Geoffrey R. D. Underhill

State, market, and global political economy: genealogy of an (inter-?) discipline

International Political Economy (IPE), as a diverse and fragmented field of inquiry, has often had trouble situating itself in the social sciences. This article argues that IPE belongs firmly in the broader tradition of political economy in the social sciences and begins by summarizing the emergence of IPE in its contemporary context, starting with the late 1960s and early 1970s debates among IR scholars on the nature and meaning of interdependence, of the importance of ‘high’ versus ‘low’ politics, and of ‘transnational’ versus ‘international’ relations. The article goes on to demonstrate that IPE has emerged in a far from coherent fashion, though this diversity and ecumenism is not to be deplored. The second section of the article argues that the core conceptual issue in IPE remains the nature of the state–market relationship. The way this relationship is viewed has a considerable impact on how the prospects for change in the structures—the normative and material underpinnings—of world order are to be understood. It argues that most IPE scholars, despite their protestations, still see the state and the market as separate and indeed antagonistic dynamics. The logic of the state and the market are distinct. Scholars need to take a final and decisive step in accepting that, in empirical and conceptual terms, the state and the market are part of the same, integrated system of governance: a state–market condominium that operates simultaneously through the competitive pressures of the market and the political processes that shape the boundaries and structures within which that competition (or lack thereof) takes place.

The Political Economy of Basle II: The Costs for Poor Countries

The financial crises of the 1990s triggered many changes to the design of the international financial system. We use the formulation of the new Basle capital accord for banks (B-II) to illustrate that, while much affected, developing countries have had very little influence on this so-called new international financial architecture. We argue that B-II has been formulated largely to serve the interests of powerful market players, with developing countries being left out. At the same time, we demonstrate that B-II is likely to raise the costs and reduce the supply of external financing for developing countries in particular. Furthermore, and importantly, B-II may well increase the pro-cyclicality of external financing, an unfortunate outcome given that developing countries already face much volatility in terms of capital flows. Overall, while B-II may indeed compensate for a range of weaknesses of Basle I, the exclusionary policy process and costs which B-II imposes on developing countries require a re-think of the way in which crucial elements of financial governance, such as the Basle capital accords, are developed and implemented.

The new world order in international finance

Titans or Behemoths: The Multilateral Development Banks, volume 5, by Roy Culpeper (Ottawa: North-South Institute, 1997, xx, 191pp).Risking Free Trade: The Politics of Trade in Britain, Canada, Mexico, and the United States by Michael Lusztig (Pittsburgh PA: University of Pittsburgh Press, 1996, x, 180pp).Who Elected the Bankers? Surveillance and Control in the World Economy by Louis W. Pauly (London and Ithaca NY: Cornell University Press, 1997, XIV, 184pp, US

Political economy and the changing global order

25.00).The New World Order in International Finance, edited by Geoffrey R.D. Underhill (New York: St Martins, 1997, XVII, 331pp, US

The changing state-market condominium in East Asia : Rethinking the political underpinnings of development

49.95).The accelerated integration of the world economy and its impact on citizens, on the ability to govern, and on the present structure of international organizations have led to a plethora of studies in most social science disciplines. Historians point out that capital and trade reached similar levels of integration in the decades leading up to the first world war. However, the speed at which change is taking place today is unprecedented. Several issues have been explored in depth, including the impact of liberalized trade on wages and unemployment of blue collar workers in industrial countries; of freer trade and capital flows on the environment; of capital flows on the ability of states to conduct their own monetary, fiscal, and social policies. There are also analyses of or prescriptions for the national and international regulatory regimes, if any, that are necessary in the new global environment. Regrettably, and as always, there is little communication among scholars of various disciplines.The books under review here make important contributions to the growing literature and can be read with interest regardless of the disciplinary background of the reader. With some exceptions, annoying jargon is kept to a minimum. Three of the books deal with international lending and finance, but I will begin with the fourth.Lusztigs exploration of the question of why countries liberalize trade is not particularly interesting to a traditionally trained economist because the answer is obvious. Countries act in that manner because it is in their interest to do so. Most introductory economics textbooks devote a chapter to the benefits of free trade by explaining comparative advantage: if each country produces and exports those products which it produces relatively efficiently, the world and each country will be better off in the sense that the value of output and, therefore, total income (gross domestic product) will increase. However, most of them by-pass the problem of trade liberalization: the way it creates gainers and losers in each country and the unhappiness of workers in those industries which are losing their protection at the prospect of becoming unemployed or of being paid less. The main beneficiaries are consumers and resources employed in the export industries. While in theory the gainers compensate the losers, in reality this does not often happen. The losers are more likely to distrust and therefore attempt to block any move towards free trade. Democratic governments, which have to be re-elected, are sensitive to such pressures. Economists have begun to look seriously at these problems, most promisingly through a transaction cost approach focussing on impediments to the development of efficient markets.(f.1)Lusztig takes a political science approach, arguing that free trade may be achieved as a by-product of a pursuit of other objectives or a means to their realization. In a sense free trade may be one of the bargaining chips thrown in to achieve something else. He argues that existing theories ignore this possibility.In Lusztigs model, trade liberalization refers only to policies which remove direct import barriers affecting at least one-third of total trade volume - an arbitrary figure which he does not defend - and which constitute clear departures from past policies and are politically controversial. …

Global financial integration thirty years on: from reform to crisis

The end of the Cold War, the rapid growth of the Asia-Pacific powers, the arrival of NAFTA and the European Union, and the new GATT Accord signal an unprecedented pace of change in the global economic order. Bringing together thirty-three specially commissioned chapters by leading scholars in politics, economics, and international relations, Political Economy and the Changing Global Order provides an authoritative introduction to the theory and practice of international economic relations in the post-Cold War world. The book ranges widely, covering developments at global and regional levels, key issues and trends, and the changing policies of major states, as well as presenting a broad range of theoretical perspectives. Particular emphasis is given to the many and varied connections between the international and domestic, and political and economic, dimensions of global change. A distinguished cast of contributors brings a breadth of expertise to a coherent, accessible collection, specifically designed for use as a course text.

The Emerging Post-Crisis Financial Architecture: The Path-Dependency of Ideational Adverse Selection:

This article addresses the long-running debate concerning the changing nature of state– society relations in the development process in East Asia and elsewhere in the developing world. It affords a critical re-examination of the developmental state model that has become central to the study of the politics of economic growth and achieved the status of a dominant paradigm in international policy circles. 1 The relationship between state institutions and private market agents, as portrayed in the model, is viewed as one of two analytically distinctive entities—a state– market dichotomy that obscures as much as it illuminates the political underpinnings of development. Recent revisionist efforts have critically reviewed the developmental state claims about state– society relations and provided a more nuanced view of the complex and interdependent interaction between states and markets that has shaped industrialisation policies in East Asia. 2 This article argues that while the revisionist efforts have correctly emphasised the importance of state –market interactions in the development process there is still a further and crucial conceptual step to take in order to move beyond the developmental state thesis and to overcome the conceptual constraints of the state– market distinction. The concept of the state– market condominium is proposed as an alternative approach to the political economy of development and argues that the experience of East Asia can be more fruitfully theorised if states and markets are viewed as an integrated ensemble of governance. This state –market condominium approach has been articulated within the national setting of industrial policy management and financial market governance in major East Asian newly industrialising economies over the past two decades. The value added of the approach can be demonstrated by thinking in terms of opportunity cost, that is of not employing the approach: the distorted view of the political economy which results from employing the existing concepts in the developmental state literature. The central claim is that the state– market condominium is greater than its state –market/public –private parts and that the outcomes in terms of governance are significantly different from the preferences of

The Political Economy of Global Financial Governance: The Costs of Basle II for Poor Countries

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.

Economic Ideas and the Political Construction of the Financial Crash of 2008

Research Highlights and Abstract This article Contributes to the debate on policy change and economic ideas after the crisis, finding ideas and material interests to be closely aligned and introducing the notion of ‘ideational adverse selection’. Establishes that pre-crisis financial governance failed to provide financial stability yet provided benefits to precisely those whose advocacy underpinned its emergence. Argues that despite the adoption of a ‘macroprudential approach’, the post-crisis reform of financial governance promulgated by the Basel Commitee and IOSCO does not (yet) admit of a ‘paradigm shift’. Concludes that if ideational change and a shift in policy approach is to take place, the nature of the policy community as ‘input’ must also change. This article focuses on two cases of transnational financial governance that confirm that ideas and material interests are closely aligned in the construction of regulatory institutions at the international level: the Basel-II/III international capital adequacy standards and the IOSCO-based regulatory processes that underpin cross-border securities markets. The article first establishes that the pre-crisis system of financial regulation and supervision left public authorities dependent on private sector expertise and information provision such that policy idea-sets became increasingly aligned with private sector preferences. Secondly, this market-based system of financial governance provided benefits to precisely those whose advocacy underpinned its emergence while facilitating neither financial stability nor resolving the weaknesses of national-level governance in a context of cross-border integration. Lastly, it remains unclear if either pre-crisis alternatives or the lessons of the crisis itself have been applied properly to the reforms. The reform debate continues to pursue an essentially market-based approach to the problem of financial governance at the national, regional and global levels. Policy failure endogenous to a pre-crisis regulatory coalition has so far failed to disturb the tenacity of material interests and inertia of institutional path dependency.

International financial governance under stress : global structures versus national imperatives

The 1990s financial crises triggered many changes to the design of the international financial system, the so-called international financial architecture. While much affected, developing countries have had very little influence on the changes, which the formulation of the new Basle capital accord (B-II) illustrates. The article shows that B-II has largely been formulated to serve the interests of powerful market players, with developing economies being left out. For developing countries, B-II can make domestic financing more costly and raise the costs of and reduce the access to external financing. Importantly, B-II can exacerbate fluctuations in the supply of external financing, an unfortunate outcome, given that developing countries already suffer from volatility.