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REGULATION THEORY REGULATION THEORY
IN A NUTSHELLIN A NUTSHELLAnd a brief And a brief
comparison with SSAcomparison with SSA Robert BoyerParis-Jourdan Sciences Economiques
(PSE, CNRS-EHESS-ENS-ENPC)
Political Economy Research Political Economy Research Institute (PERI, Thompson Institute (PERI, Thompson
Tower, 9th floor, University of Tower, 9th floor, University of Massachusetts, Amherst Massachusetts, Amherst
March 26, 2008
INTRODUCTIONINTRODUCTION
1.The origin : surprising 1.The origin : surprising structural evolutionsstructural evolutions of of
the 70s:the 70s:- - ProductivityProductivity slow-down in the US slow-down in the US
- Rising - Rising unemploymentunemployment in Europe in Europe
- - StagflationStagflation: inflation and : inflation and recessionrecession
..At odds with ..At odds with conventional conventional theoriestheories::
- - KeynesianKeynesian macroeconometric macroeconometric modelsmodels
- - Neoclassical Neoclassical labour market labour market theorytheory
- - Marxian Marxian prognosis prognosis
2.The intellectual inspiration:2.The intellectual inspiration:- - Kaleckian macroeconomyKaleckian macroeconomy of of
capital accumulation capital accumulation
-The -The Annales Annales school of economic school of economic and social historyand social history
--Theory of habitusTheory of habitus as alternative to as alternative to homo oeconomicus rationalityhomo oeconomicus rationality
3. An eclectic but controlled use 3. An eclectic but controlled use of of methods:methods:
- - Diagnose the Diagnose the key social relationskey social relations of the of the society under investigation society under investigation
- Analyse the precise form taken by these Analyse the precise form taken by these social forms via the emergence, social forms via the emergence,
maturation and crisis of the related maturation and crisis of the related institutional formsinstitutional forms
-Explicit -Explicit the logicthe logic implied for individual implied for individual and collective behaviourand collective behaviour
- Collect the relevant statistical indexes Collect the relevant statistical indexes and look for and look for regularitiesregularities by econometric by econometric
methodsmethods- Check if partial régulations define a Check if partial régulations define a
viable viable macroeconomic regime macroeconomic regime
A SYNOPTIC VIEW OF A SYNOPTIC VIEW OF THE PRESENTATIONTHE PRESENTATION
1.1. From general equilibrium theory (GET) to From general equilibrium theory (GET) to the diversity of the diversity of imperfect market economiesimperfect market economies
2.2. Régulation theory (RT) in a nutshell: an Régulation theory (RT) in a nutshell: an analysis of economic analysis of economic institutional institutional architecturesarchitectures
3.3. An analysis of An analysis of crisescrises and changing patterns and changing patterns through time and spacethrough time and space
4.4. How many How many régulation modesrégulation modes ? ?5.5. The era of The era of globalization:globalization: a a renewed renewed
diversitydiversity of institutional configurations of institutional configurations6.6. The era of The era of financializationfinancialization: RT and SSA : RT and SSA
II.II. FROM GENERAL FROM GENERAL EQUILIBRIUM THEORY EQUILIBRIUM THEORY
(GET) TO THE (GET) TO THE DIVERSITY OF DIVERSITY OF
IMPERFECT MARKET IMPERFECT MARKET ECONOMIESECONOMIES
The generalization of GET has failed
Table 1 – In real economies, as many market failures as efficient markets
The belief in self regulated markets has been eroded
Table 2 – The promises and the
deliveries of the free marketers
The interest and limits of game theory: ad hoc rules
of the game Diagram 1 – From general equilibrium theory to game theory: analyses by domains but not any theory for the complete economic system GENERAL EQUILIBRIUM
THEORY
Removing some key hypotheses
Strategic interplay
between agents
GAME
THEORY
No auctioneer
Asymmetric information
Missing future markets
Increasing returns
Imperfect competition
Alternative solution concepts
° Multiple equilibrium ° Unstable equilibrium ° Micro behavior does not imply any definite aggregate regularity
Rational
expectations Coordination of
monetary economies No Walrasian
equilibrium for credit or labor
markets J. STIGLITZ
Intertemporal models with overlapping
D. CASS
Endogenous technical change
and growth P. ROMER
(1990)
Repeated games
Applied game theory
Statistical Theory of
aggregation
Representative agent
+ Rational
expectations
Temporary equilibrium or disequilibrium
theory
New Keynesian
Theory
The role of norms and
social justice on market
Models with overlapping generations
Oligopolistic competition
and unemployment
Experi-mental
economics
New industrial economics
New labor
econo-mics
Credibi-lity of
economic policies
Interna-tional econo-mics
SONNENSCHEIN J.M.
GRANDMONT
R. LUCAS T.
SARGENT
J.P. BENASSY
J.M.
P. HOWITT P. WEIL
G. AKERLOFF R. SOLOW
P. SAMUELSON
J.P. BENASSY C. PLOTT A. ROTH
J. TIROLE
F. LAZEAR
D. COHEN
P. KRUGMAN
W. HILDENBRAND GRANDMONT
The macroeconomic The macroeconomic consequences of institutional consequences of institutional
formsformsDiagram 2 – Starting from Marxian theory to understand the institutions of capitalism : « regulation theory » in a nutshell
THE CAPITAL/LABOR RELATION OF PRODUCTION
Capitalist Production
Mode
Accumulation
law
MORE GENERAL
CATEGORIES THE MARKET RELATION OF
EXCHANGE
WAGE-LABOR NEXUS
FORM OF COMPETITION A set of
INSTITUTIONAL FORMS
An ACCUMULATION
REGIME
INTERMEDIATE
CATEGORIES NATURE OF MONETARY
CONSTRAINT
WAGE AND PRODUCTIVITY DYNAMICS
PRICE FORMATION A
REGULATION MODE
Which makes viable
OBSERVED
VARIABLES
CREDIT, MONEY AND INTEREST
RATE
The post WWII institutional The post WWII institutional architecture and growth architecture and growth
regime: the Fordismregime: the Fordism Diagram 3 – The post
WWII capital labor accord shaped most
other socio-economic institutions
IV. NO INSTITUTIONAL IV. NO INSTITUTIONAL ARCHITECTURE IS STABLE ARCHITECTURE IS STABLE FOR EVER: three sources of FOR EVER: three sources of
crisiscrisisThe success leads to institutional The success leads to institutional
obsolescence: endogenous structural obsolescence: endogenous structural crisiscrisis
Diagram 4 – From emergence to maturation and crisis
Reversal of previous
favourable trends
Degree of coupling of institutions
Emerging inertia
High
Sophistication of rules and deepening of complementarity
Entering into crisis and decay of an institutional configuration
Actors perceive a complementarity
Uncertain coherence
Change in the context
Low Series of innovations
Incentive for the search of new configurations
Time
New configuration
Maturation
Aging
Decay and destruction
Competing with other economies and adapting foreign institutional forms:
hybridization
Henry Ford’s vision
Obstacles to its implementation
(1913)
United-
States
Actual American Fordism
Rise…
and maturation
STRUCTURAL CRISIS OF AMERICAN
FORDISM
Financialisation
Crisis of a finance-led growth
regime
Endometabolism Endometabolism
Hybridization
Obstacles to the adoption
Exacerbates American
crisis
Hybridization Exacerbates
Japanese crisis
Hybridization
Adaptation
process
Japan Invention
of Toyotism
Rise and
success
STRUCTURAL
CRISIS OF
TOYOTISM
Slow and uncertain
growth
Endometabolism
1900’s World War I World War II Oil shocks Financial globalization
2000’s
Diagram 5 – Hybridization and endometabolism, two factors of institutional change: the joint evolution of American and
Japanese trajectories
The leading role of political alliancesThe leading role of political alliances
It builds an economic regime and its evolutions
It affects the bargaining power of groups and actors
Impact upon political support
Consequences for elections
Building a governmental coalition
POLITY:
Sets the rules of the game
Makes strategic choices ECONOMY:
The emerging new The emerging new institutional architecture of institutional architecture of
the 90sthe 90sThe Hierarchical position of the The Hierarchical position of the
international economy and the international economy and the financial regimefinancial regime
FOUR REASONS FOR FOUR REASONS FOR CONTRASTED BRANDS OF CONTRASTED BRANDS OF
CAPITALISMCAPITALISMThe recent advances of micro economic The recent advances of micro economic
theory of theory of imperfect informationimperfect information: as : as soon as no complete contract can be soon as no complete contract can be drafted, nor all contingent markets drafted, nor all contingent markets organized, many second best solutions organized, many second best solutions can be given to the same economic can be given to the same economic issue (J. Stiglitz, 1987).issue (J. Stiglitz, 1987).
Since the functional role of economic Since the functional role of economic institutions is not explaining their institutions is not explaining their origin, their variety explicitly derives origin, their variety explicitly derives from from the intricacy of the political the intricacy of the political processprocess (D. Hibbs, 1987) which leads to (D. Hibbs, 1987) which leads to institutionalized compromisesinstitutionalized compromises..
Specialists of Specialists of technical changetechnical change and and evolutionary economists have evolutionary economists have developed fairly sophisticated models developed fairly sophisticated models built upon the role of built upon the role of increasing increasing returns to scalereturns to scale (G. Dosi, 1988; (G. Dosi, 1988; 1991). Then, initial choices, which 1991). Then, initial choices, which seemed marginal and reversible, turn seemed marginal and reversible, turn out to propel the economic system out to propel the economic system along a trajectory, featuring strong a along a trajectory, featuring strong a path dependencypath dependency (B. Arthur, 1994). (B. Arthur, 1994).
The same evolutionary framework The same evolutionary framework can be extended to the analysis of can be extended to the analysis of co-co-evolution and the complementarityevolution and the complementarity of of institutions, organizations and institutions, organizations and economic specialization (M. Aoki, economic specialization (M. Aoki, 1995). The central issue is the 1995). The central issue is the compatibility of a complete compatibility of a complete institutional architecture.institutional architecture.
Régulation theory findings Régulation theory findings (RT): at least four institutional (RT): at least four institutional
architecturesarchitectures Table 4 – The diverse nature of capitalism in Regulation Theory
REGULATION
MARKET-ORIENTED MESO-CORPORATIST STATIST SOCIAL-DEMOCRATIC
1. OVERALL LOGIC AND HIERARCHICAL PRINCIPLE
Commercial logic is the organising principle for almost all of the institutional forms
Principle of solidarity and mobility in an economic unit that is large in size and diverse in output terms
Economic circuit shaped by public interventions in areas like production, demand and institutional codifications
Social partners negotiate rules governing most aspects of society and the economy
2. IMPLICATIONS FOR INSTITUTIONAL FORMS
Wage labour nexus Significant decentralisation of wage bargaining, individualisation of pay and segmentation of labour market.
Wage compromise within large companies but pay hikes are synchronised
Trend towards a strong institutionalisation of rules on employment, working hours, wages and social benefits
Traditionally with a centralisation of collective negotiations, under a constraint of short and medium-term competitiveness
Competition Concentration restricted by legislation, reshuffling from one oligopolistic type of competition to another
Relatively intense in the product markets, involving big companies with activities in many different markets
Moderate seeing as it is channelled by by public regulations or by professional associations, with high degree of capital concentration
Small number of big firms (that are also highly internationalised and thus have to compete)
Money and finance Central bank is independent, financial market logic prevails, financial innovations proliferate, companies are tightly run by a financial logic
Role of main bank and keiretsu in funding and capital allocation. State authorities (financial supervisors/ Central Bank) have tight control
State has tight control over credit and monetary policies. Traditionally the Central Bank has had little autonomy to speak of, the financial sphere having played a crucial role
Most funding is by the banking sector. Monetary policy aims to enhance employment and at a later date competitiveness
The State Fragmented into series of agencies and control entities, growth possibilities are highly restricted because of competition in the political marketplace
Ensures provision of collective services plus coordinations that the big firms are incapable of running. Small size but significant role
Strong quantitative and qualitative development of State interventions: nationalised companies, regulations, public spending, social benefits, etc.
Multitude of public interventions lead to financial transfers and extensive and restrictive regulations
Insertion into international system
Adhesion to free trade principles, degree of autonomy varies depending on status and size (differences Us vs. UK)
Trade and finance-related choices are conditioned by imperative of technological and economic development.
Traditionally with a a tight State control over external relations (tariffs, norms, quotas, restrictions on financial flows).
Acceptance of competitiveness principle based on technological and organisational innovation
Table 4 – The diversity of economies nature in Regulation Theory
REGULATION
MARKET-ORIENTED MESO-CORPORATIST STATIST SOCIAL-DEMOCRATIC
3. CHARACTERISTICS OF THE MODE OF REGULATION
Regulation very market-oriented, controlled by sophisticated legal mechanisms
Large companies, the market and the State make adjustments at the meso-economic level
State at heart of macroeconomic adjustments, with markets and firms adapting to its rules
Tripartite bargaining (employers-unions-State) lies at the heart of institutional reforms
4. EFFECTS ON:
Innovation
Schumpeterian waves predicated on radical innovation, preponderance of a patent-based logic and individualisation of benefits derived from innovation
Aptitude to copy and adapt products and processes by operating incremental yet profitable innovations
Radical innovation supposing major investments and a long-term time frame. Adaptation of Fordist (i.e. relatively centralised) innovations
Innovations are focused on resolving social and economic problems, be they marginal or radical..
Specialisation Sectors tied to radical innovation: IT, space, pharmacy, finance and leisure industry.
Sectors requiring major coordination efforts and mobilising a localised but cumulative type of competency: auto, electronics, robotics
Sectors involved in major public infrastructures: transportation, telecom, aeronautics, space, arms industry, etc.
Sectors tied to social demand (health, security, environment. etc.) or exploit natural resources through technological recovery
Source: Amable, Barré, Boyer [1997: 194-195]
They display quite contrasted They display quite contrasted sources of innovation and sources of innovation and
growthgrowth Market-ledMarket-led capitalism: linking capitalism: linking
basic science with businessbasic science with business
Diagram 7 – Market led configuration
University High Quality
Market for scholar
Segmented labor market
Education System
Pressures toward research
Non skilled workers relative wage declines
Few professional and technical
tracks
+
Less demand for
low skilled workers
Large patenting
Rising
inequalities
Implementing the new productive
paradigm is difficult
Diffusion/ Protection
Specialization in
activities with codifiable knowledge
Pharmaceuticals
Publishing
High tech
Fordist industries decline
but sunrise industries
+
-
Risk Capital
- Growth External trade deficit
+
Reluctant Investment in industries with long run maturity
Financial Market
Close project assessment but short termism
Meso corporatist capitalism: Meso corporatist capitalism: coordinating a series of coordinating a series of
incremental innovationsincremental innovations
University selection of elite
Segmented and interdependent labor market
Secondary education
system
Homogeneity of formation, selection
of individuals Few basic research
Large firm Sub-contractors
Low
inequality
Little basic research done by
firms
Learning localized
knowledge
Large diffusion of new products
Anticipation of forthcoming
specialization
Incremental innovation
Quality based competition
Automobile
Electronics
Robotics
Specialization in durable goods
+
Permanent upgrading of the
industrial structure
Growth
+
+
Financial System
Control by main bank, loose but
long termist
Internal capital
Mobility
Constructed competitive advantage
Diagram 8 – The “meso-corporatist”
configuration
Social-Social-democratic democratic capitalism: capitalism: innovations innovations related to related to
public goods public goods
and educationand education
Diagram 9 – Social democrat capitalism
Public Research and University
Labour Market
Education System
° Homogenous ° Centralised
bargaining ( 1989)
Good basic education Retraining of workers
Concern for basic
research
Social justice, and
solidaristic values
Patenting for resources intensive sectors, transport, equipment goods,
biomedicine
High wages
economy
Rather reduced income
inequalities
Natural Resources
Small open
economy High Value
Added Industries
Internatio-nalisation of
SSI
Periodic industrial
restructuring
Competitiveness by quality and
service
Few risk
capital
Specialisation in resources, intensive sectors, equipment,
information
-
Financial System
Not very sophisticated, bank centred
Growth constrained by competitiveness
State led State led economy: the economy: the overwhelming overwhelming role of public role of public
interventionsinterventions
Diagram 10 – The State led capitalism
Public Research Institutes
Organized Labor Market
Education System
Minimum wage Extended welfare State
Basic education is public Selection of elite
Public spending
led innovations
Public interventions:
codifying the rules of the game
in quite all
sectors
Scientific discovery rarely
linked to potential market
demand
Firms : Their organization is
related to public interventions
Congruent
with the Fordist model
Public sector or
public spending related sectors
Private Sector in charge of
mass production
Specialization : transport
equipment, aircraft, weapon, pharmaceuticals
+
Competitiveness Growth
Financial market Bank credit Heavy State control Public finance circuit
International System
Stable
VI.VI. THE ERA OF THE ERA OF GLOBALIZATION: STILL GLOBALIZATION: STILL
RENEWED DIVERSITY OF RENEWED DIVERSITY OF INSTITUTIONAL INSTITUTIONAL ARCHITECTURESARCHITECTURES
A multiplicity of coordinating A multiplicity of coordinating mechanisms, on top of the mechanisms, on top of the
conventional opposition State conventional opposition State versus marketversus market
MODE OF COORDINATION AND
DISTRIBUTION OF POWER
HORIZONTAL VERTICAL
1 Market
2 Firm
6 Association
INTE
RE
ST
5 Network
M
OTI
VE
FO
R T
HE
AC
TIO
N
OB
LIG
ATI
ON
3 Community, Civil Society
4 State
Diagram 15 – A taxonomy of the different coordination principles
Source: as per Hollingsworth, Boyer [1997]
None of these mechanisms is None of these mechanisms is perfect: perfect: compensating the compensating the
imperfectionimperfection of one of one mechanism by the strength of mechanism by the strength of
another is a source of another is a source of institutional resilienceinstitutional resilience
• Viable régulation modes instead a mythical perfect configuration
Correct the limits of each institutional arrangement by another one:
Markets monitored by associations or regulatory authorities
State under the scrutiny of civil society (NGO) Associations operating under the surveillance of
State
The need for a complete architecture with checks and balances
Within such a hierarchical system, the political order plays a key role:
In overcoming discrepancies, conflicts, economic disequilibria
The success of a régulation mode is up to the coherence of an institutional configuration
Hence a multiplicity of Hence a multiplicity of capitalism brandscapitalism brands
Diagram 16 – Analysis of the
variety of capitalismsas the expression of a
combination of the four main principles
of coordination
The opening of national The opening of national economies usually reinforce economies usually reinforce
institutional diversityinstitutional diversity Diagram 17 – A mode of regulation’s different levels of
adjustment in an open economy
Follower countries
Technological trajectory
Technological trajectory
Leader country
Repertory of
coordination procedures
Specialisation
Repertory of coordination procedures
Institutional forms and
mode of regulation
Institutional forms
and mode of regulation
1 Stability: Homeostatic equilibrium 2 Revision of market share
3 .Adjustment of institutional forms 4. Structural crisis: need to revise repertory
Unless financial instability Unless financial instability promotes short run flexibilitypromotes short run flexibility
Diagram 18 – A general evolution towards short run efficiency at the cost of long run performance and social justice?
The social constraints imposed The social constraints imposed by polity may tame the by polity may tame the
destabilizing trends of pure destabilizing trends of pure market mechanismsmarket mechanisms Diagram 19 – A third vision : the market mechanism is
stabilized by social constraints imposed by polity
VII.VII. THE ERA OF THE ERA OF FINANCIALIZATION AND FINANCIALIZATION AND
ITS CRISES: ITS CRISES: RT AND SSA COMPARED RT AND SSA COMPARED
SSA And RT:SSA And RT:A new epoch for class A new epoch for class
alliancesalliances• H1 – Back to social historyH1 – Back to social history
The 60s: a The 60s: a de facto de facto compromise between compromise between managers and wage earnersmanagers and wage earners
Consumers
Patient financial market
Managers Permissive international regime
Wage-earners
Strong links Weak links Direction of influence
The 80s: An international The 80s: An international competition led regime weakens the competition led regime weakens the bargaining power of wage earnersbargaining power of wage earners
Consumers
Gain from trade Managers More
international competition
Discipline
Erosion of past compromise
Wage-earners
Strong links Weak links Direction of influence
The 90s: The The 90s: The ex postex post alliance of investors and managers alliance of investors and managers
Consumers
Transparency
Managers Large and powerful financial markets
Share holder value More risk Financialisation of
income and pensions Wage-earners
Strong links Weak links Direction of influence
The 2000s: The emerging tensions within the The 2000s: The emerging tensions within the finance industry and the rise of the lawyerfinance industry and the rise of the lawyer
State,
as the last resort
THE LAWYER
Institutional Investors
Managers Auditors
Rating Agencies Financial Analysts
Fund Mangers
Pension funds
Flow of information Financial flow Intermediation of conflicts and related income
SSA And RT : A finance led SSA And RT : A finance led accumulation regimeaccumulation regime
• P1: Financialization is part of a long term P1: Financialization is part of a long term structural transformation of contemporary structural transformation of contemporary capitalism, after the crisis of Fordismcapitalism, after the crisis of Fordism
International opening
Regained power of managers
Demand addressed to managers =
shareholder value
Surge of CEO compensation
Erosion of wage-earners bargaining
power
Acceptance of pension funds
Inflow on the stock market
Financial bubble
Crisis of the Fordist growth
regime
Conservative backlash
Financial deregulation
Multiple innovation in
finance
• P2: An accumulation regime at odds with P2: An accumulation regime at odds with Fordism: the centrality of the stock Fordism: the centrality of the stock marketmarket
+ Dividends
and Pension funds
+ High stock market price
+ Easy access to
credit
+
Profit
+
Consumption Production
+
+
Employment Diffusion of
Financial norms - Careful management
of investment
+
Globalised Financial
regime
Shareholder value as a new form of competition
and governance mode
Highly reactive wage labour
nexus
• The multiple channels of financializationThe multiple channels of financialization
+ Monetary policy,
Financial market stabiliser
+
Limitation of
public borrowing
-
Public
expenditure
+
Stock Market
prices
G F
Credibility of Government ac-
tions
E Tax system favour-able to the most mobile factors
+
+
+
Industrial specialisa-tions, Financial con-
centration
Raising the required rate
of return
- Productive investment
+ Profit
A
+ + -
FINANCIAL SYSTEM
Management of firms for sharehold-
ers
B Labour con-tract flexibil-
ity
+ Productive capacity
Effective de-mand
Employment, wages
- +
+
+ “Patrimonial” Eq-uity based Household
behaviour
C
Wealth effect on Sav-
ings/Consumption Allocation
+ Current con-sumption
+
+
Privatisation of elements
of social security
D Pensions via stock market
Purchase of housing and
durable goods
+
+
+
+ Secured bor-rowing
• P3: This regime is generating P3: This regime is generating speculative bubblesspeculative bubbles that burst out… that burst out…
• ……But are cured by an But are cured by an activeactive monetary policy… monetary policy…
• ……And the positive impact of And the positive impact of financial innovationsfinancial innovations……
• ……For instance the For instance the securitisationsecuritisation first prevents the fragility of banks first prevents the fragility of banks A strong paradox: an unstable accumulation regime rescued by the deepening of financial innovations
• ……But But private innovationsprivate innovations, such as , such as subprimesubprime loans, exploit this opportunity to shift the risk… loans, exploit this opportunity to shift the risk…
• ……The boom of this market reaches its limits, the reversal of The boom of this market reaches its limits, the reversal of confidence confidence challenges challenges macroeconomic stabilitymacroeconomic stability……
• ……And again the And again the Central BankCentral Bank is the rescuer of last resort in order to preserve the is the rescuer of last resort in order to preserve the viability of the financial viability of the financial systemsystem
Figure 1 – A typical sequencing of
financial crises
Private innovatio
n
Success /
High profit
Rapid adoption
Entry in the zone
of financial fragility
Lender as a last resort
No public intervention: collapse
of the innovation
Regulation by the
government
Viability of the regulated
innovation New
cycle
Figure 2 – A first example: energy derivatives
and the ENRON collapse
Energy derivatives
Unprecedented profit
Creative accounti
ng
Bankruptcy
New rules of accountability for CEO and CFO
Prevention from any
public control by lobbying
But not any reform of
accountability principles
A structural weakness
Potential for new crisis
Figure 3 – A second example: rise and collapse of Northern Rock
Financing by bonds of mortgage
loans
High profit / Rapid
capture of market shares
No reaction
of Financial Service Agency
More bonds issued
Banking run
Initially, Bank of England did not bail out
Worsening of the crisis
Systemic crisis
Conflict between Bank of England,
Treasury, FSA
Search for self
regulation
A failed innovation
Nationalization of
Northern Rock
Figure 4 – A third example: the sub-prime mortgage
Sub-prime mortgage
New and growing market
Absence of public regulatio
n
Securitization shift the risk
Reversal of the
housing
market
Melting down of the sub-prime
market
Limited FED
intervention
Diffusion of Non
Performing Assets (NPA)
A creepin
g banking
crisis
Searching for new
regulations
Recapitalization by
sovereign funds
Mergers among banks
Unlimited access to
liquidity from FEDA systemic
financial crisis
Figure 5 – The impact of globalization and financial deregulation on emerging countries
crises
Easier access to external financing
Deregulation of domestic
financial system
Strengthening of the financial
accelerator
From boom to crisis
Brutal reversal of
capital flows
Major crisis
Structural reforms
Search for alternatives to foreign saving driven growth
IMF orthodoxy is challenged
Large Central Bank reserves
Possible regional financial
intermediation
• P4: The financial led regime cannot be P4: The financial led regime cannot be universaluniversal
COUNTRIESPARAMETERS
United States
Great Britain
Canada Japan Germany France
1.Average propensity to consume (1996)
0.95 0.926 0.956 0.869 0.884 0.908
1.Wealth in shares/ disposable income (1997) %
145 75 95 30 25 20
3. Extent of capital gains /disposable income (%)
35.5 15 11 - 7 7 5
4. Proportion of shares and bonds in households’ financial assets
28.4 52.4 n.a. 25.3 21.3 14.5
1.Monetary market rate 5.34 7.38 5.20 0.32 3.5 3.46
1.Return on bonds 6.51 5.59 7.30 1.06 3.97 4.23
1.Reference profitability 12%-16% 12%-16% 12 - 16% 5% 6% -7% 9%
• Actually, in other OECD countries Actually, in other OECD countries alternative alliancesalternative alliances may exist and may exist and govern govern different different accumulation regimesaccumulation regimes
Managerial
expertise
THE
AMERICAN FIRM
Governance under
shareholder value
The firm as a bundle of
competences
THE JAPANESE
FIRM
Financial
capital Firm specific
competences
ESOP
Employee ownership/
co-management
THE GERMAN FIRM
CONCLUSIONCONCLUSIONC1 C1 Actually existing economies Actually existing economies
drastically differs from pure drastically differs from pure market economiesmarket economies..
C2C2 Thus Thus many mechanismsmany mechanisms explain explain significant institutional significant institutional differences: idifferences: imperfection mperfection of of information, information, increasing increasing returns, returns, coevolutioncoevolution of technology and of technology and institutions, and the role of institutions, and the role of polity polity in the emergence of most in the emergence of most economic institutionseconomic institutions..
C3C3 International tradeInternational trade reinforcesreinforces institutional competitive advantage of institutional competitive advantage of each economy but each economy but financial financial globalizationglobalization may affect adversely non may affect adversely non market led economies.market led economies.
C4C4 Market led economies should not be the Market led economies should not be the benchmark since at least benchmark since at least four or five four or five distinctive configurationsdistinctive configurations coexist among coexist among OECD countries (probably much more OECD countries (probably much more among emerging countries) and among emerging countries) and generally do not deliver Pareto inferior generally do not deliver Pareto inferior outcomes. outcomes.
C5C5Each configuration has significant Each configuration has significant margins of margins of development and flexibilitydevelopment and flexibility, , but conversely sources of but conversely sources of weaknesses weaknesses and fragilitiesand fragilities. The task of the . The task of the economist is to diagnose them.economist is to diagnose them.
C6 C6 FinancializationFinancialization is diffusing all over the is diffusing all over the world, but world, but only the USonly the US experienced a experienced a finance-led accumulation regime.finance-led accumulation regime.
C7 The present sub-prime crisis is an C7 The present sub-prime crisis is an evidence for a general interpretation of evidence for a general interpretation of financial crises: financial crises: private innovationprivate innovation but but lagging surveillancelagging surveillance and public control. and public control.
Thank you for your Thank you for your attentionattention
Robert BOYERPSE (Paris-Jourdan Sciences Economiques) 48, Boulevard Jourdan 75014 PARIS, France
Tél. : (33-1) 43 13 62 56 –
e-mail : [email protected]
web site : http://www.jourdan.ens.fr/~boyer/