2024-08-11 14:16:44
go through Basak Kus*
De-embedding It examines the reshaping of the U.S. regulatory state in the four decades before the financial crisis, a period marked by major structural changes in both the economy (financialization) and the state’s relationship to the economy (the neoliberal turn). This book questions the mainstream explanation of the crisis and the relationship between the state and the economy behind it: that the US government, driven by neoliberal ideas, implemented a policy of deregulation that allowed financial institutions to take excessive risks until they eventually collapsed. Although this explanation is not entirely wrong, it obscures and simplifies some of the complexities behind it. With this in mind, I attempt to unpack the implications of the neoliberal turn in terms of regulatory thought and policy, and how it affects risk formation in the financialized economy.
Correctly understand the neoliberal ideology
First, we need to have a clearer understanding of the specific ideas that shape the state’s regulatory relationship with the financialized economy and how they gain political support. Friedrich Hayek, Milton Friedman, and the Mont Pelerin Society Often referred to as the ideological force driving the shift toward “markets,” the concept is cleverly kept abstract and ambiguous. While neoliberalism is broadly defined as a Hayekian or Friedmanian intellectual movementFocusing solely on the numbers can obscure the specific programmatic ideas that influence policymakers and the intellectual agents behind those ideas. Quinn Slobodiangetting his hands dirty “advising businesses, putting pressure on governments, drawing charts and collecting statistics.”
In the book, I track From the regulatory environment of financialization in the United States to the intellectual movement that emerged in the 1970s and 1980s in the work of economists such as George Stigler, Sam Peltzman, Gary Becker, James M. Buchanan, Gordon Tullock, Anne Krueger, and William A. Niskanen. Although their specific arguments vary—whether the dangers of regulatory capture, rent-seeking, or the inherent limitations of bureaucracy as an administrative tool—all of these theorists share a critique of direct and substantive government regulation.The anti-statist regulatory movement gained further momentum in the 1990s with the growing influence of the field of financial economics and the increasing popularity of the New Public Management theory of government.
Beyond deregulation
What policy instruments have been inspired by these ideas? The literature often talks about deregulation. Deregulation is certainly an important part of it. It was the unwinding of the many financial regulations that had been put in place after the Great Depression, combined with technological advances, that led to the emergence of new market players and instruments. However, this was not simply a shift from more rules to fewer or no rules; the changes in the policy landscape were more complex and far-reaching. It involves Profoundly redefining the roles and responsibilities of governments and market players in risk reduction. First, the government has not taken the necessary steps to develop substantive risk regulatory tools to respond to the changing realities of financial markets, giving rise to another very important but less discussed aspect of neoliberal politics: regulatory drift.
More importantly, when the government regulates, it is increasingly consistent with the premise of market discipline and individual rationality.: Its supervision has clearly shifted to a micro-oriented approach, and the focus of prudential supervision is no longer on the stability and security of the entire system. (microprudential regulation) and entrusting financial institutions with defining the terms of risk management, based on the belief that these entities are best placed to assume this responsibility (an approach known as principles-based risk regulation). Furthermore, it relies heavily on information-based regulation. Increased disclosure requirements, the growing prominence of credit rating agencies, and the expansion of financial literacy programs are all integral to this shift..
Risk protection deficit is a structural feature of American capitalism
The narrative that “financial institutions take excessive risks” also needs to be re-examined. This narrative depicts risk as something that individual actors take or avoid, essentially portraying it as something that can be managed through the responsible behavior of individual businesses, thereby obscuring the systemic nature of risk. We should focus instead on the deficit in risk protection, a structural feature of the U.S. political economy that I conceptualize as “disembeddedness,” inspired by the work of Karl Polanyi.This deficiency is reflected not only in the government’s mitigation of systemic risks, but also in consumer financial protection.
As financial markets grow in size and complexity, and households rely on them for everything from using credit cards to investing in 401Ks, driven by global and technological forces—major structural shifts beyond individual control—formal and collective risk protection structures weaken, and an emphasis on individual responsibility becomes prevalent. Against this backdrop, disembedded financialization is characterized by a dual process: Ulrich Beck calls it “organized irresponsibility” and “tragic individualization.” The increasing complexity of the financialized economy made it difficult to identify who and what caused risk, which made economists experts. Meanwhile, people were left to fend for themselves—a process Baker describes as “De-embedding without embedding”
Regulatory issues are inherently about democracy
at last, De-embedding Provides a way to think about regulation and regulatory reform as a democratic issueRegulatory issues are often viewed as difficult to understand, requiring technical expertise to analyze. This is not the case. Notes by K. Sabeel RahmanIt would be misleading to view regulation simply as “a matter of remedying market failures, improving efficiency, and focusing on the judgment skills of experts and technocrats”; instead, we need to “see it as a project to offset the imbalances of power in the modern economy and create a more inclusive, balanced, and productive form of democratic debate and collective problem-solving”. In assessing governments’ responses to the crisis, the criterion should not be simply the pace of recovery but, more importantly, whether and how subsequent regulatory reforms adequately address the protective deficiencies that underpin the economy’s detachment.
By the time the financial crisis hit in 2007, public dissatisfaction with Washington was already high and only grew during the crisis. As Jonathan Hopkins put it, “when the wheels came off,” the public found “Traditional democratic politics cannot provide adequate solutions to the severe economic difficulties caused by this“Various polls have shown a decline in public trust in government. Trump has effectively tapped into this discontent, channeling ordinary Americans’ confusion about financial markets. In a campaign speech, he blasted Wall Street as “a global power structure that makes economic decisions that plunder our working class, deprive our nation of its wealth, and put it into the pockets of a few giant corporations and political entities.” These messages clearly resonated with the American public.
This is not to say that economic factors and the impact of the financial crisis alone explain the rise of anti-establishment politics. In the United States, racial and ethnic resentments and a range of cultural factors clearly play a significant role. Nonetheless, their role deserves closer examination, especially given historical precedents. Polanyi made a sharp analysis.
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* Basak Kus is Associate Professor of Government at Wesleyan University. She teaches and writes about the interaction of the state, capitalism, and democracy. Her work to date has focused on topics such as economic crisis and liberalization reforms, welfare state restructuring, state-union relations, financial sector regulation, financialization, debt, and the politics of inequality.
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