is it different

DebatePolitical Responses to the Economic Crisis: Is itDifferent this Time?CeDRICDUPONT ANDFLORENCEPASSYGraduate Institute of International and Development Studies,Geneva University of LausanneResponding to the financial and economic crisis that began in 2007-2008–commonly called theGreat Recession–has been a challenging and pressing problem for many governments, but inparticular, for the advanced capitalist countries of Western Europe. These countries haveexperienced their most severe economic downturn since the 1930s. In this issue of the SPSR, weasked a set of prominent scholars to discuss and revisit several of the key existing results andexpectations in comparative political economy in light of the events observed so far. While it isstill too early to come up with a full understanding of the political dynamics in motion, this setof contributions provides a series of interesting observations and results that should stimulatefurther debate and research. In the remainder of this introduction, we both announce things tocome and put them into context.Different from what: Which comparative perspective?In the midst of efforts to avoid a global economic plunge in 2008-2009, policy makers andanalysts alike were quick to compare the turn of events to the Great Depression, whichbegan with the 1929 financial crisis in the United States. Later, with things evolving lessdramatically than in the 1930s, the comparison was maintained but reframed as a differ-ence between a Great Recession and a Great Depression. For policymakers, and in partic-ular central bankers, this was a very powerful catalyst for action (it suffices to count thenumber of references to the Great Depression in the communiques of the G20), and latera source of self-congratulation in terms of how the events of 2008-2009 were handled. Yet,one may discuss from a “colder” analytical viewpoint whether the benchmark of the GreatDepression is the most appropriate point of comparison. What makes it an obvious refer-ence point is both the extent of the shock and its diffusion. The 1929 financial crisis in theUnited States spread first to Europe and then became a worldwide economic crisis withsevere falls in national output and demand, as well as in international trade flows. Formany macroeconomists, this has provided adequate grounds for comparison and even forrenewed celebration of the work of the late Charles Kindleberger (DeLong and Eichen-green 2012). With the exception of Johannes Lindvall, contributors to this debate eitherprefer other points of historical comparison for a small set of countries (in particular thecountries studied by Peter Gourevitch in hisPolitics in Hard Times) or prefer to work withlonger time series for OECD or European countries, explicitly or implicitly recognizingthat too much has changed, nationally and internationally, to warrant a focus on theSwiss Political Science Review 18(4): 498–501doi:10.1111/spsr.12014©2012 Swiss Political Science Association Great Depression. In a quest to understand how governments respond to big and widelyspread economic shocks, Jonas Pontusson and Damien Raess argue that the internationalrecession of 1974-76 and the structural economic problems of the second half of the 1970sshould be the benchmark. For Peter Hall, any work on the crisis should first acknowledgehow different varieties of capitalism have formed over decades, both in normal times andin times of crisis. David Rueda and Ben Ansell consider the crisis in the perspective of pol-icy evolution and preference changes since the early 1980s. Lastly, Hanspeter Kriesi, whileresponding to Lindvall’s contribution, puts the current crisis in the larger context of votesunder conditions of economic recession. The variety of comparative frameworks used bycontributors to this debate is illustrative of the richness of work conducted by political sci-entists but of course does not lead to the same kind of scientific cumulation (leaving asidewhether this is a good or a bad thing) that can be observed in some domains of macroeco-nomics. This should serve as an important caveat for our discussion below.Yes it is differentGiven the dominance of supply-side macroeconomics on the eve of the crisis, the relativelyuniform choice of fiscal stimulus and financial bailouts among countries studied by thecontributors to this debate emerged out as a key difference from reactions to the crises ofthe 1970s and 1980s. At that time, as argued by Pontusson and Raess, the dominantchoice was selective industrial interventions in favor of some sectors, which included tradeprotectionist measures as well as currency devaluation. While it is too early to be certainthat the protectionist temptation will be avoided (Evenett 2012), it is indeed remarkablehow limited trade distorting measures have been so far compared to the range of “innova-tive” barriers implemented in the 1970s-1980s, such as for instance “voluntary” exportrestraints in the automobile and electronic sectors.For Pontusson and Raess, sources of this first major difference are to be found in amore permissive macroeconomic situation marked by low inflation, more binding interna-tional constraints regulated by the World Trade Organization, and a decrease in the powerof organized labor as well as in the interest of organized business. All the more remark-able, according to Pontusson and Raess, is that the current emphasis on financial bailoutshas been facing less political resistance (in the short term at least) than the selective indus-trial policies of the 1970-1980s.A second important and novel feature of the current response is the weakness of gov-ernment efforts to compensate the unemployed. For Pontusson and Raess, Keynesianresponses are therefore liberal in nature rather than social, and focus on the financialassets of voters more than on their jobs. They concur with Ansell’s argument that thecrisis is marked by what he calls the “asset dominance” politico-economic model underwhich policymakers focus on the provision of credit during good times and the stabiliza-tion of asset prices and the provision of liquidity during bad times. The current crisis isnot the cradle of this model but is its first major test for a “bad times” scenario and sofar it seems to hold up to empirical scrutiny. In particular, there has been less supportfor social insurance programs in countries with significant house price appreciation, andin cases where real estate bubbles have burst, no striking return to the model of“employment dominance.” For Rueda, the absence of generous social policy responses isabove all a manifestation of the dualization of labor markets between workers withhighly protected jobs, so-called “insiders”, and “outsiders” who include a large pool ofindividuals holding precarious jobs. Unemployment has so far mostly hit the outsidersPolitical Responses to the Economic Crisis499©2012 Swiss Political Science AssociationSwiss Political Science Review (2012) Vol. 18(4): 498–501 (i.e. immigrants, the young, and unskilled workers), which has been met with weak socialpolicy responses in countries with high levels of market segmentation. These countriesinclude some of those currently most affected by the crisis, in particular Spain, Portugal,and Greece. In contrast, countries in which social policy responses have been relativelystrong are those with lower levels of labor market segmentation such as the USA, UK,New Zealand and Australia. An open question, however, is whether this combination ofhigh dualization and low social policy responsiveness is politically sustainable and if not,how long it will last.No it is notWhereas contributors to this debate do identify changes in governments’ policy responses,a focus on electoral behavior reveals continuity, with previous episodes. For Kriesi, elec-toral processes in 30 European countries since 2008 strongly confirm the major finding ofthe literature on economic voting that incumbents are voted out in elections in times ofeconomic recession. Given that the recession is particularly severe, and in most countries,clearly attributed to governments, the effect on incumbents has been particularly strongand fast. In countries with more than one electoral process since 2008 and an ongoingacute economic slump, the interesting result is the tendency to choose outside of main par-ties, including radical, “anti-parties” or to abstain. Similarity is also the main conclusionof the contribution by Lindvall, albeit from a different angle. Using the comparison withthe Great Depression, he argues that who governs matters and that there is a distinctivepattern of success between the left and the right. Based on data for 20 democracies in the1930s and 2000s, Lindvall contends that the political right fares relatively well during thefirst phase of a crisis (up to three years after the start of the crisis) but that in a secondphase the left begins to significantly benefit from sharp economic downturns. This shiftoccurs when pivotal middle class voters begin to be personally affected by the crisis. Ifthese results hold, this would tend to indicate that the dominance of the asset model andthe combination of dualization and low social policy responsiveness discussed by othercontributors are unlikely to last very long.Looking at political responses beyond the electoral arena does not reveal much differ-ence either according to Kriesi. In hard times, individuals resort to all available institution-alized channels, including the use of referenda and protests. Clearly, Europeandemocracies have not been accustomed to seeing protests, particularly of a violent nature,against government austerity measures. However, such processes have been both frequentand diffuse in developing countries over the last twenty years, notably when austerity isassociated with the intervention of international institutions. Given the extent of changebrought by such processes outside of the developed world, there is legitimate concernabout the repercussions in European countries with less firmly established channels andplatforms of political contestation. As outlined by Hall, this makes it all the more impor-tant for the European Union to go beyond the mythology of the European MonetaryUnion as a supply-side mechanism, to enforce convergence on deeply different capitalisteconomies. The crisis, from this perspective, has reinforced the validity, relevance andimportance of the dichotomy between coordinated market economies and mixed marketeconomies. Such a dichotomy will remain for a long time, and therefore SouthernEuropean, as well as many Central and Eastern European countries, cannot prosper underthe same monetary roof as their Northern counterparts only by emulating Northern reci-pes. The convergence of responses discussed above is from this perspective to be lamented500Cédric Dupont and Florence Persy©2012 Swiss Political Science AssociationSwiss Political Science Review (2012) Vol. 18(4): 498–501 rather than celebrated, at least in the context of the Eurozone. Another policy difference isneeded, namely the build-up of transnational fiscal coordination to allow for the syn-chronic prosperity of different varieties of capitalism in Europe.In sum, the contributions to this debate highlight that there is no simple answer to thequestion of whether the political responses to the current crisis are different to those result-ing from previous episodes of severe economic recession. They do reveal however thatmuch is still to be done in order to understand the political dynamics, such as the choiceof specific tax and budgetary policies for balancing budgets, as well as the specific effectsof increased interdependence at the international level on the array of domestic choicesavailable to governments. This second dimension will be the focus of a second round ofcontributions that will appear in the next, or next but one, issue of the SPSR.ReferencesDe Long, Bradford and B. Eichengreen (2012). A new preface to Charles Kindleberger, the World inDepression 1929-1939, available at www.voxeu.org.Evenett, Simon (ed) (2012).Deb^acle: the 11th GTA Report on Protectionism. London: CEPR.Political Responses to the Economic Crisis501©2012 Swiss Political Science AssociationSwiss Political Science Review (2012) Vol. 18(4): 498–501 Copyright of Swiss Political Science Review is the property of Wiley-Blackwell and its content may not becopied or emailed to multiple sites or posted to a listserv without the copyright holder's express writtenpermission. However, users may print, download, or email articles for individual use.