Integrity in Self-Organizing Societies: The Case of Libor

Abstract

From a cross-disciplinary social science perspective, it is evident that financial and economic development is not a matter simply of a propern social structure (e.g., Laissez-faire free-market) but also requires good individual leadership (competence and honesty). Financial systems require both structure and leadership, despite some economic scholars holding to the idea of an economic structural mechanism of a ‘perfect market’. However, good leadership and proper societal structure together is not a simple process, nor certainly obtained, as empirically there are no societal ‘mechanisms’. A case, such as Libor, clearly illustrated the importance of both structure and leadership in the proper operation of societal systems. Bad leadership can corrupt a societal structure; and a corrupt societal structure can enable bad leadership. The case of Libor provides empirical evidence for the social science proposition that a financial system requires both proper government regulation and integrity in private sector operations. But this is not easily achieved in societies of self-organizing systems. We apply a cross-disciplinary framework of systems dynamics to analyze the Libor event, as a kind of challenge in the control of self-organizing societies, which are facilitated by information technology processes.