The relationship between politics and financial markets is central for many, if not most, political economy arguments. The existing literature focuses on the effect of domestic and international political interests, institutions, and policy decisions on returns and volatility in stock, bond, and foreign exchange markets. This research bears implications for three major debates in political science: the distributive effects of politics, globalization and state autonomy, and the political roots of economic credibility and its tensions with democratic accountability. While the study of politics and financial markets is complicated by several theoretical and empirical challenges, recent methodological innovations in political research provide a window of opportunity for the development of the field.
Federico Maria Ferrara and Thomas Sattler
Shannon Carcelli and Erik A. Gartzke
Deterrence theory is slowly beginning to emerge from a long sleep after the Cold War, and from its theoretical origins over half a century ago. New realities have led to a diversification of deterrence in practice, as well as to new avenues for its study and empirical analysis. Three major categories of changes in the international system—new actors, new means of warfare, and new contexts—have led to corresponding changes in the way that deterrence is theorized and studied. First, the field of deterrence has broadened to include nonstate and nonnuclear actors, which has challenged scholars with new types of theories and tests. Second, cyberthreats, terrorism, and diverse nuclear force structures have led scholars to consider means in new ways. Third, the likelihood of an international crisis has shifted as a result of physical, economic, and normative changes in the costs of crisis, which had led scholars to more closely address the crisis context itself. The assumptions of classical deterrence are breaking down, in research as well as in reality. However, more work needs to be done in understanding these international changes and building successful deterrence policy. A better understanding of new modes of deterrence will aid policymakers in managing today’s threats and in preventing future deterrence failures, even as it prompts the so-called virtuous cycle of new theory and additional empirical testing.
The topic of fiscal politics includes taxation and spending, budget balances and debt levels, and crises and the politics of austerity. The discussion often focuses on how some variable—such as the international environment, or political institutions—constrains “politics” in this realm. Almost omnipresent concerns about endogeneity run through this research. While this is a “big” policy area that deserves study, tracing causation is difficult.
Evgeniia Iakhnis, Stefanie Neumeier, Anne Van Wijk, and Patrick James
Quantitative methodology in crisis studies is a topic of substantial scope. The principal rallying point for such research is the long-standing International Crisis Behavior (ICB) Project, which from 1975 onward has produced a comprehensive and heavily accessed data set for the study of conflict processes. A prehistory of crisis studies based on statistical methods, which identified connections between and among various conflict-related events, pointed increasingly toward the need for a program of research on escalation. The potential of quantitative methodology to contribute seriously to crisis studies has been realized along multiple dimensions by the ICB Project in particular. For example, quantitative methods have been applied productively to study the effects of both global and regional organizations, along with individual states, upon the process of crisis escalation. Current research in crisis studies is based on the premise that research designs so far have covered only one of multiple relevant stages regarding the process of escalation. This is where the concept of a “near crisis” becomes relevant: a near crisis entails perception of threat and finite time, but not an increased likelihood of military hostilities. Data analysis pertaining to multiple stages of escalation is at an early stage of development, but initial results are intriguing. A further critique of quantitative research begins with the observation that it is mostly state-centered and reductionist in nature. A key question emerges: How can the concept of crisis and associated data collection be revised to include a humanistic element that would entail new and potentially more enlightening configurations of independent and dependent variables?
International conflict—war, crises, international disputes, and rivalries between states—has a clear influence on the military’s role in politics and vice versa. Given that the military is the primary instrument for defending the state from conventional military threats, international conflict has been an early focus of the civil–military relations literature. Generally, very high levels of involvement in politics—for example, coups, military rule, military officers in high-level government positions—are associated with a greater propensity to initiate international conflict on the part of states. However, there is disagreement as to the reasons for this pattern—for example, preferences for aggression on the part of a politically active military, diversionary incentives for a coup-threatened civilian leader, or institutional pathologies brought on by shared civil–military power are all proffered as possible explanations. Politically active militaries tend to do poorly in conflict. There are two reasons for this. The first is the dysfunction endemic in a military that splits its time between politics and proficiency in arms—as opposed to one that specializes in defense. The second reason is that when the politically active military poses a risk of coup to the political leadership of the state, the latter will often engage in such “coup-proofing” practices as purges, onerous command and control measures, the reshuffling of commanders, and the build-up of security organizations intended to offset the military. These measures not only make it harder for the military to stage a coup, they also make it harder for the military to defend the state. Although military involvement in politics makes “acute” conflict—war, militarized disputes, or crises—more likely, these types of international conflict tend to lead to reduced levels of political involvement by the military. War or a crisis can make a coup more difficult as the military is moved away from the centers of political power. International conflict—especially when it goes poorly—also can lead to reform and professionalization within the military, which decreases the appetite for political involvement. At the same time, indicators of a more severe “chronic” threat environment—hostile neighbors, unfavorable geography, or long-standing international rivalries—can make military intrusions into politics more likely.
Michael J. Lee
Since the 1970s, financial crises have been a consistent feature of the international economy, warranting study by economists and political scientists alike. Economists have made great strides in their understanding of the dynamics of crises, with two potentially overlapping stories rising to the fore. Global crises appear to occur highly amid global imbalances—when some countries run large current account deficits and others, large surpluses. A second story emphasizes credit booms—financial institutions greatly extend access to credit, potentially leading to bubbles and subsequent crashes. Global imbalances are, in part, the product of politically contested processes. Imbalances would be impossible if states did not choose to liberalize (or not to liberalize) their capital accounts. Global political structures—whether international institutions seeking to govern financial flows, or hierarchies reflecting an economic power structure among states—also influence the ability of the global system to resolve global imbalances. Indeed, economists themselves are increasingly finding evidence that the international economy is not a flat system, but a network where some states play larger roles than others. Credit booms, too, and the regulatory structures that produce them, result from active choices by states. The expansion of the financial sector since the 1970s, however, took place amid a crucible of fire. Financial deregulation was the product of interest group knife-fights, states’ vying for position or adapting to technological change, and policy entrepreneurs’ seeking to enact their ideas. The IPE (international political economy) literature, too, must pay attention to post-2008 developments in economic thought. As financial integration pushes countries to adopt the monetary policies of the money center, the much-discussed monetary trilemma increasingly resembles a dilemma. Whereas economists once thought of expanded access to credit as “financial development,” they increasingly lament the preponderance of “financialized” economies. While the experimentalist turn in political science heralded a great search for cute natural experiments, economists are increasingly turning to the distant past to understand phenomena that have not been seen for some time. Political scientists might benefit from returning to the same grand theory questions, this time armed with more rigorous empirical techniques, and extensive data collected by economic historians.
Advisory groups and their dynamics play a critical role in crisis management. If they function well and complement the leadership styles of political leaders, advisory groups can provide broad information search, diverse advice and perspectives, and reinforce a leader’s own strengths. They can surround an inexperienced leader with advisors possessing policy expertise or experience in an issue area. On the other hand, advisory groups can also easily fall into more dysfunctional patterns where they do not compensate for a leader’s weaknesses, fail to provide varied perspectives or alternative views, and engage in limited information gathering. Advisory groups can help seal an administration into an “alternative reality bubble” during crises, resulting in policy decisions being made based upon faulty perceptions instead of realities. How should we seek to understand advisory groups and crises? The first cut should involve the consumer of the advisory group’s inputs themselves, the leader. Advisory groups almost always serve at the pleasure of the leader, not themselves, and therefore the leaders will play a major role in determining their influence, how the groups will function, and their importance during crisis decision making. Important variables such as leadership style, sensitivity to context and need for information on the part of leaders, how much control they require over the policy process, and how their prior experience or expertise leads them to rely more or less upon advisors must be examined. The second focus should be upon the advisory groups themselves, their internal dynamics and reactions to stress, how decision rules and policy formulation occurs, and how group pathologies can undermine their crisis performance. Variables such as group malfunctions resulting from stress and the needs for cohesion during crisis (like groupthink) or the splintering of group consensus to warring factions that undercut cohesion (like polythink) must be considered. The stage of development an advisory group is in (i.e., newgroup versus established), the stage of the policymaking process involved (i.e., deliberative versus implemental), how sequential decision-making processes function, the composition of the group members (i.e., experts versus novices), the type of crisis the group faces, and the bureau-political dynamics involved all impact crisis management.
Climate change is increasingly being framed as a “climate crisis.” Such a crisis could be viewed both to unfold in the climate system, as well as to be induced by it in diverse areas of society. Following from current understandings of modern crises, it is clear that climate change indeed can be defined as a “crisis.” As the Intergovernmental Panel on Climate Change 1.5oC special report elaborates, the repercussions of a warming planet include increased food insecurity, increased frequency and intensity of severe droughts, extreme heat waves, the loss of coral reef ecosystems and associated marine species, and more. It is also important to note that a range of possible climate-induced crises (through, e.g., possible increased food insecurity and weather extremes) will not be distributed evenly, but will instead disproportionally affect already vulnerable social groups, communities, and countries in detrimental ways. The multifaceted dimensions of climate change allow for multiple interpretations and framings of “climate crisis,” thereby forcing us to acknowledge the deeply contextual nature of what is understood as a “crisis.” Climate change and its associated crises display a number of challenging properties that stem from its connections to basically all sectors in society, its propensity to induce and in itself embed nonlinear changes such as “tipping points” and cascading shocks, and its unique and challenging long-term temporal dimensions. The latter pose particularly difficult decision-making and institutional challenges because initial conditions (in this case, carbon dioxide emissions) do not result in immediate or proportional responses (say, global temperature anomalies), but instead play out through feedbacks among the climate system, oceans, the cryosphere, and changes in forest biomes, with some considerable delays in time. Additional challenges emerge from the fact that early warnings of pending so-called “catastrophic shifts” face numerous obstacles, and that early responses are undermined by a lack of knowledge, complex causality, and severe coordination challenges.
Francesca Pusterla and Elia Pusterla
The European Union Humanitarian Aid Policy (EUHAP) operates through the European Commission’s Civil Protection and Humanitarian Aid Operations Department (DG ECHO) in international humanitarian crises to help victims of man-made atrocities and natural catastrophes worldwide. EUHAP is a subject of vibrant debates given its sensitive scope of intervention and institutional uniqueness. This results, first, in discussions of the reason and legitimacy of humanitarian aid as well as the goals and impact on domestic politics of both donors and recipients. Second, EUHAP is institutionally provided with parallel competences that allow simultaneous and autonomous interventions of the European Union and Member States in humanitarian crises. This means that the EU and Member States can formally carry out independent humanitarian aid without obligation to coordinate. This makes EUHAP particularly relevant regarding the role of the EU as a humanitarian aid provider, the relations between the EU and Member States, the policy governance, and the policy implementation principles. First, coordination and cooperation between the EU and Member States are de facto essential, given the collective nature and global effects of humanitarian crises. Shared competence regulation through EUHAP may enhance the effectiveness of joint operations, overcome inefficient division of labor, and avoid divergence between intervention expected outcome and real performance. Second, parallel competences give to the EU the formal competence to carry out humanitarian actions and conduct a common policy, while Member States’ autonomous actions are not prevented. Indeed, despite the undeniable benefits of multilateral intervention, Member States may opt for bilateralism due to concerns for domestic autonomy and sovereignty breaches. Such collective action problems risk affecting policy coherence and effectiveness. Third, policy governance can make the difference in an effective and coherent EUHAP. This depends on the successful coordination of involved actors to avoid overlapping interventions, dispersion of resources, and particular political, economic, and bureaucratic interests to prevail. In so doing, Member States access the benefits of centralized coordination, monitoring, and division of labor and also avoid autonomy and sovereignty breaches. Fourth, the application of a costs/benefits rationale to common humanitarian interventions is not per se sufficient to ground and overcome the drawbacks of collective action and explain EUHAP. As per its Treaties, or in line with international humanitarian law, the EU adopts and pursues a humanitarian aid policy based on shared principles of solidarity, humanity, impartiality, independence, and neutrality.