The crisis has opened the door to new ideas and policy paradigms, but politicians are yet to build upon them and create a convincing progressive agenda
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.
However, there is a case for academic analysis to take a more forensic approach to the issue of ideational change. For example, so-called ‘embedded liberalism’ in the United States, based on New Deal legislation and then the Bretton Woods financial order, took over fifteen years to unfold after the initial point of financial distress (the Wall Street crash of 1929). The history of ‘great’ transformations reveals that they are often a lot less dramatic than the moniker suggests.
One potentially fruitful avenue is to consider what might be called ‘sea change moments’. A sea change moment involves the active adoption, incorporation, promotion and endorsement of new or different sets of ideas, concepts, knowledges, methods, understandings, technologies, languages and discourses that, in combination, change the direction of travel in a policy field. At such moments, policy can be seen to begin to focus on and coalesce around new objectives. These objectives are starkly different and represent a change in trajectory from previous approaches and assumptions.
Typically, sea change moments do not emerge out of thin air, but are rather part of on-going processes.
Initially, there is a background or preparatory phase, in which new forms of understanding, new analysis, concepts and techniques are formulated, prepared and promoted. Those pushing for new approaches then seek strategically to position these new concepts and techniques close to senior policy makers, so that they start to get exposure to new ideas.
The sea change moment itself then comes along. A trajectory of change is unleashed and instituted as new principles, approaches and concepts are endorsed politically, often catalysed by unexpected events. The challenge is to understand both how and why increased political urgency for change emerges, and how and why certain new approaches are favoured and others by extension rejected.
Finally, we arrive at the post-sea change process of contestation, which determines where a change in the direction of travel in a policy field actually takes us. This is shaped partly by the existing or prevailing institutional context of a policy field and the forms of politics that this produces, as inevitably some actors seek to contest and dilute any change in policy trajectory and thereby protect the status quo.
In short, developing a better understanding of these dynamics is a key challenge for post-crash political economy. Why? The answer is because sea change moments change the order of priorities and set of assumptions in a policy field, while also shifting the onus and burdens that shape the public presentation of arguments and evidence. Public policy does not automatically change conspicuously, but the language, discourse, assumptions and stated objectives in a policy area do alter and, in so doing, shift the direction of policy travel.
Thinking in these terms, then, 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.
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. In the macro-prudential case, it was a combination of officials from the Bank for International Settlements, national central bank officials, and a range of private sector and academic economists. In the case of the MAP, it was primarily finance ministry and IMF officials, with some central bank involvement. 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.
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.