Author ORCID Identifier

Document Type

Book Chapter


Social issues, Political science, Social sciences

Publication Details

Lee, S. & Woodward, R. (2012) ‘From Financing Social Insurance to Insuring Financial Markets: The Socialisation of Risk and the Privatisation of Profit in an Age of Irresponsibility’, in J.Connelly and J.E.S.Hayward (eds.), Regression: The Withering of the Welfare State, Basingstoke: Palgrave, pp. 121-36.


Commentaries on the financial meltdown that began with Lehman Brothers’ collapse in September 2008 trace its origins to greedy bankers exploiting lax regulatory practices to take excessive risks through exotic and arcane financial instruments. While not wishing to demur from this analysis this chapter takes issue with the frequent failure to acknowledge that this has come about as a consequence of the (mis)application of state power over the past 50 years (see Helleiner 1994). Starting with the tacit support for the development of the Euromarkets in the 1960s and culminating with the responses to the turmoil of 2008-2010 the chapter describes how and why states, when confronted with a choice of restraining or liberalising markets, have invariably plumped for the latter simultaneously cultivating the ideal conditions for the propagation of financial crises and undermining their capacity to cope with the consequences. Much of this is accounted for by states pursuing national interests, in particular funding deficits and extending the competitiveness of financial services industries, but it also reflects the faith amongst financial policymaking elites in the perspicacity of markets presented by neo-classical and neo-Austrian economic paradigms which insist the state confine itself to the alleviation of market failures. Even ardent proponents accept these ideas have been badly tarnished by the present financial imbroglio. Nevertheless, proposals enumerating a greater role for the state have been quietly junked in favour of ‘market friendly’ reforms. It is argued that the reluctance to dispute these ideas will perpetuate or even exacerbate the problems they seek to address. Here a broader role for the state will be advocated rooted in a political vision which does not assert that the world is composed of self-interested, atomistic individuals and firms motivated solely by profit. In contrast to Hayekian models postulating markets as a discovery process for entrepreneurs to innovate in pursuit of profit and their private good the chapter argues that the democratic process, including at the level of international and global governance, can and should be a discovery process for innovations in pursuit of public goods, not least global financial stability.