What is the name of the book?
Michael Lee. 2020. From Malaise to Meltdown: The International Origins of Financial Folly, 1844-. (Toronto, Canada: University of Toronto Press).
What’s the argument?
Great-power competition over financial primacy is responsible for a number of severe financial crises, including, the Long Depression of 1873-1896, the Great Depression of 1929-1939, and the financial crises of the late 90s and 2000s).
Why is this the case? Financial hegemony brings with it substantial benefits, most notably reserve currency status. In order to successfully compete, rising powers need to lure financial institutions away from incumbent powers. They often try to make themselves more attractive to international finance by removing longstanding financial regulations.
This process can trigger competition among governments – of both incumbent and rising economic powers – to offer the more loosely regulated environment. Deregulation, in turn, increases the likelihood of boom-and-bust cycles, as bankers and investors take on greater risk in the pursuit of higher profits.
Why should we care?
We are bad at regulating financial firms. By one estimate only six of 117 countries have financial systems whose banks have adequate credit, avoid high risk loans, and still provide adequate credit for economic growth.
If we want financial regulations that can prevent crises, then they need to be designed to withstand external competition. This is a pressing concern. Should China, the European Union, or others seriously challenge the preeminent position of the United States in global finance, it will be difficult to sustain many of the post-2008 reforms that provide at least some protection against another financial meltdown.
Why will we find the book persuasive?
I make use of a wide variety of evidence, including from my own archival research.
I examine three cases in which deregulation by great powers led to severe financial crises: Anglo-French competition for financial leadership in the 1850s and 1860s (followed by the Long Depression of 1873-1896), Anglo-American competition for financial leadership in the 1910s and 1920s (followed by the Great Depression), and US-UK-Japan competition in the 1980s and 1990s (culminating in the 2008 financial crisis).
My research shows that concerns about international competitiveness tipped the balance in favor of those pushing for reduced financial regulations.
Why did you decide to write it?
I noticed a gap between the ways economists and political scientists were studying financial crises. Just as economists have begun to study financial crises using macrohistorical databases spanning centuries, political scientists have become focused on much narrower timespans and smaller questions. I saw a space for a macrohistorical approach that takes politics seriously.
If you could change anything about the book, what would it be?
I probably focused too much on the leading financial powers. A more complete account would involve greater attention to how the policies that they adopted spread to other states. It would also examine how states in the periphery of the international financial system can influence those in the core. For example, during the 1970s and 1980s Pinochet’s Chile was a test-bed for neoliberal ideas that were subsequently implemented in the United States..
How much difficulty did you have getting the book published?
I did not face particular difficulty in getting this book published, though I think junior scholars might benefit from my experience. When publishing an academic book there are two sets of gatekeepers: acquisitions editors and reviewers. I benefitted greatly from discussions with a number of acquisitions editors at academic conferences. I opted for a broad pitch, one that invoked books editors were familiar with (“would you be interested in looking at a project that is: Rise and Fall of the Great Powers meets This Time is Different”). I found interest from a number of acquisitions editors. I opted for the University of Toronto Press, and was very happy with the support and help I received from them.
Reviewers were supportive, but there were points of contention. One challenge with historical International Political Economy lies in defining and operationalizing concepts (such as “deregulation”) in ways that transcend a particular historical era. I must thank my reviewers for the ways they pushed me to make this book a better piece of research.