In the wake of austerity: social impact bonds and the financialisation of the welfare state in Britain

This paper provides an analysis of the financialisation of the British welfare state. In a continuation of neo-liberal privatisation and labour market activation, the financialised welfare state pursues a policy of welfare retrenchment, while engaging in forms of social engineering aimed at producing self-responsibilised individuals and communities who are financially literate, ‘investment-ready’ and economically productive. New financial instruments such as social impact bonds are deployed to these ends, both to ‘solve social problems’ and enable cost saving. Through the use of such financial instruments, the implementation of regulatory infrastructures and tax incentives, the financialised welfare state becomes a vehicle for the transfer of wealth from the public to private investors, while subjecting the domain of social policy to the vicissitudes of global financial markets. This paper offers a critique of these developments, situating the case of Britain within the broader global context and with regard to the implications for understanding the current political economy of the welfare state.     

The Rise of Digital Financialisation: The Case of India

ABSTRACT

Traditional notions of financialisation require updating to study the reorganisation of finance around digital infrastructures. We introduce the concept of digital financialisation, defined as the often-coerced merging of two hitherto separate aspects of citizens’ lives – interactions using digital technologies and financial transactions – into a new hybrid realm. This realm is undergirded by an infrastructure that harvests citizens’ data, which companies can monetise and governments can use for political surveillance. In developing countries, the state plays a key role in creating surveillance infrastructures, often using coercive means in the name of financial inclusion, as the demonetisation and Aadhaar projects in India show. Unlike the industry-finance conflict in ‘analogue’ financialisation, digital financialisation involves domestic and cross-border conflicts between tech and finance companies for control of the hybrid realm. The state mediates these conflicts. In India, it deploys a narrative of technocultural nationalism to cultivate its domestic political constituencies and downplay its reliance on foreign technology.     

Money power of Capital and Production of ‘New State Spaces’: A View from the Global South

An array of innovative financial and monetary institutional and policy initiatives recently emerged across the Global South at various spatial scales: (1) the deployment of national ‘self-insurance’ strategies such as large foreign reserve accumulation, different forms of capital controls, and currency market interventions; (2) the multiplication of bilateral, sub-regional, and regional financial and monetary mechanisms, including currency swaps and reserve-pooling arrangements, credit lines, bilateral aid, and development finance; and (3) a growing participation and assertiveness in multilateral financial arrangements. After critically reviewing the existing literatures – the international political economy (IPE) of ‘policy space’ and the IPE of ‘financial statecraft’ – the paper deploys a ‘scalar-relational’ critical IPE approach and interprets these policy initiatives in terms of a crisis-driven production of ‘new state spaces’ across the Global South, in the context of the current period of credit-led capital accumulation. The paper argues that this process has been characterised by the contradictory extension, intensification and growing complexity of the tasks taken on by the capitalist state at various scale levels, resulting in the increasing entanglement of state power in the nested hierarchy of monetary relations, from the global scale to bodies and subjectivities.     

The Golden Age of Tax Expenditures: Fiscal Welfare and Inequality in Portugal (1989–2011)

ABSTRACT

This paper studies social tax expenditures as an instrument of social policy, considering its broader social and political ramifications, particularly regressive distributive impacts, the targeting of social protection and making markets for non-state providers. Using OECD data and government budgets, we look at ‘tax breaks for social purposes’ in Portugal since the 1980s, with a focus on healthcare, educational and mortgage loan expenses. Portugal presents a comparatively high level of TBSP before the Great Recession. Why? Using Portugal as a theory-developing case, the paper argues that in the critical juncture following the late, double transition to democracy and structural economic reform, tax and welfare state developments combined to create social tax expenditures as a modality of targeted social expenditure favouring middle and higher strata. Once in place, a combination of powerful vested interests, obscure policy-making, regressive income distribution and high take-up rate across taxpaying groups obtained a path-dependent outcome, keeping inegalitarian and costly fiscal welfare growing during adverse fiscal conditions. Such a resilient outcome was curbed only in 2011 by the harsh conditionality of the economic and financial adjustment programme of the Portuguese bailout, an instance of how deep crises provide opportunities for path-shifting reconfigurations of social policy.     

‘Sovereignty Entrepreneurs’ and the Production of State Power in Two Central African Borderlands

This article advances a subaltern geopolitics of sovereignty production at the borders of the DR Congo – the supposedly most fragile – and South Sudan – the youngest state in Africa. Moving beyond critiques of representing postcolonial statehood and sovereignty in terms of ‘lack’ and ‘failure’, we localise and ground analysis by drawing on Butler’s figure of the ‘petty sovereign’‘ to analyse the agency of border officials at the DR Congo/Rwanda and the South Sudan/Uganda border who we refer to as ‘sovereignty entrepreneurs’: officials who, tasked with managing and controlling the border, in constant face-to-face negotiations and closely linked to resource competition prescribe, set and decide on the terms and conditions of border crossing. It is argued that in the context of the DR Congo and South Sudan, where the states’ claims to territorial sovereignty face similar internal and external challenges, the border work of sovereignty entrepreneurs, characterised by the ability to tax, threaten and discipline with impunity, represents a form of sovereign power that renders the state’s capacity to act excessively visible at its borders.     

Road tax interactions among local governments: a spatial panel data analysis of the French case over the period 1984–2000

This article contributes to the literature on local tax interactions. Its novelty lies in its focus on the interactions of local governments via an indirect local tax on vehicles such as the road tax sticker and its analysis of interactions between direct and indirect local taxation. The main purpose of this article is to provide an empirical analysis of the reaction of road tax policy in a given French ‘department’ to changes in road tax policy in other ‘departments’. The analysis uses a novel panel data set covering the 96 French metropolitan ‘departments’ for the period from 1984 to 2000. First, the results confirm the presence of significant spatial interactions between French ‘departments’ due to the road tax sticker. Second, the estimation results also show that the business tax rate and/or the property tax rate on developed land are complements to the road tax sticker, whereas the residence tax rate and/or the property tax rate on undeveloped land are substitutes to the road tax instrument. Finally, I find that ‘departments’ with a larger, younger and older population set higher rates for the road tax sticker. The results are robust regarding alternative weight matrices.     

Region? Why Region? Security,Hermeneutics, and the Making of the Black Sea Region

In the context of post–Cold War European integration, ‘making’ regions has become commonplace. Far from reducing the significance of regional initiatives, inflationary regional labelling draws attention to the significant role played by ‘regions’ as legitimating political vectors. Why are political projects formulated in regional terms? Critically examining the Black Sea region project, this article suggests that region-making transcends the boundary between theoretical and political praxis. Regional entrepreneurs frequently use different conceptual categories in the formulation and justification of their initiatives. In order to understand why regional forms are preferred politically, it is necessary to scrutinise closely this contextual interaction between political praxis and conceptual logic. The article maps the various concepts of region which coexist in the Black Sea region project, and discusses their relationship with four political and hermeneutical strategies that link the regional project with its context, profoundly marked by the logic of European security integration. The ‘double hermeneutics’ of the Black Sea region highlights the contradictory security logics that structure European security in general and this regional project in particular. In the conclusion, the article draws attention to the significant epistemological and normative consequences of the double hermeneutics of the Black Sea region.     

SUBSIDIES AS OPTIMAL FISCAL STIMULI

Theoretical macroeconomic models typically take fiscal policy to mean tax‐and‐spend by a ‘benevolent government’ that exploits potential aggregate demand externalities inherent in the imperfectly competitive nature of goods markets. Whilst shown to raise aggregate output and employment, these policies crowd‐out private consumption and typically reduce welfare. On account of their widespread use to stimulate economic activity, we consider the use of ‘tax‐and‐subsidize’ instead of ‘tax‐and‐spend’ policies. Within a static general equilibrium macro‐model with imperfectly competitive goods markets, we examine the effects of wage and output subsidies and show that, for a small open economy, positive tax and subsidy rates exist which maximize welfare, rendering no intervention suboptimal. We also show that, within a two‐country setting, a Nash non‐cooperative symmetric equilibrium with positive tax and subsidy rates exists, and that cooperation between governments in setting these rates is more expansionary and leads to an improvement upon the non‐cooperative solution.     

The Structure of the ‘EU’ropean Ensemble of State Apparatuses and Its Geopolitical Ambitions

Against the backdrop of the international political and economic system’s increasing fragmentation, this article attempts to analyse the geopolitical ambitions of the EU. Currently, the EU strives to become an independent global power. For this purpose, the EU tries to establish greater independence from the US and, to a certain degree, from its Member states. This is closely linked to (a) the emergence of the Euro as a currency competing with the US dollar for the status of the ‘global reserve currency’ and (b) the construction of a common foreign and ‘security’ policy. Taking the German literature on the political economy of the state and on the European Integration, insights from neo-Gramscian International Political Economy, and the ‘scale debate’ in Anglophone geography as point of departure, I analyse the European ensemble of state apparatuses and demonstrate that these ambitions have failed, due to the status quo of a fragmented Europe.     

Government policy to reduce pollution emissions within the overlapping generations model

This article develops an overlapping generations model with multiple categories of capital. The importance of this article is in its ability to analyse changes in the distribution of various categories of capital along the growth path of the economy. Economic growth is accompanied by capital growth as well as increase in pollution emissions. Implementing a government policy to reduce pollution emission would change the equilibrium path of capital distribution. Within the model, the government builds a corporate tax function that defines the tax rate as a function of a ‘desired’ pollution level. The tax rate decreases as the ‘desired’ pollution level is higher. When the ‘desired’ pollution level is higher than the actual pollution level, production is subsidized and pollution levels rise. An example and a simulation are presented in order to confirm the theoretical results and demonstrate that the model can be used for empirical analysis.     

On commodity tax harmonization and public goods provision

This paper argues that Pareto improvements based on harmonizing tax reforms expressed in terms of the divergence between actual and optimal tax structures and over/under provision of public goods require the use of ‘pseudo-optimal’ taxes instead of optimal ones. ‘Pseudo-optimal’ taxes are defined as those obtained using the optimal tax formulas but evaluated at any arbitrary initial tax structure. Within this context the paper reconfirms existing results showing that tax harmonization emerges as a strong policy instrument in achieving a potential Pareto-improvement.     

Post-2008 British Industrial Policy and Constructivist Political Economy: New Directions and New Tensions

The article serves to introduce a number of recent changes in the practices and rationale of British industrial policy since 2008. I observe a shift towards a stronger role for the government and for agencies of industrial policy in the provision of industrial finance, and towards an increasingly discretionary and strategic approach to industrial policy intervention, both of which stand in tension with the neoliberal ‘coordinative discourse’ that continues to structure macroeconomic policy in the post-2008 context. I suggest that this tension is indicative of the emergence of two competing ‘crisis diagnoses’ in government after 2008; one reflecting the neoliberal coordinative discourse that structured economic policymaking prior to 2008, the other at odds with this neoliberal crisis diagnosis. I argue that constructivist analytical frameworks on crisis and political–economic change are insufficiently developed to accommodate these findings. I therefore reflect upon some conceptual and empirical implications that the findings raise for a constructivist analysis of economic policy in the post-2008 context in Britain, before concluding that a more contingent, contested and, crucially, incomplete process of re-alignment in the ideas that structure economic policymaking is underway in Britain than is generally acknowledged.     

Derivatives and the financialisation of the Italian state

The existing literature on financialisation has devoted insufficient attention to how governments wield the market-based practices and technologies of financial innovation to pursue statecraft objectives. Because of this inattention, scholars have missed the opportunity to examine a crucial facet of the financialisation of the state. To remedy this limitation, the present article investigates how and why the Italian government designed derivatives-based strategies during the 1993–9 period. It argues that these tactics gained momentum in the context of the political struggles that developed in Italy beginning in the late 1980s. In particular, the study shows how a neoliberal-reformist alliance came to power and used financial innovation to comply with the Economic and Monetary Union (EMU) admission criteria. EMU dynamics enhanced the power position of the neoliberal-reformist coalition vis-à-vis the country's traditional political and business establishment. This work offers insights that go beyond the specificities of the Italian case. It encourages further research on how governments in other countries simultaneously exposed state institutions to financial speculation and gained access to a range of new instruments through which they could manage state affairs in a financialised manner.     

Beyond Patrimonial Plunder: The Use and Abuse of Coconut Levies in the Philippines

This article re-examines a case of corruption that was perpetuated during a period of authoritarian rule in the Philippines: the subversion of ‘coconut levies’, a tax on coconut production imposed by strongman President Ferdinand Marcos from 1971 to 1982. Literature on the case has formed the basis for locating the political origins of the country’s struggles with long-run economic transformation in terms of the extent of ‘rent-seeking’ and articulations of ‘neo-patrimonialism’ in this middle-income developing economy. The article interrogates how extant analyses of the case have explained associated malign developmental outcomes with reference to institutional design and governance conditions. It forwards a re-interpretation that focuses on the distributional contest underpinning levy mobilisation, including the types of state-engineered privileges contested, and how access to these were politically determined and regulated during and after the Marcos period. This approach, in which developmental possibilities of rent-creating state interventions are not universally denied but considered with reference to configurations of power and structures of political bargaining, will be shown to address limitations of preponderant analyses and bear relevance to developing countries where, because of structural reasons, neo-patrimonialism may be endemic but rent-creating state interventions cannot be discounted as instruments for promoting economic development.     

Depoliticisation,the Management of Money and the Renewal of Social Democracy: New Labour's Keynesianism and the Political Economy of ‘Discretionary Constraint’

Pointing to its radical underpinnings in so-called ‘Open Marxism’ and its theory of the state (one that subsumes the state in the capital relation), this article critically scrutinises Peter Burnham's thesis of ‘depoliticisation’ as a dominant accumulation strategy and regime. The article identifies ambiguities around Burnham's depiction of New Labour in power as committed to depoliticisation. It addresses these by drawing a distinction between regime of accumulation and mode of regulation, characterising New Labour's political economy in terms of the latter as a form of depoliticised Keynesianism framed by ‘discretionary constraint’. Contra-Burnham, the article points to the continued efficacy of Keynesian and social democratic political agency in the context of a dialectic of depoliticisation and repoliticisation focused on the role and power of the state. This dialectic is symptomatic of the contested regulation of capitalism around the defence of the value of money, on the one hand, and its broader management and redistribution, on the other.     

Pragmatic financialisation: the role of the Japanese Post Office

The Japanese Post Office, one of the world’s largest financial institutions, was finally privatised in 2015, marking an appropriate time to examine financialisation in Japan. The literature on financialisation and changes in Japanese capitalism assumes convergence on Anglo-American capitalism with a diminishing of state power. The main argument of this paper is that financialisation is instead a more contingent process. This is put forth through an examination of how this process has been mediated by the Japanese state through the workings of the Japanese Post Office. The state has frequently shaped the direction of financialisation by intervening in the routing of household funds via the postal savings system in order to achieve its objectives in different circumstances, particularly evident in the protracted and contested nature of the post bank’s privatisation. Financialisation is thus not preordained; instead its path is hewn by crisis, catastrophe, demographics and the agency of domestic social actors.     

Reconciling the Rawlsian and the utilitarian approaches to the maximization of social welfare

Under a deadweight loss of tax and transfer, there is tension between the optimal policy choices of a Rawlsian social planner and a utilitarian social planner. However, when with a weight greater than a certain critical value the individuals’ utility functions incorporate distaste for low relative income, a utilitarian will select exactly the same income distribution as a Rawlsian.     

THE POLITICAL ECONOMY OF PUBLIC‐PRIVATE PARTNERSHIPS AND ANALYSIS OF THEIR SOCIAL VALUE*

ABSTRACT: This article applies political economy theory to public‐private partnerships (PPPs). First, we propose that social welfare is the appropriate normative evaluation criterion to evaluate the social value of PPPs. Second, we specify the goals of PPP participants, including private‐sector partners and governments. Third, we review the observed outcomes of PPPs and analyze them from both a political economy perspective and a social welfare perspective. Fourth, based on a comparison of the actual outcomes of PPPs to normatively desirable social welfare outcomes, we propose some ‘rules for governments’ concerning the design of government PPP institutions and the management of PPPs. We argue that if governments were to adopt these rules there would be fewer PPPs in total, they would be more like traditional government contracts and there would be a greater likelihood of improved social welfare. However, political economy theory also explains why implementation of any reform will be difficult.     

Endogenous distribution and equilibrium growth: a note

Does distributive conflict diminish during the course of economic development? This article outlines a model in which distribution, the tax rate and growth evolve endogenously over time. When voting occurs over a tax on capital, we show that the growth rate is maximized at the political equilibrium in the long run. When voting occurs over a general income tax, we show that the growth rate is maximized at the political equilibrium in both the short and long run. These results suggest that the transitional dynamics of growth models with redistributive politics lead to growth‐maximizing outcomes, as distributive conflict diminishes in the course of development. This implies that the democratic process leads to greater consensus over policy choices, with a perfect convergence of interest across individuals with respect to the tax rate.     

Depletion: Bridging the Gap Between Theory and Practice

Adjusting national income for depletion is important in order to send correct signals to policy makers. This article reviews a number of depletion measures that have been recently brought forward in the context of environmental accounting (‘practice’) and green accounting (‘theory’): depletion as change in total wealth; depletion as ‘using up’ of the resource; depletion as net savings; or, depletion as net investment. The differences in assumptions between these measures are clarified by contrasting their approaches with the classic theory of a firm engaged in extraction. All measures are evaluated using a time series of data on Dutch natural gas reserves. Our main findings are that correcting for the cost of depletion would lead to significant adjustments of both level and growth rates of Dutch net national income, with a strong dependency on the chosen measure.We counter criticism that accounting in practice would necessarily underestimate depletion. The choice for a depletion measure should be determined by the context of use: measurement of social welfare or sustainable income. The physical measure put forward in the SEEA Central Framework can be justified by its consistency with the income concept that underlies the SNA.