Three political scientists from the University of Amsterdam (UvA) have edited a collection of essays on financial integration, liberalisation and globalisation written in the last thirty years. In compiling this volume, professor of International Governance Geoffrey Underhill, assistant professor in International Relations and International Political Economy Daniel Mügge and PhD candidate Jasper Blom offer an analysis of the emergence and functioning of the modern financial system, ranging from the fight against terrorist financing to microfinance in developing countries, and banking supervision. Global Financial Integration Thirty Years On: From Crisis to Reform has recently been published by Cambridge University Press.
The authors argue that there is a correlation between the effectiveness of policies, such as the regulation of banks, and the legitimacy of the policy process through which these policies came into being. In addition, as far as global financial rules are concerned, the lower the level of democracy and the more limited the international support are, the less well these rules will ultimately work. This can clearly be seen in the current financial crisis, where legislation from the U.S. and other countries in the field of derivatives and bank credit was deficient and gave financial institutions too much freedom. This was partly due to the select group of interested parties (‘stakeholders') who were involved in the development of this legislation.
A major theme in the book is the relationship between public and private parties. The period of relative financial stability, from approximately 2000 to 2008, appears to have halted the reform process and was therefore also the prelude to the current crisis. Rules agreed upon with the banks, often as a result of their own suggestions, were a major cause of the crisis. The reform process, according to the authors, will therefore need to gain new impetus if these kinds of crises are to be avoided in the future, or if, at the very least, the negative effects of financial crises are to be limited.
Primacy of politicians over markets
According to the authors, public authority over the financial system must be increased with regard to private self-regulation. The primacy should once again reside with politicians, not with the market. An important part of this would be to involve more interested parties in discussions about the financial governance process. More attention should be paid, for example, to the position of developing countries or pension fund holders, and less attention to the position of international banks. Moreover, the political scientists suggest that there needs to be more space for different countries to find their own development path in the global financial and economic system (not blueprints in the form of a ‘Washington Consensus').
Contributiors to the volume include: Stijn Claessens (IMF and professor of International Finance Policy at the University of Amsterdam), Stephany Griffith-Jones (Columbia University), Victor Klagsbrunn (Fluminense Federal University, Brazil), and Brigitte Young (University of Münster).