Financial crises and the politics of adjustment and reform

Abstract

This chapter is a critical survey of the literature on international financial crises and their consequences for national politics, with a focus on national-level policy choices and political outcomes. After distinguishing conceptually among adjustment, reform, and political change as three broad families of political consequences to financial crises, it reviews three broad analytical approaches to the study of post-crisis political outcomes. Interest-based approaches center on the specific economic consequences of different kinds of financial crises, and look to policy outcomes as a consequence of the interaction between distributional pressures and national political-economic profiles. Institutional approaches address the ways in which institutions mediate the articulation of interest group pressures. Ideational approaches emphasize the constitutive power of ideas in making sense of financial crises. The concluding section identifies several promising areas for future research, highlighting in particular the importance of international context for conditioning the effects of international financial crises on domestic politics. It also highlights some general methodological problems with studying the highly complex economic and political consequences of financial crises.