Download Giselle Datz, State of Change: Global Turmoil and Government

Giselle Datz
Virginia Tech
PAR Symposium
on the Financial
Crisis
State of Change: Global Turmoil and Government Reinvention
Giselle Datz is an assistant professor of
government and international affairs in the
School of Public and International Affairs at
Virginia Tech. Her main research interests
are state–financial market relations,
sovereign debt restructurings, and market
reforms in developing countries.
E-mail: [email protected]
The current global credit crisis is unfolding in a
demand are evident is again a solid source of insight.
context in which new dynamics in the engagement
The French state was never a poster child for unrestrictof the public sector and the market are taking shape.
ed laissez-faire. But it is perhaps a sign of the times that
This article explores some of these dynamics, especially
the “conservative” French president Nicolas Sarkozy
the reemergence of (re)nationalization initiatives,
delivered a eulogy for unrestricted market capitalism
as well as the growing use
in the fall of 2008. Indeed, the
of private methodologies for
severe problems that the global
… the severe problems that
asset management on the part
economy faces today are a test
the global economy faces
of some governments, which
of capitalism, but not a death
today are a test of capitalism,
behave as both financial market
sentence. National states are
but not a death sentence.
players and domestic economic
not simply returning to fiscalstabilizers. Hence, the article
ism, but are reinventing their
National states are not simply
discusses the return of the state as
dynamic and diverse relationreturning to fiscalism, but are
a traditional “public leviathan”
reinventing their dynamic and ship with the market. This has
involved in financial regulation,
been taking place in a condiverse relationship with the
as well as the work of sovereign
text in which global political
market.
wealth funds. The author
authority is being questioned.
concludes that at the heart of
This is clear in Jeffrey Garten’s
capitalism’s endurance lies this
description of a recent interacdiversity of public responses, which ultimately reveal
tion between U.S. and Chinese officials: “When U.S.
governments’ adaptable agendas and heterogeneous tasks. officials met with their equivalents from China, it was
the Americans who preached about how to cut banks
I think that capitalism, wisely managed, can probably loose from the government corset, why the yuan was
be made more efficient for attaining economic ends
mismanaged, how and when Beijing should further
than any alternative system yet in sight, but that in
open its markets and so on. [Recently, however,] it was
itself it is in many ways extremely objectionable. Our the Chinese officials who scolded the United States for
problem is to work out a social organisation which
its lax regulation and the virus it set loose in financial
shall be as efficient as possible without offending our markets.” Moreover, for the United States, being a large
notions of a satisfactory way of life.
debtor may mean “bearing the advice and criticism that
we have dispensed ad nauseam to other countries for
—John Maynard Keynes, The End of Laissez-Faire, 1926 over half a century” (cited in Friedman 2008).
The all-powerful market which is always right is
finished.…We have to have a new balance between
the state and the market.
—French president Nicolas Sarkozy, 2008
K
eynes is back in fashion. The British economist
who heralded the empirical inability of markets
always to revert to full employment, and advocated state intervention (through directed fiscal policy)
in times when huge imbalances between supply and
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Public Administration Review • July | August 2009
For the money manager Mohamed El-Erian, we are
witnessing a “fundamental realignment of global
economic power and influence” (2008, 14). What
underlies this realignment is a diversity of versions of state activism in different economies. We
see today, simultaneously, the reemergence of state
(re)nationalization initiatives, along with the growing use of private methodologies for debt and asset
management on the part of some governments,
which behave increasingly as financial market players
seeking higher returns to public investment abroad
and using these for countercyclical spending (part of
stabilization efforts) at home. Here, it is argued that
public responses to the global financial crisis that
include both a heightened traditional and interventionist role for governments in the economy and
strategic (private-like) investments to diversify and
maximize foreign reserves reveal adaptable government agendas that are key to capitalism’s endurance.
Global Transformations and State
Reinvention
Throughout the history of state formation, economic
crises marked critical junctures for the reorientation
of the role of the state in the economy. The unfettered
faith in the “invisible hand” of markets, able to function most efficiently when left undisturbed by regulatory or protectionist forces, was finally debunked
with the stock market crash of 1929 and the Great
Depression that followed. Keynes’s market skepticism
fueled a new set of policies toward managed capitalism in which state intervention was key to correcting
the imbalances that economic downturns ignited.
The post–World War II Bretton Woods system aimed
at international monetary stabilization and the development of financial globalization. The effort was initially
restricted by the pervasiveness of what Ruggie (1996)
terms the “embedded liberalism compromise,” that is,
economic liberalization accompanied by domestic social policies to balance the distributional effects of trade
opening. Incrementally, however, the market-oriented
reforms supported by Margaret Thatcher in the United
Kingdom and Ronald Reagan in the United States
gained prominence in developing countries as well.1
Policies such as trade liberalization, privatization, fiscal
austerity, and financial deregulation were largely taken
on by Latin American and Eastern European leaders
in the 1990s. The effort then was quite ambitious:
to transition to or try to consolidate new democratic
regimes and, at the same time, implement bold economic reforms, so strongly supported by international
financial institutions that they became known as part
of the “Washington Consensus” (Williamson 1990).
Those reforms were at the heart of neoliberalism, which
became the new development mantra, a road map embraced by legions of foreign-trained technocrats in developing countries (Biersteker 1995; Fourcade-Gourinchas and Babb 2002), where trial and error in fighting
rampant inflation had—by the early 1990s—exhausted
political and social resources in vain.
Moreover, neoliberalism at the time was a vigorous critique of and systematic reaction against state
interventionism (Krueger 1990), discredited by both
the failure of communist command economies in
Eastern Europe and right-wing capitalist profligacy in
Latin America (where it culminated in the debt crisis
of the 1980s). Of the developing regions, East Asia
was where economic growth had been most striking.
The contrast with Latin America’s “lost decade” of the
1980s led to the conclusion that instead of import substitution industrialization, export-oriented growth was
a more solid path to development (see Haggard 1990).
Trade expansion, indeed, was a core element of market
(or neoliberal) reforms in the early 1990s. With the
United States heralding the virtues of the “global
economy,” most developing countries joined the bandwagon of globalization, eager to put their comparative
advantages—so well identified by neoclassical economists—to their systematic economic benefit.
The component of financial liberalization in the
neoliberal agenda was far from an easy ride, however. Financial crises in the 1990s adversely affected
capital flows, domestic credit, and, ultimately, output
in places such as Mexico (1994–95), Asia (1997),
Russia (1998), and Brazil (1999), with effects that
later compounded the Argentine crisis of 2001.
More disturbingly, crises did not remain confined to
their epicenter. Rather, “contagion” effects were felt
throughout countries known as “emerging markets”
through herd (or mimicking) behavior on the part of
international investors.2 Despite these severe economic
downturns, and the costly adjustments different
economies underwent, developing countries did not
shun neoliberal policies. More populist rhetoric grew
in countries such as Argentina, Bolivia, Venezuela,
and Malaysia, to name a few. Nonetheless, overall,
governments from Brazil to China moved forward
with open trade policies, creating newer and broader
links with advanced and emerging economies, while
following a more mixed model to economic growth
than wholesale laissez-faire (Rodrik 2006).
These dynamics fueled a vast literature on global
political economy and globalization, which—since
the 1990s—has been keen on parceling out the role
of the state in the current phase of capitalism. Studies that claimed the state was withering away gave
room to more focused analyses of states as negotiators, trying to intersect national law with foreign
actors (Sassen 1999), especially through competitive
deregulation or reregulation linked to the preferences
or imperatives of foreign capital (Cerny 2005; Moran
2002; Vogel 1996). Although the scope of states’
autonomy to control monetary and fiscal policies was
constrained by economic globalization, in order to
profit from this process, the state (especially in developing countries) increasingly facilitated its development.3 States’ core purpose became the promotion
and institutionalization of global economic policies
and practices aimed at increasing competitiveness
and the potential for foreign capital attraction (Cerny
2005). To this end, states have endured internal
transformations. Sassen (1996) suggests that state
participation in implementing this global economic
agenda entailed the ascendance of what became
strategic agencies within the government apparatus,
State of Change: Global Turmoil and Government Reinvention 661
(Donahue and Nye 2002). Yet it is important to point
out a critical distinction. Analyses of market-based
governance emphasize transparency and accountability as the key private attributes imported by the public
sector. For Donahue, “market-based governance” can
be “characterized (at a high level of generalization) as
engineering into public undertaking a greater degree
of the intense accountability that typifies markets”
(2002, 7). This is so because private actors are concerned with reputation based on past performance
and the perception of other players as defining current
and prospective business relations.5 This emphasis on
accountability, however, overstates the extent to which
financial actors do act consistently in a transparent
and accountable manner, especially when it comes to
Governments, however, have not been confined to
risk exposure. If anything, the current crisis offers amderegulation or (more currently) to reregulation
ple evidence that transparency and accountability are
activities. Some are also playing a role as demand for
not a given in the operationalization of financial deals.
financial innovation and new
In addition, sovereign wealth
investment opportunities. In the
funds, in particular, are hardly
Governments…have not been
early 2000s, states in emerging
transparent institutions.
confined to deregulation or
markets became net exporters
(more currently) reregulation
of capital rather than importThe current phase of capitalactivities. Some are also playing
ers. Emerging market governism has become increasingly
ments, especially in the Gulf and
“what actors make of it” (Cerny
a role as demand for financial
Asia-Pacific regions, became less
innovation and new investment 2008). What states have been
content to leave large volumes
making of it ranges from
opportunities.…[S]overeign
of excess foreign reserves to
traditionally “public” activiwealth funds…challenge the
be invested in risk-free assets
ties—such as efforts to set up
traditional notion of “private–
with low return. From 2007
new regulatory firewalls—to
public divide” and public policy engaging in business transacto the summer of 2008, more
tions, following what is usually
audacious investments made by
literature on market-based
perceived as private investment
sovereign wealth funds (SWFs)
governance.
agendas.
were pursued. These SWFs
challenge the traditional notion
Governments as Market Players
of “private–public divide” and public policy literature
After decades of severe indebtedness, by the first
on market-based governance. On the first, for Sasquarter of 2008, many developing countries had acsen, globalization brought about the “restructuring of
cumulated a large volume of foreign reserves, made
the private–public divide,” where “forms of authority
early repayments of their debts to the International
once exclusive to the public domain [were] shifting to
Monetary Fund, and bought back foreign-currency
or being constituted in the private sphere of markets”
debts. The painful lessons from the financial crises
(2006, 184). Indeed, much of the globalization literaof the 1990s had been learned. It became evident for
ture focused on this process of increased state maremerging economies that reserve accumulation was
ketization. Yet, in an analysis of the SWFs, the private
an imperative to buffer sudden instability. The rise in
has to do with how, not who. These sovereign funds’
commodity prices and record high prices of oil led to
functions are still a responsibility of the state, yet they
trade surpluses in developing countries “unequalled as
count on specialized professionals with private experia percentage of the global economy since the beginence or outsource some services to be provided by the
ning of the 20th century” (ING Investment Manprivate sector in serving a public purpose. Also, SWFs
agement 2007). As Thirkell-White points out, “the
utilize models of risk management through hedging,
build-up of reserves in the postcrisis Asia suggests that
akin to that of private financial players. Hence, SWFs’
the need for finance is not so desperate that countries
competitive strategies take the understanding of a
are prostrate in the face of market pressure” (2007,
“competitive state” (Cerny 2005) to yet another level
36). Such growth is linked to the accumulation of
of specialization and interaction.
sovereign reserves in emerging markets through trade
surpluses. Indeed, many developing countries consoliMoreover, the notion of public policy or administradated their positions as capital exporters. This critical
tive/institutional change toward private “methodolochange marks a redistribution of international wealth
gies” may seem to resonate with the public policy
according to which large flows of publicly owned
literature on so-called market-based governance
namely, central banks, treasuries, and regulatory
agencies.4 If this was true of the initial phase of
intense financial deregulation, it is bound to be
even more of a prominent trend at the present time,
when the financial crisis initiated in 2007 has gained
historical proportions. Most Western governments
have been detecting as culprits unregulated financial tools that created interlinks within the system,
promoting contagion among different sectors of the
economy, as if in a domino fall (see Datz 2009). The
reaction from governments in most of the advanced
economies has been to try to contain the credit crisis
through large fiscal stimulus efforts and partial nationalization of major financial institutions.
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Public Administration Review • July | August 2009
funds are moving from developing to developed countries. This is what El-Erian calls a “complete transformation in the systemic role of developing countries in
the world economy” (2008, 31). Governments in the
developing world—not private players—are in control
of “the new international wealth” (Truman 2008, 3),
which is, however, not immune to global shocks.
A large volume of this wealth is held by sovereign
wealth funds, or government investment vehicles
funded by foreign reserve exchange assets that are
managed separately from the official reserves of the
central bank and the reserve-related functions of the
finance ministry (U.S. Department of the Treasury 2007). According to recent estimates, there are
currently about 70 SWFs (pension and nonpension
funds) in operation in 44 countries, holding approximately $5 trillion in assets—compared to $500
million in 1990 (UNCTAD 2008).6 Although some
SWFs date back to the 1950s, the overall number of
funds and their sheer size have only recently become a
matter of interest—especially so after China established its SWF, the $200 billion China Investment
Corporation, in 2007 (see http://www.china-inv.
cn/cicen). Though many SWFs have stabilizing
mandates—especially important for countries that are
highly reliant on exports of relatively volatile commodities such as oil—these funds are not simply saving for a rainy day. Rather, until mid-2008, they were
also investing strategically for the long term (ING
Investment Management 2007). In this sense, SWFs
mark a departure from the trend of investing foreign
reserves in liquid assets such as short-term U.S. Treasury bills and government securities issued by other
developed countries toward investment in high-return
equities (UNCTAD 2008).
According to the International Monetary Fund,
there are five types of sovereign wealth funds based
on policy objectives. There are stabilization funds set
up by countries that are rich in natural resources to
cushion volatility in commodity prices, savings funds
that “transfer non-renewable assets into a diversified
portfolio of international financial assets to provide
for future generations,” funds that operate as reserve
investment corporations pursuing policies with higher
returns,7 development funds that allege priority for socioeconomic projects, and sovereign funds that are in
effect pension funds (IMF 2007, 46). Some SWFs are
funded through central bank reserves (as in the case
of the giant funds from China and Singapore); others
are funded through export revenues of state-owned
resources (Abu Dhabi, Kuwait), taxation from exports
(Russia), fiscal surpluses (Korea and New Zealand), or
privatization receipts (Malaysia and Australia).
One of the key financial developments of the turbulent period of late 2007 and early 2008 was the way in
which emerging market governments, through their
SWFs, acted as early stabilizers of key commercial
and investment banks, plagued by ever-increasing
losses from the subprime crisis. Examples are many.
The Chinese Investment Corporation (CIC) invested
$5 billion in Morgan Stanley, which means that the
sovereign fund acquired a 9.9 percent share in the
company. That happened despite CIC’s losses in a
previous $3 billion deal with Blackstone, whose initial
public offering prices dropped more than 50 percent
after the deal was concluded. Singapore’s GIC and an
undisclosed investor from the Middle East invested
$12 billion in the giant Swiss bank UBS. The Abu
Dhabi Investment Authority injected $7.5 billion into
Citigroup late in 2007. The Kuwait Investment Authority invested $5.4 billion for equity capital stake at
Merrill Lynch before the latter was acquired by Bank
of America in September 2008. Many of these investments, however, led to large losses (Setser and Ziemba
2009). These losses taken on earlier investments are
being digested, not only by the funds but also by the
domestic public, which, in countries such China, is
voicing its discontentment over SWFs’ recent investments in the collapsing U.S. market.8 Given new
domestic imperatives, many funds are now poised to
support their domestic financial sectors or to sponsor
fiscal stimulus plans to support internal growth. In
this sense, SWFs are acting as part of the stabilizing
arsenal that countries all over the world are trying to
tap into. Ziemba (2009) points out that “even if some
of the planned stimulus packages do not come from
the SWFs themselves, the diversion of capital from
other government sources to offset the withdrawal of
private capital at home or abroad will decrease funds
available to SWFs.” That may calm some of the recent
international inquietude over the role of SWFs as new,
hungry “masters of capital” that would potentially try
to take high stakes in strategic industries, following
a political rather than a purely commercial rationale
(Summers 2007). Yet it does not diminish the salience
of these funds as rare pools of wealth in a deluge of
private financial losses.
Global Finance and the Return of the
Public Leviathan
If in some emerging market economies (especially),
states have behaved more like market players out of
a wish to diversify, hedge, and multiply accumulated
foreign reserves, in the United States, recent measures
to contain the global credit crisis and inject liquidity
into capital markets have entailed the nationalization
of private debts. The two developments are coincidental in time, but not in nature. The first has to do
with the behavior of governments that try to bring
to the public agenda the tools of a money manager
of public capital with—so far—limited transparency
as to investment strategies and (for the most part)
shielded accountability from domestic scrutiny. The
second move entails a traditionally public task of state
interventionism, displayed clearly in the Keynesian
State of Change: Global Turmoil and Government Reinvention 663
Indeed, as mentioned earlier,
measures implemented to deal
… we see the state, especially
the crisis of the 1990s taught
with the Great Depression in
developing countries how necthe 1930s. Now, we see the
in developed countries, trying
essary it was to decrease their
state, especially in developed
to inject capital and credibility
vulnerability to external shocks
countries, trying to inject capiin an ailing, panic-prone global
by building surpluses and better
tal and credibility into an ailing,
financial system as emergency
managing the structure of their
panic-prone global financial
measures, parts of an everforeign debts (Datz 2008).
system as emergency measures,
expanding “rescue plan” that
The reserves accumulated by
parts of an ever-expanding “resemerging markets were then
cue plan” that embraces risks,
embraces risks, but not as
channeled to finance public exbut not as voluntary investment
voluntary investment in search
in search of higher returns—as
of higher returns—as in the case penditures in the United States
and in Europe, as “America
in the case of SWFs. Rather,
of SWFs.
drowned itself in Asian liquidthese risks are the side effects of
ity” (Stephens 2008).
an exercise in reversing chronic
illiquidity and providing financial and psychological
That is not to say that countries that have accumuinsurance to the market.9
lated plentiful international reserves in the last couple
of years are not vulnerable to the impact of this now
SWFs themselves are becoming even more diverse
fully global crisis. Recently, the marked decrease in
a category in this new interventionist phase. For
investors’ risk appetite worldwide has resulted in a
example, France established its $25 billion “strategic
fall in short-term capital flows to emerging markets,
investment fund” in November of 2008. The goal
raising the cost of credit, pressuring currency devaluwas to “take stakes in large and strategically imporations, and, in some instances, leading to negative
tant [domestic] companies vulnerable to [foreign]
sovereign risk assessments (IMF 2008; Financial
takeovers because of falling stock prices” (New York
Times, November 20, 2008).10 This is the French state Times, October 13, 2008). At the same time, oil prices
have been dropping—as of October 2008—turndesigning a sovereign fund to counter what it sees as
ing the benign tide of large revenues from exports in
the potential threat of foreign and more investmentseveral emerging markets, especially those that host
driven SWFs.
some of the largest SWFs. Emerging economies that
rely heavily on short-term capital inflows or have
The distinction in different roles of state actors in
leveraged banking systems are particularly vulnerable
varied parts of the world is played out in a context
to the “recoupling” of the U.S. crisis. In contrast, as
so specific, it may well mark a critical juncture in
the International Monetary Fund reports, “sizable
the history of capitalism. For the first time since the
reserve cushions and favorable external balances in
wave of financial deregulation and integration started
many emerging markets and sound policies continue
under the guise of the 1980s neoliberal agenda, the
to provide resilience to global stress” (2008, 10). Such
epicenter of a global crisis has been in “the West.” As
resilience is undoubtedly being tested daily.
Stephens (2008) points out, “viewed from Washington, London or Paris, financial crises used to be things
The SWFs’ retreat since the fall of 2008 has not repthat happened to someone else—to Latin America,
resented an exit from foreign investment. As Ziembra
to Asia, to Russia. . . . Emerging nations got into a
mess; the west told them sternly what they must do to points out, Gulf states, for example, have about $150
billion to invest in 2008. Yet “large scale direct investget out of it.” The way out was through the intervenments from sovereign funds may be a thing of the
tion of the International Monetary Fund, advocating
past, particularly given the scale of the shakeup in the
increased fiscal restraint and higher interest rates.
financial sector” (2008, 4). More targeted operations,
The logic was to play a “confidence game” (Krugman
1998; Rodrik 2002) with international investors, aim- however, are under way. Temasek, Singapore’s SWF,
saw the value of its investments plunge about 31
ing at keeping capital flows from exiting or trying to
percent (to a total of $81 billion) in 2008. However,
attract them back home. These were usually measures
Temasek has alluded to plans to invest in Brazil and
that deepened recessions before they could reverse the
economic downtown. For that, they were heavily criti- Mexico (Financial Times, February 16, 2009) and
recently announced an expansion of its India operacized (Chang and Grabel 2004; Rodrik 2002; Stiglitz
tions. This marks an important trend in the nature of
2003). Now, we see something remarkably different
capital flows in the global economy. It is possible that
unfolding: “[T]he crisis started on Wall Street, trigSWFs will invest more in (other) emerging markets,
gered by the steep decline in U.S. house prices. The
reversing a long-standing pattern according to which
emerging nations have been the victims rather than
most capital flows originated from and were destined
the culprit. And the reason for this reversal of roles?
to developed countries (the so-called Lucas Paradox).
They had supped enough of the west’s medicine”
Temasek’s investment in India is part of a strategy to
(Stephens 2008).
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Public Administration Review • July | August 2009
“identify emerging champions
that are excellent proxies of
economic growth.” In the words
of one of the funds’ senior
managing directors, “in the
current scenario, with prevailing
capital scarcity, private equity
investments are likely to play a
pivotal role in global economic
recovery.” Expanding the fund’s
operations to the South of India
fits Temasek’s “approach of
patient long-term investment,”
aiming to “create deep value and
maximize returns” (Temasek
Holdings 2009).
While governments are
currently reviewing the freer
markets contract underlying
financial globalization since
the 1990s, some are also
following methodologies
tailored to corporations,
creating benchmarks for risk
taking while keeping an eye on
opportunities to generate returns
that will make them intensively
competitive and increasingly
innovative.
Indeed, a recent survey of senior
SWF executives reported in the
Financial Times (February 16, 2009) revealed that new
investment opportunities will be explored in 2009. According to one such executive, “We are ready to re-enter
the market in a major way,” yet not while prices keep
plunging. SWFs’ calculations and their strategic interest
in emerging markets are unfolding at a time when some
of these funds are growing concerned about the way the
United States keeps raising its debt bill. This has incited
questions about whether Middle East SWFs will remain
active buyers of U.S. government debt (Financial Times,
February 17, 2009).
Conclusion
In the last two decades, governments have undergone
important transformations in the constant challenge
to compete, adapt, and innovate in a realm of global
financial integration. The malleability of the role of
the state in the economy is at the heart of capitalism’s survival, not of its demise. The transformations
described here, then, are a story of adaptation and,
one predicts, endurance, however modified the rules
of engagement between states and markets.
While governments are currently reviewing the freer
markets contract underlying financial globalization
since the 1990s, some are also following methodologies tailored to corporations, creating benchmarks for
risk taking while keeping an eye on opportunities to
generate returns that will make them intensively competitive and increasingly innovative. As Froud, Leaver,
and Williams posit, what sustains the remaking of
capitalism today is the “proliferation of new actors,
contradictory agendas and multiple logics” (2007,
346) brought about by financial dynamics. The state
is hardly a new actor, but its role is being constantly
reconfigured according to its intrinsic heterogeneity
of tasks and responsibilities. Hence, the current crisis
marks not only a moment for a “new balance between
the state and the market,” as French president Nicolas
Sarkozy announced, but also a realignment of global
capital flows and a reassertion
of the state as a regulatory agent
as well as, in some countries,
an opportunistic investor. In
a global economy, however,
regulation is never a purely
local effort. Because regulatory
measures in a country may
drive investors to another where
the rules of the game are more
favorable for business, in the
absence of truly global coordination, we will likely witness an
age of intensified competition;
one marked not only by struggles among relatively flexible
private actors, but potentially
by politically constrained public
agencies as well.
Notes
1. It is worth noting, however, that even prior to the
United States’ and United Kingdom’s “neoliberal
turn,” Chile—under General Augusto Pinochet—
implemented its own market reforms.
2. The term “emerging market” is said to have been
coined in 1981 by Antoine W. van Agtmael, an
employee of the World Bank’s International Finance
Corporation. Although definitions vary, emerging
markets are characterized as transitional, meaning
that they are in the process of moving from a closed
to an open market economy, while building transparency within the system. These economies usually
offer an opportunity to investors who are looking to
add some risk, and hence higher than benchmark
returns, to their portfolios.
3. In some instances, the state even dared to react
assertively to international creditors in complex
debt restructuring deals in which the defaulters were
far from shunned from the international financial
markets—such was the high appetite of foreign
investors guided by short-term horizons (Datz,
forthcoming).
4. In her latest work, Sassen (2006) extends this argument to include an expansion of executive powers
in the United States (continued and deepened by
the George W. Bush administration) in a realm
of heightened security concerns, withering civil
privacy, and increased secrecy.
5. Studies of market-based governance are concerned
with the role of government as a customer in,
for example, contracting private health care
(Eggleston and Zeckhauer 2002) or nonprofits
(Frumkin 2002).
6. These calculations do not account for the large losses
incurred especially in the third quarter of 2008.
7. Often, these are assets still understood as “reserves.”
8. The Washington Times (2008) reported that Chinese
Internet sites revealed popular indignation at the
State of Change: Global Turmoil and Government Reinvention 665
Blackstone and Morgan Stanley investments made
recently by the China Investment Corporation.
The critique was that “China has enough to address
without helping to correct American blunders,
and some say the United States is getting what
it deserves after lecturing China on its economic
management.”
9. On October 13, the U.S. government announced
that $250 billion of its $700 billion rescue package would be injected into the domestic banking
system. The U.S. Treasury will be talking nonvoting preferred shares in large banks, redeemable
after three years. The securities will pay an annual
dividends of 5 percent for the first five years, which
will rise to 9 percent after that. Also, the government will receive warrants to convert them into
common stock. In addition, the Federal Deposit
Insurance Corporation is setting up a temporary
guarantee of senior debts of all federally insured
institutions, along with all deposits in non-interest-bearing accounts (Financial Times, October 14,
2008).
10. In February 2009, the French fund acquired
8.33 percent stake in Valeo SA, the second
largest auto parts maker in the country. This
was part of an ongoing effort by the Sarkozy
administration to help the French auto industry
(Bloomberg, February 25, 2009).
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