Academic journal article World Review of Political Economy

Régulation Approach to Financial Crisis: Potential Economic Policies under Structural Changes of Institution

Academic journal article World Review of Political Economy

Régulation Approach to Financial Crisis: Potential Economic Policies under Structural Changes of Institution

Article excerpt

Abstract: In this article, we argue the recent financial crisis from the point of view of institutional economics, particularly from the Régulation approach. This approach emphasizes "institution is important" for economic analysis, so Régulationists see the recent financial crisis as a "structural crisis," that is, a crisis of institutional forms inherent in developed economies. Therefore, they see the cause of the recent financial crisis as the appearance of inadequacy on the mode of Régulation composed of various institutional forms. Thus, we first analyze the financialization of economy based on the concept of "finance-led regimes." Second, we propose it is necessary to reform the tax system in order to escape from financial crisis. Third, we examine the new monetary theory: "sovereign money" theory. Finally we shall conclude that political sovereignty is subordinate to monetary sovereignty in an era of globalization.

Key words: mode of Régulation; SLAM; social debt; money as symbolical mediation; allying money

Introduction

Advanced economies around the world have been faltering since the 2008 Subprime Shock and, in particular, the EU has been brought to the brink of a euro zone breakdown by the debt crisis of Greece. No fundamental solutions have been offered so far.

To deal with the present financial crisis, some economic theorists (e.g., Krugman 2012) assert a return to the proposals of Keynesian Economics, assuming that the crisis is similar to the Great Depression of 1929. However, just a simple return to Keynesian economic policies would hardly make it possible to get out of the present crisis. That is because those various institutional structures on which the economic system is based today are completely different from those in the early 1900s. Particularly, the fundamental changes that have occurred in the financial system during a span of decades have brought about drastic transformations in the institutional configuration of the socio-economic system. They could not be controlled only by such conventional fiscal/monetary policies as have been designed within a nation-state framework.

In contraposition to the theoretical trend mentioned above, the Régulation theory comprehends the financial crisis within the theoretical framework in which to review incongruity between the accumulation regime and the Régulation mode which supports it (Aglietta 1976). For example, Robert Boyer (2011), one of the leading Régulationists, points to the end of the finance-led growth regime, and insists on seeking a way out of the crisis by regarding the financial market as public goods and controlling it publicly by new social compromise. Fredric Lordon (2009) argues that the current crisis can be controlled by nation-states individually, and that there is a taxation policy which has a large influence on the financial capital, though he regards globalized financial innovation as irreversible. It is a policy called SLAM (Shareholder Limited Authorized Margin), which imposes taxes on financial incomes, and limits the profits from financial capital. Aglietta and Orléan (1998), who pointed out the problems with the economic integration of the EU more than a decade ago, propose a new theory of money based on the Régulation approach, and a modality of control.

This article will outline the analysis of the financial crisis based on the Régulation approach, and explore the viability of those economic policies put forward in the analysis. The Régulation approach has focused particularly on the processes of generation, growth and degeneration of the institution brought about by social compromise, and thus always emphasized the indivisibility between politics and the economy. It is to be noted that this angle of analysis is particularly important to deal with the current crisis.

From Fordist Accumulation Regime to Finance-Led Accumulation Regime

Decades have already passed since the Régulation theory started to be explored earnestly in Japan. …

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