Montgomerie, J. (2008). Bridging the critical divide: global finance, financialisation and contemporary capitalism. Contemporary Politics, 14(3), 233–252.
This article looks at two frameworks for the analysis of finance and its role in the world economy. These two frameworks are: (1) International Political Economy (2) Newer work on ‘Financialisation’
how are these differentiated with respect to the analysis of ‘finance’?
In short:
IPE approaches view finance as constituting or participating in some changes within the global political economy that are deemed significant to power within the system. These changes are termed ‘epochal’.
The Financialisation framework (FF), provides an account of finance’s embeddedness in social life through qualitative and quantitative inquiries.
Both ostensibly reject positivism and rationalism in method but have different objects of study.
Strengths and Weaknesses of the Two Approaches
IPE subsumes new financial developments under old categories of analysis (presumably used in political economy. Financialization posits that these changes are unique and are primarily driven by the “scale and scope of current financial accumulation”.
IPE sees the financial economy as increasingly separate and separating (dis-embedded or decoupled) from the “real economy” whereas FF sees finance as more socially embedded than before the Bretton Woods collapse (and thereby it is implied that it does not recognize the salience of the above distinction between the ‘real’ and ‘financial’ economy, as it sees all economic activity as socially embedded.)
However, the “Financialisation” literature looks overwhelming to the US and UK cases in isolation from the global political economy, and in this regard would benefit from the wider considerations of the IPE approach.
Story of IPE
IPE views finance through an ‘epochal framework’ that focuses largely on the United States and its status in the global economy and thereby political system (“Money is power”).
Sees the Bretton Woods system as attempting to regulate global financial flows through the adoption of capital controls, the gold-dollar standard and a fixed exchange rate system for currencies.
As the story goes, it was impossible to maintain the dollar convertibility into gold while still allowing capital mobility and autonomy for national monetary policy due to the appearance of euro-markets in dollars, largely facilitated by action on the part of the UK and US governments. (This is presumably, the lifting of interest rate caps)
IPE then views the “resurgence of the American economy, with finance-led expansion” after the BWS collapse within such an epochal narrative. The articles states that it is not analytically salient to import with this analysis, BWS categories such as “national currency, capital flows, balance-of-payments and FDI” which are presumably rendered partially or wholly irrelevant in the analysis of contemporary economic (financial) phenomena by new innovations in financial practice.
Financialisation
The FF is said to keep up better with these innovations, by conceptualizing finance as a relationship between actors and markets that is constantly changing. Mid 90s-00s, Information Technology is seen as fundamental to the dot com boom and crash. 2001-2007, characterized by “loose monetary policy”, low interest rates, excess liquidity, and expanding fiscal (military) spending meant that high-risk speculation would pay off, culminating in the subprime mortgage crisis.
Approaches in the FF literature often look at the conditions that allowed the advent of such a coupon pool capitalism (stock value focus for corporations with the advent of larger financial activity profits for previously productively oriented types of firms in the Fordist era). This sort of approach focuses on the causal mechanisms underlying institutional arrangements.
The picture of the financial economy as ‘dis-embedded’ from the real economy (as presented by IPE) encourages analysis of finance that ignores everyday social practice. The FF, unlike the IPE approaches, focuses on the discursive aspects of ‘shareholder value’ talk and the manner in which households are ‘intimately engaged in new processes of financial market expansion” (for example, the historical transfer of capital in bank savings to pension and mutual fund savings throughout the financial transformation of the late 20th century). The FF is said to focus almost solely on these US and UK financial cultures in its sociological analysis, and it is recommended that it examine the effects that these cultures have on the global system.
The question I am left with is:
Does the IPE, FF, or an amalgamate approach really offer a different methodology?
Both approaches still make truth functional, causal claims (though these claims may be socially or historically contingent). If they didn’t, they would not be informative.
Both approaches make social-explanatory claims using system-level characteristics and do so at a high level of generality (evidenced by the common occurrence of words with the the suffix ‘-ation’ and ‘-ise/ize’).
This is often the case with disciplines that examine higher level social entities that cannot be uncontentiously reduced to lower level entities (or where their higher level properties are realizable via multiple variants of individual level behaviour, such as in case of international relations).
Yet, when these approaches use individual level actions/intentions as evidence (trading ‘euphoria’ in dotcom bubbles), they cannot isolate themselves from claims made in other disciplines, including ‘positivist’ ones (e.g. psychology). However they can, and rightly do, make explicit the normative commitments of their theoretical frameworks rather than shrouding them in pseudo-technical language (as much economic literature originating in the United States seems to do).
Alexey