Fiscal policy and capital mobility: the construction of economic policy rectitude in Britain and France
2004; Taylor & Francis; Volume: 9; Issue: 4 Linguagem: Inglês
10.1080/1356346042000311155
ISSN1469-9923
Autores Tópico(s)Contemporary and Historical Greek Studies
ResumoClick to increase image sizeClick to decrease image size Notes The authors would like to thank Tony Payne, Timothy Sinclair and three anonymous referees for their comments on an earlier draft of this article. See, for example, David Andrews, ‘Capital Mobility and State Autonomy: Towards a Structural Theory of International Monetary Relations’, International Studies Quarterly, Vol. 38, No. 2 (1994), pp. 193–218. Juliet Schor, ‘Introduction’, in: J. Schor & T. Banuri (eds), Financial Openness and National Autonomy (Oxford University Press, 1992), pp. 4–5. See, for example, Egon Matzner & Wolfgang Streeck, Beyond Keynesianism (Edward Elgar, 1991), pp. 3–4; and Anthony Giddens, The Third Way (Polity, 1998), p. 16. ‘Blair sets out framework to cure economic ills: Mais lecture’, Financial Times, 23 May 1995. Benjamin Cohen, ‘Phoenix Arisen: The Resurrection of Global Finance’, World Politics, Vol. 48, No. 2 (1996), pp. 283–4. See, for example, John M. Hobson, ‘Disappearing taxes or the “race to the middle”? Fiscal policy in the OECD’, in: Linda Weiss (ed.), States in the Global Economy (Cambridge University Press, 2003); Duane Swank, Global Capital, Political Institutions, and Policy Change in Developed Welfare States (Cam‐bridge University Press, 2002); Geoffrey Garrett, Partisan Politics in the Global Economy (Cambridge University Press, 1998); and Geoffrey Garrett, ‘Global Markets and National Policies: Collision Course or Virtuous Circle?’, International Organization, Vol. 52, No. 4 (1998), pp. 787–824. Layna Mosley, ‘Room To Move: International Financial Markets and National Welfare States’, International Organization, Vol. 54, No. 4 (2000), pp. 737–73; and Layna Mosley, Global Capital and National Governments (Cambridge University Press, 2003). See Timothy Sinclair, ‘Deficit discourse: the social construction of fiscal rectitude’, in: Randall Germain (ed.), Globalisation and Its Critics: Perspectives from Political Economy (Macmillan, 2000), pp. 185–203; and Timothy Sinclair, ‘International capital mobility: an endogenous approach’, in: T. Sinclair & K. Thomas (eds), Structure and Agency in International Capital Mobility (Palgrave, 2001), pp. 93–110. See, for example, Barry Eichengreen, Globalizing Capital (Princeton University Press, 1996), Chapter 5. We put primary emphasis here on fiscal policy partly for space reasons. This article is part of a broader research project which aims to look at other policy areas in more depth, and also to historicise the account through diachronic comparison with the 1960s. Yet it is also because it is in the area of fiscal policy that many of the bolder claims about eroding policy autonomy are made. See Margaret Garritsen De Vries, The International Monetary Fund, 1966–1971: The System Under Stress (International Monetary Fund, 1976); and Susan Strange, International Monetary Relations (Open University Press, 1976). David Held and Anthony McGrew, David Goldblatt & Jonathan Perraton, Global Transformations: Politics, Economics, Culture (Polity, 1999), p. 189. The degree of autonomy under Bretton Woods, however, should not be overstated. ‘Embedded liberalism’ [see John Gerard Ruggie, ‘International Regimes, Transactions and Change: Embedded Liberalism in the Post‐War Economic Order’, International Organization, Vol. 36, No. 2 (1982), pp. 379–415] did not remove the necessity to adjust macroeconomic policy in response to balance of payments deficits or surpluses, as numerous examples demonstrate. Britain and the US in the 1960s both had to respond to deficits, and Germany to surpluses, albeit that the pressures to do so were more muted in the latter case. Ed Balls, ‘Open Macroeconomics in an Open Economy’, Scottish Journal of Political Economy, Vol. 45, No. 2 (1998), pp. 113–32. See Ben Clift, ‘The changing political economy of France: dirigisme under duress’, in: Magnus Ryner & Alan Cafruny (eds), A Ruined Fortress? Neo‐Liberal Hegemony and Transformation Europe (Rowman & Littlefield, 2003), pp. 179–83; Magnus Ryner, ‘Disciplinary neoliberalism, regionalization and the social market in German restructuring’, in: Ryner & Cafruny, A Ruined Fortress?, pp. 204–6; and Kenneth Dyson, ‘The Franco‐German Relationship and Economic and Monetary Union: Using Europe to “Bind Leviathan”’, West European Politics, Vol. 22, No. 1 (1999), pp. 25–44. Andrews, ‘Capital Mobility and State Autonomy’, pp. 194–201. ‘In an environment of formally or informally pegged rates and effective integration of financial markets, any attempt to pursue independent monetary objectives is almost certain, sooner or later, to result in significant balance of payments disequilibrium, and hence provoke potentially destabilizing flows of speculative capital. To preserve exchange‐rate stability, governments will then be compelled to limit either the movement of capital (via restrictions or taxes) or their own policy autonomy (via some form of multilateral surveillance or joint decisionmaking). If they are unwilling or unable to sacrifice either one, then the objective of exchange‐rate stability itself may eventually have to be compromised. Over time, except by chance, the three goals cannot be achieved simultaneously.’ Benjamin Cohen, ‘The triad and the unholy trinity: lessons for the Pacific region’, in: Richard Higgott et al. (eds), Pacific Economic Relations in the 1990s: Cooperation or Conflict (Lynne Rienner, 1993), p. 147. Thomas Oatley, ‘How Constraining is Capital Mobility? The Partisan Hypothesis in an Open Economy’, American Journal of Political Science, Vol. 43, No. 4 (1999), pp. 1007–9; and Paul Krugman & Maurice Obstfeld, International Economics (Addison Welsey, 2003). Jeffrey Frieden, ‘Invested Interests: The Politics of National Economic Policies in a World of Global Finance’, International Organization, Vol. 45, No. 4 (1991), pp. 425–51. Oatley, ‘How Constraining is Capital Mobility?’, p. 1004. Cohen, ‘Phoenix Arisen’, p. 286. See Louis Pauly & John Goodman, ‘The Obsolescence of Capital Controls? Economic Management in the Age of Global Markets’, World Politics, Vol. 46, No. 1 (1993), pp. 50–82; and Benjamin Cohen, ‘Money in a globalized world’, in: Ngaire Woods (ed.), The Political Economy of Globalization (Palgrave, 2000), pp. 79–80. Some empirical dissent from the orthodoxy asserting the enduring ‘policy space’ for (particularly left) governments despite the constraining conditions highlighted by the capital mobility hypothesis relies primarily on data from the 1970s, 1980s and early 1990s—i.e. largely before financial deregulation had reached its zenith (Oatley, ‘How Constraining is Capital Mobility?’; Garrett, Partisan Politics in a Global Economy). Whilst understandable, this may understate the nature of constraint under deregulated conditions. Swank, Global Capital, Political Institutions, and Policy Change in Developed Welfare States; and Mosley, Global Capital and National Governments. Oatley, ‘How Constraining is Capital Mobility?’, p. 1006. Gerald Epstein & Herbert Gintis, ‘International Capital Markets and National Economic Policy’, Review of International Political Economy, Vol. 2, No. 4 (1995), pp. 693–718; Martin Feldstein & Charles Horioka, ‘Domestic Savings and International Capital Flows’, The Economic Journal, Vol. 90, No. 358 (1980), pp. 314–29; Gerald Epstein, ‘International capital mobility and the scope for national economic management’, in: Daniel Drache & Robert Boyer (eds), States Against Markets: The Limits of Globalization (Routledge, 1996), pp. 211–26; and Matthew Watson, ‘Rethinking Capital Mobility: Re‐regulating Financial Markets’, New Political Economy, Vol. 4, No. 1 (1999), pp. 55–75. Sinclair, ‘International capital mobility’, p. 99. Andrews, ‘Capital Mobility and State Autonomy’. Sinclair, ‘International capital mobility’, p. 101. Kenneth Dyson, ‘EMU as Europeanization: Convergence, Diversity and Contingency’, Journal of Common Market Studies, Vol. 38, No. 4 (2000), pp. 645–66; and Kenneth Dyson, ‘Introduction: EMU as integration, europeanization, and convergence’, in: Kenneth Dyson (ed.), The European State in the Euro‐Zone (Oxford University Press, 2002), pp. 1–30. Elie Cohen, La Tentation Hexagonale (Fayard, 1996), pp. 343–47. David Howarth, ‘The French state in the euro zone’, in: Dyson, The European State in the Euro‐Zone, pp. 147–9. Dyson, ‘EMU as Europeanization’, p. 647. Mosley, ‘Room To Move’; and Mosley, Global Capital and National Governments. See also Balls, ‘Open Macroeconomics in an Open Economy’. Mosley, ‘Room to Move’, p. 759. Indeed, Mosley's analysis indicates that a hypothesised shift from a deficit of 10 per cent to a balanced budget within an advanced capitalist economy would, ‘holding all other indicators equal, only lead to a 0.5 per cent improvement in the cost of government borrowing’. See ‘Room to Move’, p. 759. Randall Germain, The International Organisation of Credit (Cambridge University Press, 1997). Manmohan S. Kumar, Taimur Baig, Jörg Decressin, Chris Faulkner‐MacDonagh & Tarhan Feyziogùlu, Deflation: Determinants, Risks, and Policy Options, IMF Occasional Paper, No. 221, Washington DC, 2003. See, for example, John Gray, False Dawn (Granta, 1998). See Germain, The International Organisation of Credit. See Timothy Sinclair, ‘Global Monitor: Bond Rating Agencies’, New Political Economy, Vol. 8, No. 1 (2003), pp. 147–8. See also Sinclair, ‘International capital mobility’, p. 102; and Sinclair, ‘Deficit discourse’. Sinclair, ‘Deficit discourse’, p. 195. The last change to long‐term sovereign bond rates for France was an upgrade to AAA on 25 February 1992, for the UK an upgrade to AAA on 28 April 1993. See http://www.moodyseurope.com Kenneth Dyson & Kevin Featherstone, The Road to Maastricht: Negotiating Economic and Monetary Union (Oxford University Press, 1999); and Barry Eichengreen & Jeffrey Frieden (eds), The Political Economy of European Monetary Union (Westview, 1994). Dyson, ‘Introduction: EMU as integration, Europeanization, and convergence’, pp. 7 & 16; Dyson, ‘EMU as Europeanization’, p. 646; and Dyson & Featherstone, The Road to Maastricht, pp. 777–9. Mosley, ‘Room to Move’, p. 752; and Mosley, Global Capital and National Governments, pp. 66–9. Indeed, this yardstick became widely applied to non‐EU states even though participants themselves recognised there was no good or logical reason for plucking 3 per cent out of the sky. This is no doubt largely because, shaped by central bankers and finance ministry technocrats, these criteria reflected a political economic paradigm that the two sets of actors shared. Dyson, ‘EMU as Europeanization’, p. 648. Mosley, ‘Room to Move’, p. 753. There is much debate in the economics literature on the existence/scale of these effects. See, for example, Barry Eichengreen & Charles Wyplosz, ‘The Stability Pact: More than a Minor Nuisance?’, Economic Policy, Vol. 13, No. 26 (1998), pp. 67–113; and Sylvester Eijffinger & Jakob Hahn, European Monetary and Fiscal Policy (Oxford University Press, 2000), pp. 81–7. Malcolm Crawford, One Money for Europe? (Macmillan, 1996), pp. 304–7. The core commitment of the Stability and Growth Pact is to fiscal discipline and stabilisation. It commits states to the ‘medium‐term objective of budgetary positions close to balance or in surplus’ which ‘will allow Member States to deal with the normal cyclical fluctuations while keeping the government deficit within the 3 per cent [of GDP] reference value’. Formally, the Pact consists of three elements: preventive elements which through regular surveillance aim at preventing budget deficits going above the 3 per cent of GDP; dissuasive elements which in the event of the 3 per cent level being breached require member states to take immediate corrective action and, if necessary, allow for the imposition of sanctions; and, lastly, a political commitment by all parties involved in the Pact (Commission, member states, Council) to the full and timely implementation of the budget surveillance process. See European Commission, The European Economy: Public Finances in EMU (European Commission, 2000), pp. 45–7. Marco Buti, Sylvester Eijffinger & Daniele Franco, ‘Revisiting the EU’s Stability Pact: A Pragmatic Way Forward', Oxford Review of Economic Policy, Vol. 19, No. 1 (2003), pp. 100–111. Catherine Mathieu & Henri Sterdyniak, ‘Réformer le Pacte de Stabilité: L’Etat du Débat', Revue de l'OFCE, No. 84 (2003), p. 148. The debt ratio has proved a much less problematic issue, helped by lower interest rates. Mathieu & Sterdyniak, ‘Réformer le Pacte de Stabilité’, pp. 150–1. Marco Buti, Daniele Franco & Hedwig Ongena, Budgetary Policies during Recessions (European Commission, 1997). Christopher Allsopp & Michael Artis, ‘The Assessment: EMU Four Years On’, Oxford Review of Economic Policy, Vol. 19, No. 1 (2003), pp. 12–16. Dyson, ‘Introduction: EMU as integration, Europeanization, and convergence’; and Dyson, ‘EMU as Europeanization’. Romano Prodi, Former President of the Commission, called the SGP ‘stupid’, above all because it restricted counter‐cyclical policy at a time when there appeared no threat of inflation, which was fundamentally the problem the rules were supposed to combat. See ‘Prodi says euro rules are “stupid” ’, Financial Times, 18 October 2002. Kenneth Dyson, ‘Benign or Malevolent Leviathan? Social Democratic Governments in a Neo‐Liberal Euro Area’, Political Quarterly, Vol. 70, No. 2 (1999), p. 198. Mathieu & Sterdyniak, ‘Réformer le Pacte de Stabilité’, p. 156. Oatley, ‘How Constraining is Capital Mobility?’, p. 1004. Ben Clift, French Socialism in a Global Era: The Political Economy of the New Social Democracy in France (Continuum, 2003), pp. 132–57 & 185–95; and Clift, ‘The changing political economy of France’, pp. 179–84. This was a historically significant shift in French macroeconomic policy making. Since the Second World War France had avoided ever having a public spending deficit greater than 3 per cent. France, alone amongst EMU participant countries, officially failed to respect the 3 per cent deficit figure for its 1997 budget, although other authoritative sources indicated that France had met the 3 per cent deficit criterion. See Gael Dupont, ‘La politique économique’, in: OFCE, L'économie Française 2000 (La Découverte, 2000), p. 65. Dupont, ‘La politique économique’, p. 65. Public spending accelerated in 1999 (+2.4 per cent in volume, compared with average of 1.2 per cent 93–7). See Gael Dupont, ‘La politique économique’, in: OFCE, L'économie Française 2001 (La Découverte, 2001), pp. 63–5. On the redistribution front, the Solidarity Tax on Wealth (ISF) was made more progressive. It was increased in the 1998 budget, its coverage was extended to close a number of loopholes, and a new band was introduced in the 1999 budget. See Gérard Cornilleau & Henri Sterdyniak, ‘La politique économique’, in: OFCE: L'économie Française 1999 (La Découverte, 1999), p. 63; Ministère de L'Economie, des Finances, et du Budget, ‘Project de loi de finances pour 2002’, Les Notes Bleues Hors‐série, September 2001, p. 20; and Clift, French Socialism in a Global Era, pp. 158–66. Ministère de L'Economie, des Finances, et du Budget, ‘Project de loi de finances pour 2002’, p. 11. In November 2002 the Commission, while reaffirming the medium‐term balanced budget rule, did recognise some of the difficulties of the SGP. It suggested inter alia that countries should not pursue pro‐cyclical policies during periods of growth (so reducing their room for manoeuvre in the downswing). See Ian Begg, Dermot Hodson & Imelda Maher, ‘Economic Policy Co‐ordination in the EU’, National Institute Economic Review, No. 183 (2003), pp. 74–6. In March 2000 a 10 per cent income tax cut was introduced for 5 million lower earners, and 650,000 particularly low earners were exempted from taxation altogether (Financial Times, 23 March 2000). In September 2000 income tax was further reduced (Libération, 31 August 2000). Whilst this disproportionately favoured low and non‐earners, the reorganisation of income tax 2000–2003 included a reduction in income tax rates for all income bands. Debt servicing costs did remain significant—14 per cent of general budget spending in 2000. Dupont, ‘La politique économique’, in: OFCE, L'économie Française 2000, p. 63. It should be noted that, for all the talk of eroding autonomy, capital mobility offers opportunity as well as constraint. International capital markets, which advanced industrialised countries ‘seem to be able to access … with relative impunity’, offer a means of funding current account deficits. This, combined with lower interest rates attendant upon the improved creditworthiness which comes with membership of the euro, has relaxed current account constraints to a very considerable degree. See Erik Jones, ‘Liberalized Capital Markets, State Autonomy, and EMU’, European Journal of Political Research, Vol. 42, No. 2 (2003), pp. 212–3 & 218–19. Ben Clift, ‘The French model of capitalism: still exceptional?’, in: Jonathan Perraton & Ben Clift (eds), Where Are National Capitalisms Now? (Palgrave, 2004), pp. 91–110; and Clift, ‘The changing political economy of France’, pp. 173–96. Ministère de l'Economie, des Finances, et de l'Industrie, ‘Programme de stabilité 2005–2007’, available at http://www.minefi.gouv.fr OFCE, ‘Méprise sur la Reprise: Perspectives pour L’Economie Française 2004–2005', La Lettre de l'OFCE, No. 248 (2004), pp. 6–8. Odile Chagny, Gael Dupont & Paola Monperrus‐Veroni, ‘Politiques Budgétaires en Europe: L’Heure de Vérité', La Lettre de L'OFCE, No. 234 (2003), pp. 3–4. Pedro Solbes, ‘Budgetary Challenges in the Euro Area’, Communication, SEC 1009/3, 24 September 2002. Deficit forecasts for 2002 and 2003 had to be significantly revised upwards given a less favourable economic conjuncture. The government told the Commission its 2002 deficit was 3.04 per cent of GDP and claimed that—if the figure was rounded down—this meant it was not liable for excessive deficit procedures. See Le Monde, ‘Querelle de chiffres entre Bruxelles et Paris autour du déficit’, 3 March 2003. The figure, however, was contested—not least by the Commission itself. Authoritative sources calculated the deficit at 3.1 per cent of GDP (see e.g. OFCE, ‘France: Les Illusions Perdus’, Revue de l'OFCE, No. 85 (2003), p. 188). Jérome Créel, Gael Dupont, Jacques Le Cacheux, Henri Sterdyniak & Xavier Timbeau, ‘Budget 2003: Le Pécheur non Repenti’, La Lettre de L'OFCE, No. 224 (2002), pp. 1–4; and Mathieu & Sterdyniak, ‘Réformer le Pacte de Stabilité’, pp. 154 & 159. Overall, the boost or impetus to the economy provided by budgetary policy for 2002 has been calculated at 1.1 per cent of GDP. See Chagny, Dupont & Monperrus‐Veroni, ‘Politiques Budgétaires en Europe’, pp. 1 & 3; and OFCE, ‘France: Les Illusions’, p. 159. Clift, French Socialism in a Global Era, p. 160. ‘Impôts: la quadrature de la baisse. Chirac veut 3 pour cent, Raffarin environ 1 pour cent. Alors que le déficit public est à la dérive.’, Le Monde, 8 August 2003. Le Monde, 1 December 2003. Banque de France Bulletin Digest, Nos. 121–123, January–March 2004. Le Monde, 27 November 2003. France in 2003 saw its growth rate dip to the lowest rate since the recession of 1993. This was in part due to the competitive shock of the appreciation of the euro vis‐à‐vis the dollar between 2001 and 2004. OFCE, ‘Méprise sur la Reprise: Perspectives pour L’Economie Française 2004–2005', p. 8. Chagny, Dupont & Monperrus‐Veroni, ‘Politiques Budgétaires en Europe’, p. 4. Ibid., p. 2; Créel, Dupont, Le Cacheux, Sterdyniak & Timbeau, ‘Budget 2003: Le Pécheur non Repenti’; and OFCE, ‘Méprise sur la reprise: Perspectives pour L’Economie Française 2004–2005'. Teresa Dabán, Enrica Detragiache, Gabriel di Bella, Gian Maria Milesi‐Ferretti & Steven Symansky, ‘Rules‐Based Fiscal Policy in France, Germany, Italy, and Spain’, International Monetary Fund Occasional Paper, No. 225, Washington DC, 2003, available at http://www.imf.org/external/pubs/nft/op/225/index.htm IMF, ‘France: 2003 Article IV Consultation Concluding Statement of the Mission, June 30, 2003’, available at http://www.imf.org/external/np/ms/2003/063003.htm. Echoing the SGP, the IMF urged ‘a small structural budget surplus within the next five years’ and that the French state should ‘run such a surplus for as long as needed to reduce the public debt‐to‐GDP ratio to deal with the costs of ageing and to create room for a desirable reduction in the tax burden’. OFCE, ‘Méprise sur la Reprise: Perspectives pour L’Economie Française 2004–2005', p. 8. Phillip Stephens, Politics and the Pound (Macmillan, 1996), pp. 269–70. Treasury, Budget 2000: Prudent for a Purpose (HMSO, 2000), p. 215. OECD, Economic Survey: United Kingdom 1995/6 (OECD, 1996), pp. 35–7. Stephens, Politics and the Pound, p. 293. Treasury, Budget 2000, p. 215. Treasury, Budget Report (HMSO, 2003), p. 20. Balls, ‘Open Macroeconomics in an Open Economy’, p. 120. Ibid., p. 122. Stephens, Politics and the Pound, pp. 278–81. Stephen Nickell, ‘The Assessment: The Economic Record of the Labour Government since 1997’, Oxford Review of Economic Policy, Vol. 18, No. 2 (2002), pp. 109–110. Treasury, Code for Fiscal Stability (HMSO, 1998); and Gordon Brown, ‘Mansion House Speech’, Treasury Press Release, 11 June 1998. Tom Clark, Andrew Dilnot, Alissa Goodman & Michael Myck, ‘Taxes and Transfers 1997–2001’, Oxford Review of Economic Policy, Vol. 18, No. 2 (2002), pp. 187–201; and Catherine Mathieu, ‘Politique Economique: La Clé Anglaise’, La Lettre de L'OFCE, No. 233 (2003), p. 2. Mathieu & Sterdyniak, ‘Réformer le Pacte de Stabilité’, p. 151. William Keegan, The Prudence of Mr Gordon Brown (Wiley, 2003), p. 332. Treasury, Budget Report (HMSO, 2003), Chapter 2, p. 9. Ibid., Chapter 2, pp. 9–12. Treasury, Financial Statement and Budget Report (HMSO, 2004), p. 246. Treasury, Budget Report (HMSO, 2003), p. 20. Treasury, Financial Statement and Budget Report, p. 244. National Institute, ‘Economic Overview’, National Institute Economic Review, No. 185 (2003), pp. 3–4. Mathieu, ‘Politique Economique: La Clé Anglaise’, p. 2. Keegan, The Prudence of Mr Gordon Brown, p. 275. The Economist, 20 March 2004. International Monetary Fund, IMF Article IV Country Report: United Kingdom Report, No. 04/56, 2004, pp. 10–14. Balls, ‘Open Macroeconomics in an Open Economy’, pp. 113–32. Keegan, The Prudence of Mr Gordon Brown, p. 17. Treasury, Financial Statement and Budget Report. Dyson, ‘Introduction: EMU as integration, Europeanization, and convergence’, p. 7. ‘Pacte de stabilité: la justice européenne condamne Paris et Berlin’, Le Monde, 13 July 2004. In fact, the two major agencies have shown some differences of opinion, with Moody's assigning all EMU countries an AAA rating, but Standard and Poor's downgrading Belgium, Ireland, Italy, Spain, Finland and Portugal to varying degrees. See Paul Temperton (ed.), The Euro (Wiley, 1998), pp. 273–5. For all that, the downgradings have been quite small and none of these countries seems to have suffered in their ability to borrow from these less than triple A ratings. Additional informationNotes on contributorsBen Clift Ben Clift and Jim Tomlinson, c/o Department of Politics and International Studies, University of Warwick, Coventry CV4 7AL, UK. Ben Clift and Jim Tomlinson, c/o Department of Politics and International Studies, University of Warwick, Coventry CV4 7AL, UK.
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