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The quiet side of debt: public debt management in advanced economies
Abstract
Whilst both the level and the make-up of public debt are high salience issues, the management of public debt seldom commands public attention. This study examines the quiet politics of public debt management in advanced capitalist societies, comparing debt management reforms and the everyday practice of debt management in Germany and the UK. We present evidence of two factors contributing to the political quietude around public debt management: a persistent absence of partisan contestation and conflict; and the dominance of ‘market discipline’ as an interpretative frame, which prevents changes in interest rates and debt servicing costs to be seen as the product of faulty debt management. We also find that this quietude creates a space for the coordination and cooperation between contemporary capitalist states and large dealer banks, whose capacities effectively to act within their respective domains depend on each other.
This article examines how the European Commission went from being an occasional participant in capital markets in the 1970s to an established bond issuer by the 2020s. As a result of these changes, the Commission has moved away from its traditional model of back‐to‐back lending using a wide array of funding instruments towards the regular issuance of EU bonds and bills in the style of a European treasury. Using a principal–agent approach, we ask whether this shift was driven by member states seeking to reap the benefits of collective borrowing or rather by slippage by the Commission aimed at spurring European integration. Our results show that the Commission's occasional attempts to advance wider political objectives were rebuffed by member states, which, nonetheless, ultimately embraced the idea of a European treasury. Our findings emphasise the logic of delegation over agency slack when it comes to the EU's evolution as a borrower.
Digital governance is a public concern, yet under private control. After numerous scandals, all stakeholders in the European Union (EU) agreed to establish a “novel constitution for the internet” that would effectively constrain the power of large platforms. Yet the Digital Services Act (DSA) ultimately legitimized and institutionalized their position as the gatekeepers of the internet. Why? We argue that platforms prevailed thanks to their ability as intermediaries to quietly shape the available policy options. Our “ platform power mechanism” combines institutional and ideational sources of business power to show how big tech drew on its entrenched position as an indispensable provider of essential services and promulgated the idea of itself as a responsible and neutral intermediary. We follow the unfolding of platform power through a process-tracing analysis of Google and Meta’s activities with respect to DSA legislation from its announcement (2020) to its adoption (2022). Besides contributing a reconceptualization of the DSA as a regulatory capture, we integrate the notion of platform power into a “regulator–intermediary–target” model and demonstrate how gatekeepers have exploited information asymmetries to share “the public space.” Our analysis thus supplements established approaches that have derived regulators’ deference to platforms from the tacit allegiance of consumers.
Vast literature studies Independent Regulatory Agencies (IRAs). We contribute by studying the benefits of independence when the agent's work is relational and by studying developing and developed democracies worldwide and over many years. We do this by studying national Debt Management Offices (DMOs)—the state agencies that plan, issue, and manage national debt. DMOs define the benchmark assets on which capital markets and monetary policy depend—industry standards—and their decisions have allocative implications. We argue that formal independence of DMOs from political decision‐makers is a costly signal to large financial institutions on the government's potential to service and repay its debts. We introduce a new country‐year dataset of DMO legislation for 75 developing and developed democratic countries in the period 1950–2013. We find that DMO independence is likelier following debt defaults, war, high inflation, and high debts, and that DMO independence increases sovereign debt credibility.
This paper contributes to Comparative Political Economy (CPE), developing an analytical concept of corporate welfare. Corporate welfare-the transfer of public funds and benefits to corporate actors with weak or no conditionality-is a prominent form of state-business relations that CPE scholarship regularly overlooks and misinterprets. Such transfers should be understood as a structural privilege of business in a globalized post-Fordist capitalism, and an increasingly common strategy through which states attempt to steward national economic dynamism within a highly constrained range of policy options. However, without a well-developed concept of corporate welfare-premised upon the key criterion of conditionality-studies that identify a "return" of the state in industrial planning misrepresent these transfers to business as a reassertion of state influence and control, rather than a reflection of state weakness and subordination. The paper provides the analytical building blocks to properly conceptualize transfers to business, works out the core challenges for empirical research, and provides empirical illustrations of this burgeoning phenomenon from the fields of unconventional monetary policy, privatization, and urban political economy.
This article comments on a special issue of Politics & Society that examines “quiet politics” and the power of business in an era of “noisy politics.” The scholarship brought together in the issue shows that the world of business has indeed changed in the decade since Quiet Politics and Business Power was published, but also that quiet politics as a mode of low-salience interest advocacy seems alive and well. Building on this research, the article analyzes the different ways in which the rise of populist, noisy politics challenges business, how it challenges scholars studying business power, and how it challenges the functioning of the central feedback mechanism connecting political elites to mass publics in democracies—the media.
This forum contribution outlines four propositions of the critical macro-finance approach: (1) US-led financial globalization has structurally evolved around market-based finance, driven by the production of new asset classes and the Americanization of national financial systems with changing practices for producing liquidity; (2) global finance is a set of interconnected, hierarchical balance sheets, increasingly subject to time-critical liquidity; (3) credit creation in market-based finance involves new forms of money (systemic liabilities); and (4) market-based finance structurally requires a derisking state, for both systemic liabilities and for new asset classes. The precise contours of the derisking state are determined through political struggles.
Cross-border state-led investment is a recently rising, but understudied phenomenon of the global political economy. Existing research employs an anecdotal and case-oriented perspective that does not engage in a systemic, large-scale analysis of this rise of transnational state investment and its consequences for the transformation of state power in 21st century capitalism. We take a first step at filling this gap and offer two
original contributions: Conceptually, we operationalize transnational foreign state-led investment on the basis of weighted ownership ties. These state capital ties are created by states as investors in corporations around the world. Empirically, we demonstrate our approach by setting up and analyzing the largest dataset on transnational state capital up to date. We show which different outwards strategies states as owners employ and classify states according to their relative positions within the global network of transnational state capital. Our results illustrate a crucial aspect of the ongoing transformation of state power and sovereignty within globalization and we demonstrate how a careful and data-driven approach is able to identify different pathways and dimensions of this transformation.
This article scrutinizes the impact of foreign bond ownership on market discipline, that is the mutual responsiveness of financial markets and sovereign borrowers. The empirical investigation covers 12 advanced economies during the Great Moderation (1981–2008). This article finds no evidence that foreign bond investors affect the sensitivity of bond spreads to fiscal policy. Reversely, results show that government responsiveness to market pressure is contingent on the make-up of its investor base. Bond spreads spur on fiscal consolidation. The larger the share of foreign bond investors, the bigger this effect.
Until recently, central banks were hardly recognized as protagonists of financialization. This situation changed with the financial crisis of 2007-8, which triggered an interdisciplinary debate about central bankers’ “benign neglect” towards financial inflation and the associated risks. Most research since then has focused on the neoliberal institutional contexts of monetary policy making, the influence of neoclassical ideas, and different forms of capture. The present article moves beyond these accounts by showing how the alignment between practices of monetary governance and financial markets can explain central banks’ endorsement of increasingly fragile structures of liquidity and their ignorance towards growing amounts of debt. We analyze the processes of abstraction by which the “programmes” and "technologies” of monetary governance were aligned with market
structures, producing a regime of policy-making that was later called “inflation targeting”. As our empirical cases, we discuss the Federal Reserve’s experiments with different policy frameworks in the 1980s and the Bank of England’s twisted path to inflation targeting in the period from 1979 to 1997. These empirical cases allow us to demonstrate that the “infrastructural power” of contemporary central banking is predicated on the same institutional foundations that make financialization possible.
This article is concerned with the genesis of German financial liberalisation. A refined inventory of financial system change – including new meso-level data on finance pattern and the marketisation of banking – reveals a varied pattern of change across German finance. It is argued that this financial diversification can only be understood with careful reference to the underlying ideational factors. An analytical narrative traces how technocratic ideas of financial modernisation during the 1980s began to open up space for the political program of finance capitalism to absorb liberal and leftist discontents with insider control and bank dominance. Upon reaching a tipping point of discursive dominance, the program was distinctly adopted across the political economy as the result of compartmentally different political, ideational and structural factors; creating a non-hegemonic financial paradigm that became identifiable in the face of recent crises. By developing analytical steps that link incremental and dynamic theories of institutional change in a conceptual framework of belief shifts, the paper contributes to efforts of adapting existing models of change to complex domains and accounting for the dynamic nature of the paradigm-generating process. The findings inform the larger debate about internal capitalist diversity and the coherence of national economic models.
The wide-ranging varieties of capitalism literature rests on a particular conception of banks and banking that, the authors argue, no longer reflects the reality of modern financial systems. They take advantage of the greater information regarding bank activities revealed by the financial crisis to consider the reality, across eight of the world's largest developed economies, of the financial power of banks to act as bulwarks against market forces. This article offers a market-based banking framework that transcends the bank-based/capital market–based dichotomy that dominates comparative political economy's consideration of financial systems and argues that future CPE research should focus on the activities of banks. By demonstrating how market-based banking increases market influences on the supply of credit, the authors highlight an underap-preciated source of financial market pressure on nonfinancial companies (NFCs) that can have a potential impact across the range of issues that the varieties of capitalism (VoC) literature has seen as differentiating national systems. This approach has implications in areas such as labor, welfare, innovation, and flexibility.
Voluntary codes of best practice have become increasingly prominent in corporate
governance regulation. Given their similarity in focus and substance, the global
spread of private self-regulation in corporate governance is often attributed to
the rise of institutional investors and seen as signalling a global convergence of stan-
dards among the traditionally divergent national corporate governance systems.
Drawing on institutionalist approaches of Comparative Political Economy, we
argue that national code developments are strongly shaped by national state–
economy relationships, in particular by domestic ‘key coalitions’. Comparing the
emergence of corporate governance codes in the UK and Germany, our study
reveals marked differences with respect to the formulation, substance and function
of codes in national corporate governance. In the UK, the code largely reflects the
demands of institutional investors for stricter standards. In contrast, members of
the traditional German ‘stakeholder coalition’ pushed for a code that was intended to be more a Marketing than regulatory Instrument.
Paired comparison is a strategy of political analysis that has been widely used but seldom theorized. This is because it is often assimilated to single-case studies or regarded as a degenerate form of multicase analysis. This article argues that paired comparison is a distinct strategy of comparative analysis with advantages that both single-case and multicase comparisons lack. After reviewing how paired comparison has been dealt with in comparative politics, the article details a number of its advantages and pitfalls, illustrates them through the work of four major pairing comparativists, and proposes what is distinct about the strategy. It closes with a number of suggestions for using paired comparison more effectively.
The conventional wisdom in support of central bank independence rests on a series of contestable arguments about the relationship between democracy, policy making, and economic outcomes. Empirical work casts doubt on the severity of the inflationary problems purportedly solved by delegation to independent central banks, as well as raising questions about the linkages between delegation and superior economic outcomes. So why delegate? Theories of institutional isomorphism, or the copying of organisational models, provide an alternative sociological explanation of the diffusion of central bank independence. Drawing on this approach, it is argued that governments choose central bank independence because delegation has important legitimising and symbolic properties that are attractive to political leaders in times of economic uncertainty. Delegation to independent central banks is rational, efficient, and acceptable in a democratic society because of the cultural processes which define it as such, not because of the functional requirements of economic management.
This study examines postwar patterns in macroeconomic policies and outcomes associated with left-and right-wing governments in capitalist democracies. It argues that the objective economic interests as well as the subjective preferences of lower income and occupational status groups are best served by a relatively low unemployment-high inflation macroeconomic configuration, whereas a comparatively high unemployment-low inflation configuration is compatible with the interests and preferences of upper income and occupational status groups. Highly aggregated data on unemployment and inflation outcomes in relation to the political orientation of governments in 12 West European and North American nations are analyzed revealing a low unemployment-high inflation configuration in nations regularly governed by the Left and a high unemployment-low inflation pattern in political systems dominated by center and rightist parties. Finally, time-series analyses of quarterly postwar unemployment data for the United States and Great Britain suggests that the unemployment rate has been driven downward by Democratic and Labour administrations and upward by Republican and Conservative governments. The general conclusion is that governments pursue macroeconomic policies broadly in accordance with the objective economic interests and subjective preferences of their class-defined core political constituencies.
The authors present an alternative to power resource theory as an approach to the study of distribution and redistribution. While they agree that partisanship and union power are important, they argue that both are endogenous to more fundamental differences in the organization of capitalist democracies. specifically, center-left governments result from pr consensus political systems (as opposed to majoritarian systems), while strong unions have their origins in coordinated (as opposed to liberal) capitalism. These differences in political representation and in the organization of production developed jointly in the early twentieth century and explain the cross-national pattern of distribution and redistribution. The clusters have their origins in two distinct political economic conditions in the second half of the nineteenth century: one in which locally coordinated economies were coupled with strong guild traditions and heavy investment in cospecific assets and one in which market-based economies were coupled with liberal states and more mobile assets.
A striking paradox underlies corporate governance reform during the past fifteen years: center-left political parties have pushed for pro-shareholder corporate governance reforms, while the historically pro-business right has generally resisted them to protect established forms of organized capitalism, concentrated corporate stock ownership, and managerialism. Case studies of Germany, France, Italy, and the United States reveal that center-left parties used corporate governance reform to attack the legitimacy of existing political economic elites, present themselves as pro-growth and pro-modernization, strike political alliances with segments of the financial sector, and appeal to middle-class voters. Conservative parties’ established alliances with managers constrained them from endorsing corporate governance reform.
Although the concept of depoliticisation has existed as an important theme in a range of disciplines for some time, in recent years it has become a significant issue for scholars interested in European politics, governance and public policy. Within the same period depoliticisation has been championed by government ministers and proposed by think tanks and pressure groups at the national level as a solution to both public policy and constitutional challenges. At the global level depoliticisation has been promoted by the World Bank and United Nations as a means through which developing countries can enhance state capacity and market credibility. However, the wider literature on depoliticisation has arguably failed to offer any definitional clarity. Nor has it sought to tease apart and deconstruct the concept of depoliticisation in order to distinguish between different types of depoliticisation tactics or understand the interplay between them. This article gleans insights from a number of disciplines and synthesises the wider literature in order to offer a multi-level analytical framework. This framework, it is suggested, facilitates a deeper understanding of contemporary depoliticisation strategies, tools and tactics while also providing an insight into shifts in contemporary modes of governance.
Digitalization is likely to have a lasting impact on work, welfare, health, education, and the income distribution. It will radically transform not only social risks but also the means by which these are addressed. The contributions to this volume explore how digitalization—in different forms—affects the welfare state. They study how it influences concrete social policies as well as the underlying power relationship between actors, i.e. the politics of the welfare state. The volume brings together internationally renowned welfare-state scholars to identify a) the socio-economic challenges resulting from rapid technological change; b) the ensuing political conflicts in the domain of welfare state reform broadly defined; and c) the ways in which these changes challenge and shape existing labour market and welfare state arrangements. Overall, the volume explains the potential and real political and policy responses to these challenges, grasps the contours of future developments, and reflects on whether the current wave of technological change might promote the emergence of a new paradigm of welfare state policy making. We adopt a forward-looking yet empirically-grounded perspective on the impact of digitalization on the welfare state. Based on this approach, the volume uniquely offers a theoretically informed empirical basis for social science and public debates about the long-term implications of the digital revolution for the welfare state, covering a broad range of policy areas such as education, pensions, labour market policies, tax policy, and health care.
5G networks are at the center of geopolitical competition. The United States has denounced market leader Huawei's ability to break into allies' sensitive networks and it has tried to convince Europeans to ban the Chinese group from their 5G markets. How are European governments and industries reacting to 5G politicization? This article argues that government‐industry interactions in the handling of politically salient issues are mediated by the country's political system. In executive‐dominated countries, the government would centralize policymaking. In parliament‐dominated countries, the government would delegate politically salient issues to the industry to bypass diffuse power‐sharing and fragmented coalition‐building. The article adds that political economy acts as an intervening variable. In public governance ecosystems, governments and industries interact through informal coordination; in private governance ecosystems, the two actors rely on formal contracting. The empirical analysis focuses on British, Dutch, French, and Italian reactions to 5G politicization, yielding favorable results to the hypotheses.
During most of the twentieth century, it was possible to consider Switzerland a coordinated market economy, characterized by dense interfirm networks and the strong role of business associations. Thanks to their cohesion and collective organization, in a context of quiet politics and informal institutions, business elites could largely self-regulate major socioeconomic issues in the shadow of politics. However, since the end of the twentieth century, Swiss business elites have undergone profound changes not only in their composition, but also in their coordinating capacity, their growing political divisions, and their connections to politics. This growing sociological and political fragmentation, combined with changes in the way of doing politics, through noisier and more formal politics, has weakened the instrumental power of Swiss business elites. To compensate for this loss of direct influence, business elites of the largest Swiss companies have developed new political strategies, relying on their growing structural power in a context of global and financial capitalism.
This introduction summarizes the main contributions of this special issue titled “Quiet Politics and the Power of Business: New Perspectives in an Era of Noisy Politics.” The four articles in the issue use and extend Culpepper’s influential concept of “quiet politics” according to which business is able to shape policies and regulations when issues are of low salience to the public and politicians. The issue takes Culpepper’s analysis further in ways that respond to the rise of noisy politics over the last few years, often associated with new strident forms of left- and right-wing populism. Three contributions are made. First, the articles show that salience is not an inherent property of a policy area but is socially constructed. Second, a variety of strategies are described that business uses when trying to keep politics quiet. Third, strategies are affected by the structure of business, which varies across types of capitalism. Future research can use these insights to extend our understanding of the limits, strategies, and dynamics of quiet politics across political economies.
The pre-crisis rise and post-crisis resilience of European repo and securitization markets represent political victories for the interests of large banks. To explain when and how finance wins, the literature emphasizes lobbying capacity (instrumental power) and the financial sector’s central position in the economy (structural power). Increasingly, however, finance also enjoys infrastructural power, which stems from entanglements between specific financial markets and public-sector actors, such as treasuries and central banks, which govern by transacting in those markets. To demonstrate the analytical value of this perspective, the article traces how the European Central Bank (ECB), motivated by monetary policy considerations, has shaped post-crisis financial policymaking in the EU. It shows that the ECB has played a key part in fending off a financial transaction tax on repos and in shoring up and rebuilding the securitization market. With market-based forms of state agency on the rise, infrastructural entanglement and power shed new light on the politics of finance.
The rise of central bankers to the status of new ‘masters of the universe’ has been matched by mounting allegations of political overreach. In the Eurozone, for instance, the European Central Bank has increasingly been accused of straying into the fiscal realm. Why do politically independent central banks engage intensely and publicly with government policies, thereby threatening the neat separation between monetary and fiscal policy that was meant to protect central banks themselves from interference? While existing political economy accounts have focused squarely on the issues of government debt and central bankers’ fears of fiscal dominance, we argue for the emerging role of ‘financial dominance’ throughout the crisis, thereby shedding light on the structural forces that master the new masters of the universe. To this end, we pursue a mixed-methods approach, combining quantitative text analysis techniques with a qualitative understanding of the context in which central banks communicate on fiscal policy.
This book analyzes public debt from a political, historical, and global perspective. It demonstrates that public debt has been a defining feature in the construction of modern states, a main driver in the history of capitalism, and a potent geopolitical force. From revolutionary crisis to empire and the rise and fall of a post-war world order, the problem of debt has never been the sole purview of closed economic circles. This book offers a key to understanding the centrality of public debt today by revealing that political problems of public debt have and will continue to need a political response.
Today’s tendency to consider public debt as a source of fragility or economic inefficiency misses the fact that, since the eighteenth century, public debts and capital markets have on many occasions been used by states to enforce their sovereignty and build their institutions, especially in times of war. It is nonetheless striking to observe that certain solutions that were used in the past to smooth out public debt crises (inflation, default, cancellation, or capital controls) were left out of the political framing of the recent crisis, therefore revealing how the balance of power between bondholders, taxpayers, pensioners, and wage-earners has evolved over the past 40 years.
Today, as the Covid-19 pandemic opens up a dramatic new crisis, reconnecting the history of capitalism and that of democracy seems one of the most urgent intellectual and political tasks of our time. This global political history of public debt is a contribution to this debate and will be of interest to financial, economic, and political historians and researchers.
Chapters 13 and 19 are available open access under a Creative Commons Attribution 4.0 International License via link.springer.com.
This paper tackles one of the most recent issues in international and comparative political economy: the process of state financialization. Although research on global financial markets has revealed that states play a crucial role in private sector financi-alization, until recently, much less attention has been paid to state financialization itself. This includes both the measurement of crosscountry variation and the question of why this process unfolds unevenly across political economies. We propose a perspective that focuses on two areas, the management of public debt and assets, and the various ways in which states are active in financial markets. Bridging material and cultural concepts in political economy, we differentiate between the reliance on financial markets as governance mechanism and the adoption of a sense-making framework grounded in financial economics and the shareholder-value model. We distill four indicators, trace cross-national and inter-temporal developments in 36 European countries since 1990, and explore how far this variation is associated with domestic and international political economic factors. The paper concludes that state and private sector financialization are mutually reinforcing processes. In addition , future research must pay strong attention to the tensions between finance and democracy as well as the distributive consequences of state financialization.
We examine UK debt management using a new monthly dataset on the quantity and market price of every individual bond issued by the government since 1694. Our bond-by-bond dataset identifies variations in the market value of debt and so captures investors’ one-period holding returns, which is the cost of debt management in the government’s intertemporal budget constraint. We find a substantial cost advantage in favor of issuing short bonds, even when considering some of the operational risks implied by cash flows and gross redemptions. (JEL F34, G15, H63, N23, N24, N43, N44)
Despite much commentary in the media and the popular assumption that the banking industry exerts undue influence on government policy-making, the academic literature on the role of the banks since the 2008 financial crisis remains theoretically and empirically under-specified. In particular, we argue that different forms of financial power are often conflated, while favorable policy outcomes are too-readily assumed to be evidence of regulatory capture. In short, we still know relatively little about how bank influence varies over time and in different national contexts, the extent to which banking interests are unified or divided, and the conditions under which banks are capable of producing meaningful variation in policy outcomes. This article has three objectives: 1) to explain why the debate on bank influence matters; 2) to examine the evidence of bank influence since the international financial crisis; and 3) to set out a range of conceptual tools for thinking about bank power.
Sovereign debt management (SDM) requires decisions about the composition and structure of central government debt. Nowadays the process is delegated to professional debt management offices (DMOs), which use complex financial instruments and resort to capital markets. Parliaments in some countries have expressed concern over losing control of SDM. This article devises two indices to measure parliamentary control over SDM and DMOs’ implementation flexibility. It applies both indices to original data from 17 OECD countries. The article finds that parliaments’ legal authority over SDM and rights to information pertaining to it relate to their general power as well as economic and SDM financialisation. There is no trade-off between parliamentary strength and DMOs’ flexibility in operational decisions. These findings are of interest for research on parliamentary power, financialisation and delegation. To draw causal inferences from these associations more research is needed on the timing, politics and consequences of institutional change towards professional DMOs.
What happens to European Union (EU) fiscal policy coordination in hard times? Recent accounts of the EU have portrayed the Union as plagued by an austerity regime and rampant moral hazard. Charlotte Rommerskirchen provides an alternative account of economic cooperation in Europe during the Great Recession and the European Debt Crisis. Drawing on Mancur Olson’s theory of collective action, EU Fiscal Policy Coordination in Hard Times combines evidence from statistical analysis and extensive interviews with key players. This book reaches an unexpected conclusion regarding the state of collective action in times of crises: Free riding was not rife. Despite heated accusations, member states’ crisis policies matched their fiscal room for maneuver. The real collective action failure is instead diagnosed in the inability to sanction free riders at the EU level and empowering erratic bond markets to discipline governments.
Cambridge Core - Economic Theory - The Wealth Effect - by Jeffrey M. Chwieroth
The financial market crises of 2001/02 and 2007/08 and the sovereign debt crisis that started in 2011 had adverse effects on financialised pensions such as pension funds. In general, moments of crises are major shocks to existing equilibriums and policies and open windows of opportunity for policy change. Did these crises trigger a slowdown or reversal of pension financialisation? This article finds that Germany, the Netherlands and the United Kingdom took similar steps along the pension financialisation path by intensifying the reliance of pension funds on financial markets despite the occurrence of three financial crises. The reinforcement of pension financialisation can be explained by the entrenched interests of several actors in finance, employers, the state, and trade unions, who have no interest in the collapse of pension funds.
Cambridge Core - Economic Theory - The Bank of England and the Government Debt - by William A. Allen
The financialization of sovereign debt management has received attention in comparative political economy studies. While previous studies have highlighted the cross-national commonality of this process and the congruence of interests between finance and governments, the analysis of the role of finance and state agency in domestic reform processes is still under-exposed. By analysing the financialization of government debt management in the two early adopter countries, New Zealand and Ireland, this study seeks to close this gap. The study shows that differences in the structure of financial markets and the civil service systems resulted in different policymaking processes through which Treasury civil servants brought financial economics into the reforms. In New Zealand, economists had an in-house position within the Treasury and were able to frame the decision-making process (ideational explanation), while in Ireland, finance successfully lobbied senior civil servants who sponsored these efforts (interest explanation). With this finding, this article reveals the multiple channels that lead to sovereign debt management financialization.
For the past 20 years, Economic and Monetary Union (EMU) institutions have sought to engineer a single safe asset that would provide a credible store of value for capital market participants. Before 2008, the European Central Bank used shadow banking to create a single safe asset that we term shadow money, and in doing so also erased borders between Euro area government bond markets. Lacking appropriate ECB support, shadow euros could not withstand the pressures of the global financial crisis and brought down several periphery euro government bonds with them. Two new plans, the Capital Markets Union and the Sovereign Bond-Backed Securities, again turn to shadow banking, this time by using securitization to generate an entirely private safe asset or a public–private safe asset. Such plans cannot solve the enduring predicament of EMU’s bond markets architecture: that Member States have competed for investors (liquidity) since the introduction of the euro, betraying a deep hostility towards collective political solutions to the single safe asset problem. Technocratic-led, market-based initiatives need to persuade EMU states that there is little threat to their ability to issue debt in liquid markets. Without ECB interventions, market-based engineering of single safe assets runs the danger of repeatedly destabilizing national bond markets.
Studying the political economy of welfare state reform, this edited collection focuses on the role of public opinion and organized interests in respect to policy change. It highlights that welfare states are hard pressed to reform in order to cope with ongoing socio-economic and demographic challenges. While public opinion is commonly seen to oppose welfare cuts and organized interests such as trade unions have tended to defend acquired social rights, this book shows that there have been emergent tendencies in favour of reform.
Welfare State Reforms Seen from Below analyses a wide range of social policies affecting healthcare, pensions and the labour market to demonstrate how social groups and interest organizations differ and interact in their approaches to reform. Comparing Britain and Germany, with its two very different welfare states, it provides a European perspective on the changing approaches to welfare.
This book will be of interest to those wanting to learn more about the politics of the welfare state and of relevance to students and academics in the fields of political economy and comparative social policy.
This article focuses on the central position of sovereign debt securities in the financial system to challenge existing accounts about the 1986 ‘Big Bang’ deregulation of the City of London’s securities market. The reforms are often cast as an iconic moment of neoliberal deregulation and a key episode in the globalization of financial markets. Such accounts stress that the state played an active role in constructing the reforms and upholding the global market relations they produced, yet they remain unclear about the state’s direct interest in pursuing financial market liberalization. The article contends that domestic concerns over sovereign debt management were central to the state’s pursuit of regulatory change. The Big Bang reforms greatly expanded the size and liquidity of the market for British sovereign debt. This empowered the state, improving its capacity to conduct monetary policy and to raise finance on better terms. In doing so, the article demonstrates the necessity of examining sovereign debt management in order to specify the state’s role in the construction of financial globalization.
Does democracy control business, or does business control democracy? This study of how companies are bought and sold in four countries – France, Germany, Japan, and the Netherlands – explores this fundamental question. It does so by examining variation in the rules of corporate control – specifically, whether hostile takeovers are allowed. Takeovers have high political stakes: they result in corporate reorganizations, layoffs, and the unraveling of compromises between workers and managers. But the public rarely pays attention to issues of corporate control. As a result, political parties and legislatures are largely absent from this domain. Instead, organized managers get to make the rules, quietly drawing on their superior lobbying capacity and the deference of legislators. These tools, not campaign donations, are the true founts of managerial political influence.
Financial markets play an indispensable role in the management of
sovereign debt, that is, the mechanics of how and from whom
governments borrow. This paper suggests a novel, two-dimensional concept to measure the financialisation of sovereign debt management (SDM): (1) the reliance on financial markets as a governance mechanism and (2) the adoption of a sense-making framework grounded in financial economics. We split this concept into nine indicators and apply it to data from 23 OECD countries between 1980 and 2010. Our analysis illustrates the predominant commonalities across countries, but at the same time, country-specific differences. We interpret them as two sides of the same coin in the light of an overarching trend of increasing alignment to financial markets. This article is not only one of the first cross-national as well as longitudinal studies of the dynamics in SDM; it
also reveals that the relationship between finance and governments in the SDM is by no means one-sided.
In its capacity as debt issuer, the state has played a growing role in financial life over the last 30 years. To examine this role and connect it to shadow banking, the paper develops the concept of the ‘repo trinity’, which captures a set of policy objectives that central banks outlined after the 1998 Russian crisis, the first systemic crisis of collateral-based finance. The repo trinity connected financial stability with liquid government bond markets and free repo markets. It further reinforced the dominance of the US government bond market as institutional template for states adjusting to a world of independent central banks, market-based financing and global competition for liquidity. Central banks and the Financial Stability Board recognized the impossible nature of the trinity after 2008, attributing cyclical leverage (financial instability) and elusive liquidity in collateral markets to deregulated repo markets, markets systemic to shadow banking. The new approach triggered radical changes in crisis central banking but has not powered significant regulatory interventions in the absence of an alternative mode of organizing government bond markets.
Since 1970 the United Kingdom, like the United States, has developed a “winner-take-all” political economy characterized by widening inequality and spectacular income growth at the top of the distribution. However, Britain’s centralized executive branch and relatively insulated policymaking process are less amenable to the kind of “organized combat” that Hacker and Pierson describe for the United States. Britain’s winner-take-all politics is better explained by the rise of political ideas favoring unfettered markets that, over time, produce a self-perpetuating structural advantage for the richest. That advantage is, in turn, justified and sustained by reference to the same ideas. Inequality growth in the United Kingdom has been primarily driven by the financialization of the economy that began under the Thatcher government and continued under New Labour. The survival of pro-finance policies through the financial crisis provides further evidence that lobbying by a weakened City of London was less decisive in shaping policy than the financial sector’s continuing structural advantage and the tenacity of its supporting political consensus.
This article describes and explains a significant tightening in bank capital regulation in the United Kingdom since the 2008 financial crisis. The banks fiercely resisted the new capital regulations but in a novel theoretical contribution we argue that the structural power of business was reduced due to the changing ideas of state leaders, by changing institutional arrangements within the state and by wider open politicisation of banking reform.
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Many societies use labor market coordination to maximize economic growth and equality, yet employers’ willing cooperation with government and labor is something of a mystery. The Political Construction of Business Interests recounts employers’ struggles to define their collective social identities at turning points in capitalist development. Employers are most likely to support social investments in countries with strong peak business associations, that help members form collective preferences and realize policy goals in labor market negotiations. Politicians, with incentives shaped by governmental structures, took the initiative in association-building and those that created the strongest associations were motivated to evade labor radicalism and to preempt parliamentary democratization. Sweeping in its historical and cross-national reach, the book builds on original archival data, interviews and cross-national quantitative analyses. The research has important implications for the construction of business as a social class and powerful ramifications for equality, welfare state restructuring and social solidarity.
This study explores the financialisation of sovereign debt through an in-depth study of institutional change in German debt management. Between 1998 and 2006, the Ministry of Finance fundamentally altered the management of federal public debt by not only disempowering the Bundesbank and Federal Debt Administration as debt managers and outsourcing this task to a new agency, the Federal Finance Agency; moreover, the conservative debt strategy was replaced by strict market orientation. Conceptualising this change as institutional innovation, the paper argues that the Ministry of Finance played a leading role in the reform process. It shows that the arrival of the Euro brought with it a power struggle between the Ministry and the Bundesbank. The evidence fits better the concept of institutional innovation as a result of entrepreneurship than approaches which conceptualise institutional innovations as consequences of profit maximisation or layering and displacement.
The rapid growth of sovereign wealth funds (SWFs) in the last few years has important theoretical implications for scholarly debates concerning the political economy of global finance. It signals a reassertion of state authority in global finance, but in a manner that scholars did not anticipate in debates that dominated this field of study during the 1990s. Those earlier debates assumed that states mattered only insofar as they could regulate global financial markets or respond to their imperatives. But the growth of SWFs has increasingly placed states in the position of becoming part of the very structure of "capital mobility" from which they were analytically distinguished in earlier analyses. This phenomenon calls attention to the problematic nature of the "states vs. market" dichotomy that drove earlier debates, while at the same time highlighting the transformative capacity of the state in the context of globalization as well as the potential agency of powerful actors – both public and private – in influencing the imperatives of "capital mobility".
Rising public debt has been widespread in democratic-capitalist political economies since the 1970s, generally accompanied among other things by weak economic growth, rising unemployment, increasing inequality, growing tax resistance, and declining political participation. Following an initial period of fiscal consolidation in the 1990s, public debt took an unprecedented leap in reponse to the Great Recession. Renewed consolidation efforts, under the pressure of ‘financial markets’, point to a general decline in state expenditure, particularly discretionary and investment expenditure, and of extensive retrenchment and privatization of state functions.
This article introduces a large new cross-country database, the Database of Political Institutions. It covers 177 countries over 21 years, 1975-95. The article presents the intuition, construction, and definitions of the different variables. Among the novel variables introduced are several measures of checks and balances, tenure and stability, identification of party affiliation with government or opposition, and fragmentation of opposition and government parties in the legislature.
This article explores the implications of the Federal Reserve’s shift to transparency for recent debates about neoliberalism
and neoliberal policymaking. I argue that the evolution of US monetary policy represents a specific instance of what I term
the “neoliberal dilemma.” In the context of generally deteriorating economic conditions, policymakers are anxious to escape
responsibility for economic outcomes, and yet markets require regulation to function in capitalist economies (Polanyi 2001). How policymakers negotiate these contradictory imperatives involves a continual process of institutional innovation in
which functions are transferred to markets, but under the close control of the state. Thus, under transparency, Federal Reserve officials discovered
innovations in the policy process that enabled “markets to do the Fed’s work for it.” These innovations enlisted market mechanisms,
but did not represent a retreat from the state’s active role in managing the economy.
A number of commentators in the 1980s sought to explain the character of the Thatcher administration. By contrast, relatively little work has been produced that seeks to analyse the principles and governing strategies of the Blair government. Focusing primarily on economic management, this article offers a characterisation of statecraft under Blair in terms of the politics of depoliticisation. In summary, it argues that the Blair government has fused aspects of traditional economic management with new initiatives to create a powerful tool of govern- ing organised on the basis of the principle of depoliticisation. Depoliticisation as a governing strategy is the process of placing at one remove the political character of decision-making. State managers retain arm's-length control over crucial economic and social processes whilst simultaneously benefiting from the distancing effects of depoliticisation. As a form of politics it seeks to change market expectations regarding the effectiveness and credibility of policy- making in addition to shielding the government from the consequences of unpopular policies. A quick survey of the history of 'governing Britain' in the twentieth century is apt to reveal that, despite much rhetoric, governments are unable to solve the fundamental problems that beset the British economy (the relative productivity problem, the decline of the staple industries, recurrent inflationary pressure, the 'boom and bust' cycle).1 This was well recognised by Jim Bulpitt, who argued that the aim of government is to achieve, in the eyes of the public, a level of governing competence, and