Varieties of Liberalism:

Anglo-Saxon Capitalismin Crisis?Sue Konzelmann &

Marc Fovargue-Davies(Gerhard Schnyder)

REFGOV / DEMOGOVBrussels 26-28 May 2010

Market capitalization & Cost of bank bail-outs

Change 1999-2009

($bn)

Bank bail-out package as a %

GDP (March 2009)

Canada 97.5 0.0 %

Australia 85.6 0.1 %

UK -211.4 19.8 %

USA -633 6.8 %Source: Financial Times, 23 March 2009, p.9. 1999 values are as of 31 May 1999; 2009 values are as of 17 March 2009; Stewart 2009.

Overview

• The logic & rise of economic liberalism • Early effects & responses to crises• Industrial restructuring & the market for

corporate control• Financial market liberalization• Regulators & the regulated• Financial alchemy & the US sub-prime

bubble• Conclusions & implications for policy

reform

The logic & rise of economic liberalism

• Classical versus ‘Ordo’ Liberalism• The collapse of Bretton Woods and

relaxation of international money movements

• Globalization and the onset of de-industrialization

• Growing confidence in markets and the ‘re-regulation’ of the real & financial sectors of the economy

Early effects of liberalization &

responses to crises

• Australia & America– Australian corporate & financial scandals (1980s)– US Savings & Loan Crisis (1980s & 1990s)

• Canada & Britain– Bank, insurance trust & investment house

failures (1980s & 1990s)

• All four systems had looked into the abyss …

Industrial re-structuring & the market for corporate

control• Leveraged buyouts & hostile take-overs

in Britain (1960s & 70s) & America (1980s)

• The ‘market for managerial control’ & industrial re-structuring

• Take-over markets in the Anglo-Saxon world

• The structure of the economy & opportunities for investment

• Stock market liberalization– ‘May Day’ 1975 (New York) – 1986 ‘Big Bang’ (London)

• The structure of financial markets– Domestic banks & financial institutions

in Canada & Australia– A global marketplace in London & New

York• The structure of regulation

– fragmentation versus a single regulator

Financial market liberalization

• Britain & America: ‘light touch’ regulation– Increasing relative power (economic &

political) of the regulated

• Australia & Canada: prudential regulation & high levels of own capital reserves– ‘Banks are bastards; bigger banks are

bigger bastards.’ (Maiden 2008)– ‘Our job is to tell you what to do, not to

make it grow.’ (Freeland 2010)

Regulators & the regulated

• Presence of the pre-conditions for financial instability

• Conditions uncomfortable for banks in London and New York

• Financial ‘innovation’ & exploitation of the American sub-prime real estate market

• Loss of confidence precipitates crisis• Financial market crisis has re-bound effects

on the real economy & the recession deepens

Financial Alchemy & the American

sub-prime bubble

• The philosophy shaping liberalization• Relationship between the regulator &

regulated• Investment opportunities outside of finance &

re-balancing a ‘post-industrial’ economy• National political context• The role of the state & philosophy of

government• The direction of reform

Conclusions & Implications for Policy