Sea change moments and post-crash political economy

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A political economist I much admire, and with whom I have co-authored, is Andrew Bake at Queen's University, Belfast. He has a new post on the Sheffield Political Economy Research Institute (Speri) blog with the above title.

As he argues in his opening paragraphs:

Political economists are pessimistic about the prospects for far-reaching and profound change following the financial crash of 2008. A common refrain is that little in the way of substantive change to the financial and economic order has been achieved and that the window of opportunity has now slammed firmly shut.

Economic ‘crises’, the political science literature tells us, should be conceived of as critical turning points, the reference here being to the original Ancient Greek medical meaning of the term ‘crisis’.  Questions have consequently been raised about whether the crash of 2008 and the ensuing recession was in fact a crisis at all. Certainly, evidence of a shift to a new economic paradigm or mode of thinking has been hard to find.

I fear there's a lot in that but he doesn't totally despair. Having considered a theory of change he asks:

Is it possible to identify any potential post-crash sea change moments?

Three examples suggest themselves: first, the macro-prudential ideational shift in financial regulation during 2009, which has resulted in the current effort to build macro-prudential regulatory regimes; second, the return to exploring co-ordinated adjustment to macroeconomic policy to tackle and reduce global imbalances through the Mutual Assessment Process (MAP), following a decade or more of a non-aggression pact based on the notion that governments simply put their own houses in order via inflation targeting and deficit-GDP ratios;  and, third, the recent endorsement of the tools of country-by-country reporting and automatic information exchange as a basis for reducing corporate tax avoidance.

Now I admit I was surprised by the inclusion of the last, important as I think it is. Andrew says though:

These ideational changes share common features. One is that all of these ideas ran contrary to prevailing sentiment and were unpopular ideas cursorily rejected by powerful interests and leading policy makers during the boom of the 2000s. In each case, the financial crash and its fall-out have resulted in renewed interest in these approaches, followed by their acceptance by leading governments.

Another is that the pressure for each of these changes came primarily from technical experts.

As he put it

In the tax case, the arguments in favour of a new approach were mainly developed by the Tax Justice Network, comprised of a former Jersey tax official turned whistle-blower, a professor of accountancy, a professor of law and a chartered accountant turned campaigner, leading to the conversion of key OECD officials and eventually resulting in support from G8 and G20 governments.

In each case, it is striking that it has been experts pushing change in relatively technical policy areas that have had success in producing shifts in thinking and priorities.

But it's not all good news:

However, these developments also serve to illuminate one of the most striking features of post-crash political economy: namely, the complete absence of a co-ordinating discourse about the crash that ties all these (and other) disparate pieces together. Politicians across the advanced world — from whom any new grand co-ordinating narrative must surely come — have shown themselves to be either incapable of, or largely uninterested in, developing new ideas and discourse about the lessons of the crash in ways which draw on and connect to the lessons learned by technocrats.

This raises several further important questions. Why is democratic politics, and the political leadership of major political parties, seemingly failing in this endeavour, and how can this be overcome? What kind of common framework of thought, explanation and narrative could plausibly link up these seemingly disparate pieces of a new jigsaw? These are difficult questions, but they highlight the need for research institutes, such as SPERI, to contribute potential answers by being bold enough to move beyond narrow academic questions of causation and explanation and enter the world of prescription.

It also highlights the need for technical experts to continue to communicate why we think change so important, and that there is a narrative behind it; in this case one that makes the case for greater equality as the foundation for stable and healthy markets and as the basis for the vital government services that underpin almost everything of value in society.