Questioning Financial Governance from a Feminist Perspective

Brigitte Young, Isabella Bakker, Diane Elson, Brigitte Young, Isabella Bakker, Diane Elson

• Publisher: Routledge
• Year: 2011
• ISBN:
  9781136661358
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Questioning Financial Governance from a Feminist Perspective brings together feminist economists and feminist political economists from different countries located in North America and Europe to analyze the 'strategic silence' about gender in fiscal and monetary policy, and financial regulation. This silence reflects a set of assumptions that the key instruments of financial governance are gender-neutral. This often masks the ways in which financial governance operates to the disadvantage of women and reinforces gender inequality.

This book examines both the transformations in the governance of finance that predate the financial crisis, as well as some dimension of the crisis itself. The transformations increasingly involved private as well as public forms of power, along with institutions of state and civil society, operating at the local, national, regional and global levels. An important aspect of these transformations has been the creation of policy rules (often enacted in laws) that limit the discretion of national policy makers with respect to fiscal, monetary, and financial sector policies. These policy rules tend to have inscribed in them a series of biases that have gender (as well as class and race-based) outcomes. The biases identified by the authors in the various chapters are the deflationary bias, male breadwinner bias, and commodification bias, adding two new biases: risk bias and creditor bias.

The originality of the book is that its primary focus is on macroeconomic policies (fiscal and monetary) and financial governance from a feminist perspective with a focus on the gross domestic product and its fluctuations and growth, paid employment and inflation, the budget surplus/deficit, levels of government expenditure and tax revenue, and supply of money. The central findings are that the key instruments of financial governance are not gender neutral. Each chapter considers examples of financial governance, and how it relates to the gender order, including divisions of labour, and relations of power and privilege.

This book is key reading for anyone studying feminist economics, and should also be of interest to those researching macroeconomics, political economics and women's studies.

1

MACROECONOMIC REGIMES IN
OECD COUNTRIES AND THE
INTERRELATION WITH GENDER
ORDERS

Friederike Maier

What is macroeconomics about? An introduction

Macroeconomics is a broad field of study, which is comprised of many areas of research. Key concerns of the discipline include the attempt to understand the causes and consequences of short-run fluctuations in economic activity (the business cycle), the attempt to understand the level of demand and supply in various markets (especially the product market, the labor market, and the capital market), the attempt to understand the interrelation between these markets, and the behavior of different agents in the aggregate markets (such as households, firms, governments, unions, central banks, and others). Another important field of study examines the determinants of long-run economic growth (defined as increases in national income).

Macroeconomic theories are closely related to macroeconomic policy and policy targets. The major objectives of macroeconomic policy include full employment, low inflation rates, and economic growth (expressed in terms of gross domestic product (GDP)). In order to achieve these goals, attention is focused on government fiscal policies, central bank monetary and exchange rate policies, and wage policies. On an aggregate level, policies may be concentrated on the aggregate supply side; that is, the conditions and factors associated with production (e.g. the cost of input factors such as energy, materials, wages, taxes, and financial capital), the aggregate demand side (determined largely by private households, investment of private firms, and government demand), or both (in which case a mixed approach is used). Narrowly defined, macroeconomics considers factors influencing the aggregate demand or supply, whereas questions of income distribution, economic welfare, and the provision of public goods and services, are relegated to “microeconomic” policy concerns (Burda and Wyplosz 2005: 363; Arestis and Sawyer 2007: 331). This division appears to be quite arbitrary and artificial however, when we consider the interrelation between the micro- and macroeconomic levels, and the fact that policies and regulations concerning income distribution may exert an influence on the aggregate demand of private households or the aggregate supply of labor. Moreover, macroeconomic policies may have an impact on the distribution of income and on individual behavior, and these impacts may in turn increase or decrease the effect of the macroeconomic policy (Heine et al. 2006: 19). Thus, the interrelation of individual behavior and aggregate outcomes requires further inquiry and should be integrated into economic analyses.

The study of gender orders is not an integral part of macroeconomics, and questions as to whether macroeconomic policies differently influence men and women or the extent to which gender orders influence the outcomes of macroeconomic policies or the choice of instruments and tools of macroeconomic policies are not taken into consideration. When the impacts of macroeconomic policies on men's and women's economic and social positions are studied, this is perceived to be a concern of micro analysis. The interrelation of gender and macroeconomic orders has been investigated only to a limited degree. The literature is relatively small, concentrated on specific policy fields, and dominated by a microeconomic approach; for example, if we can show that women and men exhibit different behaviors in key decisions related to markets (such as labor supply, consumption, savings, and investments) gender differences should be taken into account. Stotsky (2006) surveys research of this kind and finds a number of differences in women's and men's behavior using microeconomic models. However, the question of whether macroeconomic policy regimes and gender regimes exert an influence on each other has not been studied in detail. The importance of gender, both in terms of how gender roles impact on macroeconomic outcomes and how macroeconomic policies influence gender orders has been largely ignored.

This chapter is a first step in the examination of how macroeconomic developments and gender orders are related to each other in highly developed countries and is structured as follows: First, I present a short description of contemporary macroeconomic theory and the policy framework of mainstream economists. Second, I show how this consensus has influenced policy making at the European Union (EU) and the Organization for Economic Cooperation and Development (OECD) levels during the last decades. Third, I analyze the macroeconomic policy targets and tools and show how different countries performed in the main macroeconomic fields in the years before the actual economic crises using descriptive empirical findings. Lastly, I relate these macroeconomic performances to gender orders by developing some preliminary arguments on the interrelations between gender and macroeconomic regimes.

Mainstream macroeconomic theory and policy

Since the 1930s there have been controversies within macroeconomic theory and policy discourse about the appropriate goals and tools of macroeconomic policies, especially in relation to the questions of whether low inflation rates and full employment are achievable at the same time, and whether stable economic growth is engendered through supply-oriented policies or those intended to stabilize aggregate demand. The impacts of monetary policy and exchange rate policy on the real development of product and labor markets have been under dispute, along with the role governments should play in the macroeconomic policy. For example, if governments intervene, should they concentrate on supply-side factors, aggregate demand measures, or a combination of demand and supply-oriented measures in order to achieve macroeconomic targets in a given situation and economy? Short-run effects and long-run effects are often studied separately to distinguish between immediate effects and those that are mediated by the changing expectations and behaviors of economic actors in various situations.

In recent years a new consensus in macroeconomics has developed, integrating micro-based neoclassical theories on the rational behavior of economic agents in different markets with macro-based Keynesian theories on the role of macroeconomic policies. This mainstream approach is based on the following assumptions:

• Monetary policy, especially the supply of money and variations in interest rates, is able to stabilize output and employment in the short run, is neutral in respect to output and employment in the long run, and influences inflation rates in the long run. Governments and central banks should “aim to ensure the stability of inflation at a low rate, guarding against the dangers posed both by inflation and deflation. Moreover, by actively changing the interest rate, the central bank should help steer the economy toward the stable inflation equilibrium in the face of short-run disturbances” (Carlin and Soskice 2006: 697).

• Fiscal policy should be handled in such a way as to “ensure long-run fiscal sustainability whilst allowing for short-run stabilization and the achievement of the government's structural objectives” (ibid.).

• Employment and unemployment policies should concentrate on structural problems of the labor market, as the equilibrium unemployment rate is determined by structural characteristics such as dismissal regulations, wage bargaining institutions, and the social benefits system. Wages determine employment levels in the long run, while monetary policy may help to stabilize unemployment rates at the equilibrium level in the short run.

• Inflation and unemployment are no longer seen as targets that have to be balanced, rather, they seem to coexist in a new context which is called the Non-Accelerating Inflation Rate of Unemployment (NAIRU). The NAIRU is defined as the rate of unemployment which is neutral for inflation processes. The level of the NAIRU is based on the labor market and its institutions such as dismissal regulations and level of unemployment benefits, whereas inflation rate targets are set by governments and central banks. If the actual unemployment rate is above the NAIRU, nominal wages will not increase because employees are afraid of further job losses (so that wages will not push prices and inflation rates); however, the problem of deflation may occur. If the actual unemployment is below the NAIRU, wages may increase due to scarcities in the labor market and will thus push inflationary processes. In this way, keeping unemployment around the NAIRU is neutral for inflationary processes. This may include accepting a high level of unemployment to achieve low inflation rates (see Rothschild (2006) for a critical assessment). The NAIRU itself, which is empirically different for all countries (because labor market institutions differ), can only be reduced by means of structural reforms in the labor markets.

• Actual unemployment above the NAIRU may be influenced by aggregate demand and fiscal and monetary policy. As high unemployment leads to decreasing wages and decreasing aggregate demand, deflationary processes may occur. To avoid deflationary processes, demand policies may be implemented by governments in order to reduce the actual unemployment down to the level of the NAIRU. If actual unemployment is below the NAIRU, central banks may raise interest rates and reduce effective demand.

• Supply-side policies, irrespective of the development of aggregate demand, should focus on labor market institutions and – in the broader context – on supply-side conditions in general, therefore helping to increase production and productivity, improving efficiency in product, labor and financial markets, and increasing competition between suppliers. It is widely agreed that the positive impact of supply-side policy is being realized only in the long run. In the short run, supply-side policies may even increase unemployment (for example as a side effect of privatization of public enterprises or reduced subsidies to certain sectors or increased competition).

• Growth policy should enable long-run growth, measured in real GDP per capita, and the sources of growth are identified as growth in quantities and qualities of input factors, such as human capital, public infrastructure, knowledge, technical innovations, stable economic environment, and sound macroeconomic conditions. International trade and globalization are seen as one possible source of economic growth.

As I will show in the following section, these elements of the new macroeconomic model are accepted by a wide community of economists and policy makers. However, in reality, the economic policies and the economic development of OECD countries have not followed all aspects of this model and macroeconomic performance differs substantially.

Consensus in the macroeconomic mainstream:
EU and OECD strategies

Within Europe today, macroeconomic policies are formulated and developed by a series of actors and institutions. The model discussed above is widely accepted and incorporated into economic strategies by the major macroeconomic policy authority of the Union, the European Central Bank (ECB), which is independent both in setting its targets and in choosing its policy instruments. The ECB is entrusted with pursuing a monetary policy strategy with a clear commitment to the maintenance of price stability, which is defined by the ECB as inflation below, but near to, 2 percent per annum over the medium term. In order to reach the goal of price stability, the ECB uses interest rates to influence financial markets' demand and supply. All member countries of the Economic and Monetary Union (Eurozone countries) are regulated by this institution, which has the obligation to follow its one-sided target of low inflation without being responsible for other macroeconomic targets such as employment or economic growth. In contrast to the US or UK central banks, the ECB is constrained by the primacy of its price stability objective over business cycle stabilization and it can only respond to developments that affect the entire Eurozone. Given the fact that members of the Eurozone experienced quite different inflation rates during recent years, there are major doubts as to whether a monetary policy isolated from other macroeconomic instruments is able to cope with Europe's economic developments (Arestis and Sawyer 2007; Carlin and Soskice 2006).

All EU member states are also regulated by supply-side policies (labeled as microeconomic policies), which aim to reduce rigidities in all kinds of markets, especially in the labor market and the goods and capital markets. Some of these are highly controversial. Supply-side policies are a major component of the European Strategy for Growth and Jobs (sometimes called the Lisbon Strategy),¹ which follows the line of the new consensus model in nearly all aspects: the target is to increase employment (the Lisbon Strategy defines an overall employment rate of 70 percent, and 60 percent for women (the only point in which women are mentioned is the discussion of employment) and an employment rate of 50 percent for older people (55 to 64 years)). As this target is not related to other macroeconomic targets via the concept of the NAIRU, the instruments to reach such employment rates are all supply-side oriented. The major problems with European labor markets are seen in regulations concerning dismissals, job protection, work-time flexibility, and early retirement regulations, in social benefits systems, which are seen to be too generous (in terms of amount and duration of payments) and in the inflexible system of wage setting via trade unions and employers' organizations, which do not allow for flexible wage moderation. The very influential 1994 OECD Jobs Study pointed out that European unemployment is a result of labor market rigidities and that major elements of the European labor market institutions need more flexibility and liberalization. The components of the Jobs Study policy included reducing the amount and duration of payments for the unemployed, rechanneling spending to job search activities and labor market programs, reducing dismissal and other protective regulations, and cutting early retirement incentives. The influence of collective bargaining was weakened in many countries by imposing legal constraints and the emergence of less protected forms of employment (i.e. part-time and temporary employment). Despite these reforms, we have observed disparities in the European labor markets during the last decade; high unemployment rates persist in some of the bigger countries such as Germany, France, and Spain, and rather low unemployment rates are evident in countries such as the UK, Denmark, and Sweden. Defenders of the Jobs Study strategy might argue that supply-side measures will influence the labor market in the medium term and the positive effects will be shown in the future. However it is more likely that supply-side reforms of the labor market might not be the main explanation for differences in the overall performance of different European economies.

To enable growth, the Job Study strategy puts much emphasis on the development of productivity and innovation, calling for higher investments in education and research and subsidies in order to support newly created businesses, and the development of information and communications technology (ICT) and other technologies.

In terms of market institutions and regulations, the EU has established a system via the Common Market to create an internal single market with the free movement of goods, services, capital, and people. Over a long period, regulations, deregulations, and re-regulations in the markets for goods, services, and capital and in the labor market have had an impac...