《国际政治经济学》文献资料（Use of History and Sociology in International Political Economy）Everyday Legitimacy and International Financial Orders

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New Political Economy,Vol.12,No.1,March 2007 s】Routledge Twior Francis Group 1sn6n Everyday Legitimacy and International N S6.20 Financial Orders:The Social Sources of Imperialism and Hegemony in Global Finance LEONARD SEABROOKE 益 How do states build financial power in the international political economy?The conventional focus is to examine changes at what we may consider the 'big end of town'-the stock exchange,the large banks,institutional investors and domi- nant corporations'-or historical shifts between principal financial centres over the longue duree.?While institutions at the big end of town',and actors who work within them,undoubtedly represent the 'sharp end'where financial strength is most concentrated,this article investigates the more everyday sources of finan- cial power. It does so on the basis of the following proposition:that states that enable the majority of their citizens to access credit and build wealth are more able to recycle capital through the domestic system and,in so doing,improve their inter- national financial capacity to export and attract capital,as well as to have a regu- latory and normative influence on the character of the international financial order. It is perhaps not so surprising that states that exercise financial power within the international political economy need to ground it in a stronger basis than only elites.Indeed,the history of international financial orders speaks not only to how elites build financial power,but also to how fragile their grasp upon it can become.This may especially be the case when there is a broad social perception that finance is unstable because it is concentrated in the hands of the few and requires state intervention. If a state's financial power is not autonomous from broader society but is instead drawn from society,then understanding its social sources requires us to ascribe some role to non-elite actors.One way to address this aim would be to take the rationalist tack and argue that over the centuries liberal democratic states can more easily build financial power because citizens can punish political representatives at the ballot box,but this explanation requires us to see the voter as having stable incentives over time (not to mention the issue of who can vote in different periods of time).Alternatively,one could take the Gramscian route and Leonard Seabrooke,International Center for Business and Politics,Copenhagen Business School, Steen Blichers Vej 22,2000 Frederiksberg,Denmark. ISSN 1356-3467 print:ISSN 1469-9923 online/07/010001-18 C 2007 Taylor Francis D0:10.1080/13563460601068453

Downloaded By: [University of Sydney] At: 02:46 7 August 2007 Everyday Legitimacy and International Financial Orders: The Social Sources of Imperialism and Hegemony in Global Finance LEONARD SEABROOKE How do states build financial power in the international political economy? The conventional focus is to examine changes at what we may consider the ‘big end of town’ – the stock exchange, the large banks, institutional investors and dominant corporations1 – or historical shifts between principal financial centres over the longue dure´e. 2 While institutions at the ‘big end of town’, and actors who work within them, undoubtedly represent the ‘sharp end’ where financial strength is most concentrated, this article investigates the more everyday sources of financial power.3 It does so on the basis of the following proposition: that states that enable the majority of their citizens to access credit and build wealth are more able to recycle capital through the domestic system and, in so doing, improve their international financial capacity to export and attract capital, as well as to have a regulatory and normative influence on the character of the international financial order. It is perhaps not so surprising that states that exercise financial power within the international political economy need to ground it in a stronger basis than only elites. Indeed, the history of international financial orders speaks not only to how elites build financial power, but also to how fragile their grasp upon it can become. This may especially be the case when there is a broad social perception that finance is unstable because it is concentrated in the hands of the few and requires state intervention. If a state’s financial power is not autonomous from broader society but is instead drawn from society, then understanding its social sources requires us to ascribe some role to non-elite actors. One way to address this aim would be to take the rationalist tack and argue that over the centuries liberal democratic states can more easily build financial power because citizens can punish political representatives at the ballot box,4 but this explanation requires us to see the voter as having stable incentives over time (not to mention the issue of who can vote in different periods of time). Alternatively, one could take the Gramscian route and New Political Economy, Vol. 12, No. 1, March 2007 Leonard Seabrooke, International Center for Business and Politics, Copenhagen Business School, Steen Blichers Vej 22, 2000 Frederiksberg, Denmark. ISSN 1356-3467 print; ISSN 1469-9923 online=07=010001-18 # 2007 Taylor & Francis DOI: 10.1080=13563460601068453

Leonard Seabrooke argue that elite actors have a greater capacity to manipulate the broader population into viewing a certain order of things as legitimate and as the 'common sense'5 1sn6n Such a perspective explains how elites operate within the international political economy,but,unintentionally,tends to diminish the agency of non-elite actors N to shape change beyond organised resistance.Similarly,we could take the Constructivist route,but then we may end up in a similar position whereby non-elites actors have little capacity to change their environment against the persuasions of norm entrepreneurs.8 An alternative is to focus on the legitimation of relations between the state and non-elites as a 'two-way street'that is important to a state's financial power.From this view,legitimation extends beyond the ballot box and can be found in everyday practices as well as organised collective resistance and advocacy.This view would also emphasise differences in legitimacy claims made by a state to effect policy change and how non-elites alter economic and social conventions in line with how they think the economy should work.0 While the focus on legitimacy 益 in the past has been on 'deficits'between those governing and those governed during a period that could be understood as a crisis,the implementation of poli- cies forged in crisis is tested in how they affect conventions in everyday life.For this article,exploring how non-elites'changing conventions and expectations are encouraged or hindered by different kinds of financial institutions and instruments may reveal the domestic bases of different kinds of international financial orders This article explores the domestic bases of English imperialism in global finance in the late nineteenth and early twentieth centuries,and US hegemony in global finance in the late twentieth century-the last two periods of intensive financial globalisation.3 It does so through a focus on policies that have a strong impact on everyday life,such as property,credit and tax -what I call the 'financial reform nexus'-for people on below median income (I use the shorthand 'LIGs' for people in lower-income groupings).How the state treats LIGs provides insight into its capacity to recycle and build a deep pool of domestic capital and,from this capacity,influence the international financial order.I argue that this is especially the case for people in what we would commonly understand as the 'middle classes'and 'lower-middle classes',rather than very low-income individuals associated with 'the poor'.14This is warranted given that LIGs who perceive them- selves as 'nearly there'in terms of their access to credit and property,or their rela- tive tax burdens,can provide the state with either a powerful financial resource,or a mass of political,economic,and social frustration.As we will see,the legiti- mation of a financial reform nexus is directly related to whether a state's inter- national financial capacity has an 'imperialist'or 'hegemonic'character, including the ability to switch between the two through what I call a 'rentier shift'. The article is structured as follows.First,I discuss everyday legitimacy and social mechanisms of change.Second,I discuss the English case,s breaking down the financial reform nexus into its credit,tax and property dimensions before relating them to imperialist behaviour in the 'international rentier economy'.Third,I discuss the US case,tracing the tax,property and credit poli- tics of the financial reform nexus before arriving at US hegemonic influence in the 'international creditor economy'.Fourth,I conclude by briefly reflecting on whether the USA between 2000 and the present has been going through a 2

Downloaded By: [University of Sydney] At: 02:46 7 August 2007 argue that elite actors have a greater capacity to manipulate the broader population into viewing a certain order of things as legitimate and as the ‘common sense’.5 Such a perspective explains how elites operate within the international political economy, but, unintentionally, tends to diminish the agency of non-elite actors to shape change beyond organised resistance.6 Similarly, we could take the Constructivist route,7 but then we may end up in a similar position whereby non-elites actors have little capacity to change their environment against the persuasions of norm entrepreneurs.8 An alternative is to focus on the legitimation of relations between the state and non-elites as a ‘two-way street’ that is important to a state’s financial power. From this view, legitimation extends beyond the ballot box and can be found in everyday practices as well as organised collective resistance and advocacy.9 This view would also emphasise differences in legitimacy claims made by a state to effect policy change and how non-elites alter economic and social conventions in line with how they think the economy should work.10 While the focus on legitimacy in the past has been on ‘deficits’ between those governing and those governed during a period that could be understood as a crisis,11 the implementation of policies forged in crisis is tested in how they affect conventions in everyday life.12 For this article, exploring how non-elites’ changing conventions and expectations are encouraged or hindered by different kinds of financial institutions and instruments may reveal the domestic bases of different kinds of international financial orders. This article explores the domestic bases of English imperialism in global finance in the late nineteenth and early twentieth centuries, and US hegemony in global finance in the late twentieth century – the last two periods of intensive financial globalisation.13 It does so through a focus on policies that have a strong impact on everyday life, such as property, credit and tax – what I call the ‘financial reform nexus’ – for people on below median income (I use the shorthand ‘LIGs’ for people in lower-income groupings). How the state treats LIGs provides insight into its capacity to recycle and build a deep pool of domestic capital and, from this capacity, influence the international financial order. I argue that this is especially the case for people in what we would commonly understand as the ‘middle classes’ and ‘lower-middle classes’, rather than very low-income individuals associated with ‘the poor’.14 This is warranted given that LIGs who perceive themselves as ‘nearly there’ in terms of their access to credit and property, or their relative tax burdens, can provide the state with either a powerful financial resource, or a mass of political, economic, and social frustration. As we will see, the legitimation of a financial reform nexus is directly related to whether a state’s international financial capacity has an ‘imperialist’ or ‘hegemonic’ character, including the ability to switch between the two through what I call a ‘rentier shift’. The article is structured as follows. First, I discuss everyday legitimacy and social mechanisms of change. Second, I discuss the English case,15 breaking down the financial reform nexus into its credit, tax and property dimensions before relating them to imperialist behaviour in the ‘international rentier economy’.16 Third, I discuss the US case, tracing the tax, property and credit politics of the financial reform nexus before arriving at US hegemonic influence in the ‘international creditor economy’. Fourth, I conclude by briefly reflecting on whether the USA between 2000 and the present has been going through a Leonard Seabrooke 2

Imperialism and Hegemony in Global Finance rentier shift that is transforming the character of its influence in the international financial order from hegemonic to imperialist. 1sn6m Everyday legitimacy and mechanisms for institutional change S6.20 We can move away from elite-driven analyses of how change occurs in the world economy by viewing legitimacy as contestation between claims by those who seek to govern,and the conferral or rejection of such claims in everyday practice by those being governed.In doing so we may learn from the literature on 'everyday politicsA crucial aspect of this literature is the notion that defiance and resistance need not be organised in advocacy groups to be effective.Rather,it may also occur incrementally and provide impulses for those governing to reform institutions to be in line with economic and social conventions.Everyday practices range widely but may include non-compliance with regulations as well as new practices that reflect a change in attitudes about how the economy should work(from songs,to cheating,to 益 a reordering of life priorities).For Benedict Kerkvliet,such everyday politics provides a'way for the relatively powerless to venture claims and put some pressure on more powerful people to take them into account?o Everyday practices may be informed by what I refer to as 'axiorational'beha- utrou np o ermr Importantly,this rescues us from the view that non-elite actors will simply conform to a 'logic of consequences'or a 'logic of appropriateness',and permits us to see non-elite actors as viewing the capacity to crossover between conventions as more fluid or liquid'.?2 Such a view of reason allows us to place greater stress on intentions and expectations that inform interests and,in doing so,permits a better understanding of how non-elites'intersubjective under- standings can change and,through everyday practices,influence institutional change. To see all this in action,I argue that there are three linked social mechanisms at play in the two cases discussed in this article.23 The first is public or private con- testation from LIGs over the legitimacy of the financial reform nexus.Such con- testation may be expressed through protest by advocacy groups or,more subtly, through changing economic and social conventions related to taxation,credit and property.Either way,changes from LIGs provide impulses to the state that are either taken aboard or rejected and lead to a redistribution of political and economic assets and access.This redistribution either goes some way towards meeting LIGs'expectations about how the economy should work or violates them by favouring rentier interests and,in extreme cases,enables a rentier shift that reorders political and economic relations in a socially regressive manner.Either way,the state will engage in a propagation of economic social norms that seeks to persuade LIGs about how the economy should work.Such proclamations -legitimacy claims-provide feedback for the process to start again.The three mechanisms are anchored by focal points related to the financial reform nexus,namely credit and property access and relative tax burdens.How these mechanisms play out then informs the character of the state's influence on the international financial order. 3

Downloaded By: [University of Sydney] At: 02:46 7 August 2007 rentier shift that is transforming the character of its influence in the international financial order from hegemonic to imperialist. Everyday legitimacy and mechanisms for institutional change We can move away from elite-driven analyses of how change occurs in the world economy by viewing legitimacy as contestation between claims by those who seek to govern, and the conferral or rejection of such claims in everyday practice by those being governed. In doing so we may learn from the literature on ‘everyday politics’.17 A crucial aspect of this literature is the notion that defiance and resistance need not be organised in advocacy groups to be effective. Rather, it may also occur incrementally and provide impulses for those governing to reform institutions to be in line with economic and social conventions.18 Everyday practices range widely but may include non-compliance with regulations as well as new practices that reflect a change in attitudes about how the economy should work (from songs, to cheating, to a reordering of life priorities).19 For Benedict Kerkvliet, such everyday politics provides a ‘way for the relatively powerless to venture claims and put some pressure on more powerful people to take them into account’.20 Everyday practices may be informed by what I refer to as ‘axiorational’ behaviour – that is, action that is neither purely instrumental nor purely value-oriented, but grounded in reasons that one’s peers will most likely confer legitimacy upon.21 Importantly, this rescues us from the view that non-elite actors will simply conform to a ‘logic of consequences’ or a ‘logic of appropriateness’, and permits us to see non-elite actors as viewing the capacity to crossover between conventions as more fluid or ‘liquid’.22 Such a view of reason allows us to place greater stress on intentions and expectations that inform interests and, in doing so, permits a better understanding of how non-elites’ intersubjective understandings can change and, through everyday practices, influence institutional change. To see all this in action, I argue that there are three linked social mechanisms at play in the two cases discussed in this article.23 The first is public or private contestation from LIGs over the legitimacy of the financial reform nexus. Such contestation may be expressed through protest by advocacy groups or, more subtly, through changing economic and social conventions related to taxation, credit and property. Either way, changes from LIGs provide impulses to the state that are either taken aboard or rejected and lead to a redistribution of political and economic assets and access. This redistribution either goes some way towards meeting LIGs’ expectations about how the economy should work or violates them by favouring rentier interests and, in extreme cases, enables a rentier shift that reorders political and economic relations in a socially regressive manner. Either way, the state will engage in a propagation of economic social norms that seeks to persuade LIGs about how the economy should work. Such proclamations – legitimacy claims – provide feedback for the process to start again.24 The three mechanisms are anchored by focal points related to the financial reform nexus, namely credit and property access and relative tax burdens. How these mechanisms play out then informs the character of the state’s influence on the international financial order. Imperialism and Hegemony in Global Finance 3

Leonard Seabrooke Social sources of the international rentier economy During the latter half of the nineteenth century much of the wealth within the 1sn6n L booming English financial system was not in the City of London but in the provinces.England's capacity to create a deep and broad domestic pool of capital had been created by its unique mixing of 'state capitalism'with private capitalism that permitted networks for capital flows in the country to flourish.At this time England had a financial system with a much broader social basis than its European neighbours,leading Adolph Weber to comment in 1902 that in the mid nineteenth century English joint-stock banks took capital from all classes without exception'?6 While we certainly should not exaggerate the capacity of LIGs to invest in the banking system (which is largely a twentieth-century phenomenon),depositors were further down the society ladder than we may assume.Stanley Chapman,for example,describes the typical joint-stock bank in the period as holding deposits of which nearly 益 70 per cent came from people in middle-class occupations(in order of represen- tation:cotton spinners,retailers,corn merchants,linen merchants)with only 18 per cent represented by 'Gentlemen'and ten percent by professionals (mainly lawyers and doctors).As such,and at a time when provincial banks were more powerful than those in the City of London,they were drawing from a wide social base rather than a narrow concentrated elite. In addition to these banks,the state began to intervene in a positive manner for LIGs,including W.E.Gladstone's efforts in the 1860s to create a postal saving system that could extend the capacity for personal savings beyond the wealthy and tackle the 'anti-social and immoral'treatment of LIGs on credit and property.28 While LIGs'expectations concerning property ownership were not high at this point,the desire was growing.There was not,however, any significant change to their access to property,and mortgages as a pro- portion of financial assets within the English financial system nearly halved between 1850 and 1913,especially as other instruments associated with rentier investments grew in prominence.This situation worsened with the post-1890 rentier shift. English credit politics After 1890,there was a significant change in English finance as the City of London was able to assert itself and successfully draw in capital from the provinces. Accordingly,while the ratio of provincial assets to London joint-stock bank assets was 3.2:1 in 1844,it was 1:1.06 by 1880 and worsened thereafter.30 Tracing these dynamics,Edgar Jaffe commented in 1905: Is it not amazing that only in the 90s was the survival of provincial banks threatened when capital city banks turned the tables and sought to get hold of an advantage through the extension into the Provinces ..leading to today's principle,that only big banks that are established both in London and the Provinces are competi- tive enough to fight their way through with a view of success

Downloaded By: [University of Sydney] At: 02:46 7 August 2007 Social sources of the international rentier economy During the latter half of the nineteenth century much of the wealth within the booming English financial system was not in the City of London but in the provinces. England’s capacity to create a deep and broad domestic pool of capital had been created by its unique mixing of ‘state capitalism’ with private capitalism that permitted networks for capital flows in the country to flourish.25 At this time England had a financial system with a much broader social basis than its European neighbours, leading Adolph Weber to comment in 1902 that in the mid nineteenth century English joint-stock banks took capital ‘from all classes without exception’.26 While we certainly should not exaggerate the capacity of LIGs to invest in the banking system (which is largely a twentieth-century phenomenon), depositors were further down the society ladder than we may assume. Stanley Chapman, for example, describes the typical joint-stock bank in the period as holding deposits of which nearly 70 per cent came from people in middle-class occupations (in order of representation: cotton spinners, retailers, corn merchants, linen merchants) with only 18 per cent represented by ‘Gentlemen’ and ten percent by professionals (mainly lawyers and doctors).27 As such, and at a time when provincial banks were more powerful than those in the City of London, they were drawing from a wide social base rather than a narrow concentrated elite. In addition to these banks, the state began to intervene in a positive manner for LIGs, including W. E. Gladstone’s efforts in the 1860s to create a postal saving system that could extend the capacity for personal savings beyond the wealthy and tackle the ‘anti-social and immoral’ treatment of LIGs on credit and property.28 While LIGs’ expectations concerning property ownership were not high at this point, the desire was growing. There was not, however, any significant change to their access to property, and mortgages as a proportion of financial assets within the English financial system nearly halved between 1850 and 1913, especially as other instruments associated with rentier investments grew in prominence.29 This situation worsened with the post-1890 rentier shift. English credit politics After 1890, there was a significant change in English finance as the City of London was able to assert itself and successfully draw in capital from the provinces. Accordingly, while the ratio of provincial assets to London joint-stock bank assets was 3.2 : 1 in 1844, it was 1 : 1.06 by 1880 and worsened thereafter.30 Tracing these dynamics, Edgar Jaffe´ commented in 1905: Is it not amazing that only in the 90s was the survival of provincial banks threatened when capital city banks turned the tables and sought to get hold of an advantage through the extension into the Provinces ... leading to today’s principle, that only big banks that are established both in London and the Provinces are competitive enough to fight their way through with a view of success.31 Leonard Seabrooke 4

Imperialism and Hegemony in Global Finance Along with the concentration of private financial institutions,the Bank of England (BoE)altered the functions of its provincial branches.Ernest Edye,the Principal of Branch Banking for the BoE in the early 1900s,wrote that the 1sn6n L raison d'etre of a Bank is to meet the legitimate requirements of its Customers' and that this legitimate purpose was being violated by the BoE's 'locks up' policy that drained capital from the provinces to the central office without recipro- cal credit extension.32 The combined effect of these private and public changes was a further 'credit crunch'that further isolated LIGs,so that,while output in the financial services sector more than doubled during 1890 to 1915,commenta- tors argued that credit for LIGs had diminished.33 Furthermore,while banking concentration was strongly associated with professionalisation,it now became heavily dependent upon personal relations between the lender and the borrower' through gentlemanly networks.34 In addition to this'credit crunch',LIGs with- drew in increasing numbers from the post office savings bank system,which failed to provide sufficient credit despite favourable rates of interest.35 By 1914, 益 during a 'run on banks',the collapse of savings banks and the inadequacy of gov- ernment guarantees to secure deposits led to open street protests.36 In short,and despite public and private contestation,the English state did little to improve LIGs'access to credit. English tax politics Compared to credit politics,tax politics for LIGs fared better.By the early 1900s direct taxes had increased to 38 per cent of government income,from 19 per cent in the 1870s and 33 per cent in 1900.37 However,a push from the Conservative party to protect its key constituency led to a resurgence of interest in tariff protec- tionism and a move away from direct taxes.This proposed policy shift was sup- ported by financial elites in the City of London,despite their avowals to free trade.38 At the same time,'social liberals'such as John A.Hobson pointed to the potential for positive state intervention to redistribute income from the wealthy -especially rentiers''unearned'and 'excessive'incomes -to LIGs to boost domestic consumption and,in doing so,transform imperialist foreign econo- mic policies.39 Following the 1905 transition to the Liberal government,the propagation of anti-rentier policies by figures such as Prime Minister David Lloyd George received popular support,and were typified in the struggle between the House of Commons and the House of Lords over the 'radical' 'People's Budget'of 1909-10.40 This budget proclaimed the legitimacy of a transformation of the English financial reform nexus in favour of LIGs,but was more bluster than substance as it only marginally enhanced national income while government expenditure actually dropped.As the vast majority of LIGs earned too little to benefit from tax breaks,the only tax relief was to those far above median income.In short,the tax reforms were insufficient to assist the development of a broader social source of English financial power (through savings or consumption)and exacerbated the 'years of frustration'LIGs felt immediately prior to the Great War.2 Such frustrations were expressed in chan- ging economic and social conventions.For example,despite increased real wages and declining property prices,LIGs did not save more but rather consumed 5

Downloaded By: [University of Sydney] At: 02:46 7 August 2007 Along with the concentration of private financial institutions, the Bank of England (BoE) altered the functions of its provincial branches. Ernest Edye, the Principal of Branch Banking for the BoE in the early 1900s, wrote that the ‘raison d’eˆtre of a Bank is to meet the legitimate requirements of its Customers’ and that this legitimate purpose was being violated by the BoE’s ‘locks up’ policy that drained capital from the provinces to the central office without reciprocal credit extension.32 The combined effect of these private and public changes was a further ‘credit crunch’ that further isolated LIGs, so that, while output in the financial services sector more than doubled during 1890 to 1915, commentators argued that credit for LIGs had diminished.33 Furthermore, while banking concentration was strongly associated with professionalisation, it now became ‘heavily dependent upon personal relations between the lender and the borrower’ through gentlemanly networks.34 In addition to this ‘credit crunch’, LIGs withdrew in increasing numbers from the post office savings bank system, which failed to provide sufficient credit despite favourable rates of interest.35 By 1914, during a ‘run on banks’, the collapse of savings banks and the inadequacy of government guarantees to secure deposits led to open street protests.36 In short, and despite public and private contestation, the English state did little to improve LIGs’ access to credit. English tax politics Compared to credit politics, tax politics for LIGs fared better. By the early 1900s direct taxes had increased to 38 per cent of government income, from 19 per cent in the 1870s and 33 per cent in 1900.37 However, a push from the Conservative party to protect its key constituency led to a resurgence of interest in tariff protectionism and a move away from direct taxes. This proposed policy shift was supported by financial elites in the City of London, despite their avowals to free trade.38 At the same time, ‘social liberals’ such as John A. Hobson pointed to the potential for positive state intervention to redistribute income from the wealthy – especially rentiers’ ‘unearned’ and ‘excessive’ incomes – to LIGs to boost domestic consumption and, in doing so, transform imperialist foreign economic policies.39 Following the 1905 transition to the Liberal government, the propagation of anti-rentier policies by figures such as Prime Minister David Lloyd George received popular support, and were typified in the struggle between the House of Commons and the House of Lords over the ‘radical’ ‘People’s Budget’ of 1909– 10.40 This budget proclaimed the legitimacy of a transformation of the English financial reform nexus in favour of LIGs, but was more bluster than substance as it only marginally enhanced national income while government expenditure actually dropped.41As the vast majority of LIGs earned too little to benefit from tax breaks, the only tax relief was to those far above median income. In short, the tax reforms were insufficient to assist the development of a broader social source of English financial power (through savings or consumption) and exacerbated the ‘years of frustration’ LIGs felt immediately prior to the Great War.42 Such frustrations were expressed in changing economic and social conventions. For example, despite increased real wages and declining property prices, LIGs did not save more but rather consumed Imperialism and Hegemony in Global Finance 5

Leonard Seabrooke more.Given that institutional arrangements did not permit access to credit,and despite marginal improvement on tax burdens,LIGs prioritised short-term 1sn6n rewards as compensation for unmet expectations about how the economy should work.43 S6.20 English property politics If credit politics were frustrating,and tax politics disappointing,then property politics were infuriating for LIGs in England.Winston Churchill,as a 'young man in a hurry'Liberal social reformer,reflected changing expectations among LIGs when stating in 1908 that 'under the old system people had dear food, under the present system they had dear houses'.4During the late Victorian and Edwardian period there had been an increase in demand for property that was not satisfied (and not addressed until the 1930s and 1940s),45 with property own- ership considered the 'last remnant of feudalism'46 Despite minor advances on 益 taxation,the Liberal government did not positively intervene on behalf of LIGs butnsed,provided tax concessions to agrarian landholders and urban As with tax and credit politics,LIGs occasionally organised collectively to express their contestation of government legitimacy claims on access to property. In 1908,the Liverpool-based Financial Reform Association campaigned to 'force the middle and industrious classes to understand how they have been cheated, robbed,and bamboozled upon the subject of taxation'.4 This target for this advo- cacy group was landlords,who were identified as on the receiving end of unfairly redistributed 'unearned income'.To make matters worse,within England at the time the dominant view among the wealthy and financial institutions -and a view the government did little to alter -was that providing mortgages for LIGs was a dangerous business.9 Where credit was available it was usually at usurious rates.Instead,popular investments were in sectors associated with imperial power, such as mining and shipping.The state was unable to alter the positional premium'that rentiers and the landed classes attached to property as an explicit expression of wealth that was 'traded above its economic value'.50 As such,and faced with no serious challenge from the state,English international financial capacity became increasingly dependent on rentier interests. The international rentier economy I suggest that the imperial character of English influence on the international finan- cial order reflected the shaky domestic legitimation of its domestic financial reform nexus.Indeed,the state's treatment of the Gold Standard,international financial regulation and encouragement of types of investment reflect domestic choices.First,the key characteristic of the English management of the Gold Stan- dard was its 'hands-off approach.Sir John Clapham argued that before 1918 the 'Bank was amazingly detached from international affairs;heard from no one;saw no one;only watched the gold and took the necessary steps automatically'5 Second,the character of creditworthiness assessment at home also informed rentier-like behaviour in the international financial order.While banking 6

Downloaded By: [University of Sydney] At: 02:46 7 August 2007 more. Given that institutional arrangements did not permit access to credit, and despite marginal improvement on tax burdens, LIGs prioritised short-term rewards as compensation for unmet expectations about how the economy should work.43 English property politics If credit politics were frustrating, and tax politics disappointing, then property politics were infuriating for LIGs in England. Winston Churchill, as a ‘young man in a hurry’ Liberal social reformer, reflected changing expectations among LIGs when stating in 1908 that ‘under the old system people had dear food, under the present system they had dear houses’.44 During the late Victorian and Edwardian period there had been an increase in demand for property that was not satisfied (and not addressed until the 1930s and 1940s),45 with property ownership considered the ‘last remnant of feudalism’.46 Despite minor advances on taxation, the Liberal government did not positively intervene on behalf of LIGs but, instead, provided tax concessions to agrarian landholders and urban landlords.47 As with tax and credit politics, LIGs occasionally organised collectively to express their contestation of government legitimacy claims on access to property. In 1908, the Liverpool-based Financial Reform Association campaigned to ‘force the middle and industrious classes to understand how they have been cheated, robbed, and bamboozled upon the subject of taxation’.48 This target for this advocacy group was landlords, who were identified as on the receiving end of unfairly redistributed ‘unearned income’. To make matters worse, within England at the time the dominant view among the wealthy and financial institutions – and a view the government did little to alter – was that providing mortgages for LIGs was a dangerous business.49 Where credit was available it was usually at usurious rates. Instead, popular investments were in sectors associated with imperial power, such as mining and shipping. The state was unable to alter the ‘positional premium’ that rentiers and the landed classes attached to property as an explicit expression of wealth that was ‘traded above its economic value’.50 As such, and faced with no serious challenge from the state, English international financial capacity became increasingly dependent on rentier interests. The international rentier economy I suggest that the imperial character of English influence on the international financial order reflected the shaky domestic legitimation of its domestic financial reform nexus. Indeed, the state’s treatment of the Gold Standard, international financial regulation and encouragement of types of investment reflect domestic choices. First, the key characteristic of the English management of the Gold Standard was its ‘hands-off’ approach. Sir John Clapham argued that before 1918 the ‘Bank was amazingly detached from international affairs; heard from no one; saw no one; only watched the gold and took the necessary steps automatically’.51 Second, the character of creditworthiness assessment at home also informed rentier-like behaviour in the international financial order. While banking Leonard Seabrooke 6

Imperialism and Hegemony in Global Finance concentration led to the intensification of personal network ties for the determi- nation of credit,rentier investments in far-off lands occasionally relied on the 1sn6m threat of force in addition to surveillance.For example,the use of the imperial navy for 'gunboat diplomacy'to protect what were essentially private interests is now well known.While it would be an exaggeration to argue that such S6.20 threats were widespread,they provided an important normative force in the inter- national financial order in the absence of formal international financial regu- lation.52 This is particularly important given that there was much greater investment in what would now be called 'emerging market economies'(EMEs) compared to the contemporary period,and that the overwhelming bulk of English investment was in sectors (like government debt,railways,mining and metallurgy)where responsible governments could be punished via threats of blacklisting'53 Increasingly,English international financial capacity rested on 'superloyal schizoids'at home,since it relied on the suppression of social liberalism 益 desired by LIGs alongside heightened finance imperialism that imposed indirect costs on LIGs.54 As England now had a financial reform nexus with diminished social legitimacy,its means to cope with the financial shock of the Great War was much reduced as a result of its increasingly narrow and concentrated pool of capital.Given this,English primacy in the international financial order was dif- ficult to retain,especially given greater organisation and swiftly changing econ- omic and social conventions among LIGs,which provided a clear message to politicians that they wanted their expectations about how the economy should work met after the Great War. Social sources of the international creditor economy During the 1980s much of the debate within political economy was concerned with the USA's declining hegemony.s5 One key argument here,most eloquently and frequently put forward by Susan Strange,was that US hegemony had not declined, but rather the state had encouraged more market-based forms of power in the inter- national political economy.s6 Strange also argued that change within the inter- national political economy,especially in finance,was dependent on understanding domestic changes within the hegemon.57 Others have since argued that the USA relies on its international presence despite its weak state capacity at home.s8 Both views are absolutely correct,especially if we are looking for state intervention in the domestic economy in terms of public social welfare provision.9 My aim here is not to dispute these robust claims,but to iden- tify how changes to the US financial reform nexus for LIGs provide insight on the foundations of US hegemony in the international financial order of the late twen- tieth century. Let me be clear in that I do not view the US state as necessarily inclined to inter- vene positively in the economy on behalf of LIGs.Numerous studies of income inequality and social welfare have clearly demonstrated this to not be the case, with particularly devastating outcomes for the poor.I do wish to demonstrate that in the USA in the closing decades of the twentieth century there was increas- ing state intervention in the form of regulations supporting institutionalisation and 7

Downloaded By: [University of Sydney] At: 02:46 7 August 2007 concentration led to the intensification of personal network ties for the determination of credit, rentier investments in far-off lands occasionally relied on the threat of force in addition to surveillance. For example, the use of the imperial navy for ‘gunboat diplomacy’ to protect what were essentially private interests is now well known. While it would be an exaggeration to argue that such threats were widespread, they provided an important normative force in the international financial order in the absence of formal international financial regulation.52 This is particularly important given that there was much greater investment in what would now be called ‘emerging market economies’ (EMEs) compared to the contemporary period, and that the overwhelming bulk of English investment was in sectors (like government debt, railways, mining and metallurgy) where responsible governments could be punished via threats of ‘blacklisting’.53 Increasingly, English international financial capacity rested on ‘superloyal schizoids’ at home, since it relied on the suppression of social liberalism desired by LIGs alongside heightened finance imperialism that imposed indirect costs on LIGs.54 As England now had a financial reform nexus with diminished social legitimacy, its means to cope with the financial shock of the Great War was much reduced as a result of its increasingly narrow and concentrated pool of capital. Given this, English primacy in the international financial order was dif- ficult to retain, especially given greater organisation and swiftly changing economic and social conventions among LIGs, which provided a clear message to politicians that they wanted their expectations about how the economy should work met after the Great War. Social sources of the international creditor economy During the 1980s much of the debate within political economy was concerned with the USA’s declining hegemony.55 One key argument here, most eloquently and frequently put forward by Susan Strange, was that US hegemony had not declined, but rather the state had encouraged more market-based forms of power in the international political economy.56 Strange also argued that change within the international political economy, especially in finance, was dependent on understanding domestic changes within the hegemon.57 Others have since argued that the USA relies on its international presence despite its weak state capacity at home.58 Both views are absolutely correct, especially if we are looking for state intervention in the domestic economy in terms of public social welfare provision.59 My aim here is not to dispute these robust claims, but to identify how changes to the US financial reform nexus for LIGs provide insight on the foundations of US hegemony in the international financial order of the late twentieth century. Let me be clear in that I do not view the US state as necessarily inclined to intervene positively in the economy on behalf of LIGs. Numerous studies of income inequality and social welfare have clearly demonstrated this to not be the case, with particularly devastating outcomes for the poor.60 I do wish to demonstrate that in the USA in the closing decades of the twentieth century there was increasing state intervention in the form of regulations supporting institutionalisation and Imperialism and Hegemony in Global Finance 7

Leonard Seabrooke innovation on credit,property and taxes for LIGs.Such institutional changes were reliant on processes of contestation,redistribution and propagation.Critically, 1sn6n these processes benefited many LIGs even though,due to the social construction of what was legitimate within the financial reform nexus,they also encouraged the economic abandonment of the most economically vulnerable and structurally dis- advantaged in society.In short,changes to the financial reform nexus redistributed of assets and access overwhelmingly to the most entrepreneurial of LIGs,those who were nearly there'in terms of accessing credit and property,and therefore viewed as deserving of tax breaks. To trace the dynamics of the US case we can start by understanding the limits to an overt rentier shift in the 1980s.The first administration of Ronald Reagan attempted a rentier shift despite a clear absence of support from LIGs for changes to the financial reform nexus.6!For example,tax reforms in 1981 pro- vided not only a 23 per cent income tax to the wealthy but also a deduction of pay- ments on non-owner-occupied residential and commercial mortgage interest 益 payments from income tax assessment.62 These changes were made to increase rental housing and were associated with the kind of rentier landlordism rejected by LIGs in the English case.During this same period,financial system legislation permitted individual ownership of Savings and Loans banks(S&Ls),which then encouraged financial institutions to be used for speculative purposes,sending the entire system (especially in Texas and California)into crisis.3 Domestically, on tax,property and credit,the early years of the first Reagan administration pro- vided a sharp rentier shift. The above changes could be interpreted as institutional responses to changing conditions in the international political economy.For example,the Debt Crisis of the early 1980s was,in part,a consequence of US domestic stagflation as commer- cial banks lent excessively through syndicated loans to EMEs (with the epicentre of the crisis in Latin America).4 US commercial banks complained that US governments had encouraged them to borrow as 'a matter of public interest' and sought potential access to taxpayer monies for bail-out funds.5 In response, taxpayer advocacy groups argued that taxes should not be used to compensate banks for their 'bad bets'to sovereign debtors.As a consequence of contestation over this potential redistribution of assets,legislation was put in place to block tax- payer-funded 'bail-outs'and to punish banks with high non-performing loans from EME governments.This signalled a shift towards the use of debt securities rather than conventional bank loans within the USA,and in how the USA engaged the international financial order.The 1984 Secondary Mortgage Market Enhancement Act supported this change by encouraging a more liquid secondary market for the supposedly safest of income streams-people paying off their home mortgages.6 Given these financial and policy innovations,both which were diffused among, and supported by,LIGs,the momentum of the first Reagan administration's rentier shift was being slowly reversed. US tax politics While one would not normally associate the second Reagan administration with progessive taxation,reforms established in 1986 were 'not consistent with the 8

Downloaded By: [University of Sydney] At: 02:46 7 August 2007 innovation on credit, property and taxes for LIGs. Such institutional changes were reliant on processes of contestation, redistribution and propagation. Critically, these processes benefited many LIGs even though, due to the social construction of what was legitimate within the financial reform nexus, they also encouraged the economic abandonment of the most economically vulnerable and structurally disadvantaged in society. In short, changes to the financial reform nexus redistributed of assets and access overwhelmingly to the most entrepreneurial of LIGs, those who were ‘nearly there’ in terms of accessing credit and property, and therefore viewed as deserving of tax breaks. To trace the dynamics of the US case we can start by understanding the limits to an overt rentier shift in the 1980s. The first administration of Ronald Reagan attempted a rentier shift despite a clear absence of support from LIGs for changes to the financial reform nexus.61 For example, tax reforms in 1981 provided not only a 23 per cent income tax to the wealthy but also a deduction of payments on non-owner-occupied residential and commercial mortgage interest payments from income tax assessment.62 These changes were made to increase rental housing and were associated with the kind of rentier landlordism rejected by LIGs in the English case. During this same period, financial system legislation permitted individual ownership of Savings and Loans banks (S&Ls), which then encouraged financial institutions to be used for speculative purposes, sending the entire system (especially in Texas and California) into crisis.63 Domestically, on tax, property and credit, the early years of the first Reagan administration provided a sharp rentier shift. The above changes could be interpreted as institutional responses to changing conditions in the international political economy. For example, the Debt Crisis of the early 1980s was, in part, a consequence of US domestic stagflation as commercial banks lent excessively through syndicated loans to EMEs (with the epicentre of the crisis in Latin America).64 US commercial banks complained that US governments had encouraged them to borrow as ‘a matter of public interest’ and sought potential access to taxpayer monies for bail-out funds.65 In response, taxpayer advocacy groups argued that taxes should not be used to compensate banks for their ‘bad bets’ to sovereign debtors. As a consequence of contestation over this potential redistribution of assets, legislation was put in place to block taxpayer-funded ‘bail-outs’ and to punish banks with high non-performing loans from EME governments. This signalled a shift towards the use of debt securities rather than conventional bank loans within the USA, and in how the USA engaged the international financial order. The 1984 Secondary Mortgage Market Enhancement Act supported this change by encouraging a more liquid secondary market for the supposedly safest of income streams – people paying off their home mortgages.66 Given these financial and policy innovations, both which were diffused among, and supported by, LIGs, the momentum of the first Reagan administration’s rentier shift was being slowly reversed. US tax politics While one would not normally associate the second Reagan administration with progessive taxation, reforms established in 1986 were ‘not consistent with the Leonard Seabrooke 8

Imperialism and Hegemony in Global Finance intent of the neoliberal program'67 For LIGs the tax reforms had significant benefits,including shifting away from policies that favoured landlords and 1sn6m towards the introduction of mortgage interest payment deductions from tax liabil- ities for owner-occupiers that were scaled to favour LIGs.68 Furthermore the net effect of the tax reforms was to significantly increase the taxes paid by the top 10 per cent of income earners (in part due to the removal of benefits and exemp- tions,as well as high reliance on personal income tax compared to other states),so that in 1988 the top 10 per cent of income earners began to pay slightly more than half of all income tax.9 LIGs at the bottom end of the scale paid less tax, especially those who had access to property. On top of the 1986 reforms,the tax reforms of Bill Clinton's administration were progressive.The 1993 reforms increased the top personal rate from 31 to 39 per cent and created a new 36 per cent tax bracket for upper-level incomes. In addition,1997 tax reforms lowered the income tax rate for low-income groups and put in place a four-fold increase in tax subsidies to very low-income 益 groups.70 Reforms to the Earned Income Tax Credit system also raised the incomes of the poor.All of these changes could be seen in legitimacy claims, chiefly from Democrats,to provide relief as redistribution to LIGs.As such, reforms provided relief especially to the 'nearly there'entrepreneurial LIGs.So while the tax reforms did not,by any means,sufficiently address income inequal- ity,LIGs were given lower tax burdens if they could also access property and credit.Such policies reflected strong entrepreneurial social norms in the USA that those deserving of help from the state are those who first help themselves. US property politics During the late 1970s,urban decline prompted a number of LIGs advocacy groups to organise and rally for 'fair housing'.Following the S&L and commercial bank crises of the 1980s,LIGs'expectations in securing assets such as property were both threatened and heightened,as was their frustration with how changes in the financial system were being dealt with in relation to a squeeze on private and public housing.As a consequence,in the mid 1980s and early 1990s there was renewed contestation from advocacy groups on 'fair housing'that was directly tied to a discourse on civil rights.In response to these impulses,the US government sought to propagate the notion that it could create an 'efficient and equitable financial structure...to legitimize itself in the eyes of the public'. In addition to heightened expectations,groups such as the Association of Com- munity Organizations for Reform Now (ACORN)forcibly occupied housing financially abandoned after S&L collapses,and tied red ribbons around commer- cial banks accused of unfair housing practices and racial discrimination.Such activism from everyday actors provided impulses to Congressional committees, where Democratic control of both the House and the Senate during this period was of great benefit in coupling pro-community fair housing with financial re- regulation.For example,financial system legislation in 1989 included an Afford- able Housing Program directly targeted to low-income groups and which sought to redistribute access and assets to LIGs.3Furthermore,the 1989 emboldening of the Home Mortgage Disclosure Act(HMDA)of 1975 required banks to provide data 9

Downloaded By: [University of Sydney] At: 02:46 7 August 2007 intent of the neoliberal program’.67 For LIGs the tax reforms had significant benefits, including shifting away from policies that favoured landlords and towards the introduction of mortgage interest payment deductions from tax liabilities for owner-occupiers that were scaled to favour LIGs.68 Furthermore the net effect of the tax reforms was to significantly increase the taxes paid by the top 10 per cent of income earners (in part due to the removal of benefits and exemptions, as well as high reliance on personal income tax compared to other states), so that in 1988 the top 10 per cent of income earners began to pay slightly more than half of all income tax.69 LIGs at the bottom end of the scale paid less tax, especially those who had access to property. On top of the 1986 reforms, the tax reforms of Bill Clinton’s administration were progressive. The 1993 reforms increased the top personal rate from 31 to 39 per cent and created a new 36 per cent tax bracket for upper-level incomes. In addition, 1997 tax reforms lowered the income tax rate for low-income groups and put in place a four-fold increase in tax subsidies to very low-income groups.70 Reforms to the Earned Income Tax Credit system also raised the incomes of the poor. All of these changes could be seen in legitimacy claims, chiefly from Democrats, to provide relief as redistribution to LIGs. As such, reforms provided relief especially to the ‘nearly there’ entrepreneurial LIGs. So while the tax reforms did not, by any means, sufficiently address income inequality, LIGs were given lower tax burdens if they could also access property and credit. Such policies reflected strong entrepreneurial social norms in the USA – that those deserving of help from the state are those who first help themselves. US property politics During the late 1970s, urban decline prompted a number of LIGs advocacy groups to organise and rally for ‘fair housing’. Following the S&L and commercial bank crises of the 1980s, LIGs’ expectations in securing assets such as property were both threatened and heightened, as was their frustration with how changes in the financial system were being dealt with in relation to a squeeze on private and public housing. As a consequence, in the mid 1980s and early 1990s there was renewed contestation from advocacy groups on ‘fair housing’ that was directly tied to a discourse on civil rights. In response to these impulses, the US government sought to propagate the notion that it could create an ‘efficient and equitable financial structure ... to legitimize itself in the eyes of the public’.71 In addition to heightened expectations, groups such as the Association of Community Organizations for Reform Now (ACORN) forcibly occupied housing financially abandoned after S&L collapses, and tied red ribbons around commercial banks accused of unfair housing practices and racial discrimination.72 Such activism from everyday actors provided impulses to Congressional committees, where Democratic control of both the House and the Senate during this period was of great benefit in coupling pro-community fair housing with financial reregulation. For example, financial system legislation in 1989 included an Affordable Housing Program directly targeted to low-income groups and which sought to redistribute access and assets to LIGs.73 Furthermore, the 1989 emboldening of the Home Mortgage Disclosure Act (HMDA) of 1975 required banks to provide data Imperialism and Hegemony in Global Finance 9

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