Susan Strange and the Future of Global Political Economy

Power, Control and Transformation

Randall Germain

• Publisher: Routledge
• Year: 2016
• Print ISBN: 9781138645851
• eBook ISBN: 9781317239338
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

This edited volume addresses the 2007/2009 financial crisis as the occasion to engage critically with the corpus of Susan Strange's work, in order to consider what changes (if any) this crisis portends for the structural organization of the global political economy. The contributors use Strange's rich conceptual framework to explore the financial crisis and its aftermath, and reflect critically on the broader contributions which her work has made to the discipline of IPE.

The volume makes three valuable contributions for scholars and students. First, it raises the profile of Susan Strange, a unique and powerful contributor to the field of IPE whose ideas matter to our current circumstance and can provide deep and enduring insights into important questions and issues. Secondly, each contributor to this volume combines her work and ideas with that of other traditions or individual theorists in ways that extend and/or deepen Strange's own efforts. Finally, this volume leaves us with a judicious optimism about the future of both IPE and the world as it actually is, on the ground.

This book will be of interest to scholars and students who are interested in the dynamics shaping contemporary and future developments in the global political economy, as well as those who are interested in the theoretical debates about how to study IPE.

1 Susan Strange and the future of IPE

Randall Germain

Introduction¹

Susan Strange’s life and times spanned the most tumultuous and extraordinary decades of the twentieth century. Born in 1923, much of her childhood unfolded during the Great Depression while her early adult years were spent in the shadow of World War II attending the London School of Economics and Political Science, or LSE (which had been evacuated to Cambridge due to the threat of German bombing). During the 1950s and early 1960s, she experienced the precariousness of university teaching while also honing her observational and analytical skills as a political and economic correspondent for several respected British newspapers. She pitched up into a research position at Chatham House during the mid-1960s, working under the direction of Andrew Shonfield, where she became involved in a series of long-term projects exploring the changing role of Britain in a world economy that was fast evolving beyond the original foundations of the Bretton Woods arrangements.

Not long after these projects were completed she finally obtained a permanent position at the LSE, teaching in the Department of International Relations from the mid-1970s until her retirement in 1988. During this period she launched one of the world’s first graduate programs in International Political Economy (or IPE as it will be styled in this volume), published some of the most notable work of her career, and continued to track the unravelling of the Bretton Woods system and the emergence of globalization as a key feature of the global political economy. After retiring from the LSE she took up senior positions at the European University Institute and the University of Warwick, where she wrote about the resilience of the American economy and its corporations in the face of decades of seeming ‘decline’, the consolidation of Europe’s experiment with monetary union, the changing structures of the world economy, and the severe dislocations wrought by financial crises in Europe, Mexico and Asia. She also continued to advance a special conception of IPE, one characterized by open fences and low barriers to intellectual entry and exchange, where the focus was resolutely fastened upon the world as it was actually organized. Her untimely death in 1998 coincided with the publication of her final book, Mad Money, an excoriating dissection of the inadequate efforts by governments to regulate their financial systems.

Strange’s legacy as an early and enthusiastic advocate for the academic study of IPE is uncontested. Not only did she argue, from her earliest publications, for the intellectual necessity of a discipline which combined the insights of political science, international relations (or IR), international economics and history, but she also took practical steps to create the infrastructure of such a discipline, such as founding an association to advance its cause, putting together funding for numerous conferences on the changing contours of the world economy, mentoring students who studied IPE and working with others to establish journals and research centres through which such work could be disseminated. Even now, nearly two decades after her death, she is still widely cited as a seminal influence in the field and lauded as an integral member of IPE’s founding generation.²

But this volume is not about IPE’s past, nor is it directly about Susan Strange’s legacy. Rather, it is about the future of IPE as a field of study that can say something significant about how the world works. In this sense each of the contributors to this volume has been inspired by the work of Susan Strange, and they can all locate her work as part of a tradition of thinking about IPE which informs their own scholarship. Many of us have also interacted with her at some point in our careers. But what unites us and gives this volume its coherence is the way in which we use her ideas to examine and consider the dynamics of change that have shaped and continue to influence the world economy. In particular, we are impressed most significantly by those less visible and not easily measured dynamics which nonetheless condition the channels of activity that constitute an increasingly integrated and singular world economy. These are most critically the deep structures and sets of values which combine to establish the foundations upon which agency and activity occur.

In this volume we each take a slice of Strange’s work, a particular idea or set of ideas, that are capable of bringing some scholarly light either to the transformations currently under way in the world economy or to rethinking the significance of changes whose meaning has achieved the status of ‘common sense’.

In either case the impetus we take from Strange is to organize our framework of enquiry so that the focus of attention falls on the building blocks of change, whether these are corporate entities, states that are great powers, particular configurations of ideas or knowledge, social actors (such as bankers) or new articulations of agency that are emerging in what used to be known as the ‘developing’ world. Although the subjects of our enquiries are diverse, the frameworks we deploy all have at least two commonly shared anchors: (1) a central concern with how power is organized and manifested or exercised; and (2) an acute sensitivity towards novel historical formulations of power and the changing institutional formations which this power assumes. In this way, transformation and power form the endpoints of our varied interrogations of the future of the world economy.

In the remainder of this Introduction, I do three things. First, I sketch out why and how the financial crisis would have commanded the attention of Susan Strange. In this section I draw attention to the most significant transformations in the world economy which form the point of entry for the contributors to this volume. This is where we find one important intersection between our empirical interests and those of Susan Strange, namely an acute interest in how the world actually works on the ground. Second, I outline and develop the key ideas of power, control and transformation that all of the contributors expand upon in their chapters. In this section I demonstrate the theoretical value of drawing upon Strange’s work, which forms the second important intersection of our interests with her concerns. This intersection draws special attention to the variable geometry of power built upon economic, political and social foundations. While we do not as a group either share or seek to call into being a unified framework of enquiry inspired by Strange (this indeed would be a strange form of IPE), I do wish to highlight how and why we contend that certain strands of her work are highly salient for the task of understanding the future of the world economy. Third, I look ahead to the chapters themselves, and situate the plan of the volume as a future-oriented theoretical exercise with clear empirical implications. I close with a short set of reflections about the future of IPE when viewed through the prisms featured in these contributions.

The significance of the global financial crisis

Susan Strange spent much of her academic career lamenting and cataloguing the serial failure of scholarship in political science, international relations and international economics to recognize and understand how the world and its political economy had changed or was in the process of changing. She castigated economists and international relations scholars for misunderstanding the foundations of Bretton Woods. She also chided political scientists for refusing to see how far the state had been pushed and pulled into a condition she labelled as ‘retreat’. In any case, in her view few of the above had a clear and useable understanding of power, much less an appreciation of the longer-term historical pressures that conditioned what the principal political and economic agents could do at any particular point in time. For Strange, all of these faults conspired to prevent the majority of scholars from seeing how the world was changing, which is why they were more often than not caught blind-sided by crises, financial or otherwise.³ We suspect she would have been little surprised by how unprepared academics and policy-makers were for the 2007–9 global financial crisis.⁴

But it is doubtful that Strange herself would have been caught unawares. As Claire Cutler notes in this volume, her last book ended with the observation that money would have to get much worse – ‘mad and bad’, as she put it – before the preferences and policies of those with financial power would change (Strange 1998a: 190). And despite a vigorous academic and policy debate about global financial reform between the 1997–8 Asian crisis and 2008, the outcome of that effort failed to address the underlying weaknesses that made ‘mad money’ possible. Had Strange still been alive, she would most likely have been active in explicating the meaning and significance of the crisis, and here I believe that three principal features would have dominated her efforts. First, and perhaps most prominently, she would have drawn our attention to the fundamental changes in the organization, manifestation and exercise of power in the global political economy, both political and economic, in the years immediately preceding the crisis. It was this set of changes above all that allowed a problem in one corner of the American economy, the sub-prime mortgage market, to gather world historical significance.⁵

Now, as several chapters in this volume are careful to point out, power for Susan Strange is not a straightforward concept. It has structural and relational features, and is the product of multiple causal chains coming together at different levels. And while it has obvious material foundations, much of the power that Strange herself considered to be paramount was in effect formed through inter-subjective agreements that unlock value or in effect ‘create’ resources where none previously existed. By inter-subjective, I mean a generally accepted (whether explicit or implicit) acknowledgement of behaviour and of the reasoning behind such behaviour – a logic of appropriateness rather than a logic of consequences. Credit, for example, is a tool of power that depends for its utility on these intangible but yet absolutely real phenomena: it rests on promises buttressed by law, contract and rectitude. Credit is entirely about faith in a future that can with some degree of certainty be expected and/or predicted. This is why, in her explication of the idea of structural power, the knowledge structure is both the most resistant to concrete empirical detail but yet omnipresent across each of the three remaining primary structures (May 1996; see also Cutler 2000 and Tooze 2000a).

Changes to this multi-dimensional conception of power would have drawn Strange’s attention in the lead up to the 2007–9 crisis. The inter-subjective basis that underpinned the established relationship between state regulators and the financial sector might well have been at the top of her list of key developments. This of course is in many ways an almost invisible element of power, constituted as it is by norms of behaviour and patterns of assertion and deference that depend as much on beliefs and default modes of behaviour as on explicit coercion and obvious attributes of domination. One might call this ideology, except that it is both deeper and more hard-wired into our understanding of what constitutes ‘finance’ than the term ideology conveys. We can cast off an ideology when we tire of it or when it proves manifestly false. Inter-subjective beliefs, in Strange’s rendition, are more akin to the Gramscian notion of ‘common sense’, impossible to shake off without a suitably robust replacement available for consumption. In this her work has affinities with the recent constructivist turn in IR and IPE, although she may well have had difficulties with some of the deep philosophical commitments constructivism maintains with respect to how the world is ultimately structured (cf. Wight 2006).

The change here that Strange would have charted concerns the growing disjuncture between the certainty of financial agents that rationality and liberalization capture the necessary coordinates of money and finance, and the historical experience of crises which arise out of sudden and calamitous reversals in rational expectations and behaviour. She was highly sceptical that money and finance could be plotted as definite, linear sets of relations between quantifiable units of measurement such as capital ratios, money supply, liquidity, risk, reserves and so on. As she pointed out in both Casino Capitalism and Mad Money, the arc of our ignorance of what in fact constitutes finance is simply too large to allow for such certainty: financial innovation is constantly testing and undermining our certainties (Strange 1986: chapter 4; 1998a: chapter 2). In fact, she saw this disjuncture quietly and imperceptibly growing, crisis by crisis, from the 1960s onwards, leaving us ill-equipped for the job of understanding our subject, not least because we no longer clearly recognize who has power, much less why and how they may hold it.

There is another aspect of power that Strange would have focused on in the years leading up to the crisis, namely the increasingly ambiguous place of territory in our thinking about power. Although often characterized in part as a political realist due to her emphatic focus on states as key agents in international politics and political economy, over the last decade of her career she became increasingly aware of how authority was ebbing away from state institutions, thereby empowering other forms of authority. Especially important here were business firms, particularly those based in the US, which were extending (as she saw it) a form of empire that was rooted in American society but in fact outstripped the tentacles of the American government. She called this the ‘American Empire’, but it was a very inclusive empire in that transnational firms of any ‘nationality’ could easily be admitted to its inner sanctum (Strange 1988a; 1989). It was in essence an empire of capital, largely but not entirely American capital, and this conception of what empire had become would have suggested to Strange that the financial crisis was first and most importantly a crisis of credit creation in which the power to create financial assets had been abused beyond breaking point.

A concern with how change in the organization and manifestation of power affected the world economy was closely correlated in her thinking to the way in which values inform our approach to political economy, and finance above all. I believe this would mark the second feature of her assessment of the years leading up to the financial crisis. Such values worked at two levels. At one level, that of agency, she understood how the value system of bankers had undergone a sea-change during the decade after the formal end of Bretton Woods, when deregulation in Britain and the US transformed bankers from staid guardians of wealth to hungry wolves preying on what were often unsuspecting participants in a new kind of financial casino (Strange 1986: 2). In her view, this sea-change had extended to other financial participants by the time of the Asian crisis of 1997–8; this was why money had become ‘mad’. And she could not but have extended this assessment of the behaviour of the financial industry to the decade that followed, if she had watched the creation of increasingly complex and opaque financial instruments. Like many, she would have seen the sub-prime debacle as the result of a genuine abdication of responsibility by many parties.

But it is not just at the level of agents that it is important to maintain a concern with values. It is in our understanding of how the world economy operates and is organized that the full payoff from keeping values front and centre to our analysis is realized. Understanding how and why agents hold different values, and being able to relate values both to a matrix in which trade-offs among them are inevitable, as well as to the broader social, political and economic landscape, is crucial if we are to assess in a credible manner the will, desire and determination to change our circumstances. Counting up the material costs and benefits of specific forms of capitalism does not entirely explain why we stick with or abandon existing sets of economic arrangements, just as establishing the costs of a financial crisis is no guarantee that change will be pursued. For Strange, the root of the matter always returned to the values we hold as human beings and as participants in society; our capacity to understand political economy in its broadest formulation is entirely dependent upon the values at play at any particular period.

The recognition that inter-subjective beliefs and values were for Strange the most critical feature of her analysis may sit at odds with the widely held view of her basically as a materialist and/or empirically oriented scholar. She was, it is true, little interested in formal theory, and especially abstract theorizing of the type that is today highly prized in many academic disciplines. But as Louis Pauly emphasizes in his conclusion to this volume, she built a sturdy bridge between what, following Robert Cox’s well-known aphorism, we can call ‘problem-solving’ and ‘critical’ theory Cox (1981). In works as diverse as Sterling and British Policy (1971) and Mad Money, for example, it is easy to see how values are a central analytical category capable of providing deep insight into why agents act as they do – primarily to realize particular kinds of values – as well as how systems and indeed entire structures reflect predominant value sets. In this sense the recent financial crisis is significant precisely because it not only illustrates the bankruptcy of a set of liberal values around which actor expectations in the rich world had converged, but it also reveals that the developmental trajectories among what are often called emerging market economies cannot emulate these values and still hope to realize a form of economic growth that is sustainable either socially or politically. If money was ‘mad’ in 1997, it had become toxic by 2007.

This leads to the third feature that I believe would have dominated Strange’s assessment of the global financial crisis, which we might formulate as ‘what is to be done’? But the political realist in Strange could never simply ask ‘what is to be done’; she would also insist on asking ‘who is to do it’ and ‘on whose behalf’? And here the question of the capacity to act becomes critical, for one of the most interesting aspects of the financial crisis is that individual firms, and especially financial firms, became paralysed when confidence in the financial system evaporated and the value of financial assets suddenly became suspect. It fell to public authorities to re-establish this confidence by putting a floor under the worth of these assets and rescuing many firms with emergency injections of liquidity, that is to say, direct state-backed credit. Strange would not have been surprised that it fell to states and states alone at the height of the crisis to stabilize the richest and yet most volatile among the world’s financial systems.

The significance of this is twofold. On one hand, this crisis has set in motion an intense exercise to re-draw the parameters of authority in the world economy, and especially within its financial system. Authority in finance, by which I mean the inter-subjectively acknowledged capacity to act in a leading manner that others accept, has historically been shared among public and private actors whose principal terrain has been at times predominantly national, and at other times predominantly international. We can think here, for example, of the role of what Karl Polanyi identified as hauté finance during the final years of the international gold standard (Polanyi 1944/1957: chapter 1), or the hegemonic role of the US after World War II. The financial crisis has revealed the inability of modern day hauté finance to stabilize a crisis situation, thereby renewing the potential of states to regain the authority that has seeped away from them over previous decades.

However, to ...

Table of contents

• Cover Page
• Half Title page
• Series Page
• Title Page
• Copyright Page
• Contents
• Illustrations
• Contributors
• Acknowledgements
• Acronyms
• 1 Susan Strange and the future of IPE
• Part I Towards an international political economy of the future
• Part II Power and transformation
• Part III Control and transformation
• References
• Index