Global finance and systemic instability

Oxford University Press
Publication Type:
Journal Article
Contributions to Political Economy, 2008, 27 (1), pp. 1 - 11
Issue Date:
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The past 30 years have witnessed a dramatic shift in national and global governance. From an era characterized by government interventions on the demand and supply sides of the economy, in both developed and developing countries, we are now witnessing an era of government disengagement and a return to a laissez faire approach to global governance. The theoretical foundations of this shift can be traced to the idea that both markets and government can fail, but on balance, government intervention does more harm than goodindeed it can help create market failures, see Shapiro and Taylor (1990). Such ideas have been encapsulated in variants of the Washington consensus, which has been used to prescribe global economic policy and involves de-regulation, privatization, the removal of barriers to trade and the opening up of markets to the free flow of capital, see Pitelis (2003, 2007) for surveys. Alongside a tendency for the globalization of production, through foreign direct investment (see Hill, 2006), we have witnessed a parallel tendency towards the globalization of financial capital and indeed a period of (even) revolutionary innovations in the way global financial capital conducts its business, see Eatwell and Taylor (2000). Such innovations involve often quite complex structured financial products that aim to diversify risk globally.
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