Stephen C. Nelson

Reading the right signals and reading the signals right: IPE and the financial crisis of 2008

ABSTRACT Although the meltdown in the American financial system in 2008 created the most profound financial crisis in sixty years, the field of International Political Economy (IPE) has remained curiously silent. More worrisome is the inability of the paradigmatic approach to the study of IPE in the United States – Open Economy Politics (OEP) – to shed much light on the causes of the crisis. We develop the conceptual distinction between risk and uncertainty to explain why the rationalist (and largely materialist) “American School” of IPE failed so badly. OEP followed orthodox economics in conflating risk and uncertainty. Preserving the distinction, as constructivist IPE scholars and economic sociologists have done, enables us view the crisis through dual rationalist and sociological optics. Our illustrative evidence, drawn from public (the Federal Open Market Committee of the US Federal Reserve) and private actors (accountants, credit rating agencies, and arbitrage traders) in financial markets, shows that only eclectic approaches that make use of both rationalist and sociological optics give IPE scholars the depth of vision and the breadth of imagination necessary to make sense of the financial crisis of 2008.

Worlds in collision: uncertainty and risk in hard times

In this paper we revive the analytical distinction between risky choice settings, in which we have reliable probability distributions based on past observations, and choices made in the face of uncertainty, in which probabilities are either unknown or unknowable. Many political economists assume that we live only in a world of calculable risk. We contest that view in this article. Political and economic agents make many of their most important decisions under conditions of uncertainty, or in ambiguous situations that mix risk and uncertainty. Absent reliable estimates of calculable probabilities, social conventions or technologies, such as risk management models, are indispensible for agents to function in a world in which they must make potentially enormously rewarding or costly choices. We demonstrate the empirical payoffs of a analytical approach that makes room for both risk and uncertainty by drawing on the writings of a financial market insider, George Soros, and by analyzing decision making in the US Federal Reserve.

Does democracy promote capital account liberalization

Abstract Conventional wisdom maintains that democracy promotes market-oriented economic reforms. This paper argues that democracy’s effect on economic liberalization hinges on international-systemic factors. To develop this argument, we focus on one important reform issue: capital account liberalization. We hypothesize that the level of financial openness abroad moderates the relationship between democracy and financial policy at home. An open global financial system increases societal support for capital account liberalization and incentivizes democratic leaders to liberalize the capital account. Analyses of country-level panel data demonstrate that democracy is only positively associated with capital account openness when proximate countries maintain open capital markets. Firm-level survey data and an illustrative case study of Argentina provide support for the mechanisms by showing that policy choices abroad influence domestic support for capital account liberalization. Our findings suggest that integrating domestic- and international-level variables in a single framework improves our understanding of the political economy of reform.

Slumdog versus Superman: Uncertainty, Innovation, and the Circulation of Powerin the Global Film Industry

You know Hollywood, you are likely familiar with India’s Bollywood, and you may have heard of Nigeria’s Nollywood. There is also Chollywood of China, Wellywood in New Zealand, Lollywood in both Pakistan and Liberia, and severalmore inAfrica. Such labeling of regionalfilm industries reveals more than an attempt at a catchy gimmick. The reference to Hollywood in all these cases is clear, but so is the alternative desire to produce films that the Los Angeles-based studios are unable or unlikely to offer. Similar reinvention efforts have rebalancing consequences for the film industry, often beyond what their initiators intended. Each of the many “woods” caters to diverse tastes, some more and some less specific than those of Hollywood’s traditional target viewers. Most importantly, non-Hollywood film production undermines the pretense of control over cultural templates and meanings that move global audiences and even pushes traditionally powerful actors to abandon the assumptions of calculability. The underdogs of the movie world introduce a decisive degree of fluidity to cultural, economic, and political competition.They thrive on the uncertainty that incumbent Hollywood seeks to reign in, although they are not themselves immune to unexpected challenges at the next creative turn. The quintessential underdog story that both emerged from and symbolized such ongoing power shifts was the Oscar triumph of Slumdog Millionaire (2008). Audiences around the world found themselves cheering

Paper Entanglements: Why (and How) Keynes’s Ideas about Sovereign Debt Still Matter

How to manage sovereign debt has become a key question in the problems that developed after the financial crisis. This author maintains that Keynes, who thought about this deeply between the wars, provides some critical lessons.