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First published March 2005

The Global Diffusion of Regulatory Capitalism

Abstract

This article analyzes the rise and diffusion of the new order of regulatory capitalism. It offers an analytical and historical analysis of relations between capitalism and regulation and suggests that change in the governance of capitalist economy is best captured by reference to (1) a new division of labor between state and society (e.g., privatization), (2) an increase in delegation, (3) proliferation of new technologies of regulation, (4) formalization of interinstitutional and intrainstitutional arrangements of regulation, and (5) growth in the influence of experts in general, and of international networks of experts in particular. Regulation, though not necessarily directly by the state, seems to be on the increase despite efforts to redraw the boundaries between state and society.

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1.
1. In the study of change, most attention is devoted to privatization. Yet from a theoretical point of view, privatization is not necessarily the most interesting aspect of change. Other aspects of what I describe as the “regulatory revolution” may well be more important.
2.
2. Neoliberalism is defined for my purposes as a transnational political-economic movement that appears as a reaction to the social-democratic hegemony of the postwar period and that advocates freer markets and less government. The criterion of its success is therefore the separation of markets from politics.
3.
3. Command and control regulation is conventionally understood as the “old” way and as “the staple diet of many politicians....It refers to the prospective nature of the regulation (the command) supported by the imposition of some negative sanction (the control)” (Gunningham and Grabosky 1998, 4).
4.
4. Following Polanyi (1944), the condominium model suggests that “states and markets are part of the same integrated ensemble of governance.... The regulatory and policy-making institutions of the state are one element of the market, one set of institutions, through which the overall process of governance operates” (Underhill 2003, 765). Political economy often leaves “society” out of the analysis. For some theoretical foundations for a state-market-society model, see Migdal’s (2001) “state in society” approach.
5.
5. Even the globalization literature seems to shift away from, or at least refine, the consensus on the demise of the nation-state (Guillén 2001, 254).
6.
6. A privatization event is documented when some shares, however few, in the incumbent public operator(s) are transferred to private ownership. Often, the process of selling all the shares lasted many years. In these cases of multistep privatization, the earliest year of privatization is documented in Figures 1 and 2. For regulatory authorities, the years refer to the start of operation, not to the date of legislation. Because the sources of the data vary (see below), the countries that are covered do not necessarily overlap. Data were collected by the author. Beware: some over determination of the diffusion process in the figures is due to the collapse of the Soviet Union, which increased the likely number of candidates for privatization in the 1990s when compared with the 1980s.
7.
7. Some of the analysis in this section rests on Levi-Faur and Gilad (2004).
8.
8. It would be a mistake to examine the notion of regulatory capitalism only from the point of view of more or less regulation or even of the “right” or balanced mixture of public control and individual freedom. Regulatory capitalism is driven and shaped to a large extent by the technologies or instruments of regulation.
9.
9. This seems to have inspired the British Labour government of Tony Blair to change the name of the Deregulation Unit set up by the Conservatives to the Better Regulation Unit.
10.
10. RPI minus X is a method of price regulation whereby tariffs of monopolies are regulated according to the Retail Price Index (RPI) minus some measure of efficiency (X). It was first applied to British Telecoms in 1984 and then extended to other British utilities as they were privatized. It is now widely used across different sectors and countries (Baldwin and Cave 1999, 226-38). This instrument is the brainchild of Professor Stephen Littlechild. See the twentieth anniversary collection of the Littlechild Report (Bartle 2003).
11.
11. Diffusion studies are often inspired by models of technological innovation (Bass 1969; Baptista 1999) as well as by a long sociological tradition (Ryan and Gross 1943; Coleman, Katz, and Menzel 1957). More recent breakthroughs are associated with the introduction of aspects of threshold behavior (Granovetter 1978), event history methodologies(Berry and Berry 1999; Box-Steffensmeier and Jones 1997), and diffusion in social networks (Burt 1987; Marsden and Friedkin 1993; Macy 1991).

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Article first published: March 2005
Issue published: March 2005

Keywords

  1. regulatory capitalism
  2. regulatory state
  3. contagious diffusion
  4. regulatory explosion

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David Levi-Faur
RegNet, the Research School of the Social Science, Australian National University, and University of Haifa

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