------------ EH.NET BOOK REVIEW --------------  
Published by EH.NET (November 2006)  
  
Leonard Seabrooke, _The Social Sources of Financial Power: Domestic   
Legitimacy and International Financial Orders_. Ithaca, NY: Cornell   
University Press, 2006. xvii + 223 pp. $45 (cloth), ISBN:   
0-8014-4380-6.  
  
Reviewed for EH.NET by David M. Andrews, Department of Politics and   
International Relations, Scripps College.  
  
  
This is an interesting book. The author, an associate professor at   
the Copenhagen Business School, begins by posing a conventional   
political-economy question -- how do states generate financial   
capacity? -- but addresses it unconventionally. Normally the focus of   
such a study would be, as the author puts it, on "the big end of   
town," meaning the relationship between large financial institutions,   
national regulators and economic elites. Seabrooke instead   
scrutinizes "the small end of town": the half of the population below   
the median income, and in particular the broad group capable of   
scraping together some savings without ever running the risk of   
amassing a fortune. Seabrooke insists that the everyday economic   
struggles faced by this group "have causal significance in shaping a   
financial system" (p. 1), and that understanding these struggles is   
necessary for a correct understanding of both domestic and   
international finance.  
  
The delicate financial relationship between state and society is well   
known, and it is hardly novel to argue against killing the goose that   
lays the golden egg. But Seabrooke's thesis differs from most in his   
focus on the role of non-elites. He draws attention to what he calls   
the "financial reform nexus": the cluster of policies affecting the   
tax burden, credit access, and prospects for property ownership of   
lower-income groups. Seabrooke argues that progressive (or what he   
calls "positive") state intervention in the financial reform nexus   
"deepens and broadens the domestic pool of capital and propagates   
financial practices that bring capital flowing back to the state" (p.   
xii).  
  
Central to Seabrooke's discussion is the concept of legitimacy.   
People have expectations about what forms of state intervention in   
the economy are appropriate; and while prevailing social norms differ   
across societies, and from one time period to the next, failure to   
act in consonance with those norms comes at a price. Seabrooke's   
careful case studies counter the conventional wisdom on a number of   
points; for example, he finds that state intervention in the   
financial reform nexus in Wilhelmine Germany was regressive   
("negative") rather than progressive ("positive"), as Berlin's   
policies consistently favored rentier over bourgeois interests. His   
focus on local expectations also leads him to unconventional   
conclusions, as in his characterization of U.S. financial policy in   
the 1990s. He argues that this was "positive" rather than "negative,"   
even though domestic income inequality was not relieved -- as this   
latter outcome was not a requirement for legitimacy under prevailing   
social norms.  
  
The four main cases -- England and Germany during the decades prior   
to the First World War, and the United States and Japan during the   
late twentieth century -- are excellent, and the evidence presented   
therein is sufficient to establish the plausibility of the book's   
main domestic thesis: namely, that there is an intimate connection   
between the everyday economic struggles faced by the lower half of   
the domestic population and the financial and political trajectories   
of individual states.  
  
The book's claims at the international level, however, find less   
support. It is certainly true that the cases underline how domestic   
interests shape the international financial policy preferences of   
leading states: for example, Seabrooke notes (as have others) the   
connection between the views of private U.S. banks regarding capital   
adequacy requirements and official U.S. policy on the same, leading   
to the Basel Accord in 1988. But that is a conventional story -- a   
story about how actors at "the big end of town" influence   
international policy. Seabrooke's intention is more ambitious.  
  
"The key proposition of this book," Seabrooke writes, "is that if a   
state intervenes positively to legitimate its financial reform nexus   
for lower-income groupings, it can provide a sustainable basis from   
which to increase its international financial capacity" (p. 173).   
More specifically, "if the principal state [in the international   
financial order] can legitimate its financial reform nexus to a high   
degree, it has a more sustainable basis with which to influence the   
international financial order and encourage other states" to organize   
their own domestic economies accordingly (p. 17).  
  
To test this thesis, the case studies are structured around two   
questions: why was Germany unable to replace England as the world's   
financial leader in the years before World War I, despite widespread   
contemporary expectations that it would do so; and likewise "why did   
Japan fail to wrestle primacy in the international financial order   
away from the United States" (p. 141) in the late twentieth century.   
Seabrooke concludes that a large part of the answer has to do with   
the failure of the challenger state to pursue progressive financial   
policies at home.  
  
This is a bridge too far. The domestic policies Seabrooke traces so   
heroically may indeed have played a role in sustaining England's   
financial dominance of one hundred years ago, as well as the   
hegemonic position of the United States today. But the evidence he   
mounts, while impressive, does not allow us to judge whether that   
role was decisive or incidental. The respective failures of early   
twentieth century Germany and late twentieth century Japan, after   
all, seem overdetermined.  
  
As Seabrooke employs numerous counterfactuals in this volume, I   
indulge in one here. Had the Japanese state adopted more progressive   
domestic financial policies toward its non-elites in the late 1980s   
and 1990s; and had these changes in policy permitted Japan to avoid   
entirely its long national economic stagnation -- a very big if, but   
let us grant it -- the external consequences would doubtless have   
been profound. Certainly Tokyo would have been in a much stronger   
position to influence the content of the international financial   
order -- to fight its corner and defend its interests. But it remains   
far from clear that Japan would then have been able to "wrestle   
primacy ... away from the United States," even a United States led by   
the far-from-progressive administration of George W. Bush (the   
subject of the book's epilogue).  
  
International financial primacy results from many factors. Domestic   
legitimacy, understood in Seabrooke's terms, is logically one of   
them. Whether legitimacy's influence is predominant, however, is a   
question ultimately left unanswered by this very provocative volume.  
  
  
David M. Andrews is editor of _International Monetary Power_ (Cornell   
University Press, 2006), and co-editor of _Governing the World's   
Money_ (Cornell University Press, 2002).  
  
Copyright (c) 2006 by EH.Net. All rights reserved. This work may be   
copied for non-profit educational uses if proper credit is given to   
the author and the list. For other permission, please contact the   
EH.Net Administrator ([log in to unmask]; Telephone: 513-529-2229).   
Published by EH.Net (November 2006). All EH.Net reviews are archived   
at http://www.eh.net/BookReview.  
  
-------------- FOOTER TO EH.NET BOOK REVIEW  --------------  
EH.Net-Review mailing list  
[log in to unmask]  
http://eh.net/mailman/listinfo/eh.net-review