Cornel Ban

Brazil's liberal neo-developmentalism: New paradigm or edited orthodoxy?

ABSTRACT Is Brazils economic policy regime a mere tinkering of the Washington Consensus? The evidence suggests that Brazilian governments institutionalized a hybrid policy regime that layers economically liberal priorities originating in the Washington Consensus and more interventionist ones associated with neo-developmentalist thinking. To capture this hybridity, the study calls this regime ‘liberal neo-developmentalism’. While defending the goal of macroeconomic stability and sidelining full employment, Brazilian governments also reduced reliance on foreign savings and employed a largely off-the-books stimulus package during the crisis. Brazil experienced important privatization, liberalization and deregulation reforms, but at the same time the state consolidated its role as owner and investor in industry and banking while using an open economy industrial policy and a cautious approach to the free movement of capital. Finally, while conditional cash transfers fit the Washington Consensus, Brazils steady increases in the minimum wage, industrial policies targeted at high employment sectors and the use of state-owned firms to expand welfare and employment programs better fit a neo-developmentalist policy regime. In sum, while the main goals of the Washington Consensus were not replaced with neo-developmentalist ones, Brazils policy regime saw an extensive transformation of policy orthodoxy that reflects Brazils status as an emerging power.

The BRICs and the Washington Consensus: An introduction

Over the past two decades, the spread of ideas and policies associated with the Washington Consensus has captured the attention of political economists. As a systemic feature of the global economy, this process of diffusion has merited such scholarly attention. However, the systemic shock of the Great Recession has called into question the oft-noted convergence of rising economic powers such as Brazil, Russia, India and China (BRICs), along with their supposed relationship to the Washington Consensus policy paradigm. Indeed, the crisis has brought to the fore the question of whether the BRICs have ‘grown apart’ from both the ideas and the policies prepared for them by Washington-based institutions. To date, there has been no systematic scholarly effort aimed at analysing the spread of Washington Consensus ideas and policies in relation to the rise of the BRICs. This special issue attempts to fill this gap through six contributions that bring together scholars interested in the political economy of development and the sociology of ideational and institutional change. Their main finding is that the BRICs attempted to balance their adoption of select parts of the Washington Consensus template while defending and often reinventing the relevance of state-led development policies under the guise of being compliant with the Washington Consensus itself. In so doing, they have neither pioneered a post-neoliberal transformation, nor have they proved to be simply forces for the continuation of Washington Consensus ideas and policies in the global economy. Two questions, therefore, animate this special issue: what did the Washington Consensus look like in practice? And how have the BRICs appropriated, adopted, adapted or abandoned specific aspects of this transnational policy paradigm? These are important questions for scholars of international political economy because they cut to the heart of on-going debates taking place in several social science disciplines

Grey matter in shadow banking: international organizations and expert strategies in global financial governance

ABSTRACT Who controls global policy debates on shadow banking regulation? We show how experts secured control over how issues in shadow banking regulation are treated by examining the policy recommendations of the Bank of International Settlements, the International Monetary Fund and the Financial Stability Board. The evidence suggests that IO experts embedded a bland reformism opposed to both strong and ‘light touch’ regulation at the core of the emerging regulatory regime. Technocrats reinforced each others expertise, excluded some potential competitors (legal scholars), co-opted others (select Fed and elite academic economists), and deployed measurement, mandate, and status strategies to assert issue control. In the field of shadow banking regulation, academic economists’ influence came from their credibility as arbitrageurs between several professional fields rather than their intellectual output. The findings have important implications for how we study the relationship between IO technocrats and experts from other professional fields.

Sovereign Debt, Austerity, and Regime Change The Case of Nicolae Ceausescu’s Romania

Historically, high sovereign debt and austerity policies have coincided with regime-changing popular uprisings. Nicolae Ceausescu’s Romania was no exception. Why, when faced with a sovereign debt crisis in the 1980s, did his regime choose to pay its foreign debt as early as possible, at the cost of economic recession and dramatically compressed consumption? How did these choices relate to the regime’s failure to survive the end of the decade? The article argues that while exogenous shocks shattered the economic bases of the regime, it was the ideas with which the regime understood development and interpreted the crisis that shaped government policy responses in the 1980s. When the price of oil and development finance went up abruptly in 1979, the low energy efficiency of Romanian industry pushed the country into a situation where debt levels became unsustainable. Committed to a view of development that blended nationalist and Stalinist ideas, but with a focus on policy sovereignty, Ceausescu diagnosed the crisis as evidence that debt-financed development and policy independence were incompatible. Consequently the regime decided to pay off foreign debt through a mix of austerity, import substitution, and export-led accumulation of dollar reserves. By the time all debt was paid off in 1989, the regime’s economic sources of legitimacy were exhausted. In the external environment of 1989, this policy regime change contributed to political regime change even in the absence of an organized civil society. In addition to casting a new light on the causal mechanisms of the Romanian revolution of December 1989, the findings of this article contribute to emerging scholarship that stresses the nexus between debt-induced economic crisis and popular uprisings.

The political economy of shadow banking

When most political economists talk about finance they mean the conventional banking sector that is subject to reserve requirements and other regulations but enjoying the safety nets offered by central banks. Yet this is not where the main drivers of the Great Financial Crisis were located. Instead, they were situated mostly in the non-bank part of the financial system, in the so-called shadow banking, where looser regulations and thinner public safety nets for financial institutions were the norm. Indeed, it was only at the 2007 Jackson Hole conference that Paul McCulley, a senior partner at one of the world’s largest asset managers (PIMCO), set off the alarms about the fragility of ‘unregulated shadow banks that fund themselves with uninsured short-term funding, which may or may not be backstopped by liquidity lines for real banks’. Since then, the literature on shadow banking tried to find a compromise between the position that highlights the role of shadow entities (e.g. highly levered off-balance sheet vehicles set up by conventional banks, broker-dealers, private equity firms, structured investment vehicles, money market funds or hedge funds, as in Pozsar, 2008) and the position that highlights shadow activities (securitization and secured funding markets, as in Adrian and Shin, 2010; Mehrling, 2012; Mehrling et al., 2013; McIntire, 2014; Claessens et al. 2014; Gabor and Ban, 2016). Today, the most influential view integrates shadow entities and activities into a system. Thus, the Financial Stability Board (FSB) famously defined shadow banking as the entire system ‘of credit intermediation that involves entities and activities outside the regular banking system’ (FSB, 2011; see also IMF, 2014).

Fiscal Policy in Financialized Times: Investor Loyalty, Financialization and the Varieties of Capitalism

This paper argues that scholarship on the varieties of capitalism could provide a more complete understanding of fiscal policy convergence in the Eurozone after 2010 if it better examined the interdependencies between banks and sovereigns. Recently, this scholarship has explained fiscal convergence through a global imbalances framework. While the interaction between coordinated and liberal capitalisms, and their distinctive macroeconomic policy preferences, generates global imbalances, rebalancing can only occur if the incentives governing national polities change dramatically. In Europe’s case, sudden stops in capital inflows from coordinated capitalisms triggered an asymmetric response, forcing deficit (liberal and mixed) economies to address such imbalances. As wage-setting institutions could not restore exchange rate competitiveness a la Germany, governments were compelled to adopt the conservative macroeconomics of the coordinated economies in an institutional setting ill adapted to such policies. In contrast, our account highlights the constraints that financial actors in sovereign bond markets place on the conduct of fiscal policy. Drawing on recent contributions in the literature on financialization, we introduce the concept of the ‘collateral motive’ – investors’ demand for government bonds to meet their funding needs – and link it to the shift to transnational, market-based, collateral-intensive banking models. We show how this becomes a pivotal mechanism for fiscal consolidations as the singular response to the ongoing Eurozone crisis. The implication of our argument is that recent fiscal policy in the Eurozone cannot be adequately understood without analyzing the process through which the collateral motive ignited a run on peripheral sovereign bond markets which in turn compelled states to stabilize these markets through austerity.

Beyond Anticommunism The Fragility of Class Analysis in Romania

The debate about socio-economic inequalities and class has become increasingly important in mainstream academic and political debates. This article shows that during the late 2000s class analysis was rediscovered in Romania both as an analytical category and as a category of practice. The evidence suggests that this was the result of two converging processes: the deepening crisis of Western capitalism after 2008 and the country’s increasingly transnational networks of young scholars, journalists, and civil society actors. Although a steady and focused interest in class analysis is a novelty in Romania’s academia, media, and political life and has the potential to change the political conversation in the future, so far the social fields where this analysis is practiced have remained relatively marginal.

From Cocktail to Dependence: Revisiting the Foundations of Dependent Market Economies

Recent contributions to the comparative political economy of East European capitalisms have found that a distinctive variety of capitalism emerged in some new EU member states. The new variety has been dubbed “dependent market economy” (DME). This paper makes several contributions to this literature. First, it marshals evidence to show that this institutional variety now includes the political economy of Romania, a case previously excluded from it. More importantly, this analysis also finds that earlier scholarship on dependent capitalism has failed to capture crucial mechanisms of dependence created by transnationalized finance. Third, the paper suggests that some of the arguments made in the existing scholarship on the interests of foreign capital with regard to domestic innovation and labor training need to be qualified. Finally, by showing reflexivity towards select critiques of the dependent market economy framework, the analysis proposes by this paper is a self-limited attempt to bridge the differences between the varieties of capitalism and Polanyian analyses of capitalist diversity in semi-peripheral middle-income states.

From Designers to Doctrinaires: Staff Research and Fiscal Policy Change at the IMF

Soon after the Lehman crisis, the International Monetary Fund (IMF) surprised its critics with a reconsideration of its research and advice on fiscal policy. The paper traces the influence that the Fund’s senior management and research elite has had on the recalibration of the IMF’s doctrine on fiscal policy. The findings suggest that overall there has been some selective incorporation of unorthodox ideas in the Fund’s fiscal doctrine, while the strong thesis that austerity has expansionary effects has been rejected. Indeed, the Fund’s new orthodoxy is concerned with the recessionary effects of fiscal consolidation and, more recently, endorses calls for a more progressive adjustment of the costs of fiscal sustainability. These changes notwithstanding, the IMF’s adaptive incremental transformation on fiscal policy issues falls short of a paradigm shift and is best conceived of as an important recalibration of the precrisis status quo.

Governing Crises: The International Politics of Crisis Economics in Spain and Romania

This study provides a critical review of the literature on the diffusion of crisis economics and provides an alternative theory of diffusion that responds to some of the gaps and limitations identified in the review. To do so, it first unpacks the mechanisms of international diffusion and domestic translation and then it connects them to the domestic institutional dynamics of Spain and Romania across the six crisis episodes. The main finding is that the enrollment of domestic state and non-state policy actors in international networks of authority is critical for understanding crisis resolution. At the same time, the final outcome of the crisis cannot be understood without analyzing the process through which domestic advocates alter the content of the ideas being diffused.