The rediscovery of networks_ past and present – An economists
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REGULATION THEORY
IN A NUTSHELL
And 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
INTRODUCTION
1.The origin : surprising structural
evolutions of the 70s:
- Productivity slow-down in the US
- Rising unemployment in Europe
- Stagflation: inflation and recession
..At odds with conventional theories:
- Keynesian macroeconometric models
- Neoclassical labour market theory
- Marxian prognosis
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
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
A SYNOPTIC VIEW OF
THE PRESENTATION
1. From general equilibrium theory (GET) to the
diversity of imperfect market economies
2. Régulation theory (RT) in a nutshell: an analysis
of economic institutional architectures
3. An analysis of crises and changing patterns
through time and space
4. How many régulation modes ?
5. The era of globalization: a renewed diversity of
institutional configurations
6. The era of financialization: RT and SSA
II. FROM GENERAL
EQUILIBRIUM THEORY
(GET) TO THE DIVERSITY
OF IMPERFECT MARKET
ECONOMIES
The generalization of GET has failed
Table 1 – In real economies,
as many market failures as
efficient markets
The belief in self regulated markets has
been eroded
Table 2 – The promises and
the deliveries of the free
marketers
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
GENERAL GAME
EQUILIBRIUM Removing some key hypotheses Strategic interplay
THEORY between agents THEORY
No Asymmetric Missing Increasing Imperfect Alternative
auctioneer information future markets returns competition solution
concepts
° Multiple equilibrium
° Unstable equilibrium
° Micro behavior does
not imply any definite
aggregate regularity
Rational Coordination of No Walrasian Intertemporal Endogenous Repeate Applied
expectations monetary economies equilibrium for models with technical change d games game
credit or labor overlapping and growth theory
markets P. ROMER
J. STIGLITZ D. CASS (1990)
Statistical Representative Temporary New The role of Models with Oligopolistic Experi- New New Credibi- Interna-
Theory of agent equilibrium or Keynesian norms and overlapping competition mental industrial labor lity of tional
aggregation + disequilibrium Theory social justice generations and economics economics econo- economic econo-
Rational theory on market unemployment mics policies mics
expectations
SONNENSCHEIN R. LUCAS J.P. P. HOWITT G. P. J.P. BENASSY C. PLOTT J. F. D. P.
J.M. T. BENASSY P. WEIL AKERLOFF SAMUELSON A. ROTH TIROLE LAZEAR COHEN KRUGMAN
GRANDMONT SARGENT J.M. R. SOLOW
W. HILDENBRAND GRANDMONT
A basic issue: what are the actual
institutions and the rules of the game?
III. RÉGULATION THEORY IN
A NUTSHELL
The macroeconomic consequences of
institutional forms
Diagram 2 – Starting from Marxian theory to understand the institutions of
capitalism : « regulation theory » in a nutshell
THE CAPITAL/LABOR RELATION OF
PRODUCTION
Capitalist MORE
Production Accumulation GENERAL
Mode law CATEGORIES
THE MARKET RELATION OF
EXCHANGE
WAGE-LABOR NEXUS
A set of An INTERMEDIATE
FORM OF COMPETITION INSTITUTIONAL ACCUMULATION
FORMS REGIME CATEGORIES
NATURE OF MONETARY
CONSTRAINT
WAGE AND PRODUCTIVITY
DYNAMICS
A OBSERVED
PRICE FORMATION REGULATION Which makes viable
MODE VARIABLES
CREDIT, MONEY AND INTEREST
RATE
The post WWII institutional architecture
and growth regime: the Fordism
Diagram 3 – The post WWII
capital labor accord shaped
most other socio-economic
institutions
IV. NO INSTITUTIONAL
ARCHITECTURE IS STABLE FOR
EVER: three sources of crisis
The success leads to institutional obsolescence:
endogenous structural crisis
Diagram 4 – From emergence to maturation and crisis
Degree of Reversal of
coupling of previous
institutions favourable
trends
Emerging
inertia
High
Sophistication of rules Entering into
and deepening of crisis and decay
complementarity of an institutional
configuration
Actors perceive a
complementarity
Uncertain Change in the
coherence context
Low Series of
innovations
Incentive for the search of new
configurations Time
New Maturation Aging Decay and
configuration destruction
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
Henry Ford’s
vision
Obstacles to its
implementation
(1913)
Actual
United- American Rise…
STRUCTURAL Crisis of a
CRISIS OF AMERICAN Financialisation finance-led growth
States Fordism and maturation
FORDISM regime
Endometabolism Endometabolism
Obstacles to Exacerbates Exacerbates Hybridization
Hybridization the adoption American
Hybridization Japanese
crisis crisis
Adaptation
process
Rise STRUCTURAL
Japan Invention
and Slow and uncertain
of CRISIS OF growth
Toyotism success
TOYOTISM
Endometabolism
1900’s World War I World War II Oil shocks Financial 2000’s
globalization
The leading role of political alliances
POLITY:
Sets the rules of the game
ECONOMY:
Makes strategic choices
It affects the bargaining
Building a governmental power of groups and
coalition actors
It builds an economic
regime and its evolutions
Consequences for
elections
Impact upon political
support
The emerging new institutional
architecture of the 90s
The Hierarchical position of the international
economy and the financial regime
Diagram 6 – The new hierarchy
of institutional forms in
contemporary Europe
IV. HOW MANY REGULATION
MODES?
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.
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.
Régulation theory findings (RT): at least
four institutional architectures
Table 4 – The diverse nature of capitalism in Regulation Theory
REGULATION
MARKET-ORIENTED MESO-CORPORATIST STATIST SOCIAL-DEMOCRATIC
1. OVERALL LOGIC AND HIERARCHICAL PRINCIPLE
Commercial logic is the Principle of solidarity and mobility Economic circuit shaped by public Social partners negotiate rules
organising principle for almost in an economic unit that is large in interventions in areas like governing most aspects of society
all of the institutional forms size and diverse in output terms production, demand and and the economy
institutional codifications
2. IMPLICATIONS FOR INSTITUTIONAL FORMS
Wage labour nexus Significant decentralisation of Wage compromise within large Trend towards a strong Traditionally with a centralisation of
wage bargaining, companies but pay hikes are institutionalisation of rules on collective negotiations, under a
individualisation of pay and synchronised employment, working hours, constraint of short and medium-term
segmentation of labour market. wages and social benefits competitiveness
Competition Concentration restricted by Relatively intense in the product Moderate seeing as it is channelled Small number of big firms (that are
legislation, reshuffling from one markets, involving big companies by by public regulations or by also highly internationalised and
oligopolistic type of competition with activities in many different professional associations, with thus have to compete)
to another markets high degree of capital
concentration
Money and finance Central bank is independent, Role of main bank and keiretsu in State has tight control over credit Most funding is by the banking
financial market logic prevails, funding and capital allocation. and monetary policies. sector. Monetary policy aims to
financial innovations proliferate, State authorities (financial Traditionally the Central Bank has enhance employment and at a later
companies are tightly run by a supervisors/Central Bank) have had little autonomy to speak of, the date competitiveness
financial logic tight control financial sphere having played a
crucial role
The State Fragmented into series of Ensures provision of collective Strong quantitative and qualitative Multitude of public interventions
agencies and control entities, services plus coordinations that development of State interventions: lead to financial transfers and
growth possibilities are highly the big firms are incapable of nationalised companies, extensive and restrictive regulations
restricted because of running. Small size but significant regulations, public spending,
competition in the political role social benefits, etc.
marketplace
Insertion into Adhesion to free trade Trade and finance-related choices Traditionally with a a tight State Acceptance of competitiveness
international principles, degree of autonomy are conditioned by imperative of control over external relations principle based on technological and
system
varies depending on status and technological and economic (tariffs, norms, quotas, restrictions organisational innovation
size (differences Us vs. UK) development. on financial flows).
Table 4 – The diversity of economies nature in Regulation Theory
REGULATION
MARKET-ORIENTED MESO-CORPORATIST STATIST SOCIAL-DEMOCRATIC
3. CHARACTERISTICS OF THE MODE OF REGULATION
Regulation very market- Large companies, the market and State at heart of macroeconomic Tripartite bargaining (employers-
oriented, controlled by the State make adjustments at the adjustments, with markets and unions-State) lies at the heart of
sophisticated legal mechanisms meso-economic level firms adapting to its rules institutional reforms
4. EFFECTS ON:
Innovation Schumpeterian waves Aptitude to copy and adapt Radical innovation supposing Innovations are focused on resolving
predicated on radical products and processes by major investments and a long-term social and economic problems, be
innovation, preponderance of a operating incremental yet time frame. Adaptation of Fordist they marginal or radical..
patent-based logic and profitable innovations (i.e. relatively centralised)
individualisation of benefits innovations
derived from innovation
Specialisation Sectors tied to radical Sectors requiring major Sectors involved in major public Sectors tied to social demand
innovation: IT, space, coordination efforts and infrastructures: transportation, (health, security, environment. etc.)
pharmacy, finance and leisure mobilising a localised but telecom, aeronautics, space, arms or exploit natural resources through
industry. cumulative type of competency: industry, etc. technological recovery
auto, electronics, robotics
Source: Amable, Barré, Boyer [1997: 194-195]
They display quite contrasted sources of
innovation and growth
Market-led capitalism: linking basic science
with business
University High
Quality
Market for Segmented Education
scholar labor market System
Diagram 7 – Market led configuration
Pressures toward Non skilled Few professional
research workers relative and technical
wage declines tracks
Less demand for
+ low skilled
workers
Implementing the
Large patenting Rising new productive
inequalities paradigm is
difficult
Diffusion/
Protection
Pharmaceuticals Fordist industries
Specialization in decline
activities with Publishing but sunrise
codifiable knowledge industries
High tech
-
+
Risk - Growth External trade
Capital deficit
Reluctant Investment
in industries with
+ long run maturity
Financial
Market
Close project
assessment but
short termism
Meso corporatist capitalism: coordinating a
series of incremental innovations
University Segmented and Secondary
selection interdependent education
of elite labor market system
Homogeneity of
formation,
selection
of individuals
Few basic Large firm
Diagram 8 – The “meso-
research Sub-contractors
Low
corporatist” configuration inequality
Little basic Learning
research localized
done by knowledge Large diffusion
firms of new products
Anticipation of
forthcoming Incremental Quality based
specialization innovation competition
Automobile
Electronics Specialization in
durable goods
Robotics
+
Permanent Growth
upgrading of the +
industrial structure
+
Financial
System
Control by main Constructed
bank, loose but Internal capital competitive
long termist Mobility advantage
Public Research Labour Education
and University Market System
° Homogenous Good basic education
Social-democratic ° Centralised
bargaining
( 1989)
Retraining of workers
Concern for
capitalism: basic
research
Social
innovations related
justice, and
solidaristic values
Patenting for High Rather reduced
to public goods and
resources intensive wages income
sectors, transport, economy inequalities
equipment goods,
biomedicine
Natural Small
education Resources
High Value
Added Industries
open
economy
Internatio- Periodic Competitiveness
nalisation of industrial by quality and
SSI restructuring service
Diagram 9 – Social democrat Few
Specialisation in resources,
intensive sectors, equipment,
capitalism risk
capital
information
-
Financial
System
Not very Growth constrained by
sophisticated, competitiveness
bank centred
Public Research Organized Education
Institutes Labor Market System
Minimum wage Basic education is
State led Public
Extended welfare
State
public
Selection of elite
economy: the spending
led
innovations
overwhelming role
Public
interventions:
codifying the
rules of the game
of public
in quite all
sectors
Scientific Firms :
discovery rarely Their organization is Congruent
interventions
linked to related to public with the Fordist
potential market interventions model
demand
Public sector Private Sector
or in charge of
public spending mass production
related sectors
Specialization : +
transport
equipment,
aircraft, weapon,
Diagram 10 – The State led pharmaceuticals
capitalism
Competitiveness Growth
Financial market
Bank credit
Heavy State control
Public finance circuit
International
System
Stable
VI. THE ERA OF
GLOBALIZATION: STILL
RENEWED DIVERSITY OF
INSTITUTIONAL
ARCHITECTURES
A multiplicity of coordinating
mechanisms, on top of the conventional
opposition State versus market
MODE OF COORDINATION AND
DISTRIBUTION OF POWER
HORIZONTAL VERTICAL
MOTIVE FOR THE ACTION
INTEREST
1 Market 2 Firm
Diagram 15 – A taxonomy of the
6
different coordination principles Association
5
Network
OBLIGATION
3 4
Community, State
Civil Society
Source: as per Hollingsworth, Boyer [1997]
None of these mechanisms is perfect:
compensating the imperfection of one
mechanism by the strength of another is
a source of institutional resilience
• 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
Hence a multiplicity of capitalism brands
Diagram 16 – Analysis of
the variety of capitalisms
as the expression of a
combination of the four
main principles of
coordination
The opening of national economies
usually reinforce institutional diversity
Diagram 17 – A mode of regulation’s different levels of adjustment in an open
economy
Follower countries Technological Technological Leader country
trajectory trajectory
Repertory of Repertory of
coordination Specialisation coordination
procedures procedures
Institutional forms and Institutional forms
mode of regulation and mode of
regulation
1 Stability: Homeostatic equilibrium
2 Revision of market share
3 .Adjustment of institutional forms
4. Structural crisis: need to revise repertory
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?
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
VII. THE ERA OF
FINANCIALIZATION AND ITS
CRISES:
RT AND SSA COMPARED
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
Consumers
Patient financial market
Managers Permissive
international regime
Wage-earners
Strong links Weak links Direction of influence
The 80s: An international competition led
regime weakens the bargaining power of
wage earners
Consumers
Gain from trade
Managers More
international
competition
Discipline
Erosion of past
compromise
Wage-earners
Strong links Weak links Direction of influence
The 90s: The ex post alliance of investors
and managers
Consumers
Transparency
Managers Large and powerful
financial markets
Share holder value
More risk Financialisation of
income and pensions
Wage-earners
Strong links Weak links Direction of influence
The 2000s: The emerging tensions within the finance
industry and the rise of the lawyer
State,
as the last resort
THE LAWYER
Institutional
Investors
Managers Auditors
Rating Agencies Financial Analysts
Fund Mangers
Pension funds
Flow of information Financial flow Intermediation of conflicts
and related income
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
Demand addressed
International Regained power Surge of CEO
to managers =
opening of managers compensation
shareholder value
Erosion of wage- Acceptance of Inflow on the Financial
earners bargaining pension funds stock market bubble
power
Crisis of the Conservative Financial Multiple
Fordist growth backlash deregulation innovation in
regime finance
• P2: An accumulation regime at odds with
Fordism: the centrality of the stock market
+
Dividends + High stock + Easy access Profit
and market to
Pension funds price credit +
+
Consumption Production
+ +
Employment
Diffusion of - Careful management
Financial norms of investment
+
Globalised Shareholder value as a Highly reactive
Financial new form of competition wage labour
regime and governance mode nexus
• The multiple channels of financialization
+ Monetary policy,
Financial market + Limitation of - Public + Stock Market
stabiliser public borrowing expenditure prices
G F
Credibility E Tax system favour- +
of Government ac- able to the most +
tions mobile factors
+
Industrial specialisa- Raising the - Productive + Profit
tions, Financial con- required rate investment
centration of return
A + + -
Management B Labour con- + Productive Effective de- Employment,
FINANCIAL SYSTEM of firms for sharehold- tract flexibil- capacity mand wages
ers ity
- +
+
+ “Patrimonial” Eq- C Wealth effect on + Current con-
uity based Household Sav- sumption
behaviour ings/Consumption
Allocation
+ +
Privatisation D Pensions via Purchase of +
of elements stock market housing and
of social security durable
goods
+ +
+ Secured bor-
rowing
• 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
• …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
Figure 1 – A typical sequencing of financial crises
Viability of the Regulation by the
New cycle regulated government
innovation
Lender as a
last resort
Success Entry in the
Private Rapid zone of
/ High
innovation adoption financial
profit
fragility
No public
intervention:
collapse of the
innovation
Figure 2 – A first example: energy derivatives and the
ENRON collapse
Energy Unprecedented Creative
Bankruptcy
derivatives profit accounting
Prevention from
Potential for
any public control
new crisis
by lobbying
New rules of
But not any reform of accountability
A structural
accountability for CEO and
weakness
principles CFO
Figure 3 – A second example: rise and collapse of Northern Rock
High profit /
Financing by Initially, Bank
Rapid capture More bonds Banking
bonds of of England
of market issued run
mortgage loans did not bail
shares
out
No reaction
Worsening
of Financial
of the crisis
Service
Agency
A failed Conflict between Bank of Systemic
innovation England, Treasury, FSA crisis
Nationalization
Search for self
of Northern
regulation
Rock
Figure 4 – A third example: the sub-prime mortgage
New and Reversal Melting down
Sub-prime Securitization of the
growing of the sub-
mortgage shift the risk housing
market prime market
market
Absence of
Limited
Searching for public
FED
new regulation
intervention
regulations
Unlimited access to
liquidity from FED
A systemic A creeping Diffusion of
Mergers among
financial banking Non
banks
crisis crisis Performing
Recapitalization Assets (NPA)
by sovereign
funds
Figure 5 – The impact of globalization and financial
deregulation on emerging countries crises
Deregulation
Easier access Strengthening From Brutal
of domestic
to external of the financial boom to reversal of
financial
financing accelerator crisis capital flows
system
Major crisis
IMF orthodoxy
is challenged
Search for
Structural
Large Central alternatives to foreign
reforms
Bank reserves saving driven growth
Possible regional
financial
intermediation
• P4: The financial led regime cannot be
universal
COUNTRIES United Great Canada Japan Germany France
PARAMETERS States Britain
1.Average propensity to 0.95 0.926 0.956 0.869 0.884 0.908
consume (1996)
1.Wealth in shares/ 145 75 95 30 25 20
disposable income (1997)
%
3. Extent of capital gains 35.5 15 11 -7 7 5
/disposable income (%)
4. Proportion of shares 28.4 52.4 n.a. 25.3 21.3 14.5
and bonds in households’
financial assets
1.Monetary market rate 5.34 7.38 5.20 0.32 3.5 3.46
1.Return on bonds 6.51 5.59 7.30 1.06 3.97 4.23
1.Reference profitability 12%-16% 12%-16% 12 - 16% 5% 6% -7% 9%
• Actually, in other OECD countries alternative
alliances may exist and govern different
accumulation regimes
Managerial
expertise
THE Governance The firm as a THE
AMERICAN under bundle of JAPANESE
FIRM shareholder competences FIRM
value
Financial Firm specific
capital competences
ESOP
Employee
ownership/
co-management
THE GERMAN FIRM
CONCLUSION
C1 Actually existing economies drastically
differs from pure market economies.
C2 Thus many mechanisms explain
significant institutional differences:
imperfection of information, increasing
returns, coevolution of technology and
institutions, and the role of polity in the
emergence of most economic institutions.
C3 International trade reinforces institutional
competitive advantage of each economy
but financial globalization may affect
adversely non market led economies.
C4 Market led economies should not be the
benchmark since at least four or five
distinctive configurations coexist among
OECD countries (probably much more
among emerging countries) and generally
do not deliver Pareto inferior outcomes.
C5 Each configuration has significant
margins of development and flexibility,
but conversely sources of weaknesses and
fragilities. The task of the economist is to
diagnose them.
C6 Financialization is diffusing all over the
world, but only the US experienced a
finance-led accumulation regime.
C7 The present sub-prime crisis is an
evidence for a general interpretation of
financial crises: private innovation but
lagging surveillance and public control.
Thank you for your attention
Robert BOYER
PSE (Paris-Jourdan Sciences Economiques)
48, Boulevard Jourdan 75014 PARIS, France
Tél. : (33-1) 43 13 62 56 –
e-mail : boyer@pse.ens.fr
web site : http://www.jourdan.ens.fr/~boyer/
