Systems thinking distinguish between three types of systemic governance or regulation: form maintaining, form creating and form destroying. It also stipulates that all three are required in any situation or system and that they need to be balanced appropriately to the specific context.
form creating regulation
This type of regulation leads to more of the same behaviour. The economic growth paradigm is driven by form creating governance – i.e. the more economic growth there is, the better it apparently is for society or organisation. Another example of this type of regulation are economic stimulation packages.
Form creation also governs the finance system. The more trading occurs, the more money can be made (hence the shift to computer based trading). Bank bailouts and performance bonuses are another example of this type of governance. After the trillions were thrown at the banking sector during the 2009 finance crisis, banks that did not trade in derivatives have jumped on the bandwagon since (e.g. in South Africa which weathered the crisis relatively well due to stringent credit criteria and the absence of derivative trading). The bank bailouts continue. The bailout of the Bank of Scotland amounted to double the education budget of the country.
If unchecked by form maintaining and form destroying governance, the form creating one has a fly-wheel effect. It tends to spin out of control, as is indeed demonstrated by increasing global industrialisation and the financial trading frenzy.
form maintaining regulation
I would argue that the current economic growth paradigm, as well as the finance paradigm, lack form maintaining governance (it was significantly reduced with the deregulation of financial markets in the 1980s; more recently, some form maintaining regulation was introduced again, albeit as yet insufficient to prevent more finance crises in the future).
In the context of a national economy, the form maintaining governance includes austerity measures and budget controls (e.g. staying within budget limits). From a systemic perspective, one would also consider limiting growth at the expense of other systems (e.g. society, or the planet).
In a financial context, it could imply the regulation and taxation of trading, limiting the money creating ability of banks, as well as exploring the ethical question of limiting the banking sector to get rich at the expense of tax payers and small scale investors.
form destroying regulation
This refers to regulation, laws and sanctions aimed at wiping out wrongful economic behaviour (e.g. illegal trade, corruption). It could also lead to eliminating or fundamentally changing (transforming) systems that destroy other systems or grow at their expense (those that are unsustainable in terms of planetary limits, exploit people and societies; or irresponsible financial behaviour).
Unfortunately, instead of form destroying governance we see form creating one (the bank bailouts and performance bonuses in the financial sector).
balance
There is currently a big debate how these three types of regulation should be balanced and implemented. We believe that the systemic distinction of governance could in-form this debate and lead to additional better insights.
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