Transcript The rediscovery of networks, past and present – An

REGULATION THEORY
IN A NUTSHELL
And a brief comparison with
SSA
Robert Boyer
Paris-Jourdan Sciences Economiques
(PSE, CNRS-EHESS-ENS-ENPC)
Political Economy Research Institute
(PERI, Thompson Tower, 9th floor,
University of Massachusetts, Amherst
March 26, 2008
INTRODUCTION
1.The origin : surprising structural
evolutions of the 70s:
- Productivity slow-down in the US
- Rising unemployment in Europe
- Stagflation: inflation and recession
..At odds with conventional theories:
- Keynesian macroeconometric models
- Neoclassical labour market theory
- Marxian prognosis
2.The intellectual inspiration:
- Kaleckian macroeconomy of capital
accumulation
-The Annales school of economic and social
history
-Theory of habitus as alternative to homo
oeconomicus rationality
3. An eclectic but controlled use of
methods:
-
Diagnose the key social relations of the society
under investigation
- Analyse the precise form taken by these social forms
via the emergence, maturation and crisis of the
related institutional forms
-Explicit the logic implied for individual and collective
behaviour
- Collect the relevant statistical indexes and look for
regularities by econometric methods
- Check if partial régulations define a viable
macroeconomic regime
A SYNOPTIC VIEW OF
THE PRESENTATION
1. From general equilibrium theory (GET) to the
diversity of imperfect market economies
2. Régulation theory (RT) in a nutshell: an analysis
of economic institutional architectures
3. An analysis of crises and changing patterns
through time and space
4. How many régulation modes ?
5. The era of globalization: a renewed diversity of
institutional configurations
6. The era of financialization: RT and SSA
II. FROM GENERAL
EQUILIBRIUM THEORY
(GET) TO THE DIVERSITY
OF IMPERFECT MARKET
ECONOMIES
The generalization of GET has
failed
Table 1 – In real economies,
as many market failures as
efficient markets
The belief in self regulated markets has
been eroded
Table 2 – The promises and
the deliveries of the free
marketers
The interest and limits of game
theory: ad hoc rules of the game
Diagram 1 – From general equilibrium theory to game theory: analyses by
domains but not any theory for the complete economic system
GENERAL
EQUILIBRIUM
THEORY
GAME
Removing some key hypotheses
No
auctioneer
Asymmetric
information
Missing
future markets
Strategic interplay
between agents
Increasing
returns
Imperfect
competition
THEORY
Alternative
solution
concepts
° Multiple equilibrium
° Unstable equilibrium
° Micro behavior does
not imply any definite
aggregate regularity
Rational
expectations
Statistical
Theory of
aggregation
Coordination of
monetary economies
Representative
Temporary
agent
equilibrium or
+
disequilibrium
Rational
theory
expectations
SONNENSCHEIN
R. LUCAS
J.P.
J.M.
T.
BENASSY
GRANDMONT
SARGENT
J.M.
W. HILDENBRAND
GRANDMONT
No Walrasian
equilibrium for
credit or labor
markets
J. STIGLITZ
Intertemporal
models with
overlapping
D. CASS
New
Keynesian
Theory
The role of
norms and
social justice
on market
Models with
overlapping
generations
P. HOWITT
P. WEIL
G.
P.
AKERLOFF SAMUELSON
R. SOLOW
Endogenous
technical change
and growth
P. ROMER
(1990)
Repeate
d games
Oligopolistic
competition
and
unemployment
Experimental
economics
New
industrial
economics
J.P. BENASSY
C. PLOTT
A. ROTH
J.
TIROLE
Applied
game
theory
New
labor
economics
Credibility of
economic
policies
F.
D.
LAZEAR COHEN
International
economics
P.
KRUGMAN
A basic issue: what are the actual
institutions and the rules of the game?
III. RÉGULATION THEORY IN
A NUTSHELL
The macroeconomic consequences of
institutional forms
Diagram 2 – Starting from Marxian theory to understand the institutions of
capitalism : « regulation theory » in a nutshell
THE CAPITAL/LABOR RELATION OF
PRODUCTION
Capitalist
Production
Mode
Accumulation
law
A set of
INSTITUTIONAL
FORMS
An
ACCUMULATION
REGIME
A
REGULATION
MODE
Which makes viable
MORE
GENERAL
CATEGORIES
THE MARKET RELATION OF
EXCHANGE
WAGE-LABOR NEXUS
FORM OF COMPETITION
INTERMEDIATE
CATEGORIES
NATURE OF MONETARY
CONSTRAINT
WAGE AND PRODUCTIVITY
DYNAMICS
PRICE FORMATION
CREDIT, MONEY AND INTEREST
RATE
OBSERVED
VARIABLES
The post WWII institutional architecture
and growth regime: the Fordism
Diagram 3 – The post WWII
capital labor accord shaped
most other socio-economic
institutions
IV. NO INSTITUTIONAL
ARCHITECTURE IS STABLE FOR
EVER: three sources of crisis
The success leads to institutional obsolescence:
endogenous structural crisis
Diagram 4 – From emergence to maturation and crisis
Degree of
coupling of
institutions
Reversal of
previous
favourable
trends
Emerging
inertia
High
Sophistication of rules
and deepening of
complementarity
Entering into
crisis and decay
of an institutional
configuration
Actors perceive a
complementarity
Uncertain
coherence
Low
Change in the
context
Series of
innovations
Incentive for the search of new
configurations
New
configuration
Maturation
Aging
Decay and
destruction
Time
Competing with other economies and adapting
foreign institutional forms: hybridization
Diagram 5 – Hybridization and endometabolism, two factors of institutional
change: the joint evolution of American and Japanese trajectories
Henry Ford’s
vision
Obstacles to its
implementation
(1913)
Actual
American
Fordism
UnitedStates
STRUCTURAL
Rise…
and maturation
CRISIS OF AMERICAN
Endometabolism
Hybridization
Obstacles to
the adoption
Financialisation
FORDISM
Crisis of a
finance-led growth
regime
Endometabolism
Exacerbates
American
crisis
Exacerbates
Japanese
crisis
Hybridization
Hybridization
Adaptation
process
Japan
Invention
of
Toyotism
Rise
and
success
STRUCTURAL
CRISIS OF
Slow and uncertain
growth
TOYOTISM
Endometabolism
1900’s
World War I
World War II
Oil shocks
Financial
globalization
2000’s
The leading role of political alliances
POLITY:
 Sets the rules of the game
 Makes strategic choices
ECONOMY:
 It affects the bargaining
power of groups and
actors
 Building a governmental
coalition
It builds an economic
regime and its evolutions
 Consequences
elections
for
 Impact upon political
support
The emerging new institutional
architecture of the 90s
The Hierarchical position of the international
economy and the financial regime
Diagram 6 – The new hierarchy
of institutional forms in
contemporary Europe
IV. HOW MANY REGULATION
MODES?
FOUR REASONS FOR
CONTRASTED BRANDS OF
CAPITALISM
 The recent advances of micro economic theory of
imperfect information: as soon as no complete
contract can be drafted, nor all contingent markets
organized, many second best solutions can be given
to the same economic issue (J. Stiglitz, 1987).
 Since the functional role of economic institutions is
not explaining their origin, their variety explicitly
derives from the intricacy of the political process (D.
Hibbs, 1987) which leads to institutionalized
compromises.
 Specialists of technical change and evolutionary
economists have developed fairly sophisticated
models built upon the role of increasing returns
to scale (G. Dosi, 1988; 1991). Then, initial
choices, which seemed marginal and reversible,
turn out to propel the economic system along a
trajectory, featuring strong a path dependency (B.
Arthur, 1994).
 The same evolutionary framework can be
extended to the analysis of co-evolution and the
complementarity of institutions, organizations
and economic specialization (M. Aoki, 1995). The
central issue is the compatibility of a complete
institutional architecture.
Régulation theory findings (RT): at least
four institutional architectures
Table 4 – The diverse nature of capitalism in Regulation Theory
REGULATION
MARKET-ORIENTED
MESO-CORPORATIST
STATIST
SOCIAL-DEMOCRATIC
1. OVERALL LOGIC AND HIERARCHICAL PRINCIPLE
Commercial
logic
is
the
organising principle for almost
all of the institutional forms
Principle of solidarity and mobility
in an economic unit that is large in
size and diverse in output terms
Economic circuit shaped by public
interventions
in
areas
like
production,
demand
and
institutional codifications
Social partners negotiate rules
governing most aspects of society
and the economy
2. IMPLICATIONS FOR INSTITUTIONAL FORMS
Wage labour nexus
Significant decentralisation of
wage
bargaining,
individualisation of pay and
segmentation of labour market.
Wage compromise within large
companies but pay hikes are
synchronised
Trend
towards
a
strong
institutionalisation of rules on
employment,
working
hours,
wages and social benefits
Traditionally with a centralisation of
collective negotiations, under a
constraint of short and medium-term
competitiveness
Competition
Concentration restricted by
legislation, reshuffling from one
oligopolistic type of competition
to another
Relatively intense in the product
markets, involving big companies
with activities in many different
markets
Moderate seeing as it is channelled
by by public regulations or by
professional associations, with
high
degree
of
capital
concentration
Small number of big firms (that are
also highly internationalised and
thus have to compete)
Money and finance
Central bank is independent,
financial market logic prevails,
financial innovations proliferate,
companies are tightly run by a
financial logic
Role of main bank and keiretsu in
funding and capital allocation.
State
authorities
(financial
supervisors/Central Bank) have
tight control
State has tight control over credit
and
monetary
policies.
Traditionally the Central Bank has
had little autonomy to speak of, the
financial sphere having played a
crucial role
Most funding is by the banking
sector. Monetary policy aims to
enhance employment and at a later
date competitiveness
The State
Fragmented into series of
agencies and control entities,
growth possibilities are highly
restricted
because
of
competition in the political
marketplace
Ensures
services
the big
running.
role
provision of collective
plus coordinations that
firms are incapable of
Small size but significant
Strong quantitative and qualitative
development of State interventions:
nationalised
companies,
regulations,
public
spending,
social benefits, etc.
Multitude of public interventions
lead to financial transfers and
extensive and restrictive regulations
Insertion into
international
system
Adhesion
to
free
trade
principles, degree of autonomy
varies depending on status and
size (differences Us vs. UK)
Trade and finance-related choices
are conditioned by imperative of
technological
and
economic
development.
Traditionally with a a tight State
control over external relations
(tariffs, norms, quotas, restrictions
on financial flows).
Acceptance
of
competitiveness
principle based on technological and
organisational innovation
Table 4 – The diversity of economies nature in Regulation Theory
REGULATION
MARKET-ORIENTED
MESO-CORPORATIST
STATIST
SOCIAL-DEMOCRATIC
3. CHARACTERISTICS OF THE MODE OF REGULATION
Regulation
very
marketoriented,
controlled
by
sophisticated legal mechanisms
Large companies, the market and
the State make adjustments at the
meso-economic level
State at heart of macroeconomic
adjustments, with markets and
firms adapting to its rules
Tripartite bargaining (employersunions-State) lies at the heart of
institutional reforms
Innovation
Schumpeterian
waves
predicated
on
radical
innovation, preponderance of a
patent-based
logic
and
individualisation of benefits
derived from innovation
Aptitude to copy and adapt
products and processes by
operating
incremental
yet
profitable innovations
Radical innovation supposing
major investments and a long-term
time frame. Adaptation of Fordist
(i.e.
relatively
centralised)
innovations
Innovations are focused on resolving
social and economic problems, be
they marginal or radical..
Specialisation
Sectors
tied
to
radical
innovation:
IT,
space,
pharmacy, finance and leisure
industry.
Sectors
requiring
major
coordination
efforts
and
mobilising a localised but
cumulative type of competency:
auto, electronics, robotics
Sectors involved in major public
infrastructures:
transportation,
telecom, aeronautics, space, arms
industry, etc.
Sectors tied to social demand
(health, security, environment. etc.)
or exploit natural resources through
technological recovery
4. EFFECTS ON:
Source: Amable, Barré, Boyer [1997: 194-195]
They display quite contrasted sources of
innovation and growth
Market-led capitalism: linking basic science
with business
University High
Quality
Market for
scholar
Segmented
labor market
Education
System
Pressures toward
research
Non skilled
workers relative
wage declines
Few professional
and technical
tracks
Diagram 7 – Market led configuration
Less demand for
low skilled
workers
+
Large patenting
Implementing the
new productive
paradigm is
difficult
Rising
inequalities
Diffusion/
Protection
Pharmaceuticals
Specialization in
activities with
codifiable knowledge
Fordist industries
decline
but sunrise
industries
Publishing
High tech
+
Risk
Capital
+
Financial
Market
Close project
assessment but
short termism
Reluctant Investment
in industries with
long run maturity
Growth
External trade
deficit
Meso corporatist capitalism: coordinating a
series of incremental innovations
Diagram 8 – The “mesocorporatist” configuration
University
selection
of elite
Segmented and
interdependent
labor market
Few basic
research
Large firm
Sub-contractors
Secondary
education
system
Homogeneity of
formation,
selection
of individuals
Low
inequality
Little basic
research
done by
firms
Learning
localized
knowledge
Anticipation of
forthcoming
specialization
Large diffusion
of new products
Incremental
innovation
Quality based
competition
Automobile
Electronics
Specialization in
durable goods
Robotics
+
Permanent
upgrading of the
industrial structure
Growth
+
+
Financial
System
Control by main
bank, loose but
long termist
Internal capital
Mobility
Constructed
competitive
advantage
Public Research
and University
Social-democratic
capitalism:
innovations related
to public goods and
education
Labour
Market
° Homogenous
° Centralised
bargaining
(
1989)
Education
System
Good basic education
Retraining of workers
Concern for
basic
research
Social
justice, and
solidaristic values
Patenting for
resources intensive
sectors, transport,
equipment goods,
biomedicine
High
wages
economy
Rather reduced
income
inequalities
Natural
Resources
Small
open
economy
High Value
Added Industries
Internationalisation of
SSI
Diagram 9 – Social democrat
capitalism
Few
risk
capital
Periodic
industrial
restructuring
Competitiveness
by quality and
service
Specialisation in resources,
intensive sectors, equipment,
information
Financial
System
Not very
sophisticated,
bank centred
Growth constrained by
competitiveness
Public Research
Institutes
State led
economy: the
overwhelming role
of public
interventions
Organized
Labor Market
Minimum wage
Education
System
Basic education is
public
Extended welfare
State
Selection of elite
Public
spending
led
innovations
Public
interventions:
codifying the
rules of the game
in quite all
sectors
Scientific
discovery rarely
linked to
potential market
demand
Firms :
Their organization is
related to public
interventions
Public sector
or
public spending
related sectors
Congruent
with the Fordist
model
Private Sector
in charge of
mass production
Specialization :
transport
equipment,
aircraft, weapon,
pharmaceuticals
Diagram 10 – The State led
capitalism
Competitiveness
+
Growth
Financial market
Bank credit
Heavy State control
Public finance circuit
International
System
Stable
VI. THE ERA OF
GLOBALIZATION: STILL
RENEWED DIVERSITY OF
INSTITUTIONAL
ARCHITECTURES
A multiplicity of coordinating
mechanisms, on top of the conventional
opposition State versus market
MODE OF COORDINATION AND
INTEREST
HORIZONTAL
VERTICAL
1 Market
2 Firm
6
Association
5
Network
OBLIGATION
Diagram 15 – A taxonomy of the
different coordination principles
MOTIVE FOR THE ACTION
DISTRIBUTION OF POWER
3
Community,
Civil Society
4
State
Source: as per Hollingsworth, Boyer [1997]
None of these mechanisms is perfect:
compensating the imperfection of one
mechanism by the strength of another is
a source of institutional resilience
•
Viable régulation modes instead a mythical perfect
configuration
 Correct the limits of each institutional arrangement by
another one:
 Markets monitored by associations or regulatory authorities
 State under the scrutiny of civil society (NGO)
 Associations operating under the surveillance of State
 The need for a complete architecture with checks and
balances
 Within such a hierarchical system, the political order
plays a key role:
 In overcoming discrepancies, conflicts, economic disequilibria
 The success of a régulation mode is up to the coherence of an
institutional configuration
Hence a multiplicity of capitalism
brands
Diagram 16 – Analysis of
the variety of capitalisms
as the expression of a
combination of the four
main principles of
coordination
The opening of national economies
usually reinforce institutional diversity
Diagram 17 – A mode of regulation’s different levels of adjustment in an open
economy
Follower countries
Technological
trajectory
Repertory of
coordination
procedures



Leader country
Repertory of
coordination
procedures
Specialisation
Institutional forms and
mode of regulation

Technological
trajectory
Institutional forms
and mode of
regulation
1 Stability: Homeostatic equilibrium
2 Revision of market share

3 .Adjustment of institutional forms
4. Structural crisis: need to revise repertory

Unless financial instability promotes
short run flexibility
Diagram 18 – A general evolution towards short run efficiency at the cost of long
run performance and social justice?
The social constraints imposed by polity
may tame the destabilizing trends of
pure
market
mechanisms
Diagram 19 – A third vision : the market mechanism is stabilized by social
constraints imposed by polity
VII. THE ERA OF
FINANCIALIZATION AND ITS
CRISES:
RT AND SSA COMPARED
SSA And RT:
A new epoch for class alliances
• H1 – Back to social history
 The 60s: a de facto compromise between managers and
wage earners
Consumers
Patient financial market
Managers
Permissive
international regime
Wage-earners
Strong links
Weak links
Direction of influence
The 80s: An international competition led
regime weakens the bargaining power of
wage earners
Consumers
Gain from trade
Managers
More
international
competition
Discipline
Erosion of past
compromise
Wage-earners
Strong links
Weak links
Direction of influence
The 90s: The ex post alliance of investors
and managers
Consumers
Transparency
Managers
Large and powerful
financial markets
Share holder value
More risk
Financialisation of
income and pensions
Wage-earners
Strong links
Weak links
Direction of influence
 The 2000s: The emerging tensions within the finance
industry and the rise of the lawyer
State,
as the last resort
THE LAWYER
Institutional
Investors
Managers
Auditors
Financial Analysts
Rating Agencies
Fund Mangers
Pension funds
Flow of information
Financial flow
Intermediation of conflicts
and related income
SSA And RT : A finance led
accumulation regime
• P1: Financialization is part of a long term
structural transformation of contemporary
capitalism, after the crisis of Fordism
International
opening
Regained power
of managers
Erosion of wageearners bargaining
power
Crisis of the
Fordist growth
regime
Conservative
backlash
Demand addressed
to managers =
shareholder value
Surge of CEO
compensation
Acceptance of
pension funds
Inflow on the
stock market
Financial
deregulation
Multiple
innovation in
finance
Financial
bubble
• P2: An accumulation regime at odds with
Fordism: the centrality of the stock market
+
Dividends
and
Pension funds
+
High stock
market
price
+
Easy access
to
credit
Profit
+
+
Consumption
+
Production
+
Employment
Diffusion of
Financial norms
-
Careful management
of investment
+
Globalised
Financial
regime
Shareholder value as a
new form of competition
and governance mode
Highly reactive
wage labour
nexus
• The multiple channels of financialization
+
Monetary policy,
Financial market
stabiliser
+
Limitation of
public borrowing
G
Credibility
of Government actions
-
Public
expenditure
+
Stock Market
prices
F
E
Tax system favourable to the most
mobile factors
+
+
+
Industrial specialisations, Financial concentration
Raising the
required rate
of return
-
Productive
investment
A
FINANCIAL SYSTEM
Management
of firms for shareholders
B
+
+
Labour contract flexibility
+
+
Productive
capacity
“Patrimonial” Equity based Household
behaviour
C
Privatisation
of elements
of social security
D
Wealth effect on
Savings/Consumption
Allocation
+
+
Current consumption
+
Pensions via
stock market
Purchase of
housing and
durable
goods
+
+
+
Effective demand
-
Employment,
wages
+
+
+
Profit
Secured borrowing
+
• P3: This regime is generating speculative
bubbles that burst out…
• …But are cured by an active monetary policy…
• …And the positive impact of financial
innovations…
• …For instance the securitisation first prevents
the fragility of banks
A strong paradox: an unstable accumulation
regime rescued by the deepening of financial
innovations
• …But private innovations, such as subprime
loans, exploit this opportunity to shift the
risk…
• …The boom of this market reaches its limits,
the reversal of confidence challenges
macroeconomic stability…
• …And again the Central Bank is the rescuer of
last resort in order to preserve the viability of
the financial system
Figure 1 – A typical sequencing of financial crises
Viability of the
regulated
innovation
New cycle
Regulation by the
government
Lender as a
last resort
Private
innovation
Success
/ High
profit
Rapid
adoption
Entry in the
zone of
financial
fragility
No public
intervention:
collapse of the
innovation
Figure 2 – A first example: energy derivatives and the
ENRON collapse
Energy
derivatives
Potential for
new crisis
A structural
weakness
Unprecedented
profit
Creative
accounting
Bankruptcy
Prevention from
any public control
by lobbying
But not any reform of
accountability
principles
New rules of
accountability
for CEO and
CFO
Figure 3 – A second example: rise and collapse of Northern Rock
Financing by
bonds of
mortgage loans
High profit /
Rapid capture
of market
shares
More bonds
issued
Banking
run
No reaction
of Financial
Service
Agency
A failed
innovation
Worsening
of the crisis
Conflict between Bank of
England, Treasury, FSA
Nationalization
of Northern
Rock
Initially, Bank
of England
did not bail
out
Search for self
regulation
Systemic
crisis
Figure 4 – A third example: the sub-prime mortgage
Sub-prime
mortgage
Searching for
new
regulations
A systemic
financial
crisis
New and
growing
market
Securitization
shift the risk
Reversal
of the
housing
market
Absence of
public
regulation
Melting down
of the subprime market
Limited
FED
intervention
Unlimited access to
liquidity from FED
Mergers among
banks
Recapitalization
by sovereign
funds
A creeping
banking
crisis
Diffusion of
Non
Performing
Assets (NPA)
Figure 5 – The impact of globalization and financial
deregulation on emerging countries crises
Easier access
to external
financing
Deregulation
of domestic
financial
system
Strengthening
of the financial
accelerator
From
boom to
crisis
Brutal
reversal of
capital flows
Major crisis
IMF orthodoxy
is challenged
Large Central
Bank reserves
Possible regional
financial
intermediation
Search for
alternatives to foreign
saving driven growth
Structural
reforms
• P4: The financial led regime cannot be
universal
COUNTRIES
PARAMETERS
1.Average propensity to
consume (1996)
United
States
Great
Britain
Canada
Japan
Germany
0.95
0.926
0.956
0.869
0.884
France
0.908
1.Wealth
in
shares/
disposable income (1997)
%
145
75
95
30
25
20
3. Extent of capital gains
/disposable income (%)
35.5
15
11
-7
7
5
4. Proportion of shares
and bonds in households’
financial assets
28.4
52.4
n.a.
25.3
21.3
1.Monetary market rate
1.Return on bonds
1.Reference profitability
5.34
6.51
12%-16%
7.38
5.59
5.20
0.32
3.5
7.30
1.06
3.97
5%
6% -7%
12%-16% 12 - 16%
14.5
3.46
4.23
9%
• Actually, in other OECD countries alternative
alliances may exist and govern different
accumulation regimes
Managerial
expertise
THE
AMERICAN
FIRM
Governance
under
shareholder
value
The firm as a
bundle of
competences
Financial
capital
Firm specific
competences
ESOP
Employee
ownership/
co-management
THE GERMAN FIRM
THE
JAPANESE
FIRM
CONCLUSION
C1 Actually existing economies drastically
differs from pure market economies.
C2 Thus many mechanisms explain
significant institutional differences:
imperfection of information, increasing
returns, coevolution of technology and
institutions, and the role of polity in the
emergence of most economic
institutions.
C3 International trade reinforces institutional
competitive advantage of each economy
but financial globalization may affect
adversely non market led economies.
C4 Market led economies should not be the
benchmark since at least four or five
distinctive configurations coexist among
OECD countries (probably much more
among emerging countries) and generally
do not deliver Pareto inferior outcomes.
C5 Each configuration has significant
margins of development and flexibility,
but conversely sources of weaknesses
and fragilities. The task of the economist
is to diagnose them.
C6 Financialization is diffusing all over the
world, but only the US experienced a
finance-led accumulation regime.
C7 The present sub-prime crisis is an
evidence for a general interpretation of
financial crises: private innovation but
lagging surveillance and public control.
Thank you for your attention
Robert BOYER
PSE (Paris-Jourdan Sciences Economiques) 48,
Boulevard Jourdan 75014 PARIS, France
Tél. : (33-1) 43 13 62 56 –
e-mail : [email protected]
web site : http://www.jourdan.ens.fr/~boyer/