The 2008 Global Financial Crisis (GFC) and subsequent European Debt Crisis had wide-sweeping consequences for global economic and political stability. Yet while these twin crises have prompted soul searching within the economics profession, international political economy (IPE) has been relatively ineffective in accounting for variation in crisis exposure across the developed world. The GFC and European Debt Crisis present the opportunity to link IPE and comparative political economy (CPE) together in the study of international economic and financial turmoil. While the GFC was prompted by the inter-connectedness of global financial markets, its instigators were largely domestic in nature and were reflective of negative externalities that stemmed from unsustainable national policies, especially those related to financial regulation and household debt accumulation. Many in IPE take an “outward looking in” approach to the examination of international economic developments and domestic politics; analysis rests on how the former impacts the latter. The GFC and European Debt Crisis, however, demonstrate the importance of a (CPE-based) “inward looking out” approach, analyzing how unique policy and political features (and failures) of individual nation states can unleash economic and financial instability at the global level amidst deepened economic and financial integration. IPE not only needs to grant greater attention to variation in domestic politics and policies in a time of closely integrated financial markets, but also should acknowledge the impact of a wider array of actors beyond banks and financial institutions (specifically more domestically rooted actors like households) on cross-national variation in the consumption of foreign credit.
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.
David H. Shinn
China’s economic impact on Africa in the 21st century has been enormous. China became Africa’s largest trading partner in 2009 and has subsequently widened the gap with Africa’s second largest trading partner. China is Africa’s largest bilateral source of loans and an important provider of Organisation for Economic Co-operation and Development (OECD)-equivalent aid, although well behind the European Union and the United States. Annual foreign direct investment flows by Chinese companies are growing and are now in the same league as companies from other major investing nations. Increasingly, African leaders are focusing their economic relationships on China and, because of China’s economic success, some of them are also looking to China as an economic and political model. The future in Africa of China’s Belt and Road Initiative and the use of the renminbi (RMB) as an international currency are less clear. China’s influence on African economies comes with challenges. China has developed a significant trade surplus with Africa. Although resource-rich African countries have sizable trade surpluses with China, most African countries, especially the resource-poor ones, have trade deficits, some of which are huge. The influx of inexpensive Chinese products is also stifling Africa’s ability to produce similar goods. African governments welcome Chinese loans, which are usually used for infrastructure projects, but there are signs these loans are contributing to a debt problem in an increasing number of countries. Most Chinese aid to Africa consists of the concessionary component of these loans. Small Chinese traders have flocked to Africa, competing head-to-head with African counterparts. This has led to growing antagonism with African market traders, although African consumers welcome the competition. While Western countries collectively are much more important to African economies than is China, Beijing has become the single most important bilateral economic partner in a number of countries and is challenging the United States and Europe for economic leadership across the continent. China’s most significant competition in the coming years may be less from the United States and other Western and Western-affiliated countries such as Japan and more from developing countries such as India, Brazil, the Gulf States, Turkey, and Indonesia.
The European Central Bank (ECB) has been in existence for almost 20 years and more if one considers its immediate predecessor the European Monetary Institute (1994–1997). During these two decades the ECB has become an established institution. It secures price stability and further increased its reputation as a lender of last resort during the financial crisis and its aftermath. In the 2010s, in response to the global financial crisis and the sovereign debt crisis, the ECB has also taken on the role of supervisor of the financial system and monitors developments in the Euro Area financial sector. Political science literature on the ECB can be subdivided into different strands. One strand looks at the ECB as just another central bank and hence examines its role as a central bank with the usual instruments. Another strand of literature examines the role of the ECB as an institution that is insufficiently embedded into democratic checks and balances. This perennial criticism of the ECB was born when the European System of Central Banks (ESCB) was created to be independent from political influence. A third strand of the literature is newer and examines the unorthodox steps that the ECB (and other central banks) took, and have taken, to offset the financial crisis and the ensuing economic crisis. An analysis of European integration and the political economy of the Euro Area can contribute to a better understanding of why the ECB has taken a proactive role. The political science research of the ECB is discussed here as well as the various dimensions of research conducted on the ECB.
Peter M. Lewis
In the era following the decolonization of Africa, the economic performance of countries on the continent can be traced across three periods. The early postindependence years reflected moderate growth and policy variation, with occasional distress in some countries. From the 1980s through the late 1990s, the region was gripped by a sweeping crisis of growth and solvency shaped by a steep economic downturn and a slow, stuttering recovery. This was also a period of convergence and restrictions on policy space. By the early 2000s, accelerated growth buoyed most economies in Africa, although commodity price shocks and the global economic slump of 2008–2009 created episodic problems. Different approaches to policy and strategy once again marked the landscape. A number of influences help to explain variations in the occurrence of economic crisis across Africa, and the different responses to economic distress. In addition to structural factors, such as geography, resource wealth, and colonial legacies, middle-range political conditions contributed to these downturns. Key institutions, core constituencies, and fiscal pressures were domestic causes and external factors include donor convergence, access to finance, and policy learning. One framework of analysis centers on three factors: ruling coalitions, the fiscal imperative, and policy space. The ruling coalition refers to the nature of the political regime and core support groups. The fiscal imperative refers to the nature of state finance and access to external resources. And the policy space comprises the range of strategic alternatives and the latitude for governments to make choices among broad policy options. Applying the framework to Africa’s economic performance, the first period was marked by distributional imperatives, a flexible fiscal regime, and considerable space for policy experimentation. During the long crisis, regimes came under pressure from external and domestic influences, and shifted toward a focus on macroeconomic stabilization. This occurred under a tight fiscal imperative and a contraction of policy space under the supervision of multilateral financial institutions. In the 2000s, governments reflected a greater balance between distributional and developmental goals, fiscal constraints were somewhat relaxed, and policy variation reappeared across the region. While the early 21st century has displayed signs of intermittent distress, Africa is not mired in a crisis comparable to those of earlier periods. Developmental imperatives and electoral accountability are increasingly influential in shaping economic strategy across the continent.
Leslie Elliott Armijo
Finance is frequently, but incorrectly, judged a technical matter best left to experts. Equally mistaken is the exasperated conclusion encapsulated in the phrase “people, not profits,” which holds that capitalism, private investors, and markets are simply evil. Finance is necessary for economic development, but also has profound, and often unexamined, implications for social and political spheres. Channels for financial intermediation may be public or private, and national or foreign, implying tradeoffs among organizational forms. Public banks typically are superior in providing public goods and implementing national strategic plans, but private banks and capital markets normally are more efficient, assuming competitive markets. Savings may be sought within the national economy or from abroad, with domestic savings implying a smaller pool yet less subsequent international vulnerability, and foreign inflows offering potential abundance at the cost of external dependence. This framing yields four ideal-types of long-term finance (LTF): national public finance from state development banks; national private finance from domestic private banks and capital markets; foreign public finance via bilateral or multilateral aid or state investment (including from non-traditional lenders, such as China); and foreign private finance sourced from global investors seeking returns. Both national public and foreign public finance dominated long-term investment in Latin America in the early postwar decades of import-substituting industrialization. In the 1970s through the 1990s, they were succeeded by foreign private bank loans, followed by crisis and retrenchment. In the 21st century global political and market conditions brought a resurgence of foreign capital, including from both global private investors and non-Western public sources. Worries about problems arising from Chinese public finance to Latin America are likely overblown, as the quantity remains small, except in some Bolivarian Alliance countries. However, private foreign inflows, strongly promoted by Western-led multilateral actors, from the Organisation for Economic Co-operation and Development (OECD) to the World Bank, during the 2010s, may be more problematic. Excessive dependence on private securities markets funded by globally mobile capital often undercuts achievement of other valued societal goals such as reducing inequality and ensuring democratic accountability. Notwithstanding their predictable flaws, it may be time for a reemphasis on national, and possibly regional, public development banks.