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THE INCONVENIENT TRUTH ABOUT FINANCIALISATION Price Transparency

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THE INCONVENIENT TRUTH ABOUT FINANCIALISATION Price Transparency Powered By Docstoc
					                         UNRAVELLING THE CRISIS:
 ‘POLICY NETWORKS’ AND THE ‘SOCIAL CONTENT’ OF EU
                  FINANCIAL MARKET INTEGRATION
                                       Huw Macartney
                                   University of Manchester


Abstract
The paper examines the policy-communities/policy-networks debate within Public Policy
studies; most specifically in light of the present financial crisis. Though highly detailed
their analyses remain limited by their lack of engagement with more fundamental
questions about financial expansion. Further, the undertheorisation of structure and
agent, material and ideational elements of financial market integration suggests the fine,
detailed analysis of the 'communities-networks' debates is somewhat two-dimensional. In
turn, the paper argues for the utility of a Gramscian historical materialist analysis, capable
of theorising both the structural tendencies under capitalism with the ideological
elements of class struggle, thereby providing a critical engagement with the social content
of financial market reform. The empirical crux of the paper though is focused on
showing what a Gramscian account of financial market integration reveals. Here, the
disciplining processes internal to financial trade associations and strategically employed
discourses vis-à-vis state agencies reveal the dynamics of the hegemonic struggles of
transnationally oriented fractions of capital otherwise obfuscated by Public Policy
studies.




    VERY FIRST DRAFT – PLEASE DO NOT CITE WITHOUT PERMISSION




                                              1
Introduction
The current crisis has raised questions concerning causes and consequences. The vast
majority of these accounts have focused on one (or more) of three areas: the first are
various so-called economic conditions which fuelled the crisis. Here analyses have
emphasised – inter alia – lax macroeconomic policy (Dumesnil 2008), poor financial
market regulation (Wolf 2008), the blurred separation of investment from wholesale
banking operations (Williamson 2009). The second series of accounts have built on the
first by offering solutions. Within the financial press these accounts have witnessed the
rise in previously marginalised strategies ranging from Keynesian and neo-Keynesian
demand management to the work of Hyman Minsky challenging notions of financial
market stability. Finally, critical endeavours within the academic field of Political
Economy – understood in its broadest terms – have offered various ‘conceptual’
accounts addressing US hegemony (Panitch 2008), financial instability (Nesvetailova
2009), the end of neo-liberalism (Radice 2008), crises of legitimacy (Harvey 2009)
amongst other issues. This paper adopts a longer term perspective to argue that the
current crisis is the result of recent financial expansion and financial market integration. I
focus on an empirical analysis of these developments in the EU.


Of particular analytical interest and of palpable significance in the present climate is the
fate of EU member states. Those familiar with Varieties of Capitalism debates and/or
comparative European political economy have argued that, to varying degrees, member
states have witnessed (a) the rising prominence of capital market finance – complete with
mini-big bangs, stock market reforms, and increases in associated shareholder value and
(b) recent renewal of financial market integration efforts – characterised by the Financial
Services Action Plan, the Lamfalussy Process and 42 ratified directives in the post-2000
era. To say that financial services has been at the forefront of EU integration efforts in
the past decade is no understatement. Given the relative resilience of post-war ‘models’
of capitalism however, EU member states are unevenly exposed to this crisis of Anglo-
American capital market dependency (Swingedou 2009).


My concern is to question the origins of these developments. I am dissatisfied with
overemphasising sporadic, haphazard and overly conjunctural factors such as, for
example, how sub-prime lending emerged or off-balance sheet securitisation prompted
reckless banking. These are, as has been rightly noted (Walters 2009), necessary but



                                              2
insufficient conditions for the current crisis and fail to capture – so I argue – more
fundamental structural shifts and moments of agency on the part of capital (as a class
force) at the heart of this crisis. To explain – I am of the view that this crisis is the
‘logical’ outcome of a capitalist system which, in the face of burgeoning tensions in the
capital—labour relation during the 1970s offset these tensions through progressive
expansion of the credit system (Macartney 2009). This argument I have addressed more
comprehensively elsewhere. I turn instead to argue that the process of financial
expansion – and, by extension, EU financial market integration – has been driven by the
strategic agency of transnationally oriented fractions of capital aiming to exploit and
shape changes in the structure of global capitalism.


I begin by examining the treatment of these questions in the Public Policy literature. For
reasons to be explained financial trade associations have been the most significant
rallying points for competing financial capitalists. There is a wide and informative
literature on these associations. I highlight however, two conceptual lacunae which are
better addressed through the lenses of Gramscian historical materialism. The first is the
failure to problematise the question of winners and losers in financial market integration.
I argue, albeit briefly, that the current crisis reflects the dominant tendency under neo-
liberalism; that is, when the interests of finance capital and so-called human well-being
conflict, finance capital triumphs typically through state involvement (Harvey 2005: 19-
30). Secondly, Public Policy accounts offer an overly contingent account of agency due,
on the one hand, to a lack of theorisation of the structural impulsions under capitalism
and, on the other, to a reductionist notion of ideas as causal variables. I argue that a
dialectical conception of the material and ideational nexus offers an insightful alternative.
Finally, the empirical crux of the paper is an analysis of financial trade associations’
involvement in EU integration in the post-2000 period. Through examining the policy
discourses and strategies of these associations the dynamics of their struggles with both
state and other fractions can be discerned.


Policy networks and policy communities
Public Policy accounts of the role of trade associations have tended to focus on policy
networks and policy communities. These concepts emerged through the rapprochement
of corporatist, institutionalist, and pluralist debates. Definitions of the two terms vary: at
times they are used interchangeably; elsewhere a network is defined as a particular type of



                                              3
community, formed around an issue of particular importance for example (Coleman &
Skogstad 1990); on yet other occasions, a ‘policy community’ is defined ‘as a type of
network characterized by stable relationships, restrictive membership, vertical
interdependence and insulation from other networks and institutions’ (Rhodes 1986 cited
in Atkinson & Coleman 1992: 158). Broadly, however, these policy networks or
communities are ‘mechanisms of political resource mobilization in situations where the
capacity for decision-making, program formulation and implementation is widely
distributed or dispersed among private and public actors’ (Kenis and Schneider 1991: 41).
Tending to reject structural, holistic accounts of changes in political economies these
accounts have offered significant insights through analysing the formation of linkages
and the dispersal of resources amongst public and private actors in the pursuit of interest
representation; they constitute ‘sophisticated attempts to map interactions and create
complex network typologies…(consisting) of exchange relationships’ (Atkinson &
Coleman 1992: 161).


More specifically, concerning market reform they have focused on the linkages between
public and private actors, the conditions which shape these interactions, and the
connections interest groups develop horizontally in representing their policy positions.
They ask, for example: does the structure of a particular trade association condition the
scope and rapidity of their reactions to policy issues? (Josselin 1996: 306); did the
associations lobby specific bodies?; or, did they form linkages with other
‘transnational’/sister associations? (ibid.: 308-9). In their words, these accounts have
focused ‘on the extent to which the relationships among actors vary in their degree and
patterns of integration and in the manner in which public power is shared between state and civil
society actors’ (Coleman & Perl 1999: 694). Policy communities or policy networks
therefore refer to differential patterns of public—private partnership dependent on how
state actors distribute resources amongst community members (ibid.: 696).


The similarities between policy networks and the concept of epistemic communities in
international relations have therefore been noted (Coleman & Perl 1999: 695). In both
instances ‘boundary rules and the sharing of beliefs, values and norms’ are significant
(ibid.). Within Public Policy analysis however, the micro—analysis of policy outcomes
prompted the notion of ‘policy paradigms’ which foster policies that ‘go beyond the
lowest common denominator solutions and address goals that serve the interest of a



                                               4
broader range of community members’ (Scharpf 1997 cited in Coleman and Perl 1999:
696, see also Hall 1993). These factors thereby enable the study of variations in policy
processes and outcomes (ibid.).


This brief overview is sufficient to outline the three main skeins to the policy networks—
policy communities debate: firstly, earlier debates questioned the conditions under which
state agencies offered and withdrew ‘power’ to private actors; secondly, accounts have
focused on the structure of the network as a determinant of policy positions; thirdly, they
have contested the role of ideological elements in the integration of a policy community.


Nonetheless, these accounts opt for a form-al analysis of integration efforts as opposed to
one which elucidates their social content. In effect, a series of assumptions about the
socio-economic content of market integration remain undisclosed. Underlying this
critique is an obvious yet fundamental paradox which requires unpacking. Financial
market integration, predicated on the political in the form of regulation, is underpinned
by a dominant economic paradigm. This paradigm – so to speak – pivots on bureaucratic
or self-interest-seeking behaviour (utility maximization) theories for the supply of regulatory
policy (Stigler 1975, Baily 1989, Harris 1998: 529). According to this reading ‘mainstream
economics typically infers that it is the public’s interest that is in question’ that is to say,
‘in the absence of market failure it is assumed that the market allocation of resources is
efficient’ (Harris 1998: 528; see also Barr 1987, Noll 1985, Goodhart, Hartmann,
Llewellyn, Rojas-Suarez and Weisbrod 1998, and Thatcher 2006: 312). The paradox then
is that whilst no such assumptions hold sway in the field of political science (broadly
conceived), Public Policy accounts consider critique of these non-immediate policy
outcomes to be beyond their analytical scope. As we shall see, though certain accounts
emphasise the prominence of key financial firms in shaping regulatory policy, this
remains largely detached from questions of socio-economic implications. My underlying
contention is that only with these implications in mind can financial market integration –
and, by extension, the current crisis – be understood.


Witness, for example, the recently adopted Lamfalussy Process in EU legislation: the
Process was established in 2001 to speed the passage of financial market regulation and
has been labelled a dramatic success (Lamfalussy 2001: 14-18, Commission 2005). The
Report upon which the Process was founded noted that ‘there is broad agreement…of



                                               5
the significant benefits that the European Union could gain from constructing an
integrated financial market’, these benefits being ‘economic growth, employment and
prosperity’ (Lamfalussy 2001: 7-8). Two insightful accounts subsequently argued that
large, private financial actors had been (a) central to the construction of the process
(Muegge 2006, 2008) and (b) had dominated the drafting of key legislative texts
conceived post-2000 (Quaglia 2008b). Nonetheless, these accounts did not attempt to
problematise the social content of financial integration itself; as a result the formal
analysis of so-called state—market interactions take precedence.


This emphasis on dominant private actors is noteworthy. It suggests – rightly in my view
– that the history of market integration has tended to be fundamentally shaped by private
(as opposed to those of the public) interests (van Apeldoorn 2002). My concern is that
these atomised interactions have obfuscated, on the one hand, questions of social
impacts which are interwoven, on the other hand, with a more pronounced theorisation
of capitalism which includes the dialectical importance of structural tendencies and
strategic discourses.


These two criticisms are thus interwoven. For example, one such set of debates has
revolved around the ‘power’ relations immanent in the public-private network. Broadly,
the premise is that the interactions of public and private actors engaged in specific policy
domains fuel common patterns of understanding regarding policy, leading to ‘policy
convergence’ or convergence of preferences (Stone 2001). Public agents and well
resourced elites therefore dominate policy. For example, Eleni Tsingou argues that public
and private actors ‘work together’ to make ‘markets work in a certain way’ that
intrinsically favour ‘private interests’ (2004: 13) harking back to a more overtly
corporatist or meso-corporatist account. Similarly, others have examined how these
organizations attempted to represent their interests? Daphné Josselin argues, for
example, that the underlying claim of ‘network analysis’ is that ‘the characteristics of
national mobilizations in the negotiation of an EU directive or position can be accounted
for to a large extent by the traits of underlying sectoral networks’ (Josselin 1996: 313).
For William Coleman, who specifically considered trade associations (relevant to our
own case study), he highlighted the importance of conceiving and then communicating policy
demands to the body corpus (1994a: 33). From this individualistic perspective, the
effectiveness of a particular network derives from the atomised behaviours of member



                                             6
actors. The implication would appear to be that contingency dominates since structural
tendencies remain sidelined.


This trend is reinforced by the problematic treatment of ideas. Here norms and ideas
have been incorporated in order to understand the formation and effectiveness of a
particular policy community. Though latent in earlier analyses, they have recently been
proffered as ‘independent variables’ in shaping policy preferences (Quaglia 2008a).
Examining post-2000 EU financial market integration Lucia Quaglia has incorporated
the notion of ‘belief systems’. These ‘belief systems’ are subdivided between (i) the ‘deep
core’ of shared ontological and normative beliefs (ii) the ‘policy core’ of a particular
coalition, that is, its definition of a problem, causes and solutions, and (iii) the secondary
aspects of a coalitions belief system (Sabatier 1998: 103 cited in Quaglia 2008a: 6). This
conception avoids many of the earlier difficulties in the policy networks debates,
specifically the ability to explain diverging preferences on market reform that were not
directly a product of different embedded patterns of market organization. She thus refers
to these policy communities as ‘advocacy coalitions’; like the former communities they
are composed of ‘a set of policy-makers and stakeholders who are actively concerned
with a certain issue, regularly seeking to influence public policy related to it’ (ibid.) yet,
employing this wider understanding of preference formation an advocacy coalition
comprises ‘actors from various governmental and private organizations who both (a)
share a set of normative and causal beliefs and (b) engage in a nontrivial degree of co-
ordinated activity over time’ (Sabatier 1998: 103). This means that conflicts between
nationally-based coalitions centre on both national regulatory frameworks and ideas on
marketmaking,     principles-based    approaches     versus    marketshaping,     rules-based
approaches to regulation (Quaglia 2008a: 5).


Upon closer inspection however, the ideational component of ‘belief systems’ is reduced
to a more pragmatic conception, ‘in the form of technical knowledge and objectives and
instruments of regulation’ (Quaglia 2008a: 7). As a result ‘belief systems’ reduces ideas to
neither simply the policy positions of a policy community, nor causal variables
themselves; instead, they describe a difference between communities largely derived from
their own relationship to the market; that is, materially determined (ibid.: 8). For
example, in outlining the difference between a Northern and a Southern coalition in
financial negotiations, the Northern are ‘trustful’ of the market whilst the Southern are



                                               7
‘distrustful’ of the market (ibid.). The more significant element of the analysis then
becomes the practical consideration imbibed in the ‘policy core’: here the focus becomes
the differences between light-touch, competition-friendly regulation (Northerners) and
the prescriptive, rules-based regulation (Southerners) (ibid.). As has been argued
elsewhere, this is a feature of soft-positivist analysis which focuses primarily on
behavioural and tangible explanatory factors (see Macartney 2008).


This two-dimensional conception of ideas is also apparent in Josselin’s account. Here the
effectiveness of public-private coalitions and financial organizations is reinforced by an
‘ideological consensus’, but this consensus appears to be derived solely from ‘interests’
rooted in the existent ‘national’ patterns of market organization (ibid.: 307-313). Here
again, the ‘ideological’ (so to speak) can simply be read from the ‘material’; that is, it has
no explanatory capabilities of its own, what really determines an organizations’ interests
are its pragmatic or rational, business-related concerns.1 As such, ideologies are
conceptualised as ‘explicit, articulated, meaning systems’ competing ‘to become the new
policy paradigm’ (Coleman & Perl 1999: 699). In effect, ideas become synonymous with
materially determined interests. In contrast, though ideas are not independent of material
social conditions (see Bruff 2008), they also have effects on policy outcomes which
cannot simply be reduced to materially determined interests or behaviours. Thus – so I
argue – the context within which certain ideas are accepted requires greater analytical
examination. We will return to this point.


Structure and agency, material and ideational
We begin then with a very brief overview of the tendencies under capitalism. We then
turn to the role of ideas before examining the utility of these tools in investigating recent
EU financial market integration. The argument is that specific fractions of capital have
been key protagonists in financial integration through their ability to strategically
capitalise on both perception and essence of global impulsions under capitalism. The
insatiable thirst for the accumulation of surplus-value is the overriding tendency within
capitalism (Marx 1990[1867]: 742). The implications of this tendency can only be
understood through the conditions of generalised competition and the edifice of a
capitalist system replete with the organised provision of finance (for simplicity read
credit). Though surplus-value is extracted, through production processes, from the

1   For an interesting critique see Hay (2002: 195-196).


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unpaid portion of wage labour different yet interconnected circuits emerge within the
overall circuit of capital (Marx 1978[1885]: 109-179). Thus, whilst providers of finance
(again, effectively a historically specific form of credit) are not directly engaged in
production processes the impulsions of competition – in the search for investments,
resources, markets and labour that are preconditions for the expansion of capital –
present themselves with coercive force to the ‘consciousness’ of both finance and
production capitalists alike (Marx 1990[1857]: 433).


Two further tendencies can thus be discerned in the above. As before, over-determinism
is avoided through our subsequent conception of reflexive agency; nonetheless, the
cumulative effects of individually pursued yet collectively generalised competition
generate the following two interrelated tendencies. The first is the tendency towards
overaccumulation, whilst the second is the tendency towards the compression of space
through time. Contrary to the claims of Classical Political Economy which continue to
underpin the creation and integration of markets (see above) Marx argued that the
rationale for production is accumulation, not consumption (see Clarke 1988: 65). Already
this undermines the Lamfalussy Report’s assertions of satisfying human well-being
through financial market integration. Nonetheless, with this in mind Marx argued that
capital seeks to expand regardless of the size of the market (1991[1894]:317-338. As
Clarke (1988: 67) has it, ‘[t]he tendency to overaccumulation appears in the form of the
overproduction of commodities in relation to the limited extent of the market’. As this
occurs, demand drops in relation to production and prices start to fall. For a period
capital continues to show a profit on paper until such time as these tensions become
unbearable; as capital attempts to restore profitability wages drop, capital is devalued and
workers are laid off. In effect, capital attempts to shift the brunt of the crisis onto the
more vulnerable segments of society (Harvey 2006[1982]: 202).


This first tendency therefore has historical relevance to the rise of financial market
integration. During the 1970s a combination of factors compounded crises of
accumulation manifested in falling rates of profit in Western countries (Pollin 2003).
Embedded liberal controls on cross-border movements, the flood of petro-dollars
through rising OPEC oil prices and rising wage demands threatened the profitability of
production (Holloway 1996: 22-24). Against the background of emerging neo-liberal
ideology – positing an amalgam of New Classical, Monetarist and Rational Expectations



                                             9
models’ confidence in market liberalisation – the strategic agency of states and particular
fractions of capital2 brought about what became know as the Financial Services
Revolution (Moran 1991). Significantly though, whilst ensuing liberalisations sporadically
restored accumulation through greater access to emerging – primarily Asian – markets
(McNally 2009), a precedent was established for the expansion of the credit (and, under
securitisation, the financial) system (Bonefeld 1996, Macartney 2009). In effect, though
renewed investment enabled expanding production processes and financial service
providers – alongside joint-stock companies – invented innovative methods for profit-
making through financial activities, these visible features masked ongoing failures in the
extraction of surplus-value (Bonefeld 1996: 39-43). This brief overview of the expansion of
the financial system – driven by the particularistic interests of capital as opposed to wider
socio-economic concerns – thus serves to contextualise EU financial market integration.


To return finally to the second impulsion – the space—time compression – then, the
implication is already apparent. David Harvey (1985: 145) noted that the imperative to
accumulation fuels the following contradiction: on the one hand capital attempts to
remove all barriers to the accumulation process, be they regulatory, fiscal, institutional or
other; on the other hand, capital requires regulatory, institutional and infrastructural
features as preconditions for accumulation (see also Marx 1973[1857]: 539). The result is
that, often through crises as witnessed above, capital engages in the constant
construction, destruction and reconstruction of such features (spatial fixes), typically on
supra— and sub—national scales (Brenner 1999: 433). Not only do these two impulsions
resonate with the history of EU financial market integration – witness for example the
rescaling of governance under the Lamfalussy process – but they provide the basis for
our analysis of trade associations’ involvement in the post-2000 period. To explain this
we must first return to our above comment on fractions of capital.


Fractions of capital
As mentioned, several interconnected yet distinct circuits emerge within the overall
circuit of capital (for a more detailed account see Marx 1978[1885]: 109-179). Less
abstractly, the fractionation of capital implies that the interests of capitalists tend to differ
according to their position (function) within this circuit (Bieler & Morton 2001: 17).
Crudely, whilst the money capitalist invests with his (sic.) concern being a greater return,

2
    The term fractions of capital will be explained below.


                                                       10
the productive capitalist begins with ‘real factors of the labour process’ in an attempt to
increase surplus-value (Marx 1978[1885]: 140-141, 156, 167). Herein questions of agency
become concrete concerns.


The contention concerning the role of the state then is that, rather than ‘thing-like’
entities typical of public—private network analysis, states are managers in the global
circuit of capital (Burnham 2006: 7). Further, since capital ‘is neither self-reproducing nor
capable on its own of securing the conditions of its own reproduction…an external and
at least relatively autonomous body or institutional ensemble is thus called upon to
intervene on behalf of capital in its long-term general interests’ (Hay 2006: 62).3 At stake
therefore is the ability of capital to transcend individualistic, corporate interests, the
necessity of which requires constant processes of coalition building. Thus van der Pijl
(1998: 50) notes that the ‘ultimate stakes of class struggle are political, related to the
contest for power in the state’. Consequentially, fractions of capital become rallying points
around which a variety of social forces coalesce. They are ‘the form in which capital as a
collective social force made up of competitive units seeks to achieve a degree of
collectivity to be able to act as a class agency’ (van der Pijl 2004: 183).


Trade associations
These conceptual complexities have analytical purchase in relation to post-2000 EU
financial market integration and provide an informative case study of wider dynamics.
Specifically, the establishment of the Lisbon Agenda, the Financial Services Action Plan
(FSAP) and the subsequent Lamfalussy Process marked a turning point in EU
integration. It was widely recognised that they were underpinned by a ‘growing
intellectual consensus’ on the need for dramatic reform (Deutsche Bank 2006). This was
fundamentally linked to three perceptions: firstly, that the allocation of capital
(investment) across the EU was highly inefficient; second, that new forms of financial
market governance were required to facilitate more extensive cross-border competition;
and third, that weaknesses in the former areas were at the heart of ailing continental
European capitalisms (Commission 1999, Council 2000, Lamfalussy 2001: 14, 18-19).
Herein crises of accumulation were connected to burgeoning contradictions between the




3
  This statement is not, of course, without its conceptual difficulties. These are largely beyond the remit of
this paper however, where the aim is to focus on the political agency of particular fractions of capital.


                                                      11
expansionary tendencies of capital and the limits of existing institutional infrastructures;
the Lamfalussy Process constituted a new spatial fix.


The Lamfalussy Process established a four-level approach which was accepted by the
ECOFIN Council on 22nd March 2001, the European Council of Stockholm 23rd-24th
March 2001 and the European Parliament on 5th February 2002. Of note is the increased
lobbying potential to so-called market actors (see Muegge 2008). Whilst the Parliament
and Council are required to agree on the framework directive at Level 1, the crucial
details are ‘fleshed out’ at Level 2 wherein extensive consultation with the financial
services industry occurs through consultation papers and responses. The Process
established two new committees, the European Securities Committee and, most
significantly for our analysis, the Committee of European Securities Regulators (CESR)
(Lamfalussy 2001: 28). It is the CESR which enables the ‘thorough’ consultation process
with market participants and which in turn acts as an ‘advisor’ to the Commission (ibid.:
31). Similar consultations also occur between the industry and state officials and national
regulators. Our ensuing material focuses on these processes.


Taking fractions as our point of engagement with the empirical analysis of EU financial
market integration post-2000, financial trade associations form our starting point.
Historically, these associations have organized diverse financial interests as a precursor
for engagement in political negotiations (Coleman & Perl 1999, Josselin 1996). The
remainder of this paper argues that, given the above critique of the social content of
financial market integration, transnationally oriented fractions of capital – institutionally
represented in trade associations – have been key protagonists in recent developments.
The paper examines the dynamics of their agency, arguing that they construct strategic
discourses which appear to fit with both essence and perception of the impulsions of
capitalism. Further, in transcending their particularistic core these discourses resonate
with state managers’ attempts to pursue policies with general appeal. Returning to current
events therefore, the crisis is the product of an expanded financial system inherently
predicated on the interests of particular fractions of capital. Further, the unravelling of
this crisis compounds the social effects on labour as workers and more exposed
members of society forced to bear the brunt of the devaluation.




                                             12
The paper focuses on the associations and negotiations within the UK, France and
Germany. As the ‘big three’ at the heart of EU integration they represent historically
distinct financial systems (see Zysman 1983) and have been at the centre of struggles
over the shape of the emerging integrated financial market (Quaglia 2007). Though
individually distinctive the three fractions share common organisational features – within
the associations – and common strategies.4 In the City of London the two most
prominent trade associations in EU financial market integration have been the British
Bankers Association (BBA) and the London Investment Banking Association (LIBA), as
institutional approximations of an Atlantic fraction. In Germany, the private banking
sector, which arguably contains the most transnationally oriented members, is
represented by the Bundesverband deutscher Banken (BdB). In addition, I will argue that
a Rhenish fraction have also established the Initiativ Finanzstandort Deutschland (IFD) as
an action group for the private banking sector in cooperation with more internationally
focused state agencies (the Federal Ministry of Finance and the Bundesbank). In France,
the two most prominent trade associations have been the French Banking Federation
(FBF) and the Association Française des Entreprises d’Investissements (AFEI). I will, for
reference, label this a Gallic fraction. As highlighted elsewhere (Macartney 2009) – and
here briefly reiterated – the Atlantic fraction are characterised by their transnational-global
operations; the Rhenish fraction have tended to operate on a European scale; whilst the
Gallic fraction is have tended towards a European and national focus. The important
point to note is that, due to their global scale the Atlantic fraction were particularly
concerned over conflicts between Capital Requirements Directives – that is, regulations
within the EU – and Basel II – that is capital adequacy standards outside the EU. For
this reason I address both the CRD and MiFID negotiations in relation to the Atlantic
fraction.


I also refer to the Markets in Financial Instruments Directive (MiFID) (2004/39/EC)
and the Capital Requirements Directive (CRD) (2006/48/EC & 2006/49/EC). An
updated version of the 1993 Investment Services Directive (93/22/EEC), the MiFID
aims to extend the freedoms of cross-border trading by replacing out-of-date rules
applied to investment firms and banks. Understandably then, the MiFID has engendered
conflicts between the traditional national patterns of market organisation (see Underhill

4On the three differences between the fractions and their national-domestic origins see – inter alia –
Macartney (2009), van der Pijl (1984: 10), Overbeek & van der Pijl (1993: 15), van Apeldoorn (2002: 73-
74), Hall (1986: 168-170) and van der Pijl (1998: 79-80).


                                                   13
1997). Investment firm dominated systems such as the City of London thrive under
systemic conditions which are often incommensurable with alternative, stock exchange
dominated, systems, like the French system.5 For now, the significance of MiFID lies in
its attempt to expand the scope for cross-border financial service provision; a project of
considerable concern to transnationally oriented capital.


In addition the Capital Requirements Directive (CRD) (2006/48/EC & 2006/49/EC)
will be examined in relation to the fraction located within the UK system. Capital
adequacy is a term referring to the ratio of a banks capital to its assets. Regulators such as
the Basel Committee of Banking Supervisors attempt to ensure that a bank retains
sufficient capital to meet its liabilities should the need arise. Banks operating across
several regulatory jurisdictions therefore risk compliance with several divergent capital
adequacy standards and so, as we shall see, the responses of firms based in the UK are
informative.


Three sections follow: first, we consider the social function of the associations to
substantiate the claim that they are institutional representations of transnationally
oriented capital. Second, we examine their negotiations with state agencies and thirdly
with EU institutions; here the paper seeks, through a dialectical conception of the
impulsions under capitalism and strategic discourses, to elucidate the dynamics of their
struggles.


Function vs. social function
We begin by examining the coalition building efforts of the fractions represented by the
trade associations and similar bodies. All three countries display similar processes of
neutralisation and marginalisation. Our analytical focus is therefore on the internal
structure of the associations. Here, dominant interests receive additional political
representation through the consensus-view purportedly forwarded by the association. In
effect, the function and social function of the association are at odds. For example,
according to the associations their function is to ‘share ideas’ and enable their respective
banking and investment industries to ‘speak with a unified voice’ (Interview AFEI).
Similarly, the Bundesverband deutscher Banken states ‘it is very helpful to have a common


5Germany’s hybrid of universal banks and prominent exchanges therefore comprises elements of the two
on an issue-related basis.


                                                 14
view because then you can say, this is the common voice of the banking industry in
Germany’ (emphasis added Interview BdB).


I focus primarily on the German and French case studies. As previous accounts have
noted, the Atlantic fraction has historically been institutionalised within the UK liberal
internationalist state and reconsolidated this position during the 1980s financial services
revolution (van der Pijl 1984, Moran 1991). Thus we find, for example, that particular
strategies of the Financial Services Authority (FSA) have overtly privileged
transnationally oriented capital. During CRD negotiations all firms were given
opportunity to respond although the FSA ‘actively sought’ responses from ‘key’ (read
transnationally oriented) institutional investors (FSA June 2000); the FSA claimed that
this was due to a lack of time and resources. Notably however, the Atlantic fraction were
institutionalized in a series of standing groups endowed with policy negotiating
capabilities. In one such standing group certain UK firms (emphasis added ibid.),
    complained that the authorities were not getting industry-wide views, but had
    focussed on certain institutions that were already willing to implement the proposals.
    They suggested that the wrong data might emerge, as a result of studying larger
    banks. The authorities would need to talk to smaller firms not just the larger institutions
In response the FSA ‘agreed that a small number of institutions had (indeed) been
driving this debate’ (FSA January 2001).


The membership of the standing group supports this claim. Of the thirty-one members,
nineteen represented either transnationally oriented investment banks or trade
associations and the remainder were Treasury or FSA officials. Members of the Atlantic
fraction included Rothschilds, Barclays, Merrill Lynch, Salomon Smith Barney, Goldman
Sachs and Citibank (FSA December 2004). The claim is obvious, the privileged position
of the Atlantic fraction within UK policymaking agencies simply reinforces Atlantic
hegemony in the UK. We turn our attention then to France and Germany.


In Germany, the coordinating and policy-shaping roles of peak (trade) associations have
a considerable history as bodies like the Bundesvereinigung der Deutschen Arbeitgeberverbaende
(Confederation of German Employer Associations), the Bundesverband der Deutschen
Industrie (Federation of German Industries) and the Deutsche Industrie-und Handelstag (the
Federation of German Chambers of Industry and Commerce) were effectively



                                               15
incorporated into the formulation and even implementation of public policy initiatives
(Streeck 1983: 265); that is, effectively fulfilling a public policy function (Wever & Allen
1993: 184).


Crises have reshaped this consensual model in two ways: first, previous accords – both
within capital and between capital and labour – have demised; the emergent
transnationally oriented fraction has thus sought to reassert class power through
neutralising, co-opting or marginalising more nationally oriented fractions. Second, new
bodies – such as the Initiativ Finanzstandort Deutschland (IFD) – have emerged, avoiding
complexities of traditional institutional pathways.


The obvious comment in the German case is that interest representation clearly favours
well-resourced, multi-jurisdictional actors. The marginalisation of subaltern groups has
been conducted through the private banking association (the Bundesverband deutscher
Banken), the umbrella association, the (Zentraler Kredit Ausschuss), and by the Initiativ
Finanzstandort Deutschland. We focus initially on the BdB and the ZKA. The result has
been that positional papers tend to display a bias towards the Rhenish fraction. For
example, though the Zentraler Kredit Ausschuss brings together the multiplicity of German
interests as the central ‘representative’ body, it has no staff or offices of its own; instead,
supervision and support duties are passed among only the three largest associations on
an annual basis (Interview Deutsche Bank).


In EU consultations the Rhenish fraction thus responds individually through individual
firms responses, collectively through the BdB and collectively through the ZKA. The
following statement is typical of a BdB (January 2004) response to the CESR:
    The Association of German Banks is a member of the Zentraler Kredit Ausschuss
    (ZKA), the joint committee of the central associations of the German banking
    industry. We fully support the Joint Comments of the ZKA which you will find
    enclosed.
In effect, the interests of the Rhenish fraction are both over-represented in policymaking
processes and, somewhat ironically, presented as the ‘common position’. One such
example can be seen by comparing BdB and Deutsche Bank (a Rhenish member)
responses. A Deutsche report entitled ‘Which supervisory tools for the EU securities




                                              16
markets?’ thus revealed precisely the same responses as were offered by the BdB in their
2004 Banking Survey and various replies to CESR consultations (Deutsche Bank 2005).


The Rhenish fraction have also constructed alternative institutions to assert policy
proposals; the IFD is the most notable example. Founded in 2003 the Initiativ
Finanzstandort Deutschland created a coalition of Rhenish members alongside
internationally minded state institutions. Of its eighteen members the following are
included;   transnationally   oriented   institutions   such   as   the   Deutsche    Bank,
Commerzbank, DZ Bank, Munich Re, Allianz-Dresdner Bank, HVB, the private banking
association (BdB), and several (Atlantic) associate members in the form of Morgan
Stanley, Citigroup, Merrill Lynch, Goldman Sachs and JP Morgan. These are then joined
by the Deutsche Bundesbank and the Federal Ministry of Finance.


Its primary aim is to ‘develop numerous projects and measures’ to provide a ‘stimulus
for growth’ (IFD 2008); the spectre of the ailing post-war model lingers. Elsewhere it
notes the need to ‘transcend…all partisan interests…(and) formulate its common
interests and assert them externally’ (IFD June 2005). Precisely in (ostensibly)
overcoming partisan or fractional particularities and presenting a project representative
of a general interest do the transnationally oriented fraction obfuscate their own
dominance. Of interest therefore is the incorporation of all three pillars of German
banking (co-operatives, private institutions and public corporations); though dominated
numerically and in agenda by the Rhenish fraction, a coalition of diverse fractions and
actors are institutionalized within the IFD. In the words of the Deutsche Bank the IFD
is intended to ‘form a common view on where we want the financial market to be’ yet
this first stated goal is closely connected with another, namely ‘to raise the importance of
Germany as a financial centre in global competition’ (Interview Deutsche Bank). In this
sense the IFD was clearly the ‘brainchild’ of the transnationally oriented fraction and
circumvent potential obstacles within the BdB and ZKA (ibid.).


In France, the myth of a strong, centralized bureaucracy dominating policymaking and
fiercely resisting particularistic interest group pressures was short-lived (Dunn & Perl
1994: 312). Instead, it became clear that the French system of grands projets and national
champions were founded on the basis of integral co-ordination mechanisms between
large enterprises, whether publicly or privately owned (Parker 1999: 65). In line with a



                                            17
neo-corporatist tradition France therefore relied less on lobbying by business than it did
on the presence of institutionalized access to the decision-making process (Wilson 1983:
896). Though crises have reshaped state organization institutional pathways remain
dominated by the big banks and associations (ibid.: 900).


The degree of fusion and centralisation of the Gallic system are reflected in the French
trade associations. The internal structure of these organizations again enables a single
dominant voice to speak for the French investment industry (FBF June 2002). The
French Banking Federation described this process as, ‘clarif(ying) the thoughts of the
Paris financial centre’ with regards to financial market integration (FBF 2002). Again, the
internal structure of the associations is highly significant. Composed of over 500 banks
and financial institutions the FBF is represented through twenty-one regional
committees and eighty-eight local committees (FBF 2004). This has a dual effect; it
means that the cumulative voice of the French banking industry is represented in
different regional and local institutions such as the Chamber of Industry and Commerce
(ibid.). At the head of these various decentralised committees sits a committee of senior
bank executives. These executives emanate from transnationally oriented actors such as
BNP Paribas, Crédit Mutuel, Crédit Agricole and Société Générale and form a
committee where, of the sixteen members, only one place is given to the representatives
of foreign or smaller sized credit institutions (FBF June 2002).


The result is that, once again, function and social function are at odds. The AFEI
(emphasis added February 2004) implicitly emphasises this tendency, stating:
    Is it imaginable that CESR could give the same weight to all the responses to its
    consultations, without considering how representative the correspondent might or
    might not be?...Obviously, we object strenuously to such a possibility. First, because
    it would deny the special role of representative professional organisations, which, when
    they provide comments to CESR, present a position that expresses the consensus view
    of their members
By implication, the consensus view over-represents the Gallic fraction whilst as a
‘representative organisation’ it holds greater ‘weight’, appearing as the cumulative
response of all firms.


Struggles vis-à-vis national states



                                            18
Whereas the previous section outlined the social function of the associations, the next
two sections focus on the expression of their policy positions in their struggles with
states and at the EU level. These discourses are neither detached from material
conditions, except in a crude analytical sense, nor are they constructed de novo by the
associations (van Apeldoorn 2002: 113). Instead they are adapted and re-articulated in
light of the pragmatic concerns of the fractions. Here the material—ideological dialectic
is of analytical utility.


For example, in a consultation paper on capital requirements the FSA stated that ‘in
response to firms concerns we have appraised our proposals…The proposals…that we
have set out in the CP (190) are less prescriptive than those…we put forward in CP 136’
(FSA 2002). To understand the change in policy direction consider the rhetoric
employed by the associations. During earlier consultation, the BBA and LIBA rightly
noted that the FSA was ‘likely to considerably exceed the international norm in the
application of Pillar Two’ (BBA & LIBA June 2003b). In operating globally they
obviously favoured a single set of international standards; the associations rhetoric was
strategically employed, however, to suggest that the UK becoming an ‘international
outlier in the manner in which it applies and interprets Pillar 2’ (ibid.) might threaten the
City’s attractiveness amongst the international community of banks and investment firms
(BBA & LIBA June 2003a). Here the widely acknowledged ‘essence’ of expansionary
impulsions and mobility of investments is indistinguishable from the ‘perception’ of this
reality, in the eyes of state managers. The perception of the possibility for Atlantic
relocation therefore has demonstrable effects.


Within Germany an inclusive process of coalition building has allied ‘reform-minded’
elements of the German state with the Rhenish fraction (Dyson 2002).6 Unsurprisingly
then, the IFD offers initiatives focused on increased securitisation and expanded capital
markets. Together their reports and policy proposals contend that ‘(t)he positive effects
of deeper and broader financial markets are now a received wisdom from empirical financial
market research’ (emphasis added IFD 2005). They therefore argued that, ‘the key to
unlocking (German) potential lies in shifting the focus more towards the capital markets’
(ibid.) under the assumption that the capital market will bring better prospects for all
portions of society. This agenda necessarily contains an expansive, EU-related element:
6This also bears certain similarities to Gramsci’s comments on the state as the realisation of the unity of
ruling classes (1971: 52).


                                                     19
the integration of European financial markets is perceived as fundamental in the
‘competition for global capital to the benefit of employment and growth’ (Koch-Weser
2005). The IFD is therefore hugely significant as a public-private institution inscribed
with the interests of the hegemonic class fraction (Poulantzas 1973: 190).


Struggles at the EU level
Once again however, the Gallic fraction are distinctive. Though a contender state
historically dependent on state-led development (van der Pijl 1998: 78-97), the functional,
institutional and sociological fusion of state and capital, productive and finance fractions,
transnationally oriented and nationally oriented capitals, have meant that Gallic struggles
for social protection in the integrated market have been more focused at the EU level.
Whilst Public Policy analyses of EU lobbying note the increased activity of those groups
with most ‘at stake’ they argue that ‘interest groups make…calculations concerning the
allocation of lobbying resources as between possible lobbying targets – deciding which
public institutions to lobby (Coen, 1997; 1998; Bennett, 1997; 1999). Increasingly, groups
are aware of the ‘potential gains from transnational lobbying’ (Richardson 2000: 1014).
Leaving aside the overt references to Rational Choice theory, these accounts again
correctly highlight the formal changes without explicitly emphasising that rescaling of
governance within the EU is imbibed in crises and the search for a new spatial fix. In
effect, Public Policy accounts could be read as if interest groups simply pick and choose
between institutions and levels; the over-emphasis on contingency is inescapable. In
contradistinction, the re-focus of Gallic efforts is both response to and condition of
restructuring and rescaling efforts under crises. Further, their market organization is most
overtly threatened by the dominance of capital market financing at the heart of expanded
financial market competition (Macartney 2009).


All three fractions, albeit to different degrees, have sought to gather political momentum
for their particular policy concerns through traditional lobbying and consultation
pathways. This has occurred both individually and collectively (through respective
associations) at Levels 1 and 2 of the Lamfalussy Process. Further, all of the fractions
have also sought to establish international linkages with other associations in order to
achieve the perception of a truly multi—national position on certain policy initiatives.
Against this background, the Gallic fraction have also employed other strategies which
are analytically informative.



                                             20
In Level 2 consultations, the transnational-global scale of the Atlantic fraction have
underpinned strategic discourses not dissimilar to those employed at the national level.
Hence, they have emphasised the potentially excessive costs of conflicting multi-
jurisdictional requirements (BBA January 2005a). Significantly, the threat to Atlantic
patterns of accumulation was only an issue because of their global scale; ironically
however, the strategic discourse embodies a structural ‘threat’ precisely because they are
organised globally rather than solely under the auspices of the CESR within the EU.


As noted however, the Atlantic fraction have also exploited technical features of the
Lamfalussy Process in attempting to transcend their particularistic interests. For example,
the London Investment Banking Association cooperates with other associations – from
Norway, Iceland, Sweden and Finland – in formulating joint responses to consultation
papers (LIBA et al. March 2004). Firstly, this replicates the above tendency to subsume
dissenting projects and social forces. Secondly, it reinforces the phenomenon, implying that
a common voice warrants greater attention than individual national associations. This is
evidenced in the following response (emphasis added LIBA et al. October 2004):
    We respond jointly in order to assist CESR by providing one document rather than
    eleven. For the purposes of its analysis of responses, CESR should however count
    this response as coming from eleven respondents, representing a significant
    proportion of investment firms active in Europe's securities and derivatives markets,
    especially its wholesale markets, and weight it accordingly
Further, the Atlantic fraction have also sought to promote their project through
international trade associations such as the European Banking Federation (EBF) (BBA
July 2004).7


Again, there are commonalities between the Rhenish and Atlantic fractions. The
similarities in their patterns of accumulation are here significant, as are the historic
similarities in embedded patterns of financial market organization. One such example is
seen within the market participants (consultative) panel8 of the Committee of European
Securities Regulators. There is evidence that, primarily on an issue-related basis,

7 The methodological decision to focus on national trade associations rather than European ones is a
component in the argument that neoliberalisation displays nationally specificities as well as an attempt to
examine the national embeddedness of capital often obscured by a focus on ‘transnational’ forms of class
agency (c.f. van Apeldoorn 2002).
8 This is a panel which attempts to incorporate relevant market actors in the Lamfalussy Process.




                                                     21
members of the Rhenish fraction have aligned themselves with the Atlantic fraction
(CESR June 2003). Again however, the Rhenish fraction has employed strategic
discourses to similar effect.


We turn our attention instead to the particularities of Gallic struggles. They have focused
their efforts on three fronts: firstly, attempting to secure the cooperation of other
associations with similar interests; secondly, physically relocating lobbying efforts to the
geographical centres of EU policymaking; thirdly, attempting to secure the support of
political agents through direct contact.


Unsurprisingly, the Gallic fraction have also recognised that ‘positions expressed via a
consensus of professional organisations of different nationalities have a better chance of
being heard by European authorities’ (AFEI 2002) and hence have ‘forged links with
(their) counterparts elsewhere in Europe sharing the same concerns’ including Belgian,
Portuguese, Italian and, on occasion, German and UK associations (AFEI 2003, AFEI
March 2005). Further, ‘the success of action taken at this level hinges on the ability to put
across a transnational viewpoint and, in so doing, to bring participants from different
countries together behind a common idea’ (emphasis added AFEI 2004). These linkages
have developed an ‘escalating importance’ as the Gallic fraction have attempted to
promote their interests in EU negotiations (ibid.).


In addition the Gallic fraction have sought to establish headquarters in the centres of EU
policymaking. This has largely focused on Brussels (FBF June 2002). They explain their
rationale as follows (FBF 2002):
    It is nevertheless Brussels that is laying the foundations of the legislative and
    regulatory framework for banking and financial institutions. For this reason, FBF set
    up a team in October 2002 in the Belgian capital in order to strengthen its presence
    at all levels of the European decision-making process.
Further, in promoting their positions they explain (ibid.) that:
    Opening an office in Brussels enables the Federation to follow European projects
    more closely from the outset, explain the reality of the banking industry to those
    responsible for drawing up the legislation and contribute to the creation of a
    European banking model.




                                             22
Brussels thus performs policy relevant and legitimisation functions commensurable with
a form of state and is both site and goal of class struggle (Jessop 2008, Lefebvre 2003).
Moreover, the EU also shapes pan-European accumulation through compromises secured
between different fractions.


The third element of Gallic attempts has involved increased lobbying of political agents
at the EU level. Though part of a generic strategy in 2002 they assumed a particular
importance in the formulation of the MiFID. In 2002 at their General Assembly the
French Banking Federation noted the need to develop increasingly close relations with
the European institutions and, specifically at that time, the European Parliament (FBF
June 2002). By 2003 the ‘chairmen of the eight largest French banks that make up the
French Banking Federations Executive Committee’ (FBF 2003) had met in Brussels with
various European commissioners including Commission President Romano Prodi to
present their ‘guiding principles and vision for Europe’ (FBF June 2003).


As conflicts over market systems swelled so the Gallic fraction engaged even more
vociferously in inter-fractional struggles. The AFEI stated that they organised ‘no fewer
than thirty-six meetings, with twenty-seven MEP’s representing ten nationalities and
seven shades of political opinion’ through the course of 2002 as well as continuing their
‘active efforts to raise awareness at the Council of Europe and the Commission
concerning’ price transparency (AFEI 2002). In addition the Chairman and the Chief
Executive of the AFEI both spoke at a conference in Copenhagen attended by
numerous Commission and industry representatives (ibid.). Evidently the Gallic fraction
have been exceptionally active in promoting their interests in the EU.


Conclusion
Two tentative conclusions are proposed: firstly, the history of recent EU financial
integration is a story of class struggle. We have focused primarily on the efforts of
transnationally oriented fractions of capital to shape the emerging market. In the
background – highlighted under current crisis conditions – are non-capitalist segments of
society forced to bear the brunt of the devaluation of capital. Our account throws into
question the assumption that financial market expansion is underpinned by a certain
public interest. In this respect it departs from Public Policy accounts.




                                             23
Secondly however, it draws from the work of Antonio Gramsci – on the dialectic
conception of ideas as discourses and materiality – yet attempts to integrate these insights
with a more nuanced reading of historical materialism. Typically, I would argue that the
two accounts adopt altogether different entry points: crudely, neo-Gramscian accounts
emphasise ‘social forces’ as their primary ontological agents to engage with questions of
hegemony (Bieler & Morton 2001: 6, Cox 1987: 7) whilst alternative readings of historical
materialism emphasise the impulsions generated by the expansion of capital, to de-reify
the social content ‘behind’ fetishized forms (Marx 1990[1867]: 752-754; 1973[1857]: 539;
Harvey 2006[1982]: 156-189). I argue here that a more nuanced conception of these
impulsions serves two interconnected functions: first, it elucidates the conditions under
which certain ideas and discourses are internalized and accepted; thus, secondly, it
circumvents an over-emphasis of contingency in analysis of agency in the global
restructuring of capitalism.




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