In “Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State,” Paul Tucker tackles one of the most pressing yet underexplored questions of modern governance: How can institutions like central banks, which are not directly accountable to the electorate, wield so much power over the economy? Tucker, a former Deputy Governor of the Bank of England, combines his firsthand experience with scholarly insights to explore the legitimacy of unelected institutions and how their authority can be reconciled with democratic values. This book provides a compelling exploration of central banking and regulatory power, posing significant questions about governance and legitimacy that resonate in today’s economic and political climate.

The book is divided into several key sections, each addressing different aspects of central banking, legitimacy, and governance. Tucker breaks down complex topics into digestible pieces, allowing readers to engage with the foundational questions of authority and accountability in modern governance. Let’s explore each section in detail.

In the opening chapters, Tucker establishes the importance of central banking and regulatory institutions in modern economies. These unelected bodies manage critical functions, including monetary policy, financial stability, and market regulation. Tucker explains how the rise of independent central banks in the late 20th century was seen as a solution to inflationary pressures caused by political meddling in economic policy. This autonomy was heralded as a way to depoliticize economic management, but it also raised concerns about legitimacy in democracies.

A memorable quote that illustrates the tension in delegating power to unelected bodies is:
“Democracies are founded on the principle that power should be exercised by the people, or by their representatives, but central banks are neither.”
This statement highlights the central paradox of modern governance—how to balance expertise and democratic oversight.

Tucker uses the example of the Federal Reserve’s actions during the 2008 financial crisis to illustrate the vast power that central banks can wield. In response to the crisis, the Fed took unprecedented steps, such as slashing interest rates and launching massive asset-purchasing programs. While these actions arguably saved the financial system, they also revealed the sheer influence of an institution that operates largely outside direct democratic control.

One of the core themes of the book is the legitimacy problem faced by unelected institutions. Tucker argues that for such bodies to function within a democracy, they must meet specific criteria of legitimacy. These include clear mandates, transparency, and robust accountability mechanisms. He emphasizes the need for “constrained independence” rather than unchecked power, advocating for rules that limit discretion and ensure that institutions like central banks remain within the bounds of their mandate.

A key example Tucker uses to explain constrained independence is the Bank of England’s inflation-targeting framework. The government sets the inflation target, but the central bank is free to pursue that goal without political interference. This model allows for both independence and accountability, as the central bank is evaluated based on its ability to achieve the stated target.

Another memorable quote reflecting Tucker’s concern for legitimacy is:
“Independence is only legitimate when it is constrained by democratic principles.”
This statement underscores Tucker’s belief that autonomy should never come at the expense of accountability.

Tucker traces the evolution of central banking from technocratic institutions focused purely on economic management to governance bodies with broader regulatory responsibilities. In the past, central banks were concerned primarily with monetary policy—controlling inflation and stabilizing the currency. However, as economies became more complex and financial markets more interconnected, central banks took on new roles, including overseeing financial stability and regulating markets.

The Dodd-Frank Act, passed in the wake of the 2008 crisis, is one example Tucker explores to show how central banking expanded its reach into regulatory territory. The Act gave the Federal Reserve new powers to oversee systemically important financial institutions, making it both a central bank and a financial regulator. This expansion of responsibilities has further complicated the issue of accountability, as central banks now manage not only economic stability but also financial market health.

Tucker raises the “democratic dilemma” of how to govern effectively while ensuring democratic oversight. He argues that unelected institutions, like central banks, should adhere to principles of good governance: rule of law, reasoned decision-making, and transparency. Tucker insists that these principles are not just moral imperatives but practical necessities to maintain the trust of the public.

Anecdotally, Tucker recalls the European Central Bank’s (ECB) handling of the Greek debt crisis, where decisions were made in a highly opaque manner. The ECB’s lack of transparency and public engagement during the crisis led to widespread mistrust, illustrating the risks of failing to adhere to democratic governance standards.

A third memorable quote that encapsulates this point is:
“Legitimacy is not a luxury for unelected power; it is a necessity.”
Tucker’s assertion here reflects the core of his argument: that legitimacy must be built into the structure of unelected institutions if they are to function effectively in a democracy.

In the concluding chapters, Tucker presents a series of reforms designed to enhance the legitimacy of unelected institutions. He advocates for clearer mandates, increased transparency, and more robust accountability mechanisms. One of his central proposals is the establishment of an independent oversight body that would monitor the activities of central banks and other unelected institutions to ensure they remain within their mandates.

Tucker also suggests that central banks should engage more actively with the public to explain their decisions and build trust. He points to the Bank of England’s “Monetary Policy Reports” as a positive example of how institutions can communicate complex decisions in an accessible way. However, he acknowledges that more work is needed to bridge the gap between unelected power and democratic legitimacy.

“Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State” by Paul Tucker is a timely exploration of the role of central banks and regulatory institutions in modern democracies. Tucker’s arguments are particularly relevant in today’s global environment, where central banks wield enormous influence over economic policy but face growing scrutiny over their accountability and legitimacy. As the world continues to grapple with financial instability and economic inequality, Tucker’s insights offer valuable guidance for creating more transparent and accountable institutions.

In conclusion, Tucker’s book serves as both a critique and a guide for reform. His analysis of central banking and regulatory power raises fundamental questions about the balance between expertise and democratic oversight, and his proposals for reform offer a roadmap for creating more legitimate unelected institutions. As global challenges mount, the lessons from “Unelected Power” will only become more critical for policymakers, regulators, and the public at large.

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