Friday, May 27, 2011

The Political Appeal of Financialization

. Friday, May 27, 2011

From Orgtheory's ongoing book forum on Krippner's Capitalizing on Crisis:

Ralph Nader, of course, wasn’t the only consumer activist who supported reform of Regulation Q. As Fabio described in his post, the regulation of credit was contested by a variety of interest groups, but it was the support of consumer activists like Nader that gave legislators the political cover to make these changes. Once credit markets were deregulated, the process of financialization could begin. Politicians learned from this experience that deregulation was a great way to win electoral support while also relieving them from accountability over the economy. Politicians learned their lesson and began applying it in other realms as well. The result was a gradual “depoliticization of the economy,” which Krippner describes as “the reorganization of the boundary between the political and the economic so as to allow policymakers to govern the economy ‘at one remove’” (145).

This is set in an electoral context where politicians rely on constituent approval to remain in office. The financialization of the economy, in Krippner's account, was a political winner:

On its surface this seemed like a win-win for everyone. Deregulating interest rates would expand credit availability, while also allowing banks to get more creative in their offerings to potential borrowers. In retrospect we know that this deregulation also accelerated inflation and suppressed production. This had the effect of pushing more of the economy into financial markets and fueling asset price bubbles.

What politician wouldn't love a policy that both Wall Street and Ralph Nader would support?

My first thought on reading this was to ask a comparative question: which countries financialized their economies in this way? What were the domestic and international causes of such a shift? Were the consequences similar in countries that financialized similar or dissimilar?

Any pointers to research that directly addresses these questions would be welcomed.


Anonymous said...

Gabriel Palma (at the University of Cambridge) is the best I can do.

The Political Appeal of Financialization
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