Ruling ideas: How global economic paradigms go local and

survive adversity

Introduction

What happens when new economic ideas get to where they are

going? And why is it that once they are localized some survive

economic crises while others don’t? This book argues that the

dissemination of economic ideas does not always end with the

replication or rejection of those ideas. Instead, its typical outcome

comes in the form of local adoptions drawn from international

templates. These hybrids, as I call them, produce on-the-ground

institutional variations that other theoretical approaches struggle to

explain. This dynamic translation process does not take place in a

power vacuum, however. It is instead enabled and constrained by

both local actors and global institutions whose power shapes the

choice between the main effects of diffusion (replication,

hybridization, rejection) as well as their chances of survival following

systemic economic crises. To make this argument the book looks at

the translation of heterodox and orthodox economic ideas in Spain

and Romania since 1945.

This argument offers a novel explanation as to why most

countries mix orthodox and unorthodox policies and do not in fact

exercise a stark choice between the wholesale adoption or rejection

of foreign economic paradigms. It tells us that at the domestic end

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of diffusion are reflexive translators and not passive “adopters” of

the latest policy paradigm. Finally, the book explains why during the

past half a century hybrids based around heterodox economics

could not survive systemic economic crises whereas those anchored

in orthodox economics did even when they faced crises that were a

lot more challenging for their ideas than those that the heterodox

had to deal with.

Background

The book anchors the analysis of Spain and Romania since 1944 in a

broader systemic account of the dissemination of economic ideas by

comparing how each fared under two very different regimes: the

embedded liberal period (1944-1976) and its crisis (1976-1983), the

neoliberal era (1983-2007) and its crisis (2007 to the present).

Doing so brings to the fore agents and institutions that have

hirtherto received little attention in the literature on economic ideas

and institutional change. In addition to “usual suspects” like the IMF,

the World Bank or the European Commission, the book explores the

role of the economics profession, transnational political party

networks, think-tank networks, and the domestic organizations of

multinational capital. Each chapter shows how these actors

transplanted, promoted, and modified ideas that varied over time

and space, sometimes enabling and sometimes contesting dominant

economic ideas and the actors that promoted them.

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Each of the two countries is examined in a period of stability

and a period of crisis. In short form, Spain emerged from the Second

World War with an import substitution model typical for the period.

This inward-looking developmental state focused on state-led

industrialization, protectionism, and corporatism. The model ran into

repeated balance of payments crises and in 1959 a particularly

severe one brought the IMF to Madrid for the first time. The Fund

advised the government to adopt a more liberal economic model

but since the international economic ideas of the time had a broadly

neo-Keynesian policy thrust, the focus was on external liberalization

alongside homespun counter-cyclical macroeconomic policies and

industrial policy.

In line with the focus on how hybrids are formed, I argue that

rather than simply adopt the IMF template as offered, Spanish

reformers layered the Fund’s broadly Keynesian ideas with French

ideas about macro-level planning and industrial policy. Making this

more complex still were another set of domestic actors, mainly

home-grown economists, that threw into the mix a critique of

Keynesianism that came from Germany’s dominant brand of

“liberalism with rules” - Ordoliberalism. The resulting hybrid was an

outward-looking economic model that was closer to the Korean or

Japanese developmental state than anything that the IMF had

envisaged.

During the 1960s this hybrid brand of liberal-

developmentalism delivered some of Europe’s highest growth and

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industrialization rates. Yet by the mid 1970s this model was

challenged, like many others of a similar kind, not only by oil crises,

but also by the erosion of its intellectual base as a result of the

international dissemination of neoliberal economic ideas. Indeed, by

the 1980s a much more neoliberal economic paradigm became the

new normal in Madrid. Nevertheless, despite these ideas being

‘already present’ Spanish policy elites did not pursue either the

Thatcherite or Chicagoan versions of neoliberalism that were

ascendant at the time. Instead, they hybridized these neoliberal

ideas with existing local ideas about industrial policy, the virtues of

progressive income redistribution, massive public spending on the

supply-side of the economy, and the expansion of the state’s fiscal

footprint.

During this period the same neoliberal ideas were also

shaping the European Union integration process and especially the

terms in which the euro was adopted. This parallel diffusion

facilitated a great deal of financial integration and cross border

financing that was to prove fatal to Spain in 2008. When the Spanish

hybrid was challenged by the post-2008 crisis, the initial reaction of

policy elites was to recalibrate the local policy paradigm by

strengthening its interventionist elements and downgrading its

neoclassical ones. Indeed, prominent Keynesians such as Joseph

Stiglitz and Paul Krugman joined the council of economic advisers of

the Spanish government and gave their blessing to the largest fiscal

stimulus in Europe. The EU was not at all pleased and it took a great

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deal of external coercion, the exceptional historical context of the

post-2010 sovereign debt crisis of the Eurozone’s periphery, and a

dramatic domestic swing in public opinion (in part engineered by

the EU) to the political right for the Spanish government to reverse

course and accentuate the neoliberal characteristics of the country’s

variety of capitalism.

It was also hybrids rather than replicas of imported economic

ideas that dominated policy design in Romania. During the late

1940s, Romania went from economic liberalism to Stalinism in short

order. Soon after the establishment of the new regime however,

domestic agency kicked in, resulting in a development paradigm

that layered Soviet economics with dependency theory and selected

Western ideas about trade liberalization. Similar to 1960s Spain, the

outcome was a hybrid that led to rapid growth and industrialization.

And as was the case in Spain, the underlying combination of

economic theories was very different from what its architects—in

this case in Moscow—had envisaged. Yet unlike Spain, the crisis of

this local brand of developmentalism that followed the debt crisis of

the early 1980s led to the radicalization of its core ideas (Soviet

economics) rather than to any new economic paradigm.

The resilience of this hybrid brand of neo-Stalinist

developmental state hybrid was short-lived. It was brought down by

a popular revolt in 1989 after a decade of extreme austerity (the

response to the debt crisis) and at the very peak of neoliberalism’s

international intellectual influence. One might therefore have

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expected a strong swing to economic liberalism. But that is not what

happened. Instead, post-communist Romania experienced six years

of an economic hybrid inspired in equal measure by neoliberal and

entrenched developmental ideas. Over time and following several

crises and many political interventions by the International Financial

Institutions such as the IMF, the EU and a wide array of private

actors such as international think-tanks, this local paradigm gave

way to a new policy hybrid built on a neoclassical economic base

but layered with an incoherent mix of libertarian (or Austrian School)

ideas and arguments from the most conservative fringe of public

choice theory.

Like in Spain, this localized version of neoliberalism survived

the systemic crisis that started in 2008. But unlike the Spanish

policy elites, their Romanian counterparts used the crisis as an

opportunity to take their neoliberal agenda in an even more market-

fundamentalist direction, often against the advice of the

international economic organizations like the IMF and the World

Bank that de facto put them in charge a decade earlier. Indeed,

while in Spain the 2008-2009 crisis opened the door to Keynesian

ideas and policies, even if they were firmly shut by 2011, in

Romania it led to a fundamentalist neoliberalism that left even less

room for non-neoliberal macroeconomic, social, or industrial

policies.

This analytical excursus is empirically important for three

reasons. First of all, to understand why hybrids take the form that

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they do, the book focuses on the interaction of the systemic and the

domestic levels of analysis rather than choosing one level and

“bracketing” the other, as much of the existing literature does. In so

doing it shifts the focus of the existing literature from how global

structures constrain domestic choices to how domestic agents

transform or reproduce dominant ideas, placing their agency across

levels of analysis. Given such a focus, the eventual composition of a

hybrid is as much an outcome of the politics of the ideas being

translated, a term I elucidate below, as it is of the material and

institutional resources that support some ideas and exclude others.

Second, studying these local hybrids is important because

they are the generators of the institutional path dependencies that

explain why Spain’s neoliberalism and Romania’s neoliberalism,

while cut from the same intellectual cloth, have produced quite

distinct policy regimes. This clarifies why we see great variation in

national economic regimes around the world rather than the

clustering of types predicted by the Varieties of Capitalism approach

and related approaches (Hall and Soskice 2001; Hall and Thelen

2009; Bohle and Greskovits 2012). Domestic agency mediates the

structural power of global economic paradigms in critical ways, even

in paradigm-taking states situated outside the “core” of global

capitalism.

Third, the study of policy hybrids tells us why domestic policy

stakeholders empowered certain actors and marginalized others.

They help us understand why Spain’s transition to democracy and

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integration into Europe produced a welfare sate and extensive

public investment alongside a dual labor market and extensive

deindustrialization. They also explain why Romanian policy leaders

pursued more economically heterodox policies for almost a decade

after the fall of the Ceausescu regime before making an extremely

sharp turn to the right. At which point they constructed, quite

deliberately, a dependent market economy with low levels of

distribution that had little space for industrial policy.

Focusing on local hybrids rather than diffused paradigms lets

us see how local versions of Anglo-American macroeconomics and

German microeconomic theory led Spain to develop one of the most

industrialized economies in the world, which was then actively

dismantled, in favor of domestic banks and energy companies with

a global reach. The answer has very little to do with either asset

specificity or the will of the IMF. It also elucidates why the Romanian

state eviscerated the country’s extensive industrial base and

effectively sold almost all its banks and energy companies to

multinationals. It helps us understand why in the aftermath of the

Lehman crisis Spain turned away from the neoliberal policy regime

until it was forced back in the fold. Meanwhile, Romanian policy

elites used the post-Lehman crisis as an opportunity to deepen

neoliberalism’s local reach.

The main self-imposed limitation of this book is the fact that it

operates at the elite level of analysis. This is not an unimportant

aspect since it makes the problematic assumption that the

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legitimacy of the diffused policies is based on some kind of elit

proclamation (Hobson and Seabrooke 211). While coherent

economic policy teams sequestered from broader socio-political

influence may make the rules undisturbed in most contexts

(Chwieroth 2007), in others the problem of legitimacy is much more

problematic and may beg not for assumptions, but for the kind of

empirical investigation that the “everyday” IPE has been doing

(Hobson 2007; Hobson and Seabrooke 2007).

Literature review

Overview

Political economists have reached a point where they can boast a

sophisticated account of how domestic policy choices are shaped by

transnational and domestic politics. During the past decade a rich

literature has analyzed economic globalization through as a process

of diffusion that makes the economic policies of states look

increasingly similar. (Elkins and Simmons 2005; Lee and Strang

2006; Simmons et al 2006; 2008; Dobbin et al 2008; Kogut and

MacPherson 2007; 2009; Appel and Orenstein 2012). When

combined with interest-based (Gourevitch 1996; Swank 1997;

Culpepper 2011) and/or historical institutionalist accounts (Hall and

Soskice 2001; Thelen 2012; Martin and Swank 2012), the literature

on diffusion can provide an integral account of why this

convergence has led to enduring varieties of capitalism rather than

capitalist uniformity.

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Transnational diffusion has an old tradition in political

economy. In 1975 Collier and Messick’s (1975) wrote a ground-

breaking but largely ignored study of the transnational diffusion of

social security.1 Gourevitch’s (1978) classic “second image

reversed” put transnational diffusion back on the map and during

the 1990s the topic experienced a boom in globalization studies

(Garrett 1998; Milner and Keohane 1996). More recently, the

“second generation” literature on transnational diffusion in IPE

kicked off by Simmons and Elkins (2004) mobilized complex

quantitative models and large datasets to demonstrate that national

economic policies are less endogenously-determined and path-

dependent and more unstable and subject to exogenous change.

(Simmons and Elkins 2004; 2005; 2006; Braun and Gilardi 2006;

Jordana and Levi-Faur 2006; Swank 2006; Lee and Strang 2006;

Elkins, Guzman and Simmons et al 2006; Weyland 2007; 2009;

Simmons, Dobbin and Garrett 2007; 2008; Mesenguer 2009; Gilardi,

Fuglister and Luyet 2009; Messenguer and Gilardi 2009; Gilardi

2010). 2 The current state of the art suggests that the dissemination

of economic institutions and policies takes the form of some kind of

global or regional hegemony that occurs through specific

mechanisms such as coercion, social learning, socialization or

simple emulation (for an overview see Dobbin et al 2008).

1 Americanists have been researching policy diffusion across US states since the 1940s (McVoy 1940; Walker 1969; Gray 1973; Volden 2006).2 For a review of the “foil”, the historical-institutionalist perspective on stability through path-dependence in IPE, see Pierson and Skocpol 2002.

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The added value of this literature cannot be overemphasized.

It makes a strong empirical case for the interconnectedness of

national policy spheres and provides us with a sophisticated

methodological toolkit for studying them. Critically, rather than

leave the diffusion of economic ideas to economic historians

(Colander and Coats 1989; Maes 2008; Kurz 2011), it overcomes

unproductive epistemiological battles and acknowledges the role of

ideas and social construction more generally alongside rationalist

and structuralist mechanisms (Elkins and Simmons 2005; Dobbin et

al 2008). Elkins and Simmons (2004) put the socialization argument

to the test in their quantitative exploration of the diffusion of trade

liberalization. For some, ideas are an obligatory passage point

rather than just another causal mechanism in the race. Lee and

Strang (2006) for example, show that policymakers do not engage

in purely rationalist learning and learn only lessons that are

supported by their beliefs, as they are defined by current economic

theory (Lee and Strang 2006).

Others went as far as engaging with the very mechanisms of

diffusion. Some show that ideas themselves diffuse through the

emulation of leading countries’ ideas, as in the ritualistic copying

strategies identified by the “world polity” school started by John

Mayer (Haveman 1993; McNamara 1998), or through neighbor and

shared religion effects (Simmons and Elkins 2004). Others

emphasize the socialization of domestic epistemic communities by

global groups of experts (Edelman 1992; Fligstein 1990; Babb 2002;

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Enrione et al 2006; Kogut and MacPherson 2007), leading up to

what DiMaggio and Powell (1983) called “normative isomorphism.”

Critique

These are important advances but more work is needed to fill in

important gaps that leave the phenomenon underexplained and

undertheorized. Critically, the literature makes the problematic

assumption that economic policies always diffuse as unprocessed

“scripts” and that in this process at the domestic end of the

diffusion process one can expect to find domestic

“receivers”/”adopters.” The rich (and related) literature in

constructivist political economy is plagued by the same gap. Some

of the studies done in this tradition have convincingly demonstrated

show in moments of crisis old economic paradigms suddenly perish

and new ones arrive, acting as Weber’s switchmen of history (Hall

1993; McNamara 1998; Blyth 2002; Mandelkern and Shalev 2010;

Drezner and McNamara 2013). Other constructivists show how ideas

can shape policy in an incremental fashion and without the

opportunity window provided by systemic crises that problematize

actors’ interests (Chwieroth 2007; 2009). Concerned primarily with

theorizing the conditions under which new economic ideas shape

policy outcomes independently of non-ideational factors, most of

the contributions belonging to both of these constructivist camps

assume that if the new ideas diffuse, they are copied in whole cloth

from some (usually external or “foreign”) innovator.

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This assumption is controversial and creates analytic black

boxes. It is uncontroversial because a slew of studies have shown

that the “receivers” are anything but passive and unreflexive. The

same assumption is unproductive because it obscures critical

aspects of the dissemination of economic ideas. As John Campbell

(2009) put it, this “thin” diffusionist logic does not tell us “ what

happens when an institutional principle or practice arrives at an

organization‘s door step and is prepared by that organization for

adoption. Here the story often ends and it is assumed that the

principle or practice is simply adopted uncritically. We are left,

then, with a black box in which the mechanisms whereby new

principles and practices are actually put into use and

institutionalized on a case-by-case basis are left unspecified.”

Many studies in the sociology of knowledge show that rather

than doing “copy and paste” on ideas developed in foreign “labs”,

they tend to actively filter and even reshape the ideas to be diffused

before “adoption” (Sahlin Andersoon 1996; Bockman and Eyal 2002;

Kogut and MacPherson 2008; Campbell 2009; Fourcade and

Savelsberg 2007; Fourcade 2009). In one of the few studies in

political science that reflects these advances made by sociologists

beyond the “world polity” tradition popular among IPE

constructivists, Amitav Acharya (2004) provides a dynamic

analytical framework for understanding how Asian translators of

Western ideas about human rights engaged in localization, a

process that “may start with a reinterpretation and representation

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of the outside norm, including framing and grafting, but may extend

into more complex processes of reconstitution to make an outside

norm congruent [my emphasis] with a preexisting local normative

order” (Acharya 2004: 244). Such insights can easily “travel” in

research on the transnational diffusion of economic ideas. On the

other end of the transition process, Broome and Seabrooke (2012)

showed that international organizations adapt their message to

national policy spheres based on tailored economic analyses that

make their member states ‘legible’ and lends IOs greater legibility

to construct cognitive authority in specific policy areas. These

studies inspired the theoretical and empirical foundations on which

a part of the analytical framework of this book is built.

Second, the existing literature assumes that domestic

translators always swing on a pendulum between two extreme

positions: full replication (“copying and pasting”) or the full rejection

(“displacement”) of the imported ideas. This perspective leaves

aside a third outcome that is neither perfect replication, nor

absolute rejection: the hybridization of the content, not only of the

form, of imported ideas with other ideas, be it domestic or foreign

ideas of a different origin. Despite the fact that for economic

historians the diffusion of economic ideas is largely a story of

hybridization, this finding seems to be lost in political economy. This

book embraces this challenge not only by mapping out Spanish and

Romanian hybrids of orthodox or heterodox economic ideas, but

also by theorizing the conditions under which these three outcomes

14

are probable. To this end, it uncovers the role of three translation

mechanisms: framing, editing and grafting.

Third, the state of the art on the diffusion of economic ideas in

political economy gives short shrift to the specific material and

institutional contexts in which it occurs. Yet translation does not

take place in a power and institutional void. This book aims to fill in

this gap by drawing on studies of various professional ecologies,

many of them connected to each other (Seabrooke and Tsingou

2009) and “dealing in” economic ideas and institutions. These

studies show that the material, status and institutional resources of

the bearers of epistemic authority weigh heavily on their agency

(Fourcade 2006; 2009; Seabrooke 2013; Baker 2013) and that the

allocation of these resources is increasingly determined by

international actors (Fourcade and Barnett 2004; Broome 2011; Ban

2011). The book fills in this gap by complementing the constructivist

analysis of elite socialization with an analysis of how these forms of

power are deployed to tilt the ideational playing field in favor of one

group of translators or another and to expand or shrink the space

for hybridization.

Fourth, none of the existing studies that deal explicitly with

the diffusion of ideas are embedded in the comparative analysis of

the fate of different paradigms following systemic crises that

challenge their fundamental tenets. Instead, they are based around

the study of a single economic paradigm as it travels across national

epistemic communities and policy institutions. A handful of studies

15

examine the spread of Keynesianism (Hirschman 1989; Hall 1989)

and most of them study the dissemination of neoliberalism in

general and (new) neoclassical economics in particular (Campbell

and Pedersen 1996; Bockman and Eyal 2002; Lee and Strang 2006;

Chwieroth 2007; 2009; Dezalay and Garth 2010; Hu 2012). Others

have examined the sources of the latter’s resilience following the

Great Recession (Schmidt and Thatcher 2013). Yet none of these

strands of scholarship studies the two diffusion processes

comparatively across crises and therefore they are not helpful in

clarifying why Keynesianism did not survive the Long Recession of

the 1970s whereas neoliberalism survived the much more

challenging Great Recession. The case selection strategy of this

book takes on this challenge heads on.

Finally, much of the in-depth research on the diffusion of

economic ideas focuses on a few critical cases from the developed

world such as the UK, the US, Israel or Sweden (Hay 1999; Blyth

2002; Matthiis 2009; Fourcade 2009; Lindvall 2009). Yet most of the

world is not Sweden or Israel. And it is even less like the UK, or the

US, two countries that, for better or worse, generate most of the

world’s ruling economic ideas. Most states are more like Spain and

Romania, that is, paradigm-takers of the global political economy

and ‘students’ of dominant economic ideas. As such, the diffusion of

dominant economic ideas to such states and, crucially, the

translation of these ideas into some local hybrid form by local elites,

the dynamic missing in other accounts, tells us more about the

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particular historical trajectories of economic policy and domestic

institutions than standard studies on how ideas travel.

Nevertheless, for countries like Spain or Romania one can find

little guidance in the relevant literature on the diffusion of economic

ideas in peripheral and semi-peripheral contexts because existing

studies focus on the diffusion of neoliberalism to a regional context

(Latin America) with two idiosyncratic characteristics: acute US

geopolitical interests and domestic economic elites willing to invest

in the diffusion process. The “Chicago Boys,” to take a familiar

example, were encouraged and even bankrolled by powerful

business and state actors from their home countries as well as by

US foundations and government actors (Silva 1991; Markoff and

Montecions 1993a; 1993b; Montecinos 1997; 2009; Coats 2001;

Teichman 2001; Babb 2001; Dezelay and Garth 2002; Biglaier 2002;

Silva 1996). The presence of such factors is a lot less clear in the

countries studied by this book.

Theory

By drawing on previously unrelated strands of scholarship this book

proposes a theory of the dissemination of economic ideas and their

resilience (or lack thereof) following systemic crises that challenge

their fundamentals. It argues that new economic paradigms become

domestically embedded through translation processes that involve

both domestic and external ideational entrepreneurs who use three

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main translation devices, depending on the context in which they

find themselves: framing, editing and grafting. Through framing,

translators alter the form of imported ideas, leaving their content

intact, while through editing, they layer ideas about the instruments

and settings of the imported paradigm with domestic ideas. Editing

leaves the main goals of the paradigm untouched but grafting does

not. Through this translation mechanism translators join together

the very goals of the imported and domestic policy paradigms.

The freedom to translate is neither unlimited, nor shaped by purely

contextual factors. Translators’ freedom to move closer to grafting

on the spectrum decreases with the degree of their embeddedness

in centralized transnational socialization networks and their

exposure to international actors invested in the replication of

imported ideas. And for their translation activities to have any

bearing on what policies and institutions are actually adopted, they

must be able to occupy strategic sites in centralized policy spheres.

Far from being a contingent development, this outcome depends as

much on their external empowerment and own success at the

competitive enlistment of allies in coalitions that crowd out their

adversaries. Below is a detailed discussion of each of these seven

propositions.

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New economic paradigms become domestically embedded through

translation processes that involve both domestic and external

ideational entrepreneurs.

Translation refers to the process whereby ideational

entrepreneurs called translators adapt to local conditions economic

ideas invented and/or developed abroad. The translators can be as

diverse as economists, civil servants, civil society organizations,

corporate holders of technoscientific knowledge or even exceptional

individuals. Also, as Broome and Seabrooke (2012) remind us, the

domestic end of translation is as important as its external one.

Rather than be separated by institutional walls, they inhabit

ecologies connected by “revolving door” phenomena that make the

governance of transnational diffusion a very dynamic affair indeed

(Seabrooke and Tsingou; Fourcade and Khourana 2013, 2009).

These actors do their translation work either through incremental

interventions into policymaking, or by taking advantage of crises as

critical junctures that destabilize the existing ideational and/or

policy equilibria as their point of insertion.

Drawing on the sociology of knowledge inaugurated by Bruno

Latour (1986; see also Callon 1986; 1998; 2002; 2003; 2007; Law

1999; Callon and Cohendet 1999; Muniesa and Callon 2007; 2009)

and on Nitsan Chorev’s sociology of recursivity in international

diffusion (Chorev 2013), the book submits that there should be no a

priori boundary between external diffusers and domestic translators

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and that translation activities should be understood as co-

participation in innovation and adaptation of the content of the

innovation to context-sensitive use. This insight simplifies research

design by focusing our attention on networks linking external and

domestic translators rather than on the traditional troika of

diffusers, brokers and translators from the orthodox diffusion

literature. The challenge contained in the analysis of this process of

network expansion would be to measure the strength, the patterns

and the outcomes of these transnational networks over time.

Through framing, translators alter the form of imported ideas,

leaving their content intact.

Pioneered in sociological studies of contentious politics (see

Snow and Benford 20001 for a review), framing has become a well-

established concept in constructivist political economy (Jabko 2006;

Hay 2007; Crespy 2010; Avent-Holt 2012; Schmidt and Thatcher

2013). It refers to a dynamic process that “sells” new economic

ideas to broad domestic constituencies by recalibrating them so that

they resonate with widely-shared domestic economic histories,

political myths or morality tales about how the society and the

economy work. For example, at the start of the financial crisis of

2008 Spanish policymakers framed austerity as unjust, stressing its

coercive character. In contrast, their Romanian counterparts framed

it as deserved and even morally necessary, deploying entrenched

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domestic morality tales about local incapacity, moral deviance and

cultural backwardness.

While framing is certainly an important translation strategy,

viewing the problem in this way does lead one to skim the actual

content of imported ideas. Consequently, it relegates domestic

translators to a “packaging” job in a local back office. The book

suggests a different view and shows that these translators are not

passive recipients who unreflexively “sign for delivery” and then use

the new ideas as if they were immutable scripts that can, at most,

be creatively framed. Instead, translators can take advantage of

evolving contexts and actively challenge and change their content

through processes that I call editing and grafting.

Through editing, translators layer ideas about the instruments

and settings of the imported paradigm with domestic ideas, but

leave its policy goals untouched.

Unlike framing, editing is more than a sales pitch. If successful

framing means the rhetorical engineering of a higher resonance

with existing ideas, editing refers to adding new content to the

imported ideational status quo without concern for their substantive

resonance. Because the displacement of central tenets of the

imported ideas is difficult given their institutionalized path-

dependence, translators can layer extent economic ideas with

imported ones in a way that does not challenge the central tenets

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(or goals) of the imported paradigm. Through editing, ideas such as

the post-war ‘neoclassical synthesis’ or its contemporary

counterpart (‘New Consensus Macroeconomics’) become more

locally recognizable, more legitimate, and therefore more resistant

to local challenges.

Editing can moderate or radicalize. For example,

(neo)liberalism’s market-disciplinary content or developmentalism’s

drive to expand the reach of the state in the economy. As the term

suggests, the scope of editing is limited because it must maintain

the core distinctiveness of the imported ideas. The resulting hybrid

affects what some scholars (Hall 1993; Blyth 2012) have termed the

instruments and settings of policy, but leaves its core goals

untouched. The result, therefore, can only be non-paradigmatic

change that stops short of displacing the ruling paradigm.

Editing is for ideational change what historical institutionalists’

“layering” is for institutional change: a mechanism of change that

works in a non-confrontational manner to alter the policy status quo

within path-dependent structures (Hecker 2002; Streeck and Thelen

2005; Mahoney and Thelen 2009; Martin and Swank 2012). The

difference is that historical institutionalists view layering as an

instrument of incremental change and expect that over time they

could cumulatively add to paradigmatic, path-departing change, the

conceptualization proposed here does not accommodate either of

the two outcomes.

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To illustrate, in both Spain and Romania neoliberalism was

layered with ideas salvaged from the debris of local

developmentalist paradigms such as notions of industrial champions

and a penchant for corporatist institutions. But at no point did

Spanish or Romanian translators give up on the main goals of the

neoliberal paradigm such as trade liberalization, sound finance, and

FDI promotion. Nevertheless, the editing of these imported ideas

with local ideas helps explain why, even after the neoliberal turn of

1982, Spanish policy makers strove to maintain a considerable state

presence in the shareholding structure of strategic sectors, but then

used it to help globalize domestic firms. Openness was thus married

to industrial policy in a rather unique way. Through this process

Spanish policy makers designed a moderate kind of neoliberalism

that was “embedded” in both the state’s economic strategies and in

social demands for a robust welfare state. At the same time this

editing allowed Spanish policy makers to distance themselves from

what organized labor, capital and the civil service wanted. It also

explains why, in contrast to Spain, Romanian policy elites’ local

edits resulted in policies to integrate the most competitive economic

sectors into foreign-owned supply chains and financial flows. Local

elites here radicalized and “disembedded” the market, in spite of

strong societal demands for a vigorous domestic economic base.

Through grafting, translators join together the very goals of

the imported and domestic policy paradigms.

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Grafting cuts deeper into the body of imported ideas than

does editing. As the name suggests, it entails the incremental

joining together of paradigms that are otherwise difficult to

reconcile as a whole.3 Where editing produces neat layers of

imported and domestic ideas without shifting the underlying goals,

grafting more roughly blends by juxtaposition and analogy as well

as synthesis, the goals of economic paradigms. Following grafting, it

is difficult to say whether the hybrid is predominantly imported or

local. Unlike editing, its cumulative effect could trigger a transition

into the displacement of one of the two ideational “stems” being

grafted. This can mean either paradigm shift or, as Andrew Baker

showed in the case of macroprudential norms after the Great

Recession, a ‘gestalt flip’ or third order change in Peter Hall's terms,

that is not yet a paradigm shift, because “the development of first

order policy settings and second order policy instruments is still

ongoing, giving the ideational shift a highly contested and

contingent character” (Baker 2013).

The book argues that grafting is more likely to occur when

some of the policy goals of the local paradigm speak to either the

broader legitimacy concerns of the international actors spreading

the new paradigm and/or to those of the domestic translators. The

alternative accounts to editing and grafting that could be drawn

from rationalist approaches (Korememnos et al 2001; Korememnos 3 Amitav Acharya used the term grafting in the context of the diffusion of human rights in Asia (Acharya 2009).

24

and Snidal 2003; Eleches 2009) would emphasize instead the higher

costs of paradigm change relative to the adaptive change entailed

by editing or grafting.

By way of example, consider how the process of grafting

unfolded in Romania in the early 1990s. For more than half a

decade, local Romanian translators grafted neoliberal and

developmentalist policy goals into a heterodox economic paradigm

that allowed them to stave off a fundamental neoliberal shift.

However, the intrinsic tension between neoliberal and

developmentalist policy goals rendered the hybrid unstable —much

more so than hybrids produced by editing, such as Spain. What

destabilized and ultimately terminated this hybrid was that the

external advocates of neoliberalism joined forces with rival domestic

translators that subjected heterodox goals like full employment and

industrial policy to evaluation techniques originating in neoliberal

theories (e.g. New Public Management, public choice), while

external but sympathetic critics oversaw and funded these critiques

of policy. Over time, this advocacy network created a new

intellectual and policy space where the heterodox goals appeared

increasingly unrealistic and even self-defeating, which made

possible a final transition to an extreme version of neoliberalism

Next, the book specifies the scope conditions under which

translation shapes not just domestic economic ideas, but domestic

economic policy as well. To do this, it connects the ideas of the

relevant policymakers to the concrete institutional contexts in which

25

they are embedded. This part of the book underscores that

translation does not take place in a power vacuum, nor does it

happen automatically. In fact, it often fails, leading to the rejection

or the deep alteration of the imported paradigm in the policy

sphere. It argues that the outcome of translation hinges on two

processes. The first is the permanent transnational socialization of

some policy stakeholders, such as central bankers or top

technocrats, while the second is the transnational coercion process

whereby some economic ideas (e.g. price stability, central bank

independence, sound finance, the seniority of foreign creditors) are

regarded by actors with high leverage (international organizations,

financial markets) as non-negotiable “standards of civilization” in

state behavior (McNamara 2002; Epstein 2005; Erce 2013). As a

result of these forms of structural power maintenance, the space for

grafting and editing on these ideas is restricted.

Translators’ freedom to use grafting and editing rather the

replication of imported ideas decreases with the degree of their

embededness in centralized transnational socialization networks.

Transnational elite socialization has been studied almost

exclusively under the rubric of graduate training in US economics

departments. An extensive literature documented the role of US

graduate education for Latin America’s “Chicago Boys” of legend

(Silva 1991; 2009; Valdes 1995; Montecinos 1997; Babb 2001;

26

Dezalay and Garth 2002). Jeffrey Chwieroth went a step further and

demonstrated the relevance of this argument on a quantitative and

cross-regional basis (Chwieroth 2007). The basic hypothesis

advanced by this scholarship is that if transnational socialization is

sustained and allows for little dissent, then replication should be

expected.

But the literature glosses over the corollary of this hypothesis:

the more frequent and intense are such interactions, the more likely

they are to alter and then path-dependently fix the ideational

preferences of these actors. Also, while the study of socialization via

graduate education is a compelling direction that this book adopts

as well, the present volume contributes to the state of the art by

uncovering a broader spectrum of transnational socialization

channels and theorizing the conditions under which they favor

replication or hybridity.4 First, it submits that socialization through

graduate school need not take place in the US or even abroad.

Indeed, many committed neoliberal policymakers in Eastern Europe

received their training in economics in non-US and often domestic

graduate programs with disciplinary norms that aim to approximate

US programs and with transnational teaching staff credentialed by

prominent journals and academic departments. In Spain, a star

German microeconomist who moved to Madrid is credited with

putting training in economics on a robust neoclassical basis for more

4 In finding this track I am indebted to the research of Diane Stone and colleagues on the formation of global knowledge networks among economists, IOs, think-tanks and research institutes (Stone 1999; Stone and Denham 2004; Stone and Maxwell 2005).

27

than half a century. Some of the most activist technocrats who

never studied abroad became professionally resocialized into the

goals of the neoliberal paradigm via stints in international economic

organizations.

Moreover, the book shows that in the specific context of post-

authoritarianism, when the borders of the economics profession are

fluid, some prominent translators of neoliberalism need not even be

trained in economics to claim epistemic authority and act as

translators of neoliberalism. While domestic political idiosyncrasies

can be of relevance here, the book finds that the most important

instrument to pry open the profession to amateurs is via frequent

interactions with international economic organizations or

membership in transnational civil society networks linking together

official development aid agencies, think tanks, foundations and

exceptional individuals whose agenda merges political and

economic liberalization.

Finally, follow-up and low domestic adoption costs are of

essence in shaping the space for hybridization. It is submitted that

the effects of graduate school socialization wither out whenever the

economists trained abroad drop out of transnational professional

networks and become exposed to domestic career incentives or

socialization processes that come with different economic ideas.

Peer pressure, epistemic hierarchies or international scientific

recognition of one’s work make sure one stays a Keynesian or a

neoliberal disciplined into producing replicas rather than hybrids

28

only as long as the one remains “in the loop.” This means replicas

are more likely than hybrids in the case of policy intellectuals whose

work and training entails regular surveillance by peers or superiors

(central bankers, fiscal council economists, academic economists

whose professional status depends on recognition by mainstream

journals and non-governmental sector economists living on grants

lent by organizations with narrow policy agendas). In contrast,

hybrids are more likely in the case of translators that are more

loosely connected to transnational socialization networks and more

exposed to swings in the domestic political and professional agenda:

the policy intellectuals of political parties and the executive branch

or academic economists who remain only loosely attached to the

main sites of the US centric economics profession.

Translators’ freedom to use grafting and editing rather the

replication of imported decreases with their degree of exposure to

international actors invested in the replication of imported ideas.

Transnational socialization can be deployed together with or

separate from the transnational coercion of domestic translators. In

political economy, the study of coercion via conditionality or

financial market disciplining has been one of the most fruitful

vectors of research. This book contributes to this literature by

arguing that one need not limit its ambit to the diffusion of policies

and that there are good reasons to support its analytical relevance

29

when trying to figure out how much space is there for hybrids as

opposed to replicas of global policy paradigms. As an extensive

literature on central banking or fiscal policy shows, the kind of

economic ideas that domestic policymakers use in public is not

irrelevant to their international audience (Friedman 2003; Kohn and

sack 2003). This power is structural and is no mere signaling device

because it is generated automatically thorough the manipulation of

economic costs and benefits via policy conditionality or the lending

of credibility to a country elite in front of international bond

markets. The same is true for the manipulation of professional

incentives by powerful gatekeepers or the monopolization of

information and use of macroeconomic models (Fourcade 2006;

Barnett and Finnemore 2004).

It is these forms of power that domestic translators in the

periphery can’t effectively reshape or mediate without incurring

extensive material damage. While there is room for translation on

labor market, tax or income redistribution issues, price stability,

central bank independence, sound finance or the seniority of foreign

creditors are ideas whose hybridization entails costs in term of

refinancing one’s debt or accessing foreign direct investment

(Mosley 2004; Gabor and Ban 2013; Ban 2013). As such, by banning

the public use of some economic ideas, these coercive devices

radically constrain domestic actors’ freedom to translate whenever

they are deployed successfully. Policy episodes from Spain (2008-

2009) and Romania (1991-1996) show that through policy

30

conditionality and sovereign bond market channels these external

agents extracted a very high material price for grafting orthodox

neoliberal ideas with heterodox ones. In both cases coercion

terminated bold grafting exercises and exacted submission in the

form of replication of the core ideas of the neoliberal paradigm.

The translators of new ideas can alter the menu of policy choices if

they occupy strategic sites in centralized policy spheres, an

outcome that depends as much on external empowerment and their

own success as the competitive enlistment of allies in coalitions that

crowd out their adversaries.

Critically, ideational hybrids do not automatically translate into

policies. For that to happen, domestic translators must be able to

secure institutional support for their hybrids in strategic sites of the

policy sphere. Existing scholarship shows that new economic ideas

matter the most when they are advocated within a cohesive policy

team dominated by a critical mass of advocates for the new ideas

able to screen out old or competing ideas (Babb 2002; Chwieroth

2009; Lindvall 2010).

The book confirms this argument when it shows how the

Spanish and the Romanian translators of neoliberalism were not

able to shape economic policy in a decisive way until

democratization ushered in a critical mass of neoliberal economists

into the prime minister’s office, the economic ministries, and the

31

central bank. Similarly, the debacle of Spain’s brief Keynesian

moment (2008-2009) shows how the forces favoring paradigm

change were eventually overwhelmed by a broader and better

endowed network of experts invested in paradigm maintenance.

But the book also advances the state of the art in two ways.

First, it makes the case for the centralization of policy institutions

within the executive, the coordination between the cabinet and the

ruling party/coalition and the informal institutions that shape the

activity of the main policy actors. Decentralized government and

conflictual executive-ruling party relations in Romania between

1990 and 1991, 1996 and 2000 and 2006-2010 thwarted many of

the efforts of neoliberal translators to make their imprint on policy.

In contrast, greater centralization during the 2000-2004 and 2010-

2012 periods helped them. The same is true of the informal policy

institutions. In Spain during the 1940s and early 1950s as well as in

Romania during the 1980s and early 1990s, hostile informal

institutions effectively put dense filters on the transformation of

economic ideas imported by policy intellectuals into sources of

inspiration for policy. Moreover, in all these cases informal

institutions did not reward transnational epistemic linkages or did

not recognize externally-certified expertise such as expectations

about who is an appropriate interlocutor or what constituted

respectable references, models, or data installed more filters.

Second, the book draws on the sociology of knowledge to

study the politics through which the translators of new ideas come

32

to dominate the commanding heights of the policy sphere: the head

of state’s advisory body, economic ministries, central bank and top

policy consulting. This can be done through the crowding out of

their intellectual foes and the redefinition the interests of non-expert

policy officials in terms of the translators’ own ideas. Sociologist of

science Bruno Latour’s showed that scientists are eminently political

actors who work to enlist others in their networks in order to serve

as resources in their professional struggles with other economists.

The basic aim of this competitive enlistment is to accumulate status,

information and material resources while black-boxing certain

ideas,5 objects and facts so that they can appear unproblematic. As

Latour puts it, in this strategic process of network expansion “the

rules are simple enough: weaken your enemies, paralyze those you

cannot weaken, help your allies if attacked, ensure safe

communication with those who supply you with indisputable

instruments, oblige your enemies to fight one another” (Latour,

1987: 37).

In semi-peripheral and peripheral contexts like Spain and

Romania the politics of competitive enlistment tend to be of the

transnational kind. The book shows how in both countries this was

the result of the intervention of international organizations and

transnational party networks in the allocation of political

appointments in high policy positions, lending respectability or 5 The basic idea behind this competitive enlistment is not only to attack and defeat opposing ideas, as suggested above, but also to create webs of relationships so strong that ideas and facts that are inconvenient become blackboxed and become invisible in the terrain of struggle by morphing into conventions.

33

access to data and macroeconometric models to some economists

and withholding them from others. For example, during the 1980s

as well as after 2010, Spanish policymakers appealed to neoliberal

economists because they calculated that, by delegating to

economists, they will make their economic policy choices more

credible to international official and private creditors whenever

there is an international policy consensus on the matter of

relevance. In turn, translators can enroll politicians and civil

servants to their cause by framing their ideas in such a way that the

latter’s interests would appear as impossible to realize in the

absence of the advice given by translators. For example, a local

economist acting as translator for neoliberal ideas would advise a

social-democratic party executive that the party’s long term

electoral interest lies in knowing the answer to the question “How

does current account liberalization benefit the working class more

than capital controls?”

The resources invested in transnational translation

infrastructure proved to be another factor that determined

paradigm survival in crises. Under embedded liberalism

international organizations or the Western academic profession

investing only scarce resources international diffusion activities. This

weak diffusion infrastructure stands in sharp contrast to orthodox

economics, whose number of diffusers and investments in diffusion

activities grew exponentially during the 1970s. The IMF spun a

global network of training institutes for national bureaucrats from

34

economic agencies. The World Bank began to bankroll both

professional as well as amateur civil society research. Foreign aid

agencies, international think-tanks and political party networks

created new domestic interlocutors and reproduced the policy

influence of old ones while actively weakening opponents.

As a result, once leading economists and international

economic organizations defected Keynesianism, structuralism and

other heterodox schools of thought, there were few international

actors with global reach ready to defend heterodoxy against its

critics. In contrast, the translation infrastructure of neoliberalism

was so extensive that over time the deck became stacked against

paradigm shifts while the incentives to do paradigm maintenance

became greater than ever. Unlike embedded liberalism,

neoliberalism survived the disconfirming evidence that began to pile

up soon after the 1980s sovereign debt crisis, throughout the crises

of Eastern Europe and Asia and culminating with 2008 crisis and the

failure of austerity.

Alternative explanations for the case of Spain

Rational learning

In the case of Spain, the book challenges the popular argument that

the country’s route to embedded neoliberalism during in the critical

juncture represented by early 1980s was inevitable in the structural

and ideological context of those years. For many years, Spanish

leaders and observers suggested that PSOE’s orthodox

35

macroeconomic policy had been the result of the pragmatic

conversion of PSOE’s top leadership in 1982 from Keynesianism to

qualified neoliberalism via a process of rational learning from the

experience of others. This entails a purposive search for a solution

to economic problems, the choice of a solution based on observed

experience and a better understanding of which policies may lead to

particular outcomes (Mesenguer 2005: 73).6 In the Spanish case one

can expect to see Spanish policy elites as changing their beliefs as

to what was economically desireable after factoring in three new

information items: the French experience, the swing to

neoliberalism of European social-democrats and deteriorating

structural problems of the Spanish economy in the second half of

1982.

The argument about the “crucial case study” represented by

the French reflationary “experiment” was succinctly formulated by

Miguel Boyer (PSOE’s finance minister between 1982 and 1985) in

two much quoted interventions (Boyer 1983; 1984).7 He argued that

the attack on the peseta in the fall of 1982 and the faltering French

Keynesian reforms made the expansionary measures promised in

the 1982 election manifesto eminently self-defeating. The same

view was shared by industry minister Carlos Solchaga (1997) and by

labor minister Joaquin Almunia (2001).8

6 Such processes have recently been regarded as key mechanisms of transnational diffusion of neoliberalism (Levi-Faur 2005; Messenguer 2005; 2008).7 Charles Boix cites Boyer (1983; 1984) (Boix 1998: 108). 8 In his memoirs, Joaquin Almunia unequivocally acknowledges that as a minister of labor he agreed with the substance of the economic policy designed by Miguel Boyer (Almunia 2001: 170).

36

Jose Maria Maravall, a political scientist and minister of

education in the González government, used his insider perspective

to endorse the conversion thesis in his scholarship when he claimed

that:

"[i]n spite of the economic crisis, in the summer of 1982 and

before the general elections in October González still believed that

the future government would have a considerable margin of

maneuver for expansion, for increases in public expenditure, and for

substantial job creation" but "by September the future minister of

the economy, Miguel Boyer, gradually came to know the real depth

of the crisis" (Maravall, 1993: 95).

Charles Boix’ classic study of PSOE’s economic policies

reinforced the conversion/”cognitive updating” thesis:

[t]he fiasco of the French reflationary attempt just a year

before convinced the government that expansionary policies

could be attempted by one country alone only at the risk of

incurring a high economic and electoral cost (Boix 1998: 108).

Similarly, Sophia Perez argued that

The back-stepping of the French Socialist policy in

late 1982 seemed to illustrate the impossibility of

37

national Keynesianism in a context in which

governments in the other major world economies

were imposing monetary and fiscal austerity; a

perception that was bolstered by an increase in

speculative pressure against the peseta and a fall in

foreign reserves in the weeks after the PSOE

electoral victory.(Perez 1998: 139).

The “cognitive updating” thesis is illuminating yet it tells an

incomplete story and is marked by several internal tensions. Miguel

Boyer recently admitted that the decision to enact an orthodox

program had been taken before the French Socialists launched their

expansionist economic package in earnest. In recent confessions,

the leading economic policy leaders in the PSOE (finance minister

Miguel Boyer and Economy minister Carlos Solchaga) admitted that

they did not have any intention to allow for repeat of the French

experiment even before the experiment was even tried. Writing on

the events of 1981 in France, Boyer made it clear that the people

who really mattered in making economic policy decisions in the

PSOE government had not even been involved in writing the

expansionary 1982 economic program and did not need the failure

of Mitterand’s expansionary policy package, whom they saw as a

doomed “textbook case” of inappropriate economic ideas:

38

I myself warned Felipe Gonzales in 1981 that he should

moderate all enthusiasm with regard to French Socialists […]

and to distance himself from their recipes […] Therefore, at

least a group of those of us who would later hold economic

policy responsibilities knew what orientations to avoid.

Nevertheless, the French experiment-useless as it was for

opening some people’s eyes, as I said-ended up being very

useful as a dialectical effect and as an argument for

convincing [party] militants without economic training as well

as some economists with a vulgar Keynesian orientation what

was the road to be taken after 1983. (Boyer 2005: 87).

The same point was unequivocally made by Boyer’s successor

and MEH “superminister” Carlos Solchaga, who had been an

advocate of ending subsidies for industry since 1977 (Alcaide 1997:

195) and who in 1982 thought that:

The problem of macroeconomic policy, and particularly of

monetary policy, was not unemployment, since this did not

depend on the direction and content of economic policy, but

inflation. Once this had been corrected, all the advantages

which come from economic stability, including perhaps an

increase in employment and reduction in unemployment,

could be obtained (1997:197).

39

Indeed, as early as 1981, Carlos Solchaga had a detailed

orthodox policy template carefully laid out. The young MP from

Navarra reacted to the drafting of an expansionary economic

program by a PSOE team coordinated by Javier Solana by writing a

90 page “parallel report” in which one can find the basic elements

of the austerity package adopted in 1982 by the Gonzales

government. The report received the endorsement of Andalucian

and Basque party chapters and was skillfully and aggressively sold

to the media by Solchaga, then a relatively unknown PSOE MP, who

also used this opportunity to raise his national profile.

At PSOE’s 29th Congress, Solana and his team tried to persuade

Solchaga to integrate his parallel report within the boundaries set by

their own draft, but the dramatically threw the official program way

with the words “Esto es rubbish.” When Luis Carlos Croissier, one of

the drafters of the Solana program equated the Solana report with a

Bank of Spain policy paper, Solchaga left the convention The PSOE

convention adopted the Solana program for the 1982 but, as

chapter two showed, the program that won after PSOE assumed

power was Solchaga’s (Tomas and Alonso 1993: 62-64).

As for the much-debated French case, it is evident that

Mitterand’s economic policy could not be construed as evidence of a

turn to the right in Europe until well after the Socialists decided to

embrace embedded neoliberalism. In 1981, as Spanish Socialists

were debating the party program, the new French Socialists

government reversed the deflationary policies of the “proto-

40

neoliberal” D’Estaig governments adopted beginning with 1976 and

launched a bold Keynesian stimulus doubled by dirijiste

nationalizations, social democratic-style welfare expansion and

employment-generating policies (Prasad 2005; McNamara 1998). As

the American reflation faultily predicted by OECD did not materialize

and as the West was not pulling out of recession, the external

environment severely constrained this policy experiment, leading to

its reversal. Yet it was not until March 1983, well after PSOE decided

on its neoliberal path, that the internal debate inside party elite

ended and the politique the rigueur invoked by PSOE elites and

scholarship was actually adopted (Schmidt 1997: 110-113; see also

Prasad 2006; Hall 1989; Cole 1999; Loriaux).

The cognitive updating thesis has important analytical

problems in the form it is used by PSOE scholarship as well. Charles

Boix argued that “the calamitous Labor administration in Britain in

the late 1970s also served as a strong warning against expansionary

strategies” (Boix 1998: 109). But if PSOE knew about British Labor’s

woes in the late 1970s, then its leadership did not need for the

French experiment to end in failure in order to turn rightward.

Second, as argued at length in the last section of this chapter, the

French government’s “Great U-turn” to the politique de rigueur did

not happen until March 1983 (Schmidt 1996; Hall 1989), that is

months after PSOE implemented its neoliberal macroeconomic

package. Finally, it is not entirely clear why PSOE reformers read in

the problems of British Labor a warning against expansionary

41

policies. While popular, this eminently “Thatcherite” reading is

controversial. As Colin Hay has recently shown, a Keynesian solution

to the 1973 crisis was never really attempted in Britain and, after

1976, the IMF-imposed economic policy package was anything but

Keynesian. As such, the “calamitous Labor administration” and the

Winter of Discontent on which it ended was a crisis of

“experimental” neoliberalism successfully redefined by Tories as a

crisis of Keynesianism (Hay 2010).9

But why did this British Tory story resonate with the PSOE

economic team in the first place? Citing central bank reports, Luis

Angel Rojo (1981) and Fuentes Quintana (1979) as evidence, Boix

suggests that such readings of the British and French experiences

“[w]ere reinforced by an emerging consensus among Spanish

economists that the country’s persistently poor economic

performance derived from structural factors that could not be solved

by merely propelling up internal demand” (Boix 1998: 109).

Yet this crucial point is nowhere systematically explored in

Boix’s work or, for that matter, anywhere else in the rich literature

on the Spanish economic transition. It is to the puzzling interplay

between ideational and structural changes in Spain’s external

environment between the crisis of embedded liberalism and the

advent of neoliberalism that the next chapters turn. Finally, the

existing literature does not have much to say about what 9 Hay concludes that “the Winter of Discontent did mark the passing of Keynesianism, corporatism and the post-war consensus. But it did so not because the events of the winter of 1978–1979 were precipitated by union power nor by the inherent contradictions of the Keynesianism economic paradigm, but because the crisis that it was seen to symbolise was constructed in precisely such terms”(Hay 2010:1).

42

reproduced the embedded neoliberal consensus over time or about

how it survived the shock of the Great Recession.

Social Emulation

Some scholars of diffusion think that governments simply emulate

the policies of some peer group of governments (Braun and Gilardi

2006; Simmons, Dobbin and Garrett 2006). This literature would

intimate that by adopting neoliberal policies PSOE did what peer

European social-democrats were doing at the time.

This section confirms that since the 1980s neoliberal ideas

began to enter the economic policy conventions of social-

democratic parties. But the review of secondary literature done in

this section also evidences that with the exception of German,

Italian and Swedish social-democrats they turned to neoliberalism

much later in the decade than PSOE did. The case of the

“pragmatic” neoliberalism pursued by German social-democrats is

well-known10 and the same rightward turn was observed in Swedish

social-democracy, albeit much later than in Germany.11 And in Italy, 10 As suggested earlier in the chapter, after 1974, German social-democrats pioneered inflation targeting and convinced other European governments to do the same. But by 1980, the second oil shock and strict monetary policy contributed to a rise in unemployment. To ameliorate worsening job market figures, the SPD pushed for increased government supply-side spending on infrastructure projects. To finance them, the SPD proposed a “third way” policy mix: tax increases and cuts in welfare benefits. This policy position that led to the collapse of SPD’s alliance with the liberals and the conservative victory of 1982 (Scharpf 1987, 192; Borchert 1995). After the party entered opposition, its programmatic renewal efforts took it into an increasingly market-conforming direction, with anti-inflationary policies, skepticism towards reflation and welfare state cuts to boot (Padgett 1987).11 Here, the party’s right wing made the rest of the party accept the argument that cutting inflation was a primary policy objective. SAP’s “third way” entailed increasing profit levels to increase investment at the cost of wage stagnation. As a result, budget cuts, deficit cuts, investment incentives and a weakening of social democratic-union ties became mainstream SAP policies. Erstwhile advocates of “overcoming” capitalism began to reproduce classical liberal theses such as the “crowding out” effect of public investment or the reduction of demand side policies to cost competition measures that would increase

43

the Socialists coming to power in 1983 via a complex coalition

advocated a policy package that outdid that of their conservative

government partners in terms of macroeconomic austerity,

privatization and financial deregulation, while relegating welfare and

redistribution to residual importance (Discala 1988; 1996; Abse

1994; Anderson and Camiller 1994). However, social-democrats

waited until the late 1980s to acquiesce to supply-side ideas about

the desirability of cuts of corporate tax rates and top personal tax

rates.

In other parts of Western Europe center-left parties defied

“third way” trends and kept pushing Keynesian counter-cyclical

programs even after the Mitterand fiasco. Until they lost office in

1982, Danish and Dutch social-democrats overcame their doubts

about the primacy of full employment and refrained from embracing

a Third Way course in real politics until the 1990s (Esping-Andersen

1985; Wolinetz, 1993; Dalgaard 1995; Green-Pedersen 2000;

Petersen 2001; Lindvall 2009). British Labor had pioneered orthodox

monetary policies in the late 1970s, the move was contested as

imposed by duress from the outside and, once in opposition, the

party’s programs (1979; 1983; 1987) swung back to a radical left

agenda: state-sponsored expansion of nationalised firms, indicative

planning, industrial protectionism. Until they left office in 1982,

Danish social-democrats maintained wage and social security

the consumption of Swedish goods. By the mid 1980s, SAP went as far as carrying out financial deregulation and advocated tax cuts on top marginal rates (Blyth 2002: 223-228; Steinmo 1993; Fraser 1987; Englund 1990; Englund and Vihriala 2009; Joung et al 2009; Sjogren and Kishida 2009).

44

indexation despite inflation levels rising above 10 percent (Green-

Pedersen 2003).12

Resistance to neoliberalism was also evident in Belgium and

Austria. In Belgium, two Socialist-Christian Democratic coalitions fell

apart between 1980 and 1981 because the Socialists, unwavering in

their commitment to full employment, wanted a Keynesian reflation

and the conservatives wanted a Thatcherite turn. And while in

opposition, Belgian Socialists bitterly opposed the macroeconomic

austerity and supply-side policies of the center-right coalition that

ruled between 1981 and 1985 (Pijnenburg 1989; Hemerijk and

Visser 2000).13 The fact that Belgian Socialists did not fret over 12

percent budget deficit, while their Spanish counterparts saw 5

percent as catastrophic is particularly suggestive in this regard.

The same situation could be observed on the Austrian left.

Here, until 1986 the social-democrats14 stuck firmly to “Austro-

Keynesian” policies that combined a hard currency policy vis-à-vis

the DM with counter-cyclical deficit spending, employment in

nationalized industries to hoard labor during employment crisis to

achieve their commitment to full employment. Austrian social-12 Moreover, the data shows that such tax cuts were made on the OECD average only after 1985 (Sorensen 1998). Even so, tax systems remained steeply progressive and in Scandinavia the top personal tax rates hovered over 50 percent (Ganghof 2007). Similarly, when some Scandinavian social-democrats adopted “sound finance” objectives, they continued to emphasize fiscal, as opposed to monetary policy as an instrument of macroeconomic management (Lindvall 2009).13 The liberal-conservative Belgian coalition ruled for five years (1981-1985) and by decree and according to premier Martens’ slogan 'less democracy for a better economy.' This government froze wage indexation, thus transferring productivity gains to firms, cut taxes, instituted job sharing agreements to cut unemployment, consolidated the country’s fiscal position and lowered select categories of unemployment benefits (Hemerijk and Visser 2000).14 Since the Second World War SPO SPÖ (Sozialdemokratische Partei Österreichs had been one the strongest left-wing parties in Europe, rivaled in strength only by the social-democratic parties of the Nordic countries (Garrett 1998:12).

45

democrats also resisted financial deregulation, tax cuts, labor

market deregulation and maintained OECD’s highest nationalized

industrial sector until the late 1980s (Talos 1987; Muller 1988;

Bischof and Pelinka 1994; Guger 2001; Luther 1999; Unger 2001;

Unger and Heitzmann 2003). At a time when Spanish Socialists saw

in 5 percent budget deficit a sign of impending doom, their Austrian

counterparts kept pushing policies based in the Keynesian idea that

the state should accept a higher deficit for the sake of lower

unemployment (Feigl-Heihs 2001). When one considers the fact that

social-democrats maintained these policies while running a

government coalition with the liberals, the contrast with Spain

becomes even bolder. As former federal leader of the party’s wing

Alfred Gusenbauer remembers:

During the early 1980s, monetarism, supply-side

economics and neoliberal economic ideas in general was

considered to be too conservative for our party. That is,

we thought they were inappropriate in Austria under a

social-democratic government. It was not until the late

1980s that we started to take more seriously economic

options that you would today associate with the “Third

Way” or with Tony Blair.15

15 Interview with former Austrian Chancellor Alfred Gussenbauer (November 3, 2009).

46

The cases of Greek center-left parties were also far from

pointing towards neoliberalism in 1982. Greek Socialists (PASOK)

taking office in 1981 launched a Keynesian demand stimulus

program doubled by planning arrangements for the private sector,

welfare state, generous wage policy for low income earners and

employment protection schemes. Evan as the plan sputtered in the

face of a global recession and governmental inability to improve tax

collection, PASOK did not signal a decisive turn towards lowering

inflation via wage freezes until the spring of 1983.16

The diversity of the ways in which the European center-left

was adjusting to the new order during the early 1980s was more

likely to increase the uncertainty faced by a Spanish Socialist

government that entered office at a time of considerable social and

economic turmoil.

To conclude, the cognitive updating thesis can’t explain why

Germany served as a model and France as a foil, when updating

occurs or exactly what the lesson of updating is. Given the

externalmosaic of models about how social-democrats should deal

with a crisis, in the winter of 1982 the PSOE government could have

just as well carried out its expansionary program and then back off,

as did their French peers, embrace austerity yet without labor

16 Even so, the much vaunted “austerity” of the PASOK government meant cutting inflation from 18.5 to 16.5 percent in three years, the first serious attempt at macroeconomic stabilization involving devaluation, systemic wage control and attempts to control the budget deficit were not advocated until after 1985, with little success, (Tsakatos 1998; 185) , government gross investment increased dramatically until 1986 (Kouras 2001: 175) and general government deficit nearly doubled between 1982 and 1985 (from 6.5 to 11.5 percent)(Kouras 2001: 175). Practically, a coherent and comprehensive turn to orthodox economic policies under PASOK rule could not be noticed until after 1993 (Psalidopoulos 1996; Brissimis and Gibson 1997; Diamandouros et al 1997; Skouras 2001).

47

market deregulation, as their German and Swedish peers, or

continue to govern with an “updated” Keynesian program, as the

Austrians did. But, as the next chapters show, by 1982 the Spanish

bureaucratic-academic complex that came to control economic

policy under the Socialists had already embraced the kind of

embedded neoliberalism described earlier in this study.

Institutionalism

For some scholars the observed variation in the economic reform

profiles of the ex-communists should be sought in the institutional

cohesion of reform governments. Thus, Grigore Pop-Eleches

attributes the failure of the neoliberal macrostabilization of the

Roman government to the clashes occurring within the ex-

communist party between the “reformist” camp around Roman

himself and the “leftist” group loyal to president Iliescu (Pop-Eleches

2009: 219-220).17 Once the ex-communist party split and the leftists

won the 1992 elections, the eclectic policies of the Vacaroiu

government (1992-1996) are then explained by virtue of them being

a minority government whose reformist agenda was “edited” by the

populist demands made by its left-leaning parliamentary allies

(Greater Romania Party or PRM, Romanian Workers’ Party or PSM

and the Party of Romanian National Unity or PUNR) and by the

electorate (Pop-Eleches 1999; 2009: 221; 225-226).

17 Pop-Eleches’ book focuses on the Convention’s governments (1996-2000), yet his argument about the importance of the institutional cohesion of the government is extrapolated to the 1990-1996 period.

48

This is a powerful account that survives a crucial case: the

failure of a Romanian center-right government to carry out its

“shock-therapy” agenda between 1996 and 2000. In the next

chapter this study uses Pop-Eleches’ insights to propose several

observable implications of the hypothesis that the institutions of the

policy process matter. Yet I go beyond Pop-Eleches’ work by

providing an account of why the neoliberal agenda failed even when

the ruling coalition was not fragmented, as it was the case of the

1992-1996 government. Secondly, Pop-Eleches does not tell us why

Romanian governments had heterodox and neoliberal policy

agendas in the first place. Finally, his argument that the coalition

partners of the 1992-1996 government were leftist and exacted an

interventionist price for their parliamentary support for the

government is overstated. Although these parties shared an

economically statist ideology (Tismaneanu 2003: 271-273), the

agenda of the politically stronger PRM and PUNR was dominated by

ethnic nationalist causes rather than by economic ones (Shafir

2000; 2001).18

Class-Based Materialism

For the materialist tradition in political science the turn to

neoliberalism is the result of shifts in the interests of domestic

capitalists (Chibber 2003; 2003). Taken to the postcommunist

18 The only exceptions were the critiques of the politically weaker PDAR and PSM. See for example the critique of Vacaroiu’s macrostabilization package at the national convention of the Socialist Worker’s Party of July 1993. Romania libera, July 18, 1993.

49

context this explanation is particularly difficult to translate because

here, where there were no capitalists to speak of, the impetus for

neoliberal reforms came from within the state. As Eyal and Szelenyi

re minded us, during the 1990s Eastern Europe experienced

“making capitalism without capitalists” (Eyal and Szelenyi 1998).

Even more bluntly, Gil Eyal noted that

[h]ad private proprietors played a major role in the transition

to capitalism, this sense of moral duty would have been

immediately intelligible in terms of their material interests, and

easily dismissed as ideology. In the absence of a capitalist class,

however, it is not self- evident why the bearers of such ideology

have appointed themselves as the ``footmen,'' holding the door

open for a class that is yet to arrive; and in particular, why such

advocacy has taken the form of a calling (Eyal 2000: 49).

Yet once most of the socialist economy was privatized, it

became possible to consider the role of domestic capitalists in

advancing a neoliberal agenda, a task of particular relevance in

countries like Romania, where the neoliberal agenda had not been

so vigorously pursued.

Catalin Augustin Stoica’s work on the postcommunist business

elite and Tom Gallagher’s historical excursus on the years in office

during the early 2000s provide such materialist explanations (Stoica

2004; Gallagher 2005). For these scholars, the agenda of business

50

elites with socio-economic anchors in the Stalinist past can be

deduced from their structural positions in the postcommunist

economy. Catalin Augustin Stoica (2004) suggests that former RCP

cadres who were widely represented in the communist successor

parties needed to buy time to convert their political capital,

organizational experience and managerial skills into economic

capital, and, therefore, had no interest in an early and radical break

with the past. Once a critical mass of such capital was amassed, one

can expect them to uphold more neoliberal policy positions.

But if Stoica does not draw an explicit causal link between the

economic interests of the ex-communist elite and economic policy,

Tom Gallagher does. According to the latter, the adoption of

neoliberal reforms during the early 2000s was the result of an

alignment of the interests of domestic capitalists and state

managers. Since the ex-communists (PSD) were overall a cohesive

political party between 2000 and 2004, this domestic oligarchy had

its way and Romania saw neoliberal reforms precisely under the

political party that had been historically most opposed to market

capitalism and had made political fortunes from a left-populist

agenda.

More specifically, the PSD state managers entered office as

political representatives of a cohesive and tight-knit class of large

business owners with cadre pasts and whose wealth was made

possible by the rigged transfer of public assets into private hands

using the state’s own information and financial resources. This class

51

calculated that the rent-seeking benefits awarded to them by

Romania’s EU integration were greater than the costs that EU-

mandated neoliberal reforms imposed on their strategic class

interests: corporate power unchecked by EU environmental and

labor standards. What about their growth under state patronage?

There was no loss here, Gallagher argues. PSD patrons were very

good at hiding those EU-banned linkages with captured state

institutions from naïve eurocrats.

Why did business think that EU membership rewards were

worth the bet? Gallagher argues that the domestic oligarchy wanted

to entrench its networks of wealth and political power into the West

European capitalist core, in the hope of accessing even higher rent

opportunities while ensuring that its non-competitive relationships

with the state would remain. To trick the EU into accepting Romania

as a member state, the PSD-oligarchy coalition gave lucrative

infrastructure projects and sold premium state factories and banks

to West European corporations who happened to be major political

donors in key EU member states. Since this powerful oligarchy

controlled the political game and the PSD maintained a monopolistic

approach to political and administrative power, the result was a

form of crony “political capitalism.”

Tom Gallagher provides an instructive and rich account of how

close the PSD leadership was to business elites yet his account has

several weaknesses. First, it is not clear that the preferences of this

interest group were consistent with the Brussels Consensus.

52

Immediately after the PSD lost the 2004 elections, leading business

executives in the politically powerful textile and food industries,

known for their proximity to the PSD, lambasted the potentially

devastating effects that EU environmental regulations were bound

to have on their chances of survival. As leading PSD sponsor Dinu

Patriciu, a billionaire and owner of an international player in oil

processing (Rompetrol) company flatly declared that

EU integration costs money, it does not bring money.

It’s not Santa. We [Romanians] should adopt the

American model to be competitive in Europe rather

than ape [European] legislation for the sake of an

[EU] checklist.19

Second, if interest group preferences are mediated by

institutions acting as “brokers” that aggregate conflicting interests

into coalitions that then project their interests into policy outcomes,

as some materialists suggest (Gourevitch 1985; Goldstein and

Keohane 1995), one wonders what, say, the central bank or the

Finance Ministry had to say about the agenda of the businessmen

who “captured” the ruling party. Unfortunately, such aspects are not

systematically addressed in Gallagher’s account.

Finally, it is not entirely clear how this explanation would

travel back in time to the early 1990s, when no previous episodes of 19 “Local businessmen became Euroskeptics/Oamenii de afaceri locali au ajuns eurosceptici”, Capital, August 24, 2005.

53

transition from socialism to capitalism were available to enable

interest groups to “read” what their structural positions told them

and, consequently, what their interests were. This was a period

when some state managers seemed comfortable staying state

managers, rather than going private, while others acted as

predatory capitalists bent on looting the best resources of the state

firms they once managed. Predatory businessmen with resources

drawn from the complicated networks of the socialist economy

played neo-patrimonial games with the state not only during the

2000s, but also during the mid 1990s. If all these facts are accurate,

then what was new about the predatory capitalist class of the 2000s

that made it so homogenous and so clear-minded about its

preferences? Could a standard interest-group explanation focusing

on formal organizations (capital, labor) do a better job?

The limitations of this approach have been critically assessed

in the theory chapter of this study, and even if such explanations

were taken at face value, they would provide an inconclusive

account at best. Thus, Romania had a much more robust labor union

mobilization during the early 1990s relative to other states in the

region could suggest that even if the 1992-1996 government was

committed to a neoliberal reform package, union pressure would

have killed it. Yet labor unions were not a homogenous interest

group opposed to market reforms. This was a period when some

labor unions bitterly opposed privatization and FDI while others

strongly supported the economic agenda of center-right parties.

54

One of them (Cartel Alfa) was actually a proponent of “trickled

down” economics and an ardent supporter of privatization with

foreign investors.20

Moreover, labor mobilization was not strong enough to deter

the government from carrying out painful price liberalizations, firm

liquidations, and disinvestment in social welfare. And when pro-

worker hire-and-fire regulations were adopted in 2003, it was not as

a result of labor struggle but of the superior expertise of labor union

experts. As a World Bank resident economist familiar with the

negotiations for the 2003 labor code put it:

We watched with disbelief how the union experts in

labor legislation basically dictated the code to the

Ministry of Labor as employer organizations sat idly

by. In Romania it’s the opposite of Western [policy]

contexts. Here labor expertise is superior to

employers’. It’s incredible! […] I guess it’s because

labor unions benefited from years of training at the

expense of their Western colleagues, whereas

business was too fragmented and really not taking

the technicalities of labor market regulation

seriously. Cosmopolitan labor, parochial business…

Imagine that!21

20 Author interview with M.T., Cartel Alfa legal expert, January 12, 2009. 21 Author interview with Catalin Pauna, World Bank resident economist in Bucharest, January 10, 2009.

55

If domestic business was so weak on expertise when it faced

such direct and immediate threats, then how can one expect it to

perform as a more competent and united interest with regard to

more complex and causally distant policy issues? Indeed, when a US

think tank (Center for International Private Enterprise) performed a

diagnostic evaluation of over 20 business associations in 2000 it

found that the overwhelming majority had limited involvement in

public policy and the rest focused only on sector-specific issues

(CIPE 2007).22 This situation changed towards the end of the PSD

term yet, as the last chapter shows, this was not a transformation

endogenous to Romanian capital, but was the result of a

transnational political process whereby business associations were

basically represented by INGOs and IFIs in their struggle against the

“unions’” labor code.”

Structuralist Explanations

For scholars who privilege the explanatory role of material

structures, the policy zig-zags of the ex-communists are the

inevitable outcome of external and domestic economic pressures.

Yet structuralist accounts point in two different directions. For

structuralists who give primacy to domestic economic pressures, the

ex-communists resistance to neoliberal reforms between 1992 and

22 Center for International Private Enterprise. 2003. Romanian Business Association Development Project Final Report, 2000–2003. Center for International Private Enterprise. 2005. Rebuilding Romania Through Private Sector Development. CIPE Case Study No. 0501, available at http://www.cipe.org/publications/papers/pdf/IP0501.pdf.

56

1996 was the inevitable result of the structure of the Romanian

economy in the aftermath of meltdown of national-Stalinism. Thus,

in the only existing book on the Romanian postcommunist political

economy, Liliana Pop (2002; 2006) argued that the structural

imbalances of the Romanian economy at the end of 1989 made the

kind of neoliberal reforms experiences by Central European and

Baltic states impossible in Romania.23

Romania is a crucial case study for the structuralist hypothesis

because its fall in output in the 1990-1993 period was the most

dramatic in the region and its access to international capital

markets was practically blocked. Additionally, the costs incurred on

this country by the embargoes on Iraq and Yugoslavia (running at 8

times the total IMF and World Bank funding for the 1991-1996

period) were particularly taxing on its economy. These were

external shocks of inordinate magnitude that according to the

structuralist approach demanded a severe domestic adjustment

along neoliberal lines and deprived the government of the funds

necessary to do counter-cyclical spending if it so desired.

A different structuralist answer can be given to the Romanian

puzzle by looking at scholarship that saw the neoliberal turn in

developing countries as the result of the interplay between drastic

changes in domestic and international economic structures and the

increasing leverage of international financial organizations over

23 The structuralist argument was made in economics by Estrin et al (1998) with regard to enterprise reform. The authors concluded that “when one looks at differences in terms of progress of restructuring it seems likely that these can be best explained by preconditions rather than by current progress in reforms” (p. 250).

57

domestic policy choice (Poznanski 2000: 232; see also Schleifer and

Treisman 2000; Aslund 1999; Drazen and Grili 1993; Williamson

1994; Schimmelfennig and Sedelmeier 2004). According to these

accounts, the occurrence of intense crises incurred high economic

costs for delays in macroeconomic and structural adjustment, a

process associated with the reduction of the strength of domestic

opposition to them. Therefore one could hypothesize that by

contrast with the domestic structures literature, a deep recession

and structural imbalances combined with tight international

conditionality should be correlated with a high probability of

neoliberal reforms.

However, as the next chapter shows, the adoption of

heterodoxy by the Vacaroiu government (1992-1996) at a moment

when the recession was at its worst and the economy in its most

unbalanced undermines the structuralist argument. Additionally,

from a comparative perspective, much less dramatic external

constraints led to a much more neoliberal course in Poland,

Czechoslovakia or the Baltics, and this course was largely

maintained even when the ex-communists returned to power.

As for international conditionality, it is puzzling that none of

the ex-communist governments fully complied with IFI demands to

undertake market reforms despite the fact that until 1995 they had

no access to international private capital markets and no domestic

savings to draw on. This also happened despite the fulfillment of IMF

and World Bank agreements with the Romanian government

58

(Schimmelfennig and Sedelmeier 2004): clear and formal demands

set as conditions for high-value rewards (financial disbursements

transferred swiftly at a time of systemic crisis), credible threats to

withhold rewards (the failure of the 1990-1992 government to

comply led to suspension of disbursements) and the policy process

had few veto players (the Vacaroiu policy team was cohesive and

strongly backed by the President).

The structuralist account for the early 2000s better fits the

evidence. The near-default reached by Romania in 1998 as a result

of the East Asian and Russian financial crises combined with the

beginning of EU membership negotiations in 1999 steeply increased

the costs of the heterodox and left-populist posture of the ex-

communists. To obtain labor peace, the government appeased labor

unions with an interventionist labor code but had no alternative

when it came to monetary, fiscal policy, welfare policies, industrial

subsidies and privatization. This account is particularly compelling.

Shunning the EU’s orthodox monetary and fiscal targets would have

led to Romania’s exclusion from EU membership, which would have

led to the political extinction of the ruling party (Phinnemore 2000;

Light and Phinnemore 2001). Similarly, the demonstration effects of

a near-default situation in 1998 could have reasonably be assumed

to spur PSD leaders to adopt tighter monetary and fiscal policy with

greater commitment. Indeed, as one PSD historian put it,

59

In 1998 many in the party’s left reasoned that a

replay of the 1992-1996 statism was impossible. The

IMF had tightened its conditionalities and the

European Commission was just as ruthless in its

demands that we comply with IMF prescriptions on

monetary policy, fiscal policy and so on. It was a

double conditionality that the party never faced in

the past. Of course, there was considerable leeway in

other policy areas, like labor or taxation policy, but

on the big items, like deficit or inflation the choice

was clear: compliance or no chance that the PSD

could take Romania into the EU.

Yet the pressures of international capital markets or of EU

integration did not come with specific instructions about the need to

have a flat tax, the exact specifications of employment protection

regulations and puts no ban on industrial policy. Indeed, such

pressures never do. As Wade Jacoby cautioned,

Central European states know that the EU has relatively few tools to

constrain the corporate tax policies and are often allied with well-

informed and powerful Western firms poised to defend their policy

discretion (Jacoby 2010: 421).

60

Other scholars have shown that transition governments could

achieve the policy objectives favored by financial markets not only

through cuts in public expenditures, but also by increasing the

taxation burden on the successful individuals and companies (Royo

2000; Mosley 2003).24 In other words, the leverage of international

organizations was not deterministic and left some room for

maneuver that the Nastase/PSD government (2000-2004) used

largely to further a left-populist agenda.

Finally, the most systematic scrutiny of the EU enlargement

effects on Romania to date (Phinnemore 2010) established that EU

conditionality was much more flexible and less meritocratic than

many thought at the time (Vachudova 2005). This was made

possible by a sense of inevitability about EU enlargement among EU

elites, their fear of “Kosovoization,” the European Commission’s

strong reputational incentives to “finish” the enlargement and the

strong pro-Romania lobby.25 Indeed, the case of EU-Romania

relations strongly suggests that “[l]ack of compliance with EU

conditionality need not be sufficient cause for a state to be denied

progress in its integration with the EU. Early and unmerited

24 The same objection could be made to the dot in the case of EU pressures, especially given the fact that political leaders in key EU member states were extremely concerned with the race to the bottom started by East Europeans on taxation.25 According to Phinnemore, “[p]rominent among them was France. Others, primarily for geo-strategic reasons, included Italy, Greece and the UK. Indeed UK support intensified following the 2003 war in Iraqand reflected, in part, gratitude for Romanian support for the US and its allies. Its position was shared by Italy and Spain. Romania also benefited from the suppressed or embryonic nature of most oppositionto its accession. The fact that the Netherlands was holding the Council Presidency during the second half of 2004 clearly helped. As one participant observed, the Netherlands behaved ‘impeccably’. Various member state politicians and electorates had their reservations about Romania’s accession too; these though were not being as forcibly expressed as they would be two years later on the eve of accession.” (Phinnemore 2010:

61

upgrades in a non-member state’s relations are possible […] [T]here

are multiple reasons reflecting inter alia geopolitical and strategic

concerns, whether shared by the EU as a whole or by influential

groups of member states, the actions of the Commission and the

agenda-setting and constraining effects of rhetorical commitments,

timetables and the dynamics” (Phinnemore 2010: 305-306).

Methodology

Given the research question posed by the book, the bulk of the data

and methodology is qualitative. As Meyer and colleagues admitted

(Meyer et al 1997: 645), quantitative studies may determine the

degree to which diffusion occurs among states but not of the causal

sequences through which diffusion occurs. The empirical findings of

the book rely heavily on the combination of case studies and the

comparative historical analysis of qualitative and quantitative data

on the dynamics of heterodox and orthodox economic ideas and

policies in Spain and Romania between 1945 and 2013. Semi-

structured interviews, elite surveys, secondary literature and

archival sources meet self-generated data sets constructed through

content analysis. The data was collected through five years of

archival research and 134 interviews carried out in Washington,

Brussels, Bucharest and Madrid with a broad range of international

diffusers and domestic translators.

62

To analyze the characteristics of domestic economic ideas

systematically, some sociologists conducting empirical research on

economists have mainstreamed the use of content analysis in

studying the diffusion of economic ideas. To assess the degree to

which US-style neoliberal economic ideas influenced the Mexican

academy, Sarah Babb (2001) conducted a content analysis of 287

economics theses. Monica Prasad then replicated this

methodological approach in her research on economic reforms in

Western Europe and the U.S. (Prasad 2006: 196; 197; 261; 263).

Coding economics theses from core undergraduate courses

may be suggestive of what ideas are considered orthodox in

academic departments and in the economic profession at a certain

point in time. Yet, such theses tell us very little about the ideas of

prominent economists and, crucially, about the economists who

actually influence the policy process. I therefore apply this

methodology to the books and articles authored by policy

intellectuals that the analysis finds to be of relevance to actual

policy decisions by virtue of their political or epistemic authority.

This is particularly the case of academics with joint appointments in

top policy positions because this revolving door between knowledge

institutions and the state is the ideal infrastructure for making ideas

matter. Also, given the increasing sophistication of think-tanks and

research arms of central policy institutions (central banks, ministries

of finance), the coding of their research output was the object of

content analysis where such output was available.

63

One of the limitations of this content analysis approach is that

some critical players in the policy sphere may not have any relevant

academic output to code. To fill in this gap, I build on the work of US

economic historian David Colander (Colander 2009)26 to survey

these policy makers. 27 The Colander survey is useful but could

benefit from some refinement to go beyond mapping how the

assumptions of neoclassical economics are replicated and clarifying

how economic ideas within the neoclassical spectrum are

understood. This is of critical importance for the post Great

Recession period because the adaptive changes made since then to

the New Consensus macroeconomics in general and fiscal policy in

particular have critical consequences for how one deals with issues

of debt and growth (see appendix).

Finally, based on an understanding of scientists in general and

economists in particular as rhetorical and political actors

(Hirschman; Latour 1986), the book applies longitudinal discourse

analysis to texts produced by key diffusers and translators over time

in order to lend content analysis a subtler understanding of the

26 Inaugurated by Klamer and Colander (1991), the mix of surveys and interviews method became so mainstream that AEA established a commission that reached similar conclusions (Krueger et al 1991). Colander’s survey questions at a minimum include the following topics: current versus earlier perspectives on the scientific nature of neoclassical economics, the importance of neoclassical assumptions (rational behavior versus economic behavior according to conventions, the rational expectations hypothesis, imperfect competition, price rigidities), the stated interests of students by area (micro, econometrics, macro, finance, theory, economic history, comparative economic systems).27 After his landmark 1991 study, Colander replicated his study fifteen years later (2005) and extended it to European economics departments using the same survey questions as for the US (2010). ENTER (European Network for Training in Economic Research) and EDP (European Doctoral program) can administer online surveys to current students. A 2009 Interamerican Development Bank study replicated the surveys done on North America and Western Europe by covering Argentina, Colombia, Chile and Bolivia. For the replication of his work on Latin American economics see Ahumada y Butler (2009), Espinoza et al. (2009), Rozenwurcel et al (2009). y Sarmiento y Silva (2008).

64

discursive practices through which global paradigms are translated.

Relative to mere idea description, discourse analysis provides a finer

understanding of why and how some economic ideas are replicated,

while others are altered or simply rejected.

Since discourse analysis is an intensive methodology, its

proponents suggest working with a few carefully selected high-

impact economic texts. For example, Hirsch and Marchi (1990)

perform discourse analysis on Friedman’s classic article “The

methodology of positive economics” (1953). Similarly, Patinkin

(1990) uses literary theory to establish how Keynes understood his

own General Theory, while Rosetti (1990) deconstructs the work of

Robert Lucas. One can also find fine methodological guidelines in

Vivienne Brown’s appropriation of Mikhail Bakhtin’s literary theory,

treating economic discourse as a form of dialogue or intertextuality

(borrowing and transformation of a prior text). To this end, I use

interviews with policymakers and bibliometric analysis to locate the

canonical texts of Spanish and Romanian translations of orthodox

and heterodox paradigms.

The structure of the book

The introductory chapter of the book lays out the subject, the

analytical framework, the methodology, and the data. It explores

the strengths and limitations of the literature on diffusion and ideas,

and then introduces the book’s own theoretical apparatus. The

theory draws extensively on innovations in the comparative

65

sociology of economic knowledge that have not been explored by

political scientists. The chapter ends with methodological

considerations and the description of the data.

The empirical analysis has three parts, each of which contain

two chapters. The first part looks at the diffusion of neo-Keynesian

and Soviet economics in authoritarian Spain and Romania

respectively, during the postwar decades. It departs from the

systemic level of analysis by examining the main actors and

mechanisms involved in the dissemination of these dominant

paradigms of the Cold War. It then shows how the neo-Keynesian

paradigm was disseminated in Spain in the 1960s and how some of

its more technical elements were disseminated even to communist

Romania during the 1970s.

The bulk of this analysis zooms in on the adaptations made to

Keynesianism in Spain by local understandings of French

developmentalism and German neoclassical economics

(Ordoliberalism). Turning to the case of communist Romania, the

chapter shows how local translators began to layer local a mix of

structuralist theories, Latin American dependency theory, and even

select elements of neoclassical economics on top of Soviet

economics. The chapter closes with an analysis of how these hybrid

forms, rather than competing paradigms, became institutionalized

in the two authoritarian regimes.

Part two investigates the politics of diffusion during the

transition to neoliberalism. It begins by showing how specific

66

political interventions and contingent historical developments

enabled the ascendancy of New Classical macroeconomics and

neoliberal political economy more generally during the late 1970s in

key sites of international economic power. The chapter then shows

how this new thinking was disseminated through a complex and

resource-rich transnational advocacy network highlighting links

among actors previously unexplored in the literature.

The analysis in this part of the book concerns how, through

whom, and with what translation mechanisms, this new thinking

captured the policy field in Spain and Romania against the

background of domestic political democratization and deep

economic crisis in both cases. Part two concludes by showing how in

Spain the eventual result of its translation has been the moderation

of its market-disciplinary core, while in Romania the result was at

first a left-heterodox experiment followed by a radicalized

neoliberalism.

The third and last part of the book explains how these local

translations of neoliberalism survived or were accelerated by the

Great Recession. At the systemic level, the crisis event destabilized

local theoretical underpinnings but did not entirely displace them

due the mobilization of its extensive networks of advocates, at least

after the initial moment of doubt that prevailed between 2008 and

2009. While Spanish embedded neoliberalism contained enough

internal diversity to yield a strong initial Keynesian reaction, even if

it ultimately failed to survive, in Romania the crisis was perceived by

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local policy elites as a crisis of too little neoliberalism. Consequently,

while in Romania the IMF had to work to moderate local enthusiasm

for the further radicalization of disembedded neoliberalism in the

midst of a crisis, in Spain it took a great deal of external coercion to

expunge Keynesian elements from policy design.

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