian founders.123 Indeed, as recently as the beginning of the 1970s, this is what the Robens Committee was being told by ‘the responsible government departments and inspectorates’ across the whole range of health and safety. They
tended in their evidence to describe their primary functions in terms of improving standards of health and safety at work, rather than in terms of law enforcement as such. While inspectors regard the threat of legal sanctions in the background as important, in practice they find that in most cases advice and persuasion achieve more than duress. They have learned from experience that recourse to legal sanctions is only one means of achieving objectives of safety legislation, and that it is rarely the most apt or effective.124
As this observation demonstrates, the ‘official’ view was that cooperative, informal regulation was demanded as a condition of effective enforcement. But this notion that it was a functional adaptation to the needs of regulation was ideological mystification. Vogel's comparative study of Anglo-American environmental regulation, which was based on fieldwork done when the club system still endured, concluded, after a close examination of the evidence on effectiveness, that ‘there is no evidence that either nation's policies have been particularly more or less effective; that is to say, depending on one's point of view, they have been equally effective or equally inadequate’.125 The differences were not due to functional requirements—they were, as Vogel says, due to politics.126 This argument is reinforced by the many failures of the British system, which were themselves reflections of the embedded culture of cooperative regulation. For instance, the regulation of the health of those working with asbestosis showed how the cooperative system could operate with indifference to manifest dangers.127 Carson's study of the regulation of safety in the North Sea oil exploration industry also showed an elementary failure to perform obvious inspections and enforcements.128 As far as cooperative regulation was concerned, therefore, effectiveness had nothing to do with its persistence.
The endurance of the Victorian system in the case of the two other domains examined here was explained largely by reference to particular features of those domains: in the case of the City, by the emergence of the Bank of England as a key organizing institution for the City; in the case of the professions, by the way the very interventionist state that might have been thought to threaten professional autonomy in fact buttressed the Victorian system because it needed the expertise of the professions to realize its interventionist ambitions. In the case of the Inspectorates, some of the explanation must lie in the ability of institutions, once an organizational culture was established, to transmit that culture to successive cohorts of officers. This kind of transmission is, for instance, plainly observable in the case of the Alkali Inspectorate: ‘in 1950 …. Its style of working was (p.63) in the tradition set by Angus Smith: pragmatic, flexible, forbearing in difficult cases, strict where strictness was justified.’129
Nor was this merely public ideology; it permeated the practice of inspection. While naturally there were differences between different inspectorates, the attachment to a cooperative philosophy and practice was remarkably consistent. Hawkins's ethnographic study of the enforcement of water pollution law, based on fieldwork done in the mid to late 1970s, presented a regulatory culture where law was a ‘last resort’.130 Hutter's studies of the Health and Safety Executive, based on field work from the early 1980s, and of the Railway Inspectorate, based on field work for the end of that decade, likewise stressed the centrality of cooperation both at site and industry level.131 The history of school inspection is particularly striking, for in the nineteenth-century it had indeed developed an unusually inquisitorial inspection style with the inspector as a ‘tester and enforcer’ in the pursuit of value for public money.132 But from the end of the First World War, Matthew Arnold's patrician hostility to inspection as the measurement of attainment triumphed; inspections became both infrequent and cooperative in style.133 Rhodes's survey of the whole inspection system, incorporating evidence up to the end of the 1970s, concluded: ‘Prevention rather than detection, persuasion rather than coercion, friendly advice rather than the heavy hand of the law—these are the characteristic ways in which enforcement inspectors behave.’134
The small scale of the system helped to transmit these values through successive cohorts. Club regulation worked best when the club numbers were small, and this was a condition amply fulfilled in the case of the inspectorates. These were communities where the participants were sufficiently small in number to forge personal relations and to communicate informally. If we take what in many ways was the heart of industrial regulation in Britain—the central government inspectorates concerned with the regulation of health and safety—the total numbers of all inspectors in 1960 was only 750; and some of these, such as the 70 concerned with health and safety inspection in agriculture, were combining their duties with very different ones concerned with agricultural wages.135 The world of environmental inspection was similarly small in scale: as late as the 1980s, ‘the central air pollution inspectorate numbered, at most, only a few hundred people’.136
But there was a more fundamental reason still for the persistence of the Victorian settlement within the Inspectorates, and this reason both links our discussion to the wider character of the British state and begins to anticipate some of the reasons for the breakdown of the whole Victorian settlement from the 1960s onwards: it exactly fitted the wider culture of club government, especially in the metropolis. Nor is that surprising; the surprise would be if there were some fundamental disjuncture between the Inspectorates and the wider civil service. The ideology of cooperative regulation was of a piece with the wider, well-established administrative culture: a culture that valued the civil servant as a source of policy advice to ministers, a generalist able to roam widely and analytically over a range of policy problems, rather than an expert in particular fields of administration. (p.64) Being a success as a senior civil servant involved mastering, through long experience in a small world of Whitehall, the nuances of elite political culture. ‘Expertise’ came with experience. The elite of the civil service had little capacity, and desired little capacity, to intervene directly in the detailed delivery of policy.137
This outcome—the rise to hegemonic status of a mandarin, club culture—is connected to one of the great mystery stories of the original Victorian regulatory system, for one part of that original inspection represented a ‘road not taken’ in the development of the regulatory state. After the mid-1830s, the Victorian state turned to the device of independent regulatory commissions, for regulatory domains as different as social policy (the Poor Law) and the new industries (for instance, railways).138 In short, there existed the potential for the rise of powerful regulatory agencies of the sort that came to characterize the American regulatory state in the twentieth century. By the 1870s, this had shrunk to a single domain—the Railway Commission—and by the early twentieth century, this had shrunk in turn into the Railway Rates Tribunal, charged only with the administration of price controls in a cartelized, declining industry.139 Many contingent factors explain the death of this alternative form of the regulatory state: for instance, in the case of the Poor Law Commissioners, revulsion against the ferocity of the social regime they were administering.140 But, fundamentally, what destroyed them was the power of traditional constitutional ideologies, notably those that insisted on the central department with a ministerial head as the only proper way of organizing public regulation. In this way, the regimes of inspection were drawn into the control of the metropolitan elite in Whitehall.141
My argument in summary is, therefore, as follows. Key features of the wider administrative culture—the rejection of involvement in the detailed implementation of policy, the stress on knowledge acquired by experience over formal rules, the reliance on the wider institutions of civil society actually to deliver policy—were congruent with the ideology of cooperative, consensual regulation practised by the inspectorates for much of the twentieth century. This wider administrative culture was rooted in the system of club government that dominated metropolitan politics in Britain. This was the final important mechanism in embedding the Victorian settlement for the first six or seven decades of the twentieth century.
THE COMING CRISIS OF CLUB REGULATION
Regulation is nothing new in Britain. There was an extensive system of regulation in pre-industrial England, shaped by forces that will be entirely familiar to any modern observer: the competition between rising and falling industry; the efforts of domestic interests to use public power to protect or expand markets at the expense of foreign competitors; the need to manage social problems to protect the existing social order. But while these are modern in style, the means (p.65) to realize them were pre-modern and thus ineffective. Industrialism marked a watershed in both the scale of regulatory ambitions and in the means of their realization; what we conventionally define as Victorian Britain was the era when both scale and means were combined. A distinctive Victorian regulatory state was created, and it proved extraordinarily resilient: as late as the 1960s, we could still see its essential outlines. It turned up, and persisted, in the most unexpected places. What could seem more exposed to the adversarial world of democratic politics, for instance, than the regulation of industrial relations, striking as it did at the heart of class relations in a society where class was the dominant organizing mode of politics? Yet, as late as the 1960s, key assumptions of club regulation, notably the insistence on informality, cooperation, and freedom from state control, still guided policy in industrial relations. Here is the summary given by the Donovan (Royal) Commission into trade unions and employers' associations of the state of the regulatory art in 1968:
Until recent times it was a distinctive feature of our system of industrial relations that the State remained aloof from the process of collective bargaining in private industry … This abstentionist attitude has reflected a belief that it is better in the long run for the law to interfere as little as possible in the settlement of questions arising between employers and workmen (sic) over pay and conditions of work. Parliament has long been committed to the view that the best means of settling such questions is voluntary, collective bargaining.142
The fate of Donovan—the fact that the Commission was wracked by internal divisions, and the fact that the analysis of the majority Report was swept away in the events of the early 1970s—was indeed one early sign of the decay of the club system.143
The character of the Victorian regulatory state, and of its twentieth-century legacy, was critically linked to the timing of its development. Like so much else in the evolution of British institutions, the fact of early industrialism was crucial. The Victorian regulatory state was created in a world where formal democracy existed only as a frightening spectre, and where oligarchies, both local and national, controlled politics; where business was a hegemonic interest and, therefore, where the crucial struggles were between different factions of business; and where the state had few of the fiscal and bureaucratic resources that it acquired in the twentieth century. The early decades of that century saw challenges to the system of club rule: the extension of formal democracy; the rise of the Labour Movement, itself a muffled echo of the frightening threats to the established order from the revolutionary socialism that swept across large parts of Europe; the growing scale of state intervention; cultural changes—like the decline of established religion and the changed condition of women—that threatened traditional hierarchies. Embedding Victorian regulatory institutions and practices in the twentieth century helped provide defences against these developments: it privileged the tacit knowledge of insiders over systematic public knowledge and it insulated regulatory worlds from those of parliamentary (p.66) and electoral politics. Viewed thus, the persistence of these patterns into the era of democratic politics is hardly surprising: they were needed to provide protection from democracy. In this way, the great Victorian apprehensions about the revolutionary consequences of popular rule were averted.
Institutionally and ideologically, the system of self-regulation was at the heart of all this. Its watchwords—informality, flexibility, cooperation—summarized the dominant British regulatory ideology. The club-like structure of so much self-regulation in the professions and in the City was the institutional epitome of this wider system of club government. The scale and reach of the system of self-regulation was the key to insulating interests from democratic control, for easily the most effective form of protection was to organize an activity out of politics altogether, by defining it as belonging to the domain of self-regulation. But this was a strange, historically fragile settlement: oligarchy designed to provide protection against democracy. It was bound to pitch into crisis sooner or later. When the crisis came it was particularly deep in the worlds of self-regulation. This is the subject of Chapter 4.
(15.) Much of this turns on debates about the character of the ‘nineteenth-century revolution in government’: see MacDonagh (1958) and Parris (1960), and for an attempt to unravel the skeins in the arguments, see Cromwell (1966).
(57.) This brusque summary, nevertheless, glosses over considerable variation in success in realizing professionalization strategies: for some sense of this variation at mid-century, see Reader (1966: 59–72).
(80.) The most economical way to get a picture of this uniqueness is via the landmark official reports on the financial system in the twentieth century: Committee on Finance and Industry (1931a: 25–45), Committee on the Working of the Monetary System (1959: 42–109), and Committee to Review the Functioning of Financial Institutions (1980: 288–318).
(97.) This relies on Kynaston (1999: 185–211, 323–53) and Sayers (1976: ii. 501–60), which is particularly important on the connection in the 1930s between domestic financial system management and the wider problems of international financial diplomacy.
(110.) For a vivid account of how far the Bank (and especially the Governor) was informally managing competition across markets in the wake of the Great Crash, see Kynaston (1999: 380–429); for a more formal study of the growth of restrictive practices in one key part of the financial system, see Griffiths (1973).
(121.) See Tropp (1957: 269) for a passage on the growth of teacher autonomy in the classroom by the 1950s—a passage that will read bizarrely to any teacher subjected to the regulatory regime of the last decade discussed in Chapter 6.
(137.) The authoritative exposition, and critique, of this historically embedded ideology is in Committee on the Civil Service (1968), especially pp. 9–15; the historical development of the ideology is well described in R. Thomas (1989: 33–71); and an entertaining exposition of the ideology is Sisson (1959: 13–37, 132–49).