The Economic Crisis in Social and Institutional Context This book explores the foundations of the current economic crisis Offering a heterodox approach to interpretation it examines the policies implemented before and during the crisis, and the main institutions that shaped the model of advanced economies, particularly in the last two decades The first part of the book provides a theoretical analysis of the crisis The roots of the ‘great recession’ are divided into fundamentals with origins in financial liberalization, financial innovation and income distribution, and complementary or contributory factors such as the international imbalances, the monetary policy and the role of credit rating agencies Part II suggests various paths to recovery while emphasizing that it will be necessary to develop alternative strategies for sustainable economic recovery and growth These strategies will require genuine political support and a new ‘great European vision’ to address major issues concerning the EU such as unemployment, structural regional differences and federalism Drawing on various schools of thought, this book explains the complexities of the crisis through a wider evolutionary-institutional and heterodox framework Sebastiano Fadda is Professor of Economics and Director of the Research Center ASTRIL at the Department of Economics, University Roma Tre, Italy Pasquale Tridico is Professor of Economic Policy and Jean Monnet Chair at the Department of Economics, University Roma Tre, Italy Routledge Advances in Heterodox Economics Edited by Wolfram Elsner University of Bremen and Peter Kriesler University of New South Wales Over the past two decades, the intellectual agendas of heterodox economists have taken a decidedly pluralist turn Leading thinkers have begun to move beyond the established paradigms of Austrian, feminist, institutionalevolutionary, Marxian, Post Keynesian, radical, social and Sraffian economics – opening up new lines of analysis, criticism and dialogue 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Press and the following books are available (please contact UMP for more information): Economics in Real Time A theoretical reconstruction John McDermott Liberating Economics Feminist perspectives on families, work, and globalization Drucilla K Barker and Susan F Feiner Socialism After Hayek Theodore A Burczak Future Directions for Heterodox Economics Edited by John T Harvey and Robert F Garnett, Jr Are Worker Rights Human Rights? Richard P McIntyre The Economic Crisis in Social and Institutional Context Theories, policies and exit strategies Edited by Sebastiano Fadda and Pasquale Tridico First published 2015 by Routledge Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2015 selection and editorial matter, Sebastiano Fadda and Pasquale Tridico; individual chapters, the contributors The right of the editors to be identified as the authors of the editorial matter, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988 All rights reserved No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data The economic crisis in social and institutional context: theories, policies and exit strategies/[edited by] Sebastiano Fadda pages cm Includes bibliographical references and index Recessions Financial crises Economic development Economic policy Global Financial Crisis, 2008–2009 I Fadda, Sebastiano HB3711.E424 2015 330.9′0511–dc23 2014036829 ISBN: 978-1-138-80559-0 (hbk) ISBN: 978-1-315-75219-8 (ebk) Typeset in Times New Roman by Wearset Ltd, Boldon, Tyne and Wear Contents List of figures List of tables List of contributors Acknowledgements About the book Introduction ix x xii xiv xv SEBASTIANO FADDA AND PASQUALE TRIDICO PART I Crisis interpretation: a heterodox approach Economic crisis and the explanatory power of (institutional) economics JOHN GROENEWEGEN Causes of the ‘great recession’ and economic policy implications 26 PHILIP ARESTIS AND ELIAS KARAKITSOS Financialization, financial systems and sustainable development 42 MALCOLM SAWYER Financial capitalism trapped in an ‘impossible’ profit rate: the infeasibility of a ‘usual’ profit rate, considering fictitious capital, and its redistributive, ecological and political implications WOLFRAM ELSNER 55 viii Contents The battle of ideas in the Eurozone crisis management: German ordoliberalism versus post-Keynesianism 78 BRIGITTE YOUNG From economic decline to the current crisis: a comparison between Italy, France and Germany 91 PASQUALE TRIDICO PART II Exit perspectives and development strategies Should we cut the welfare state in order to get out of the crisis? Some methodological considerations 117 119 SEBASTIANO FADDA The future of the euro 134 VINCENT DUWICQUET, JACQUES MAZIER, PASCAL PETIT AND JAMEL SAADAOUI Consumption and credit for households in the run-up to crisis and in the efforts to overcome recession 151 MARIA LISSOWSKA 10 United in diversity: consequences for common labour market policy in the times of crisis 178 JACEK WALLUSCH AND BEATA WOŹNIAK-JĘCHOREK 11 A cultural political economy of crisis recovery: (trans-)national imaginaries, growth dynamics in the ‘BRIC’ and the Chinese case 200 NGAI-LING SUM Index 220 Figures 4.1 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 6.10 6.11 6.12 6.13 6.14 6.15 6.16 6.17 6.18 6.19 6.20 6.21 8.1 8.2 8.3 8.4 10.1 10.2 10.3 PR for Germany, conventional and corrected Labour flexibility of regular employees Labour flexibility of temporary employees Labour flexibility – temporary work Italian stagnant wages The declining of wage shares in the economy Labour and capital in Italy 1990–2005 Indirect wage, total public expenditure Indirect wage, social expenditure Labour policies and unemployment subsidies Income inequality Correlation scatter inequality and EPL The decline in the consumption level The decline in the investment level The Italian decline The decline in investment changes The industrial decline The gap in R&D Labour productivity Employment trends Unemployment trends GDP performance during the crisis REERs based on unit labour cost (relative ULC) REERs based on unit wage cost (relative unit wage cost) REERs based on export price deflator (export price competitiveness) Level (RULC) and equilibrium relative unit labour cost (RULC*) Kernel distributions of variables expressed in first differences Impulse response analysis results: responses to shocks in real wage Impulse response analysis results: responses to shocks in institutional variables 67 96 96 97 98 99 90 100 100 101 102 103 104 104 106 107 108 109 110 111 112 113 137 138 139 140 190 193 194 214 N.-L Sum high growth rates, dependency of local governments upon land/real estate for revenue, the drive of real-estate developers for profit, and the inflow of investment funds generated by quantitative easing in the US and Europe This prompted fears of a ‘property bubble’ According to Colliers International, residential prices in 70 large- and medium-sized cities across China rose in 2009, with 50–60 per cent increases in Beijing and Shanghai Such increases reduce housing affordability with the conventionally calculated income-to-price ratio in Beijing at to 22 (FlorCruz 2009; Powell 2010; Smith 2010) This ratio means that housing prices for a standard property are 22 times the average annual income of families This inflationary trend has added a political dimension to the housing question This was acknowledged by then Premier Wen Jiabao when he remarked on 27 February 2010 that ‘property prices have risen too fast’ and this ‘wild horse’ has to be tamed Central government leaders have attempted to dampen the market (for example, tightening credit, suspending home loans to buyers purchasing their third housing unit, raising deposits for purchase of new land to 50 per cent; arranging for the exit from this sector of state-owned developers whose core business is not property, imposing a property tax on residential housing, and so on) However, while these measures have cooled second- and third-tier cities (e.g Tianjin and Wuhan), their impact is limited in major cities such as Beijing, Shanghai and Shenzhen In addition, such tightening policies have encouraged banks to find other ways to increase their credit (for example, selling off loans to state-owned trusts and asset-management companies and turning loans into investment products and selling them to private investors) These practices in a land- and debt-based mode of accumulation are supported by those with vested interests in the property and easy credit boom These include profits for foreign investors, jobs and perks for officials, revenue and growth statistics for ministries and local governments, profit/investment for state-owned banks and related investment vehicles as well as state-owned/private property developers, easy credits for infrastructure-related departments and organizations, and, of course, benefits to property owners (on the real estate coalition, see Sum 2011) These benefits come at a price Over-investment/speculation in real estate and rising rents destabilize the economy and have weakened the socio-economic position of ordinary people especially in terms of affordability of housing, land appropriation and under-compensation in rural towns In this regard, rising property prices and wealth accumulation co-exist with social unrest related to resettlement compensation, land clearance, affordability of housing, inflationary pressures, living conditions of the post-80 generations, migrant workers and farmers, as well as administrative excesses In addition, the tightening of credit since 2011 has meant that public and private sector borrowers are faced with problems in repaying and servicing their loans According to the National Audit office, local government debt had risen by nearly 70 per cent from June 2010 to US$3 trillion as of June 2013 Lending in the shadow banking system has increased from 12 per cent of GDP in 2009 to A cultural political economy of crisis recovery 215 40 per cent in 2014 There is even talk of a China ‘Minsky moment’ (Durden 2014) This debt problem is compounded by: (1) the first steps in 2014 to scaling down the US$ 85 billion-a-month asset purchase programme of quantitative easing; and (2) an outflow of capital from the BRIC economies following indications of US and European recovery Consequently easy credit conditions have turned into a search for hard cash Local governments, (quasi)state-owned and private firms have to face higher interest payments and higher costs of servicing debts Some private and state-owned firms (e.g Zhejiang Xingrun Real Estate Co.) encountered serious difficulties in rolling over their debts and declared bankruptcy This potential ‘Minsky moment’ in China can be attributed in part to the transfer of debt (or even ‘debt crisis’) from the US (and UK) via the Eurozone and sovereign debt crises to China But it also has important endogenous roots in China’s strange mix of excess savings and debt-fuelled growth reflected in central–local dynamics Thus the global imbalances have not been resolved but merely reshuffled, assuming new forms and manifesting themselves in new sites Concluding remarks: the search for new imaginaries This chapter used a CPE approach It identified three overlapping stages in the construction of the BRIC economies as a (trans-)national object of ‘growth’/‘hope’/‘strength’ since 2001 These discursive shifts were not arbitrary but related to major new material conjunctures – the 9/11 attack on the World Trade Center and the financial crisis that has been unfolding since 2007 A CPE approach highlights such discursive-material linkages and examines how diverse actors experiment with discourses and practices that would orient their interpretations and actions in changed structural circumstances Some of these discourses (such as the ‘decoupling thesis’) have been negotiated, selected, deepened, sedimented and naturalized as efforts to manage the security and financial crises continued In addition, a CPE approach would also examine how: (1) these processes have been mediated by discursive networks that include international investment banks, economic strategists, business media, think tanks, international organizations and foreign policy makers; and (2) governmental knowledging technologies of power, such as identification, investability and agency, were deployed to privilege and naturalize the BRIC economies as objects of ‘hope’/‘strength’ relevant for the imagined recovery of the global political economy The BRIC imaginary is negotiated and appropriated differently across time and space For example, China is regarded as unique and, within the Sinophone world, it is recontextualized as one of ‘the four golden brick countries’ that symbolizes China ‘strength’ and sign of ‘greatness-at-last’ through its capacity to ‘protect 8% GDP growth rate’ Responding to the 2007 financial crisis, China continued its investment-led strategy by marshalling a vast economic stimulus package that has intensified some deep-rooted national-local economic and political tensions The stimulus package gave a ‘green light’ for regional and local 216 N.-L Sum authorities to bring forward ‘pet projects’ on condition that they raised 70 per cent of the requisite funding Given the key role of land sales and property development in this context, this has come at the price of forced displacement from land, state terror, dispossession of the already vulnerable and increasing inequality This represents the part of the ‘dark side’ of China’s stimulus package and reveals the limits of an approach that is too often narrated in the (trans-) national arena exclusively in terms of ‘hope’/‘strength’ Addressing such neglected or marginalized problems is a key part of the CPE approach, which aims to critique hegemonic imaginaries and narratives On the global level, some of the worries about the validity of the BRIC imaginary became stronger after 2010, prompting an initially gradual and then accelerating retreat in BRIC portfolio investments Indeed, in 2013–2014, the anticipation and then the first steps in tapering US quantitative easing and indications of US and European recovery have unsettled investors and governments in the BRIC economies and other emerging markets Foreign exchange panics led to the depreciation and selling of the Indian rupee, China’s Renminbi, the Brazilian Real and the South African Rand For example, the Brazilian Real devalued by 20 per cent coupled with inflation and social unrest in August 2013 Lord responded by coining the term ‘Fragile Five’ (Brazil, Indonesia, India, Turkey and South Africa) in August 2013 to denote their vulnerabilities Åslund of the Peterson Institute for International Economics announced that ‘the BRICs party is over’ (2013) Even O’Neill was reported as saying that ‘If I were to change it, I would just leave the “C” ’ (Magalhaes 2013) and started to promote a new acronym called MINT (Mexico, Indonesia, Nigeria and Turkey) as the next transnational imaginary to be hyped In short, from a CPE perspective, imaginaries not exist in a vacuum but must be related to extra-discursive contexts and changes The BRIC imaginary captured for a time key trends in the world economy and even helped to create the potential that it identified, not only economically but also politically But continuing global trends, including the financial and economic repercussions of crisismanagement policies in the advanced economies, have increasingly, as some anticipated, turned the BRIC imaginary sour and prompted the search for new imaginaries of hope and strength They have also prompted the talk of the BRICs economies and states themselves to seek alternatives to the current global order, although these alternatives have yet to be tested Notes Sum (2004) elaborates this approach in outlining six and later seven discursive-material moments involved in the remaking of social relations; see also Sum and Jessop (2013: 219–224) For details of these products, search BRIC at www.goldmansachs.com/our-thinking/ archive, accessed February 2014 See www.nasdaq.com/article/the-gl South Africa joined the BRIC summit in 2011 at the invitation of China In the G20 Pittsburgh Meeting (September 2009), the discussion of IMF governance reform was blocked by European governments – notably France and the UK – because A cultural political economy of crisis recovery 217 of worries about losing influence at the IMF On 25 April 2010, China’s voting power in the World Bank increased from 2.78 to 4.42 per cent The fundamental differences among the BRIC include diverse political systems, and dissimilar views on key policy issues such as free trade and energy pricing References Achuthan, L (2012) The Yo-Yo Years, Presentation at Bloomberg Sovereign Debt Conference, Frankfurt am Main, 22 March Available at www.businesscycle.com/pdf/ecrithe-yo-yo-years.pdf, accessed 14 June 2014 Åslund, A (2013) Now the Brics Party Is Over, They Must Wind Down the State’s Role, Financial Times, 27 August Available at www.ft.com/cms/s/0/0147b43c-040b-11e38aab-00144feab7de.html#axzz2slbmgNbH, accessed February 2014 Buchanan, M (2009) Decoupling Is Happening for Real, 10 July 2009 www.chartwelletfadvisor.com/etf-newsletters/vol 06-iss096.pdf, accessed on 21 February 2013 (no longer available on the web) Business Week (2010) China Construction Bank 2009 Profit Up 15 Percent 28 March www businessweek.com/ap/financialnews/D9EO1OQ00.htm, accessed on February 2014 China Daily (2010) China’s Land Sales Revenue Close to $233 bln in 2009 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Social China, Berlin: Springer-Verlag, 199–208 Sum, N.-L and Jessop, B (2013) Towards a Cultural Political Economy: Putting Culture in its Place in Political Economy, Cheltenham: Edward Elgar Tasker, P (2010) Beware the Lure of GDP When Seeking Stocks in Brics www.ft.com/ cms/s/0/18f2c282-ff1b-11de-a677-00144feab49a.html, accessed on February 2014 Tett, G (2010) The Story of the Brics www.ft.com/cms/s/2/112ca932- 00ab-11df-ae8d00144feabdc0.html, accessed on February 2014 Tong, S and Zhang, Y (2009) China’s Responses to the Economic Crisis, EAI Background Brief No 438, National Singapore University, www.eai.nus.edu.sg/BB438.pdf, accessed on February 2014 A cultural political economy of crisis recovery 219 Wilson, D and Purushothaman, R (2003) Dreaming with the BRICs: The Path to 2050, Goldman Sachs Global Economic Research Website, Global Economic Paper No 99 www.goldmansachs.com/japan/ideas/brics/book/99-dreaming.pdf, accessed on February 2014 Window of China (2009) China Updates Details of Stimulus Fund, 21 May http://news xinhuanet.com/english/2009-05/21/content_11415559.htm, accessed on February 2014 Zhang, M (2010) CBRC Beefs Up Measures, Shanghai Daily, 25 February www.shanghaidaily.com/Business/finance/CBRC-beefs-up-measures/shdaily.shtml, accessed February 2014 Index Page numbers in italics denote tables, those in bold denote figures 9/11 attack 6, 200–1, 203, 205, 215 Abbritti, M 180 Allen, C 77 Alternative für Deutschland (AfD) 79, 85–6 Andrews, D.W.K 142 Arestis, P 3, 27, 32, 53n13 Asia Development Bank 207 Australia 37, 96, 100, 129–30 bailouts 37, 71, 145, 183; bank 58; discourse against 84; euro 83; of Greece 81; indebted countries 79; prohibited 73; speculation sector 70; taxpayer 33, 58 bank 32, 43, 140, 174, 203; bailouts 58, 70, 169; balances 68–9, 72; balance sheets 29; Banca d’Italia 96; Bank of England 34–5, 39, 40n8; Bank for International Settlements 38; Bank of International Settlements (BIS) 31, 66; based financial system 49; capital 38; capital needs 31; central 30, 37, 62, 148, 173; commercial 28, 212; commercial reasoning 173; costs 148; credit/deposit ratios 159; credit restrictions 101; crises 68, 71–2; defaulting 151; deposit banks 36; deposits 43, 164; development 50–1, 52n1, 207, 210–11; disclosure 52; domestic and foreign 82; equity requirements 38; EU 72; European 30; failure 40n1; flooding 68, 71; funding of bailouts 37; funds 78; German 63; German and French 36; government rescue policy 169; green 49–50; guarantees 69–70; HSBC 40n9; individual 35, 40n6; inter-bank interest rate 28; international investment 200–1, 202, 204, 215; investment 28–9, 50–1, 66, 144, 146; lending 43, 152; lending standards 172; loans 36, 47–9, 51–2, 209, 212; merchant 28; no-bailout-clause 81; private 62, 70, 80, 144, 149; profitseeking owners 153; prohibited 33; recapitalizing 78, 212; refusal of credit 173; regulation 40n8, 152–3; ring-fencing 35–6; shares 70; state-owned 21314; tax proposals 37; terms set 47; US 33–4 banking 29, 34–6, 38–9; commercial 28–9, 33; commission 40n7; crises 45, 82; debts 82; Disclosure Act 52; EU Sector 40n10; explosion 30; investment 28, 33, 36; licence 83; resilient 208; sector 3, 30, 43–4, 152; shadow 29, 33, 214; system 43, 48–9, 145, 214; union 78, 82–3, 86 Bassanini, A 179–80 Basu, D 60–1 Berghahn, V 78, 80 Bild-Zeitung 2012 85 Blanchard, O 106, 179–80 Brazil 6, 37, 200, 203–4, 206, 208, 210; Brazilian real 216 BRIC (Brazil, Russia, India and China) 6, 200, 204, 209, 212, 216n2, 217n6; construction 203, 206, 209; consumer 201, 207; decoupling 208; Development Bank 210–11; discourses 6, 200–1, 211; economies 205–6, 207, 211, 215–16; group 206; group members 204; imaginaries 6, 201, 204, 215–16; investment 204, 206, 216; knowledge products 202, 205; Summit 202, 210–11, 216n4 Index 221 Bromley, D.W 19 Brown, G 181, 210 bubbles 31; asset price 48, 65; blowing up 63, 68; BRIC 211; bursts 58, 60, 68–9, 97; cycle 55, 68; growing 60, 64; housing 28–9, 174; internet 29; IT 30; mechanism 58; property 6, 201, 212, 214; redistribution mechanism 61, 66, 68; stock market 74n4 Buchanan, M 208 Bush, P.D 19, 23n16 Business Week 213 Canada 37, 96, 100, 129–30 Card, D 181 cash transfers 133n7, 189 Cazes, S 92, 181, 184 central banks 30, 32, 37, 62; European 81, 85; Executive Committee 81; Finnish 36; funding 29; German Bundesbank 4, 78, 80–1, 84–6; Governors 38; interest rates 173; National 148 Central and Eastern Europe 151, 156, 166, 169, 173, 181, 187; see also Central Europe, Eastern Europe, European Central Europe 173; Central European Bank 78, 81, 85; economies 181; labour market 190 Chancellor of Germany 39, 77, 80, 85–6 China 6, 27, 202, 203, 205, 208, 209, 214; Banks 213; BRIC 200, 206, 210–11, 216; decoupling 207; economic and political tensions 201; exports 155, 200, 212; GDP growth 209; Minsky moment 215; reserves 210; rise of 30; stateowned banks 213; stimulus package 6, 200, 209, 211–12, 215–16; transfer of debt 215; Window of China 209; World Bank voting power 216n5; WTO entry 201, 204; see also Chinese China Daily 213 Chinese 205; case 6; central government 212; growth 209; nation 212; shopper 207 Chmelar, A 169, 172 Clauwaert, S 184 Cline, W.R 143 CNEL 90 collective 18–19; guarantee 68, 83; identity 210; labour law 184; monopolistic 71; rationality 62; rural 213; security 178; values 14, 20 collective bargaining 187; systems 184; wage 90 Commons, J.R 17, 19, 23n12 Correljé, A 11 corruption scandals 90 Country-Specific Recommendations (CSRs) 182–3, 185, 195 Cuerpo, C 171–3 Cynamon, B.Z 155 Cyprus 101, 132, 154, 170–1, 183 Czech Republic 101, 129–31, 131–2, 154, 157–8, 160–2, 165–8, 170–1, 176n12, 181, 185, 187, 189, 195n3 Davidson, P 143 debt 154, 166, 171, 174; brake 78, 80; burdens 71, 144, 163; collateralized instruments 3; Collateralized Obligations (CDOs) 29, 64; consumer 170; credit-debt 58, 68; creditor-debtor economy 64–5; crises 45, 79, 85, 87, 183, 215; debt-based accumulation 201, 214; debt-to-income 155, 160, 166, 168, 171; debt-led countries 155; deflations 48, 173; deflation spiral 173; European 147; European Agency 145; Eurozone 78–9; external 145, 148; extra 70; government 169–70; gross 165, 171; growing 2, 151; inflation 58, 65; levels 5, 30; leverage ratio 35, 38; local government 6, 212, 214; lower levels 208; mortgage 164, 166, 173, 175n7; mutualization 81, 144; national 51, 145; overhang 171–2; public 51, 91, 120, 144–5; reduction 104; restructuration 145, 148; retired 83; services 57–8, 68, 74n8, 147; sovereign 45, 92, 151, 170, 183, 215; speeding-up of consumption 175; transfer 215; US 31; see also household debt, indebted, indebtedness decoupling 207–8; theses 202, 207–9, 215 Denmark 93–4, 96, 100–1, 122, 129–31, 131–2, 154, 164, 165–8, 170–1, 176n10 deregulation 178; of financial markets 169; of labour law 183; of labour markets 181–2 De Serres, A 153–4 DIW 64 Dolado, J 181, 187 Draghi, M 84–5, 95 Dugger, W.M 178 Dullien, S 78, 80 Duwicquet, V 5, 134, 142–3, 146 Eastern Europe 169; delocalization 139; impact of crisis 159; indebtedness of 222 Index Eastern Europe continued households 164, 169; South Eastern economies 181; unsustainability of growth 163 Economic and Monetary Union (EMU) 72, 80, 86, 92 Elsner, W 3, 73n1 employment protection 5, 178; legislation 94–5, 101, 105, 113, 180 Epstein, G 43–4 EPSU 184 equilibrium exchange rates 142; Behavioural 141; Fundamental (FEERs) 135, 138, 141, 143; Relative (REERs) 138–9, 141 equilibrium relative unit labour cost (RULC*) 138–9, 140 Estonia 101, 129–31, 131–2, 154, 157–8, 160–2, 165–8, 170–1, 181, 187, 189, 195n3 euro 2, 139, 145; anti-euro 79, 84–6; Area 31, 79, 83, 87n1, 109, 141, 143, 147, 153, 160, 165, 171, 173; Area Summit Statement 83, 87n1; bailout 83; bonds 81–2, 146; break-up 146; countries under pressure 71; crisis 4–5, 79–80, 83, 86–7, 134, 144; Euro-Plus Pact 183; external 147–8; fails 79; future of the euro 5; multi-euro system 135, 146; overvalued 134, 137–8, 140, 144; preservation 147; pro-euro camp 83; undervalued 136, 139 Euro-Pacific Capital Inc 207 European Bank for Reconstruction and Development (EBRD) 159 European Central Bank (ECB) 39, 70–1, 87n3, 145, 148, 172, 176n12; bondbuying 86, 144; common monetary policy 153; Governing Council 81; nonordoliberal policies 85; Outright Monetary Transaction (OMT) policy 81, 84; president 72; rates 173 European Commission 36, 39, 87, 134, 137–9, 167, 173–4, 175n2, 182–3, 195n3 European Exchange Rate Mechanism (ERM) 90, 136, 141; misalignments 135–6 European Financial Stability Facility (EFSF) 70–1, 80 European Investment Bank 50–1, 144, 146 European Stability Mechanism (ESM) 70–2, 78, 80–1, 83–5, 144 Eurostat 105, 108, 110–12, 132, 154, 157–8, 160–2, 165, 167–8, 170–1, 188 Eurozone 1, 72, 87, 134; bank crises 68; banking debts 82; break up 86, 145; competitiveness 142, 144; countries 2, 70, 83–4, 163; crisis 4, 77–9, 81, 83, 85, 136; debt 78–9, 83; democratic 86; disbanding 85; divergence 143; economies 98, 144; exchange rate misalignments 135, 136; future of 84; GDP 147; joining 90; macroeconomic heterogeneity 145; more flexible 147–8; partners 94; policies 71; regulation 83; rescue parachutes 70; stabilization 79, 85; Stock Flow Consistent (SFC) model 146; transfer of debt 215; veto player 80 export-led 155; growth model 77; supply side 1, exports 104, 134–5, 155, 173; China 200, 212; driven recovery 205; France 103; GDP ratios 209; German 70, 72, 103, 138; Greek firms 137; Italy 103; margins 138, 140; market 208; net 53n10; price competitiveness 137–8, 139; reduced 207; sector 141; world vice-champion 63 Fadda, S 5, 106–7, 112 Fazeli, R 133n9 Financial Times 33, 35–6, 40n9, 84 Finland 96, 100–1, 129–31, 131–3, 135–6, 154, 164, 165–8, 170–1, 185, 195n3; Governor of the Finnish Central Bank 36 Fitoussi, J.P 91, 96 Fontana, G 46, 96 France 4, 36, 39, 40n11, 94, 97, 100–2, 104, 105, 107–8, 131–2, 143, 154, 165–8, 170–1, 185, 187, 189, 216n5; employment 110–11; euro overvalued 134–5; exports 103, 139; GDP performance 112; investment 106; labour flexibility 95, 96; labour productivity 109; misalignments 136; public expenditure 99; recession 140; reform 184; relative ULC 137, 138; relative unit labour cost 140; social spending 129–31; unit wage cost 138; wages 98 Frankfurter Allgemeine Zeitung 78, 80, 82 Frankfurter Rundschau 85 Freeman, A 61 Friedrichs, J 22n6, 22n7 Furceri, D 28, 30 G20 40n1, 202, 211; finance ministers 37; Index 223 meetings 38, 210; Pittsburgh Meeting 216n5; Summit 210 Gallino, L 91, 107 gender pay gap 186, 195n3 Germany 1, 3–4, 27, 38–9, 40n11, 62, 70, 73n1, 79, 82–3, 94, 100, 103, 104, 105–8, 143, 145–6, 154, 165–8, 169, 170–1, 185, 195n3; austerity policies 77; consumption 102; debate for Europe 84; economic mistakes 85; employment 110–11; euro overvaluation 134, 137; exports 139; Federal Ministry of Finance 4, 78, 80; Finance Minister 78; GDP performance 112; government social spending 129–31; inequality 101; labour flexibility 95, 96, 101; labour productivity 109; legalistic system 87; misalignments 135; ordoliberalism 4, 77, 7981; polarization 86; PR 67; public expenditure 98, 99; real-investment gap 64; relative ULC 137–8; social protection 131–2; unit labour cost 140; wages 97–8 Goldman Sachs 203; Asia-Pacific Economist 208; Chief Economist 200, 202; report 206; team 205 Goodley, W 74n6 goods and services 119, 121; allocation 16, 20; provision 120, 133n7; technological 203 government 33, 173; actors 10; in Asia 208; bailout 36, 70; BRIC 210, 216; coalition 77, 80; commission on banking 34; debt burdens 71; deficit 53n10; European 144, 169, 216n5; failure to abide by rules 81; financial burden 155; French 146; funding 50, 212; funds 51; liability 70; loans 13, 51; local 6, 209, 212–15; measures 22; national 200; neoliberal 62, 69; personnel 71; policy actions 28; subsidy 50; support 37; UK 35 governmental 80; agency 187; intergovernmental institutions 87; knowledging technologies 215; ministries 212; opportunism 17; organization 21 government bonds 84, 209, 212; debt 6, 169–70, 212, 214; European economic 146; expenditure 99; French 140–1, 144; German 83; Italian 104; leaders 87, 214; policy 175n3; Premier 92; social spending 129–30; Tripartite Agreement 90–1, 96; welfare programmes 119 government central 209; central-local 209; Chinese central 212–14; local 6, 212–14; regulation 184; spending programs 208 Greece 69, 81, 85, 96, 101, 129–31, 131–2, 135–6, 137–8, 154, 166–7, 170–1, 183–4, 187, 189, 195n3 Greenspan, A 27, 29, 32 Groenewegen, J 2–3, 10–12, 22n2, 23n11, 23n12 Gruchy, A.G 17, 23n12 Guérot, U 78, 80, 84 Handelsblatt (2012a) 79, 82; (2012b) 87n2 hedge funds 29, 33–4, 66, 204; hedge borrowers 152; hedge against inflation 213 Heinrich, M 57, 73n1 Hellwig, M 40n13, 82, 153 Hickel, R 83 Hirschman, A.O 49 House of Commons Environmental Audit Committee 47 household debt 30, 166, 168, 173; in EU countries 164; gross 171; growing 151, 155–6, 166, 169, 175n7; help 175; higher levels 151; increase 5; indebtedness 159, 160; outstanding 31; rise of 155, 163, 172, 174; role of 155, 159, 169; structure of 172 Hudson, M 58, 65, 70 Hungary 101, 129–31, 131–2, 154, 157–8, 160–2, 165, 167–8, 170–1, 176n12, 181, 185, 187, 189 Hypostat 166, 173 ICTWSS database (Institutional Characteristics of Trade Unions, Wage Setting, State Intervention and Social Pacts) 188 ILO 98, 153, 181, 190, 191–2, 193–4; Minimum Wage Database 188 income distribution 123, 125, 128; bias 96; deteriorating 92; growing inequality 121; institutions 113; pro-capital 154; unequal 125; worsening of 94, 97, 100, 111 indebted 30, 208; countries 77–9, 82, 145; domestic and foreign banks 82; households 163; over-indebted indebtedness 2, 58, 64, 121, 171; growing 151, 155, 160–1, 164, 166, 168, 169; of households 151, 155, 160, 164, 166, 169; over 153, 167, 173, 175; public 127–8, 146; of Southern countries 148 224 Index Independent Commission on Banking 40n7 inequality 97, 101, 105, 162, 170, 175, 216; cumulative negative consequences 2, 4; gender 187–8; growing 2, 121, 151; income 27, 92, 94, 100, 113, 124, 128, 161, 163, 175; increasing 28, 94, 101, 182, 216; negative effects 30; rising 26, 44, 155 inflation 48, 82, 90, 152, 180, 216; anti 62; asset 58, 65–6; control 30, 149, 205; debt 65; hedge against 213; price 64; rates 92, 153, 193; secular 70; target 35, 146; trauma 84 International Monetary Fund (IMF) 26, 28, 37, 40n12, 72, 99, 136, 202, 207, 210–11; 2012 Global Financial Stability Report 38, 40n14; Annual Report on Exchange Arrangements and Exchange Restrictions 30; credit lines 70; decoupling thesis 207; Global Financial Stability Report 38, 40n14; governance reform 216n5; head 72; international loan 184; proposal 37–8, 40n12; report 159; rescue package 210 Ireland 31, 81, 96, 100–1, 129–31, 131–2, 136–7, 138–9, 154, 164, 165–8, 169, 170–1, 183, 187, 189, 192 Issing, O 81–2 Istat data 98, 140 Italy 4, 81, 83, 85, 90, 92–3, 112–13, 154, 165–8, 169, 170–1, 184, 187, 195n3; decline 102, 103, 104, 106–7; employment trends 110; exports 139; GDP 104, 112; government social spending 129–31; income inequality 100–1; labour flexibility 95–6; labour policies 100; labour productivity 109; R&D 108; relative ULC 137–8; rigidity 106, 110; social expenditure 99; social protection 131–2; stagnant wages 97; unemployment trends 111; wage shares 98 Japan 37, 100, 129–31, 203, 205; Japanese crisis 63 Jayadev, A 122, 153 Jeong, S.-E 134–5, 136 Keen, S 74n4, 74n7 Kleinknecht, A 108 Kok Report 96 labour market 111, 179, 184, 194; Active 185; deregulation 62, 181–2; developments 183–6; dynamics 178, 193; experience 195n3; flexibility 124, 153, 155, 179, 182; flexibilization 95, 101, 106, 110; impact of changes 153; institutions 5, 178–81, 186, 193; institutional context and structure 187; Italian 92, 95–6; legislation conditioning 187; liberalized 104; model 178, 181; modernisation 185; participation 183, 185; performance 181; policy 5; privatization 91; problem of demand 124; reforms 1, 4, 91, 93–4, 97, 113, 183–4; resilience 186; segmentation 185; sub 62; unification 182; unified 178, 195; variables 189–90; see also labour market European labour market European 178, 195; Central European 190; Developments in Europe 182–6; EU 6, 178–9, 182, 190, 192, 194 labour relations 93; protection 161 Latvia 101, 154, 157–8, 160–2, 165–8, 170–1, 176n12, 181, 185, 187, 189 Lavoie, M 74n6, 154 legislation 33, 187; employment legislation 185; Employment Protection Legislation index (EPL) 94–5, 180; European 183; inadequate 35 Lehmann, H 180–2, 195n2 Lenin, V.I 74n3 level relative unit labour cost (RULC) 138–9, 140; see also equilibrium relative unit labour cost (RULC*) leverage 153; ratio 35, 38 Levrero, E.S 92, 96 liberalization 42, 90, 153; capital account 30; financial 1, 3, 26–8, 39; of the markets 127, 205; uncompleted 94, 107, 113 Liikanen, E 36, 40n10 Lilla, M 92, 94, 100 Lisbon Treaty 87, 183; Lisbon Strategy 93, 182 Lissowska, M 5, 161, 167, 175n5 Lithuania 101, 132, 154, 157–8, 160–2, 165, 167–8, 170–1, 181, 187, 189 living standards 178, 182 Lord 216 Lordabett.com 207 Luxembourg 101, 129–31, 131–2, 154, 170–1, 185, 195n3 Maastricht Treaty 1, 4, 81–2, 90, 183; criteria 91–2, 113 Mäki, U 1112 Maniatis, T 5860 Index 225 Mazier, J 5, 134, 143, 146, 149n1 Memorandum 2013 64 Memorandums of Understanding (MoU) 183 minimum wage 185–6, 194, 195n1; binding 181; co-ordination 183; European 148, 184; ILO Database 188; OECD Database 188; policies 187; regulation 195 Minsky, H.P 48, 152; Minsky moment 152, 215 monopolies 14, 58; large 107; private 90, 127; protected 12; public 123, 127 monopolistic 71; models 23; rents 127 Naastepad, C.W.M 108, 154, 164 Naughton, B 209, 212 NCE 13–18, 23n11 neoclassical and New Institutional Economics (NIE) 3, 1317, 21 Netherlands 100–1, 129–31, 131–2, 135–6, 137–9, 154, 156, 158, 164, 165–8, 170–1, 185, 187, 189 New Consensus Macroeconomics (NCM) 26, 32 New Institutional Economics (NIE) 3, 9, 12–13, 16–18, 20–1, 23n11–12 Nickell, S 95, 179 non-bank financial institutions 30, 173–4; financial services companies 33, 38 North, D 16, 18, 23n17 Norway 129–31 OECD 27, 57, 63, 94, 95–102, 103, 106–9, 110, 129, 130–1, 132, 133n7, 134, 180–1, 190, 191–2, 193–4; decoupling 208; Minimum Wage Database 188–9 Officer, L.H 142 OFT 174 O’Neill, D 47, 207 O’Neill, J 200, 202, 203, 205, 207–8, 216 ordoliberal form of monetarism 77; German doctrine 1, 4, 78; German economists 81–2; ideas 78–80; orthodoxy 82, 84–6 ordoliberalism 77, 81; economic ideas 4, 80; German 4, 79 Original Institutional Economics (OIE) 3, 12–13, 17–21, 23n12–13 Ostrom, E 16, 22n1 outright monetary transactions (OMT) programme 81, 84 Palley, T.I 61, 74n3 Penn World Table 102 Philippon, T 27 Pisani-Ferry, J 134, 159 Poland 101, 129–31, 131, 154, 156, 157–8, 159, 160–2, 165–8, 170–1, 176n12, 181, 185, 187, 189, 195n3 political economy 77, 80; cultural (CPE) 2, 6, 200–1; evolutionary 175n1; framework 181; global 215; socio 58; see also German neoliberalism Popper, K 22n9 Portugal 81, 101, 129–31, 132, 135–6, 137–9, 142, 154, 164, 165–8, 169, 170–1, 183–4, 187, 189, 195n3 poverty 2, 151, 161, 162, 163, 169, 170, 175, 186; of action 39; rates 132n5; reducing 182; risk threshold 175n9 price stability 4, 26, 32, 7882, 125 privatization 59, 62; job allocation service 91; process 90, 94, 107, 113, 127; of public goods 2, 69 productivity 101, 110, 126, 136, 187; adjustments 137; agricultural 205; decline 104, 106; decreasing capital 60–1; developments 185; dynamics 91, 106, 113; gains 108–9, 140; growth 46, 59, 108–9, 127; high 186; improve 124; increase 2, 5, 92, 109, 111, 122; labour 2, 4, 46, 61, 92, 104, 106, 108, 109, 110, 112, 154; low 112; performance 94, 109; spread 92; stagnant 109; technical capital 59; wages fallen behind 27 protection 93; dismissal protection law 184; energy sector 108; GDP growth 212; goods market 106; in labour relations 161; by legislation 95; social 93, 122, 132, 158, 182–3, 185 Purchasing Parity Power (PPP) 142; Standard units 156 recession 27, 45, 48, 90, 113, 140, 155, 202, 208; causes 96; current 111; deep 30, 136, 145; deeper 4, 113, 151; defer 207; economic 92–3; great 1, 3, 26–7, 30–4, 37–9; household debt 169, 173–4; overcoming 174–5; risk of 164; significant 30; time 100–1, 104 redistribution 55, 59–60, 119; appropriate 127; capacities 72; effects 68, 133n9; enforced 67; extreme 63; historically unmet 65; income 3, 69, 125; neoliberal 63, 73; policy 27; races 56, 61, 68; reinforced 4, 56, 61, 66–7; requirements 4, 67, 69, 71; re-redistribution 70, 73 226 Index Regulatory Fitness and Performance Programme (REFIT) 183 relative unit labour cost; see equilibrium relative unit labour cost, level relative unit labour cost rentier sector 65; economy 57 rents 163; increase 94, 107, 112, 214; monopolistic 127; rent-seeking 55, 57–8, 111, 126, 128 RMB 203, 209, 212–13 Rodrik, D 91–2, 181 Romania 101, 132, 154, 157–8, 160–2, 167, 170–1, 181, 195n3 Rossi, F 92, 94 Saadaoui, J 5, 141 Sachs, A 180 Sachs, J 132n5 Sally, R 77, 80–1 Sawyer, M 3, 46, 53n2, 53n12–13 Schiff, P 207 Schömann, I 184 Schulten, T 184, 186 Serfati, C 57–8, 73n1 Shin, H.S 152–3, 175n3 Sinn, H.-W 78, 82–4 Slovakia 101, 132, 154, 156, 157–8, 159, 160–2, 165–8, 170–1, 176n12, 185 Slovenia 101, 129–31, 131–2, 154, 157–8, 159, 160–2, 165–8, 170–1, 181, 184–5, 187, 195n3 Smith effect 108–9 social expenditure 99, 121, 125, 133n7; high levels 120; impact of globalization 132n4; private 133n10; public 129–30; reduction 2, 5, 98, 119, 127–8; saving in 122; sustainability 120, 126 social protection 93, 122, 182; expenditure 158; means-tested benefits 132; systems 183, 185 Spain 31, 81, 83, 100–1, 129–31, 131–2, 135–6, 137, 139, 143, 154, 164, 165–8, 169, 170–1, 174, 184, 187, 189 state controlled 90; banks 213 state owned 213; banks 213–14; developers 213–14; enterprises 17, 90–1, 107, 212; firms 215 Stockhammer, E 96, 153–4 Structural Investment Vehicles (SIVs) 28–9, 64 Süddeutsche.de 83 Sum, N.-L 6, 201, 214, 216n1 Sweden 94, 100–1, 122, 129–31, 131–2, 154, 165–8, 170–1, 185, 187 Sylos Labini, P 108–9, 112; model 104, 106 tax 37, 140; advantages 38; before 66–7; breaks 70; burden 185; on carbon emissions 147; deductibility 58; financial transactions 50, 148; havens 66; income 195n3; Justice Network 2012 66; payers 82; payments 126; payroll 180, 189; property 213–14; rate 180; rebates 144, 146; reduction 141; reliefs 60; revenues 50, 125, 170; system 180, 187; wedge 6, 179, 186, 188–9, 191–2, 194, 195 taxation 121; high 112; increasing 128; levels 120, 125; low 159; rents 58 taxpayer 71–2; bailouts 33, 58; burden 70; funding 84, 127; future generations 69; liability 36; money 56, 73 Tett, G 203–4 The Economist 4, 79, 83, 202, 208 Torrini, R 94, 106 trade unions 90–1, 106, 148, 187; decreasing power 153; ICTWSS 188; Tripartite Agreement 90–1, 96 transaction 37; costs 16–17, 187; financial 30, 147–8; market 133n7; outright monetary (OMT) 81, 84; taxes 50, 53n13, 147–8 transformation 4, 66; costs 187; neoliberal 55, 61 Treaty of Amsterdam 183 Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (Fiscal Compact) 80 Trichet, J.-C 86, 134 Tridico, P 4, 96–7, 101, 109, 113n2, 153, 155, 161, 175n4 Tronti, L 91, 94, 106, 109 Tsebelis, G 78–9 UK 4, 26, 61, 101, 189; banks 34–5; Chatham House 207; Financial Services Authority 27; Green Investment Bank 50; gross domestic product 203; HM Treasury 35; household debt 31, 164; IMF governance reform blocked 216n5; leverage 171; minimum wage 187; Parliamentary Banking Commission 35; Prime Minister 210; ring-fencing 40n9; speeding up lending 174; transfer of debt 215; Vickers report 36; wage increase 96 Index 227 unemployment 35, 40n1, 48, 62, 123, 125, 163, 186, 191; benefits 5, 93, 119, 124, 178, 180, 185; figures 182; high 46; level 105; long-term 121; mass 143; nonexistent 161; persistent 5, 178, 194–5; rate 6, 93, 110–11, 161, 178–81, 189, 192–4; reducing 154; response to shock 189, 193–5; rising 93, 172, 192, 200, 212; structural model 189; subsidies 93, 100; trends 111 unit labour cost 108; relative ULC 137, 138, 140 unit wage cost 138; nominal 137 US 3–5, 17, 26, 36, 96, 100, 108, 131, 153, 155, 172, 181, 205, 214; banks 33–4; Community Reinvestment Act (CRA) 51; DoddFrank Act 33, 38–9; dollars 58, 66–7, 202, 206, 210–15; Federal Reserve 30, 212; financial crisis 40n1, 151; financialization 97; financial liberalization 28, 39; financial sector 27, 31; financial speculation 63; GDP 27, 203; housing bubble 29; interest rates 30; labour flexibility 95; PR 59, 61; Presidential system 72; quantitative easing 212, 214–16; recovery 215; stabilization coefficient 134; Treasury 40n4; Treasury Secretary 34, 40n4; Volcker Rule 33 Vaughan-Whitehead, D 184, 195n1 Veblen, T.B 17, 23n12, 74n3, 155 Véron, N 87 veto 1; Bundesbank 85; players 4, 78–81; power 7879 Vickers, J 35–6, 39, 40n7, 40n10; report 34–6, 40n7 Volcker rule 33–4, 36, 40n6 wage 108–9, 124, 154, 156, 159, 185, 195, 195n3; adjustment variable 195; annual 96; appropriate 97, 185; average 184, 188; bargaining 91, 188; close-to-zero 62; collective bargaining 90–1, 188; common policy 184, 195; compressed 97, 111; cut 137, 140; decline 97; decreasing 155; deflation 58, 65, 68; developments 184; dispersion 184; earners 70, 188–9; European coordination 146; flexibility 110; floor 186–7; German ratio 64; global income 67; household incomes 68; increase 146; increased 96, 108, 121, 146, 179; indexation 185; indirect 91, 93–4, 99, 101; lagging 156; low 92, 111–12, 183, 186; minimum 148, 181, 183–8, 194, 195, 195n1; moderation 91–2, 96, 106–7, 109; national policy 146, 183–4; net social 133n9; pressure on 64, 94, 104, 106, 109–10; profits at the expense of 154; proportion of 153–4, 159; public sector 93; real 6, 27, 59, 96, 106, 110–11, 178–81, 186, 188–9, 190, 191–2, 193, 194–5; reduced 93; reduction 153; relative 134; restrictions 172; setting 183–5, 188; stagnant 94, 97; sum 56, 69, 72; systems 183–4, 186–7; unit cost 137, 138; volatility 180 wage-led growth 154, 174–5 wage share 57, 94, 97; declining 27, 30, 92, 96, 98, 101; reduction 60, 110; shrinking 64 Washington Consensus 1, 4, 91, 113 welfare systems 119–20, 127, 133n9 Williamson, J 135, 143 Williamson, O.E 16–17, 91, 135, 143, 187; Williamsonian branch of NIE 23n11 women 185–6, 188, 194, 195n3 workers 49, 91, 111, 161, 184, 186; average 189; independent 93; legislation protection 95; low-paid 110; migrant 185, 214; negotiating position 153; new 109; older 185; productivity 187; purchasing power 91, 93–4, 99, 110; retired 188; risk of inefficiency 175n8 working class 133n9 World Bank 202, 206, 207, 209, 211, 216n5 Wozniak-Jêchorek, B 5, 188 WSJ 2013 66, 68 Young, B 4, 78, 80–2, 87 Zhang, M 213 Zhang, Y 73n1, 212 ... scatter inequality and EPL The decline in the consumption level The decline in the investment level The Italian decline The decline in investment changes The industrial decline The gap in R&D Labour... Institutional Economics) and the alternative (Original Institutional Economics), as appropriate Economic crisis and institutional economics 13 Mainstream economics and the crisis In this section5... causes the economic crisis ?) and on the other hand about the resemblance of the assumptions in the models with the conditions in the real world Groenewegen distinguishes two schools of thought in institutional