Daniel Mügge

Private-Public Puzzles: Inter-firm competition and transnational private regulation

Scholarship on private authority in the transnational realm has commonly focused on the influence or power private actors are able to exert. This paper argues, however, that what often is at stake is not so much the strength or not of private authority, but the private or public character of the institutions through which it is exercise. Politico-economic processes are always pervaded by private interests and authority, regardless of their private or public form. Therefore, this paper concentrates on the institutions itself and asks under which conditions transnational rule setting will be effected through private or public institutions – whether they will be inside the domain of the state and inter-national organizations, or formally controlled by private actors. Focusing on transnational business regulation, the paper presents several related arguments: First, in many cases transnational private regulation can be understood as a means firms dominating a transnational market segment employ to stabilize their grip on this segment and ‘keep potential competitors out’. Second, transnational private regulation is only likely to emerge if a stable ‘conception of control’ has emerged among the ‘incumbent firms’ in a market segment. Third, transnational public governance is likely to emerge if producer firms ‘draw the state back in’ in order to fend off competitive threats. The article illustrates these arguments with three empirical cases studies from financial services and business services – Eurobond underwriting, auditing, and trading services for listed derivatives.

Limits of legitimacy and the primacy of politics in financial governance

ABSTRACT What makes institutions that govern global finance legitimate? Contemporary debates, fuelled by the recent crisis, commonly draw on the concepts of input and output legitimacy to answer this question. As this article argues, however, this distinction is as difficult to apply in practice as it may be sensible in theory. Limitations in input legitimacy, which covers the inclusiveness and fairness of policy goal definition, cannot be compensated by higher output legitimacy, for example through supranational or global institutions. Whether such institutions are appropriate venues for producing policy hinges on the specific goals that they are charged to realize. And if these goals do not emerge from a deliberation process that can itself be considered legitimate, such institutions will do little to make policy outcomes more legitimate per se. After all, a supranational body might excel in the pursuit of one particular policy goal, but be wholly unsuitable to another. In short, this article argues that rather than seeking legitimacy of financial governance in the institutions through which it is made, we should focus on the desirability of specific policy outcomes and distribution of their costs and benefits when deciding how and by whom policy should be made. This argument is demonstrated using the case of capital market policy in the European Union, a case for which this article exposes serious legitimacy deficits, largely owing to an excessive influence of the financial industry compared to other societal stakeholders.

Global financial integration thirty years on: from reform to crisis

Introduction: the challenges and prospects of global financial integration Geoffrey R. D. Underhill, Jasper Blom and Daniel Mugge Part I. History and Context: Input, Output and the Current Architecture (Whence it Came): 1. Financial governance in historical perspective: lessons from the 1920s Randall Germain 2. Between the storms: patterns in global financial governance 2001-7 Eric Helleiner and Stefano Pagliari 3. Deliberative international financial governance and apex policy forums: where we are and where we should be headed Andrew Baker 4. Finance, globalisation and economic development: the role of institutions Danny Cassimon, Panicos Demetriades and Bjorn Van Campenhout Part II. Assessing the Current Financial Architecture (How Well Does it Work?): 5. Adopting international financial standards in Asia: convergence or divergence in the global political economy Andrew Walter 6. The political economy of Basel II in the international financial architecture Stijn Claessens and Geoffrey R. D. Underhill 7. The catalytic approach to debt workout in practice: coordination failure between the IMF, the Paris Club and official creditors Eelke de Jong and Koen van der Veer 8. Empirical evidence on the new international aid architecture Stijn Claessens, Danny Cassimon and Bjorn van Campenhout 9. Who governs and why? The making of a global anti-money laundering regime Eleni Tsingou 10. Brazil and Argentina in the global financial system: contrasting approaches to development and foreign debt Victor Klagsbrunn 11. Global markets, national alliances and financial transformations in East Asia Xiaoke Zhang Part III. What Does the Future Hold? Reactions to the Current Regime and Prospects for Progress (Where is it Going?): 12. Changing transatlantic financial regulatory relations at the turn of the millennium Elliot Posner 13. Monetary and financial co-operation in Asia: improving legitimacy and effectiveness? Heribert Dieter 14. From microcredit to microfinance to inclusive finance: a response to global financial openness Brigitte Young 15. Combating pro-cyclicality in the international financial architecture: towards development-friendly financial governance Jose Ocampo and Stephany Griffith-Jones 16. Public interest, national diversity and global financial governance Geoffrey R. D. Underhill and Xiaoke Zhang Conclusion: whither global financial governance after the crisis? Daniel Mugge, Jasper Blom and Geoffrey R. D. Underhill.

Europe's regulatory role in post-crisis global finance

ABSTRACT Before the crisis, the European Union (EU) had emerged as a major force in global financial governance (GFG). The contributions to this collection examine the different dimensions of the EUs role in GFG and how they have been affected by the recent crisis. Taking a birds eye view, this introduction offers three main arguments. First, the EU has stabilized, rather than challenged, established ideas in and approaches to GFG. Second, the EU continues to be one of two central nodes in GFG, which essentially still is a transatlantic affair – confounding expectations that Europe would find itself in a much more dispersed web of links with other regulatory powers around the world. Third, given its special institutional character, there are signs that a prominent EU may transform the modus operandi of GFG itself, but given present centrifugal forces it remains unclear how pronounced these dynamics will be.

Resilient neo-liberalism in European financial regulation

Introduction It is difficult to find an account of the ‘neo-liberal’ decades since 1980 that does not reserve a special place for unshackled financial markets. This is true not only for the United States but also for the European economies that are the focus of this volume and chapter. Critics commonly portray globalized and deregulated finance as the lynchpin of the neo-liberal economic order. International capital mobility has shifted the balance of power in favour of capital at the expense of labour, so the argument goes. Furthermore, credit institutions let loose have eased the pain of growing income inequality by showering unsustainable credit on households across the OECD world. These policies have been inspired or, at least, justified by neo-liberal ideas about financial markets and their regulation: that markets can ensure an efficient distribution of capital and financial services and that governments should either promote such efficiency through market-enhancing regulation and the enforcement of competition or take a hands-off approach altogether. In the panoply of ideas about state–market relations, ideas about finance occupy a special place. Textbooks in the field emphasize individual rationality and efficiency and portray wholesale finance as quintessential markets: liquidity is high, information asymmetries and transaction costs are low, and equal assets have equal prices around the world. Because of their virtual character, contemporary financial markets have lent themselves to the practical application of abstract economic ideas more than other societal domains. That makes neo-liberal ideas powerful in contemporary finance but also vulnerable: in the event of a crisis, we can expect these ideas to attract much of the blame rather than exogenous material factors, such as adverse weather conditions in case of a famine or demographic change causing strains in pension systems.

Tales of tails and dogs: situating derivatives and financialization in contemporary capitalism [Review of: D. Bryan, M. Rafferty (2006) Capitalism with derivatives; J. Froud, S. Johal (2006) Financialization and strategy: narrative and numbers; D. MacKenzie. An Engine, not a camera: how financial models shape markets]

Dick Bryan and Michael Rafferty (2006) Capitalism with Derivatives: A Political Economy of Financial Derivatives, Capital and Class. Houndmills: Palgrave MacMillan, 256 pp., US

The political economy of Europeanized financial regulation

99.95, ISBN 978-1-4039-3645-5. Julie Froud, Sukhdev Johal, Adam Leaver and Karel Williams (2006) Financialization and Strategy: Narrative and Numbers. London: Routledge, 416 pp., US

Studying macroeconomic indicators as powerful ideas

59.95, ISBN 978-0-415-33418-1. Donald MacKenzie (2006) An Engine, Not a Camera: How Financial Models Shape Markets. Cambridge, MA: MIT Press, 389 pp., US

The Flaws of Fragmented Financial Standard Setting: Why Substantive Economic Debates Matter for the Architecture of Global Governance

40, ISBN 978-0262-13460-6.

The Future of International Political Economy: Introduction to the 20th Anniversary Issue of RIPE

Over the past two decades, the European Union has become a central actor in financial regulation and has developed complex institutions to govern financial markets. Recent scholarship has detailed the functioning of these institutions and revealed their inner dynamics. At the same time, the political economy embeddedness of financial regulation, which had inspired early research on European financial integration, has increasingly dropped out of the picture. This article makes the case for making this embeddedness central once again and exploring how the Europeanization of financial regulation has affected the political economy make-up of Europe. To do so, scholars need to study finance not only as a service sector, but also as that facet of the economy that creates and allocates credit and financial investments. Beyond the evolution of socio-economic orders inside Europe, a focus on such links provides novel avenues for making sense of the European role in global financial governance.