The financialization of mass wealth, banking crises and politics over the long run
| Author | Jeffrey M Chwieroth,Andrew Walter |
| Published date | 01 December 2019 |
| Date | 01 December 2019 |
| DOI | http://doi.org/10.1177/1354066119843319 |
https://doi.org/10.1177/1354066119843319
European Journal of
International Relations
2019, Vol. 25(4) 1007 –1034
© The Author(s) 2019
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DOI: 10.1177/1354066119843319
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E
JR
I
The financialization of mass
wealth, banking crises and
politics over the long run
Jeffrey M Chwieroth
London School of Economics, UK
Andrew Walter
University of Melbourne, Australia
Abstract
The co-evolution of democratic politics and mass, financialized wealth has destabilized
highly integrated financial systems and the socio-political underpinnings of neoliberal
policy norms at domestic and global levels. Over the long run, it has increased the
political pressure on governments to undertake bailouts during major banking crises and,
by raising voters’ attentiveness to wealth losses and distributional inequities, has sharply
raised the bar for government performance. The result has been more costly bailouts,
greater political instability and the sustained politicization of wealth cleavages in crisis
aftermaths. We underline the crucial importance and modernity of this phenomenon by
showing how the high concentration of wealth in pre-1914 Britain and America among
elites was associated with limited crisis interventions and surprisingly tranquil political
aftermaths. By contrast, the 2007–2009 crises in both countries epitomise the political
dilemmas facing elected governments in a new world of mass financialized wealth
and the impact on political polarization and democratic politics. We show that these
dilemmas were embryonic in the interwar period and highlight how the evolutionary
forces shaping policy and political outcomes reveal the importance of time, context and
the effects of long cycles in the world economy and global politics.
Keywords
Crisis, financialization, global finance, globalization, international history, political
economy
Corresponding author:
Jeffrey M Chwieroth, London School of Economics, Department of International Relations, Houghton
Street, London, WC2A 2AE, UK.
Email: j.m.chwieroth@lse.ac.uk
Homepage: http://personal.lse.ac.uk/Chwierot/
843319EJT0010.1177/1354066119843319European Journal of International RelationsChwieroth and Walter
research-article2019
Article
1008 European Journal of International Relations 25(4)
Introduction
Costly bank bailouts, such as those during the 2007–2009 global financial crisis, are
commonly attributed to policy ‘capture’ by financial and corporate interests (Johnson
and Kwak, 2010). These perceptions have been associated with rising political contesta-
tion, polarization and instability in mature democracies, with disruptive consequences
for long-established foreign and domestic policy norms (Tooze, 2018). We argue that
crisis policy responses and their political aftermaths have become increasingly conse-
quential, but should be understood in a panoramic context that takes account of a new
form of mass politics associated with increasingly financialized middle-class wealth. It
reveals that the interaction between democratic politics and financialized wealth has
destabilized both increasingly integrated financial systems and the socio-political under-
pinnings of neoliberal policy norms at the domestic and global levels.
Our argument builds on and integrates different literatures: on financialization, which
has devoted limited attention to post-crisis politics (Finlayson, 2009; Langley, 2009; Van
der Zwan, 2014; Watson, 2007); on comparative and international political-economy
research showing how rising household wealth and wealth inequality generate new polit-
ical cleavages and shape actor behaviour (Ansell, 2014; Curtis et al., 2014; Pagliari et al.,
forthcoming; Schwartz and Seabrooke, 2009); on comparative post-crisis electoral poli-
tics (Ansell, 2017a; Bartels and Bermeo, 2014); and on the roles of evolutionary change
and long cycles in the global political economy (Blyth and Matthijs, 2017; Fioretos,
2017). Specifically, we show how the financialization of mass household wealth has
complicated and sharply raised the bar for government performance during major bank-
ing crises, with destabilizing political consequences. In democracies, many voters have
become far more attentive to potential and actual wealth losses, and the perceived fair-
ness of their distribution. Contrary to neoliberal policy norms and narratives of personal
responsibility offered by politicians promoting financialization, most voters now expect
governments to protect their wealth during crises. Accordingly, modern governments
often intervene extensively to prevent catastrophic wealth destruction, offering bailouts
that go far beyond the ‘Bagehot rule’ of lending to normally solvent banks in return for
good collateral (Bagehot, 1962; Rosas, 2006). Yet, even modest wealth losses and per-
ceived inequities of treatment can still be fatal for political incumbents and have power-
ful consequences for domestic and international politics.
Elsewhere, using a large cross-national data set extending from the early 19th to the
early 21st century, we show that rising household wealth in democracies is strongly asso-
ciated with more extensive bailouts and rising political instability (Chwieroth and Walter,
2019). It is also essential to investigate causal mechanisms in particular contexts
(Lieberman, 2005; Munck and Snyder, 2007). ‘Nested analysis’ can provide one means
of doing this, but it is methodologically challenging (Rohlfing, 2008). We therefore pro-
vide additional justifications for our case selection.
We compare long-run developments in two major democracies — Britain and the US
— that are theoretically ‘typical’ and ‘crucial’ cases. Over the past two centuries, both
exhibit large variation in our independent variables — democratization and the finan-
cialization of wealth — and are at their leading edge (Lieberman, 2005: 442–444). Until
recently, they have also been prominently associated with global economic policy
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