The Reagan Administration between Financial Markets and the Manufacturing Economy: Consequences for the Development of Financialization

Erik Van Deventer, New York University (NYU)

In the last forty years, changes in the world economy, frequently conceptualized as neoliberalism, globalization, or financialization, altered relationships among individuals, firms, and states by bringing financial markets more centrally into economic choices. This paper presents archival research on the policy-making of the Reagan administration, showing that economists and government officials approached economic problems by seeking to ensure financial markets would function well for provision of credit and capital investment. Financial markets function on the basis of interests which the administration analyzed in an effort to achieve low inflation austerity and an internationally strong dollar, both of which would limit manufacturers’ growth prospects. Besides political actors’ ideological backgrounds, sources of voter and business support, and institutional interests, it is necessary to appreciate how policy decisions arise from structurally interacting sectoral interests. My research shows that the Reagan administration explicitly strategized to attract capital to the US financial markets to reinforce the dollar-based system of international exchanges, accommodating finance to the disadvantage of manufacturing. Records of the US negotiating strategy at G-7 summits and the 1985 Plaza Accord show the administration attempting to resolve problems faced by manufacturing and foreign economies without undercutting their finance-led strategy. In the short run, financialized development fell short in bundling personal savings into productivity-boosting investment. Instead it lead to the growth of a real estate and service economy in which manufacturing invested more selectively (in spite of obstacles from financial markets), with less employment, and often abroad. Manufacturing restructured toward higher value-added product lines and remained an indispensable factor in the economy, even while losing former markets to imports-- bought with dollars and secured by the strength of the renovated US financial sector. As such, I argue, the economy saw internationalization of finance without completed ‘financialization,’ and left institutional problems unresolved into the next decade.

No extended abstract or paper available

 Presented in Session 238. Policy and Society in the United States