REGULATION THEORY IN A NUTSHELL And a brief comparison with SSA

1. REGULATION THEORY IN A NUTSHELLAnd a brief comparison with SSA Robert Boyer Paris-Jourdan Sciences Economiques (PSE, CNRS-EHESS-ENS-ENPC) Political Economy Research Institute (PERI, Thompson Tower, 9th floor, University of Massachusetts, Amherst March 26, 2008

2. INTRODUCTION 1.The origin : surprising structural evolutions of the 70s: - Productivity slow-down in the US - Rising unemployment in Europe - Stagflation: inflation and recession

3. ..At odds with conventional theories: - Keynesian macroeconometric models - Neoclassical labour market theory - Marxian prognosis

4. 2.The intellectual inspiration: - Kaleckian macroeconomy of capital accumulation -The Annales school of economic and social history -Theory of habitus as alternative to homo oeconomicus rationality

5. 3. An eclectic but controlled use of methods: - Diagnose the key social relations of the society under investigation • Analyse the precise form taken by these social forms via the emergence, maturation and crisis of the related institutional forms -Explicit the logic implied for individual and collective behaviour • Collect the relevant statistical indexes and look for regularities by econometric methods • Check if partial régulations define a viable macroeconomic regime

6. A SYNOPTIC VIEW OF THE PRESENTATION • From general equilibrium theory (GET) to the diversity of imperfect market economies • Régulation theory (RT) in a nutshell: an analysis of economic institutional architectures • An analysis of crises and changing patterns through time and space • How many régulation modes ? • The era of globalization: a renewed diversity of institutional configurations • The era of financialization: RT and SSA

7. FROM GENERAL EQUILIBRIUM THEORY (GET) TO THE DIVERSITY OF IMPERFECT MARKET ECONOMIES

8. The generalization of GET has failed Table 1 – In real economies, as many market failures as efficient markets

9. The belief in self regulated markets has been eroded Table 2 – The promises and the deliveries of the free marketers

10. The interest and limits of game theory: ad hoc rules of the game Diagram 1 – From general equilibrium theory to game theory: analyses by domains but not any theory for the complete economic system

11. Abasic issue: what are the actual institutions and the rules of the game?

12. RÉGULATION THEORY IN A NUTSHELL

13. The macroeconomic consequences of institutional forms Diagram 2 – Starting from Marxian theory to understand the institutions of capitalism : « regulation theory » in a nutshell

14. The post WWII institutional architecture and growth regime: the Fordism Diagram 3 – The post WWII capital labor accord shaped most other socio-economic institutions

15. IV. NO INSTITUTIONAL ARCHITECTURE IS STABLE FOR EVER: three sources of crisis • The success leads to institutional obsolescence: endogenous structural crisis

16. Diagram 4 – From emergence to maturation and crisis

17. Competing with other economies and adapting foreign institutional forms: hybridization Diagram 5 – Hybridization and endometabolism, two factors of institutional change: the joint evolution of American and Japanese trajectories

18. The leading role of political alliances

19. The emerging new institutional architecture of the 90s • The Hierarchical position of the international economy and the financial regime

20. Diagram 6 – The new hierarchy of institutional forms in contemporary Europe

21. HOW MANY REGULATION MODES?

22. FOUR REASONS FOR CONTRASTED BRANDS OF CAPITALISM • The recent advances of micro economic theory of imperfect information: as soon as no complete contract can be drafted, nor all contingent markets organized, many second best solutions can be given to the same economic issue (J. Stiglitz, 1987). • Since the functional role of economic institutions is not explaining their origin, their variety explicitly derives from the intricacy of the political process (D. Hibbs, 1987) which leads to institutionalized compromises.

23. Specialists of technical change and evolutionary economists have developed fairly sophisticated models built upon the role of increasing returns to scale (G. Dosi, 1988; 1991). Then, initial choices, which seemed marginal and reversible, turn out to propel the economic system along a trajectory, featuring strong a path dependency (B. Arthur, 1994). • The same evolutionary framework can be extended to the analysis of co-evolution and the complementarity of institutions, organizations and economic specialization (M. Aoki, 1995). The central issue is the compatibility of a complete institutional architecture.

24. Régulation theory findings (RT): at least four institutional architectures Table 4 – The diverse nature of capitalism in Regulation Theory

25. Table 4 – The diversity of economies nature in Regulation Theory Source: Amable, Barré, Boyer [1997: 194-195]

26. They display quite contrasted sources of innovation and growth • Market-ledcapitalism: linking basic science with business

27. Diagram 7 – Market led configuration

28. Meso corporatist capitalism: coordinating a series of incremental innovations Diagram 8 – The “meso-corporatist” configuration

29. Social-democratic capitalism: innovations related to public goods and education Diagram 9 – Social democrat capitalism

30. State led economy: the overwhelming role of public interventions Diagram 10 – The State led capitalism

31. THE ERA OF GLOBALIZATION: STILL RENEWED DIVERSITY OF INSTITUTIONAL ARCHITECTURES

32. A multiplicity of coordinating mechanisms, on top of the conventional opposition State versus market Diagram 15 – A taxonomy of the different coordination principles Source: as per Hollingsworth, Boyer [1997]

33. None of these mechanisms is perfect: compensating the imperfection of one mechanism by the strength of another is a source of institutional resilience

34. Viable régulation modes instead a mythical perfect configuration • Correct the limits of each institutional arrangement by another one: • Markets monitored by associations or regulatory authorities • State under the scrutiny of civil society (NGO) • Associations operating under the surveillance of State • The need for a complete architecture with checks and balances • Within such a hierarchical system, the political order plays a key role: • In overcoming discrepancies, conflicts, economic disequilibria • The success of a régulation mode is up to the coherence of an institutional configuration

35. Hence a multiplicity of capitalism brands Diagram 16 – Analysis of the variety of capitalismsas the expression of a combination of the four main principles of coordination

36. The opening of national economies usually reinforce institutional diversity Diagram 17 – A mode of regulation’s different levels of adjustment in an open economy

37. Unless financial instability promotes short run flexibility Diagram 18 – A general evolution towards short run efficiency at the cost of long run performance and social justice?

38. The social constraints imposed by polity may tame the destabilizing trends of pure market mechanisms Diagram 19 – A third vision : the market mechanism is stabilized by social constraints imposed by polity

39. THE ERA OF FINANCIALIZATION AND ITS CRISES: RT AND SSA COMPARED

40. SSA And RT:A new epoch for class alliances • H1 – Back to social history • The 60s: a de facto compromise between managers and wage earners

41. The 80s: An international competition led regime weakens the bargaining power of wage earners

42. The 90s: The ex post alliance of investors and managers

43. The 2000s: The emerging tensions within the finance industry and the rise of the lawyer

44. SSA And RT : A finance led accumulation regime • P1: Financialization is part of a long term structural transformation of contemporary capitalism, after the crisis of Fordism

45. P2: An accumulation regime at odds with Fordism: the centrality of the stock market

46. The multiple channels of financialization

47. P3: This regime is generating speculative bubbles that burst out… • …But are cured by an active monetary policy… • …And the positive impact of financial innovations… • …For instance the securitisation first prevents the fragility of banks A strong paradox: an unstable accumulation regime rescued by the deepening of financial innovations

48. …But private innovations, such as subprime loans, exploit this opportunity to shift the risk… • …The boom of this market reaches its limits, the reversal of confidence challenges macroeconomic stability… • …And again the Central Bank is the rescuer of last resort in order to preserve the viability of the financial system

49. Figure 1 – A typical sequencing of financial crises Viability of the regulated innovation Regulation by the government New cycle Lender as a last resort Entry in the zone of financial fragility Success / High profit Private innovation Rapid adoption No public intervention: collapse of the innovation

50. Figure 2 – A first example: energy derivatives and the ENRON collapse Energy derivatives Unprecedented profit Creative accounting Bankruptcy Prevention from any public control by lobbying Potential for new crisis New rules of accountability for CEO and CFO But not any reform of accountability principles A structural weakness