Academic journal article IUP Journal of International Relations

Hoping for Hegemony: Why Obama Changed Direction on Financial Reform and Embraced Retro-Liberalism

Academic journal article IUP Journal of International Relations

Hoping for Hegemony: Why Obama Changed Direction on Financial Reform and Embraced Retro-Liberalism

Article excerpt

In January 2010, the US president presented a financial reform plan that was more aggressive than anything he had previously offered. Instead of seeking to shore up the banking industry, he seemed eager to shake it up. How should we understand this shift? Most explanations have focused on domestic politics, suggesting that Obama began listening to a different faction in the White House or tried to ride a tide of populist anger among voters. But evidence suggests the president's new proposal was aimed as much at an international as at a national audience. It was designed to not only bolster his domestic base, but also to reclaim for the US a domination position in the global political economy. In other words, Obama was trying to win back hegemony. In doing so, the president abandoned neo-liberalism, an approach that had become discredited among allies in Europe and Japan. Instead, he adopted "retro-liberalism."

On a cold day in January 2010, the US President Barack Obama surprised the world by unveiling a relatively strong package of proposals to regulate the financial services industry. The announcement came as a shock because, until then, the president had shown far more interest in shoring up that industry than in reforming it. What changed?

The conventional explanations, repeated in a variety of media reports, focus on domestic politics. Some observers have suggested that a more reform-minded faction of presidential advisers had elbowed aside a more status quo-minded faction. Others went beyond this narrative of White House infighting to assert that the president was trying to bolster his political ratings. More specifically, they said he was cynically trying to halt or slow down a rising tide of public anger over unpopular policies, such as the nearly $1 tn bank and automobile bailout plan, that suggested an unholy alliance between Washington and Wall Street.

One cannot wholly reject such explanations. Like all politicians, the president pays close attention to public opinion polls-especially those that take the form of elections. But Obama could have tickled the grassroots merely by engaging in more explicitly populist, anti-Wall Street rhetoric (which he did), or by taking political aim at the exorbitantly generous compensation packages that so upset the public (which he also did). He did not need to also promote an ambitious set of reforms designed to rollback a long wave of deregulation.

I argue that the president's policy shift was aimed as much at an international as a national audience. While the reform program was clearly designed to bolster domestic political support for a beleaguered president, it also had a larger and yet still self-interested mission: to try to reclaim for the US and its business elites a dominant position, a "righteous" position of leadership, in the global political economy.

For the US, and especially its dominant social forces, the financial meltdown of 2008-09 was more than a domestic economic crisis; it also represented an international political crisis. Coming just five years after the widely criticized decision to invade Iraq, the meltdown created a new and perhaps even more intractable challenge to US hegemony in the international system. Critics all over the globe quickly pointed fingers of blame at risk-happy financial institutions, AWOL regulators, and the ideology of neoliberalism, all of which have been centered if not exclusively concentrated in the US. Obama, who became president as this crisis deepened, belatedly pushed a program to revamp regulatory policies and remake international institutions, a program that adds up to something I call "retro-liberalism."

This paper maps the president's response to the financial meltdown, pinpointing its meaning in the overlapping context of domestic and global politics. In the process, I suggest that the Obama administration resolved to try to regain US hegemony in the global political economy by winning back newly skeptical states in Asia and Europe. …

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