Richard Deeg

Finance Capitalism Unveiled: Banks and the German Political Economy

If we are moving toward one global financial market, will all national financial systems that determine how businesses raise money look the same? Richard Deeg argues that, despite financial market integration and considerable harmonization in the regulation of financial markets, the traditional structure and economic functions of national financial systems are not inevitably undermined. Using the case of Germany--a country with a strong and distinctive financial sector that is at the center of the pressures of economic integration--the author shows how the unique aspects of the German financial sector and its relationship to the German economy have persisted notwithstanding powerful pressures to change. Posing the German model of coordinated capitalism in which banks play an important role in shaping both firm behavior and the possibilities for state intervention in the economy against the liberal model of the United States and Britain in which the securities markets play a much greater role than banks, Deeg shows how the German model has survived competitive pressures in the international economic system that have pushed Germany--and other countries--toward the liberal model. This book will appeal to political scientists and economists interested in international financial markets, globalization, and the comparative study of domestic financial markets, as well as in German politics and the German economy. Richard Deeg is Assistant Professor of Political Science, Temple University.

From Comparing Capitalisms to the Politics of Institutional Change

ABSTRACT The notion of distinct national varieties or systems of capitalism gained considerable currency in the last two decades. This review essay highlights three theoretical premises which define what we call the comparative capitalisms (CC) approach to political economy: First, national economies are characterized by distinct institutional configurations; second, these configurations are a source of comparative institutional advantage; and third, the configurations are stabilized by institutional path dependence. Within these common premises, the CC literature contains a number of competing theories and we highlight the fundamental distinctions among them and draw out their respective limitations. We specifically examine the role of politics within the CC literature and how emerging conceptions of politics may contribute to understanding institutional change in capitalist systems.

Institutional change and the uses and limits of path dependency: The case of German finance

How can we determine when an existing institutional path or trajectory is ending and being replaced with a new one? How does such a process take place? How can we distinguish between institutional innovation within an existing trajectory and a switchover to a new trajectory or path? This paper explores these questions by examining the pattern of institutional change in the German financial system. The paper advances four theoretical claims: First, that endogenous developments can disrupt an institutional path and lead to a new one. Second, that an event sequence involving a move to a new institutional path may not follow from a contingent event yet may nonetheless be marked by increasing returns processes. Third, that increasing returns in politics are not automatic and must be cultivated by actors in order to be realized. Finally, that the concept of path is still in need of a measurable conceptualization before any further advances in path dependent arguments can be made.

Complementarity and institutional change in capitalist systems

Abstract The concept of institutional complementarity – that the co-existence of two or more institutions enhances the functioning of each – is frequently used to explain why institutions are resistant to change and why introducing new institutions into a system often fails to achieve the intended objective. This paper utilizes examples from comparative political economy to delineate the concept and address the issue of how to measure the strength of complementarities. It then assesses the utility of the concept for explaining institutional change, concluding that assessing the causal effect of complementarities on change is difficult and ambiguous. A better understanding requires embedding complementarities within a more general theory of institutional change which takes a broader view of the ways in which institutions interconnect and change.

Regional prosperities compared: Massachusetts and Baden-Württemberg in the 1980s

This article compares the relationship between economic development and public policy in two of the most prosperous regions of the 1980s: Massachusetts in the United States and Baden-Wurttemberg in West Germany. Beginning with a critique of the theory of the product life-cycle, the article examines the rise and fall of traditional industries in Massachusetts and their survival in Baden-Wurttemberg. It then goes on to consider the rise–but also the vulnerability–of the high-tech and financial firms in Massachusetts, as well as the more robust, though almost invisible growth of these sectors in Baden-Wurttemberg. The burden of the argument is that there are, strictly speaking, no ‘mature’ industries and public policies aimed at stimulating innovation are most successful when the latter is integrated into the local industrial structure as a whole rather than isolated into a distinct high-tech sector.

The long-term trajectories of institutional change in European capitalism

The article provides a theoretical overview and empirical summary of the contributions to this collection. The collection makes four contributions to the literature on comparative capitalism. First, its analysis of institutional change adopts a long-term historical perspective that allows us to observe the potentially transformative effects of relatively slow and incremental changes. Second, it examines the linkages between four levels of institutions that regulate the economy – the international, macro (national), meso and micro. Third, the national case studies compare change and linkages across six core institutional domains. And fourth, the cases show how institutions are shaped by different sets of socio-political compromises.

The rise of internal capitalist diversity? Changing patterns of finance and corporate governance in Europe

Abstract The article examines internal diversity within national models of capitalism in Europe, with a particular concern with firm financing and corporate governance patterns. It is suggested that a relatively small number of firms have shifted to a new institutional context consisting of common international institutions and practices, while the large majority of firms continue to operate in a more slowly evolving set of domestic institutions or rules. Examining changes since the early 1990s in firm financing and corporate governance, the article finds preliminary evidence to support the thesis of increasing diversity, but also that national patterns of firm finance are still distinct. Rising diversity challenges the long-term viability of coordinated market economies in Europe.

International Capital Mobility and Domestic Institutions:Corporate Finance and Governance in Four European Cases

This article considers the impact of international capital mobility on thecharacter of corporate finance and corporate governance in four European countries (Germany, France, Spain, and Italy). We take issue with the widespread view that the growth of international financial markets and the lifting of capital controls will in themselves produce convergence in national systems of corporate finance and governance. Although we find evidence of convergence in specific aspects of financial regulation (e.g., the abandonment of selective credit regulation and the dismantling of barriers to universal banking), these regulatory changes have not produced any clear convergence toward either the Anglo-Saxon model of corporate finance and governance predicted in much of the literature or the alternative German bank-based model. The reasons for this, we suggest, have much to do with the way in which the politics of financialreform are likely to differ from those postulated in market-driven models of regulatory change and the fact that countries are susceptible to international pressures in different ways.

The Political Economy of Global Finance Capital

The globalization of finance in recent years and the concurrent growth in the financial sectors influence, manifested most dramatically in the recent financial crisis, highlights the importance for political scientists of understanding the political economy of global finance. The authors review six important books that are representative of recent thinking by political scientists on the topic. They address the central questions that have been at the heart of the literature on global finance from its beginning in new and interesting ways. The most important developments highlighted in this article are the move from a predominant focus on state-centered patterns of regulation to the consideration of transnational governance regimes that mix public and private regulation; the effort to understand the causal forces that shape the political economy of global finance by allowing for an interaction among interests, institutions, and ideas; and giving increased attention to new sources of systemic risk in the global financial system, as well to the consequences for domestic politics of interactions with the global financial system. Notwithstanding the progress that has been made in coming to grips with the political economy of global finance, the authors highlight a number of questions that need to be addressed in future research. Although various nonstate actors have been recognized as important in the constitution of the rules of global finance, it is also necessary to understand the behavior of the actors who enact these rules. It is also important to generate evidence that forges some agreement on the causes of the globalization of finance, especially as the arguments made become more complex. Finally, there is a need for a more realistic assessment of the costs and benefits of financialization at the global and national levels. This last challenge is essential for a thorough understanding of the current global financial crisis.

Internationalization and financial federalism: The United States and Germany at the crossroads?

In this article, the authors examine some effects of economic internationalization on state structures, especially in regard to the distribution of power and authority within federalist systems. Using an institutional rational choice model, they analyze changes in financial regulation and market structures in Germany and the United States. The focus is on the financial realm because of its high degree of internationalization and because, in both countries, financial markets and regulation have historically exhibited federalist traits. The findings indicate that internationalization has led to significant convergence in financial market structures and regulation across the two countries and that in each case this convergence has been accompanied by centralization of financial regulatory authority. Although both the German type of cooperative federalism and the U.S. model of competitive federalism proved to be vulnerable to the growing international pressures, the two countries took different paths of change that reflected differences in domestic institutions. Thus, the authors conclude that convergence is, and will likely remain, of a limited nature.