Special Issue: The Political Economy of Pension Financialisation: Public Policy Responses to the Crisis by Anke Hassel & Marek Naczyk & Tobias Wiß

Author:Anke Hassel & Marek Naczyk & Tobias Wiß [Hassel, Anke & Naczyk, Marek & Wiß, Tobias]
Language: eng
Format: epub
Tags: Nonfiction, Social & Cultural Studies, Political Science, Government, Public Policy, Reference & Language, Law
ISBN: 9781000710991
Google: H593zQEACAAJ
Publisher: Taylor and Francis
Published: 2020-05-21T04:00:00+00:00

Established explanations for state intervention in financial welfare markets

Market failures feature prominently in explanations for state intervention in financial markets (for an overview see Moloney 2010). Markets for financial welfare services are indeed characterised by several important market-failures, in particular information asymmetries (Barr 2012: 209). Most people don’t understand the basic financial concepts that are required to make good decisions (Mitchell and Lusardi 2011). Complexity in financial products means that ‘some people end up with high-cost options because they lack the necessary information or capacity to make good choices.’ (Barr 2012: 210). Furthermore, most people don’t shop around to find the best deal, which hinders competition on which markets depend to drive prices down (Pitt-Watson and Mann 2012). Nonetheless, keeping in mind that the main problems of private pension costs were well understood since the 1990s (see for example Orszag and Stiglitz 2001; Whitehouse 2001), market failure as such cannot account for variation in the timing and scope of interventions.

A widespread political-economy explanation for variation in state intervention refers to the ability of industry to shape regulations to serve its special interests. The theoretical argument that policymakers will prioritise narrow, specific interests over those of the public at large has been made under several monikers, including the ‘logic of collective action’ (Olson 1965), the ‘privileged position of business’ (Lindblom 1977), and ‘regulatory capture’ (Peltzman 1976; Stigler 1971). The basic argument is that it is easier and less costly for a smaller group with high stakes in the outcome to mobilise and influence regulatory decisions, than it is for larger groups with smaller stakes. Business groups in particular are well-positioned to ensure that their preferences are reflected in regulatory decisions. Not only does business possess structural and instrumental power over elected politicians (Culpepper 2015; Hacker and Pierson 2002; Lindblom 1977); special interests can also ‘capture’ regulators and administrators on basis of their industrial expertise or by offering the prospect of attractive career opportunities (for recent reviews, see Bó 2006; Etzioni 2009).

Nevertheless, the ability of welfare providers to influence policy-decisions is restricted by the responsiveness of policymakers to electoral pressure (Gingrich 2011; Gingrich and Häusermann 2015). Culpepper has argued that capture by special interest groups is more likely when the ‘political salience’ of the issue at stake is lower – meaning that decisions are not likely to affect voters’ behaviour (Culpepper 2010). When voters do care about decisions, decision-makers also take public opinion into account; reducing the scope for business to exert their influence on basis of their expertise or strategic communication of structural importance.

In conclusion, to explain state interventions in financial welfare markets, past scholarship suggests that we have to look at the relative strength of organised interest groups, as well as the level of political salience. Accordingly, the puzzling shift in the UK should be explained by higher willingness of voters to punish and reward the government on basis of introducing stricter intervention; or by changes in the relative influence of organised interests (such as declining influence of the financial sector).

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