Inequality and the Institutional Evolution of Financialisation

To date, pooled time series methods have dominated the study of income inequality, with few notable exceptions. Whilst these methods are well suited for understanding the role of institutional covariates in sustaining income inequality, they distil the complexities amongst different countries into singular effects. Consequently, they ignore both differences in the effects of covariates amongst different worlds of capitalism, and the ways in which institutions may combine in different ways to generate similar outcomes.

This paper applies temporal Qualitative Comparative Analysis (QCA) to an international pooled time series dataset, in order to assess the ways in which configurations of regulatory and distributive institutions combined in different ways over time, to create policy contexts conducive to the expansion of the financial sector and the penetration of finance into our working and daily lives. Financialisation is now recognised as one of the strongest contributors to rising income inequality across the globe. How was it facilitated in diverse ways amongst different countries? What are its institutional preconditions, and how do these policy mixes combine across different worlds of capitalism to produce near-universal rising inequality? Drawing on a dataset of OECD countries with complete information on top income shares, capital income shares and the personal income distribution between 1960 and 2010, it shows how financialisation took root in different ways in diverse worlds of capitalism with markedly similar distributional outcomes. Configurations are constructed from measures of public spending intensity, labour market regulation and redistributive mechanisms (transfer rates and capital taxation).

This article addresses a number of outstanding issues in comparative policy studies based on pooled methodologies, including (1) the masking of differences in mechanisms which mediate institutional context and inequality of outcome, and (2) the limitations of policy remedies which rely on general understandings of the dynamics of ‘systemic capitalism’ without sufficient contextual nuance. Finally, it demonstrates the extent to which new financialised regulatory regimes constitute a radical historical break with the policy contexts of the mid-late twentieth century. It argues that sensitivity to cases as much as time is needed to understand how patterns of policy liberalisation have undermined the redistributive capacity of different states, and how greater social resilience to inequality may be promoted.