Varieties of Economic Crisis, Varieties of Ideational Change: How and Why Financial Regulation and Macroeconomic Policy Differ

Abstract

One of the principal tasks facing post-crash academic political economy is to analyse patterns of ideational change and the conditions that produce such change. What has been missing from the existing literature on ideational change at times of crises however, is a sense of how processes of persuasive struggle, and how the success of those ‘norm entrepreneurs’ arguing for ideational change is shaped by two contextual variables: the most immediate material symptoms and problems that a crisis displays (the variety of crisis); and the institutional character of the policy subsystem that agents have to operate within to affect change. Introducing these two variables into our accounts of persuasive struggle and ideational change enables us to deepen our understanding of the dynamics of ideational change at times of crisis. The article identifies that a quite rapid and radical intellectual change has been evident in the field of financial regulation in the form of an embrace of a macroprudential frame. In contrast in the field of macroeconomic policy – both monetary and fiscal policy, many pre-crash beliefs remain prominent, there is evidence of ideational stickiness and inertia, and despite some policy experimentation, overarching policy frameworks and their rationales have not been overhauled. The article applies Peter Hall's framework of three orders of policy changes to help illuminate and explain the variation in patterns of change in the fields of financial regulation and macroeconomic policy since the financial crash of 2008. The different patterns of ideational change in macroeconomic policy and financial regulation in the post-crash period can be explained by timing and variety of crisis; sequencing of policy change; and institutional political differences between micro policy sub systems and macro policy systems.

Keywords:

• ideational change
• varieties of crisis
• financial crash 2008
• macroeconomic policy
• austerity
• macroprudential regulation
• third order change
• Peter Hall
• policy systems

View correction statement:

Erratum

Acknowledgements

Earlier versions of this paper were presented at the ECPR joint sessions in Antwerp, 14th April 2012 and SPERI annual conference, University of Sheffield, 17th July 2012. The author would like to thank participants at these events and two anonymous reviewers for New Political Economy, from helpful comments on earlier versions.

Notes on contributor

Andrew Baker is Reader in Political Economy at Queen's University, Belfast. His research focuses on international financial governance, the politics of financial crises, the politics of economic ideas and the governance role of G groups. He is currently drafting a book on the political economy of macroprudential regulation. He is the current editor of the British Journal of Politics and International Relations. He is the author of over 30 articles and chapters, the three most recent in Regulation and Governance, New Political Economy and Review of International Political Economy. He is also the author of two books The Group of Seven (2006), and Governing Financial Globalization (2005).

Notes

1. Among BIS officials who pushed hard for macroprudential philosophies a suspicion lingers that the central banking community accepted these ideas, when previously they had been resistant, because of a calculation that macroprudential potentially takes some of the pressure and strain off monetary policy, and therefore prevents a serious or fundamental overhaul of monetary policy frameworks.

2. See note 1.

3. What is marked about the pre-crisis period is how few cases of operational macroprudential policy such as the system of countercyclical capital buffers or ‘dynamic provisioning’ in Spain and India there were. These cases were outliers and subsequently held up as functioning examples of macroprudential policy. The predominant attitude towards macroprudential policy among advanced country regulators was one of scepticism.

4. I am grateful to Mark Blyth for suggesting this insightful phrase.

5. Note the scholarship of Blyth (2002) and Helleiner (2010) on the response to the Wall Street Crash and the Great Depression emphasises that the macroeconomic settlement of embedded liberalism and of the Bretton Woods agreement took over 15 years to construct, following the initial point of financial distress in 1929.