Socio-Economic Review (2012) 10, 403–418 doi:10.

1093/ser/mwr037
Advance Access publication February 7, 2012

REVIEW SYMPOSIUM

Greta R. Krippner Capitalizing on Crisis: The

Political Origins of the Rise of Finance.
Cambridge, MA, Harvard University Press,
2011
Keywords: financial markets, financialization, financial institutions, financial crisis,
regulation, USA
JEL classification: G01 financial crises, G10 general financial markets,
G20 financial institutions and services, G28 government policy and regulation

Robert Boyer*
PSE, CEPREMAP, Paris, France

*
Correspondence: robert.boyer@ens.fr

Many scholars who, only a few years ago, displayed neither interest nor compe-
tence in the analysis of financial crises have begun writing books upon articles
that intend to explain the intricacies of the crisis that reached its tipping point
with the bankruptcy of Lehman Brothers. It is, thus, not surprising that they
gen- erally provide rather simplistic interpretations based on an opposition
between two polar visions. At one extreme, the excessive public safety net
provided by the American administration to Fannie Mae and Freddie Mac is
considered the underlying origin of the crisis. ‘Are not financial markets self-
adjusting in the absence of clumsy State intervention?’, they ask. This is the
analysis of the advo- cates of the market efficiency hypothesis, and this is the
dominant vision in math- ematical finance and neoclassical macroeconomics. At
the other end of the spectrum, given the intrinsic instability of financial
markets, the post-Keynesians argue that the light touch approach to regulation
has induced a succession of crises that has culminated in the near collapse of
the American financial system. This is the diagnosis derived from Keynes’
General Theory (1936) and Minsky’s famous paper ‘Can it happen again?’
(1982).

Ⓒ The Author 2012. Published by Oxford University Press and the Society for the Advancement of Socio-Economics.
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 404 Review symposium

Capitalizing on Crisis goes beyond this conventional debate and proves that
a political economic approach can provide a fresh, stimulating and convincing
structural analysis of the origin of the present financial turmoil.

1. Financialization as the unintended outcome of policies

after the end of the Golden Age
Greta Krippner updates a question put forward by Daniel Bell in his 1976 book
about the dilemma that policymakers were facing in the late 1960s: how to
respond to competing and incompatible social demands in the context of a new
epoch of slow growth? The answer was not the post-industrial service
economy, as Bell claimed, but the rise of finance. A series of reforms
ensued, leading to the progressive deregulation of banking, the creation of a
mortgage credit market and securitization as well as the promotion of financial
globalization. Ultimately, a rather erratic trial and error process started with the
monetarist comeback and converged towards the transparency principle of the
Alan Green- span era: the Federal Reserve (FED) follows the financial markets’
lead much more than it governs them. Thus, responsibility for harsh and
unpopular deci- sions is transferred to the seemingly natural and objective
forces of the market.
This thesis is brilliantly argued via the conjunction of three different
First, a very informative statistical chapter sh ows that the most emblematic man-
ifestations of financialization are the growing appropriation of profits by finan-
ciers and the primacy of finance over productive capital in the strategy of
non-financial firms. The second analyses the social politics of US finan-
cial deregulation, taking as its point of departure a series of interviews with actors
and academics involved in the process, through which it synthesizes an
extensive body of literature. Finally, the chapter on the making of US monetary
policy examines the transcripts of the Federal Reserve Committee in charge of
it. This variety of approaches is at odds with the prevailing tendency among
social scientists to rely upon the mastery and use of a single methodology that
is refined from one research project to the next.his T book is a good example of
the merits of an eclectic approach combining various methodologies, when
g
uided by the investigation of a well-defined issue. contemporary domination of
The book’s main conclusions are quite clear: the
finance over the American economy is largely the unexpected outcome of succes-
sive political decisions, made from the 1960s to the 2000s, intended to overcome
the dilemma of increasingly incompatible social demands. The delegation of
col- lective decisions to markets was supposed to strengthen anonymous
constraints on the allocation of scarce capital; however, this move ultimately led to
an unpre- cedented constellation, since domestic financial innovations—such as
the mixing of securitization and subprime low-quality loans—and globalization
induced an
 Capitalizing on 4

explosion of credit that made the incompatible demands of homeowners,

consu- mers, industrial firms and financiers compatible in the short run.
This new regime lasted for two decades, but it was unsustainable in the long
run. Thus, even though the period covered by the analysis (1950 – 2000)
does not take
into account the 2000s and the present crises, Capitalizing on Crisis offers a
deep and convincing interpretation of the underlying structural factors which
led to the financial turmoil that began in September 2008.

2. Rational choice political scientists: listen and watch out!

•Can
Fromthethe beginning, rational
now-dominant strategychoice and rational
in political science, expectations
the theory of theories
rational have
been elaborated
choice, make sensebyofeconomists
the complexinnarrative
order to ofunderstand
the eventsvery
thatsimple
pavedphenomena
the way
occurring
to financia- within an isolated and simple domain. However, the social and pol-
itical process that led to financial deregulation concerns a multiplicity of actors
operating in interdependent spheres: commercial banks, mortgage credit insti-
tutions, money market funds and so on. None of the individual actors could
have anticipated the final outcome of this process, given the complexity of
the interactions involved in the final legislation, ‘Depository Institutions
Deregulation and Monetary Control Act’, passed by President Carter in 1980.
• Over the course of this process of deregulation, the nature and identity of
the actors changed in such a way that the final configuration is totally
different from the initial one. One example is the transformation of citizens
first into consumers and then into savers by the emergence of financialization.
Similarly, it would be absurd to imagine that the whole development of
deregulation has
been led by the rational strategy of a single powerful contemporary Wall Street
entity such as Goldman Sachs. The Wall Street investment banks’ domination
is the outcome of this massive deregulation, and now they are the actors
defending it.
• No actor has the ability to calculate in advance the outcome of such complex
interactions that are only perceived ex post when they affect everyday decisions
of firms and the lifestyles of citizens. Even in the realm of Homo oeconomicus, it
is highly problematic to assume that anyone is able to make informed decisions
and choose among millions of products over a long-term period of time. But
in this case, the price system is supposed to simplify these choices. When the
issue at stake is the creation of new rules of the game and unprecedented inter-
dependences among various sub-domains of the financial system, the
rational choice theory reaches its absolute limits.
406 Review symposium

• The author gives many examples of the relevance of a political economy

approach, and, conversely, she shows how misleading rational choice theory
can be when research takes the actors’ discourse at face value.
• The Caterpillar Report (November 1983) was drafted as the response of the
American Treasury to the complaints of American manufacturers about the
negative impact of the yen/dollar exchange rate. They asked for an appreci-
ation of the yen in order to reduce the American trade deficit via a drastic
de- regulation of the Japanese financial system. De facto, when American
authorities obtained such a reform, the flows of capital out of Japan
increased and, contrary to the initial aim, the dollar got stronger with
respect to the yen.
A decade later, the actual outcomes of the report were: first, the opening of
Japan to global finance; second, easier financing of the large Reagan-era
public deficits; and third, a s of
structural deterioration of the competitivenes
American manufacturers
• An equivalent paradox emerged out of the US Federal Reserve’s new transpar-
ency strategy concerning the objectives of and approach to monetary policy
which was developed at the end of the 1980s. For neoclassical theoreticians
of monetary policy, such a rule-based strategy was assumed to allow the for-
mation of correct expectations about the orientation of monetary creation.
However, a careful analysis of the transcripts of the committee in charge
shows that the true ultimate objective was not to channel the expectations
and behaviour of private actors, but to follow them. Furthermore, this new
style was the unintended outcome of an incident in May 1993 when the
chair- man of the Fed discovered that ‘[the Fed’s] action ... had far greater
impact than we anticipated’ (p. 128). Similarly, at the end of its monetarist
stance, the Fed continued to publish monetary aggregates, but only ‘to keep
up a fac¸ade’ (p. 121). The implicit suggestion of the book is that cynicism
and clever lies might be ingredients of effective public policy.
The consequences of these two episodes are not minor: under the guise of con-
trolling credit, American public authorities have delegated it to market forces.
To quote the author: ‘Greenspan’s lax monetary policy was a culmination of a
much longer term evolution in which policy makers gradually abdicated
control over credit to the market’ (p. 137). G
reta Krippner gives us an
and unconventional interpretation of the origin of the subprime while sim-
ultaneously explaining—at least implicitly— y
how misleading conventional
.
has been in hiding the reality of the power of

3. A promising research programme

Although the book’s core analysis only covers the period 1950 – 2000, its value
lies in its illumination of the fundamental origins of the contemporary economic
and
 Capitalizing on 4

financial crisis. Furthermore, it would be highly interesting to extend the analyt-

ical framework to include an examination of the incrementalist muddling-
through approach with which the USA, the European Union and international
organizations have recently tried to address the new crisis.
It is therefore a pity that Capitalizing on Crisis does not cover the period of
the so-called Great Moderation. While the author claims that financial
deregulation and globalization have generated high and volatile real interest
rates, the period 2002 – 2007 exhibits, on the contrary, a very low interest rate
and a drastic reduc- tion in the conventional assessment of risk via measures of
volatility. This new episode was interpreted as the establishment of an
unprecedented economic regime devoid of crisis. Most contemporary
imbalances find their origins in this discrepancy between the real interest rate
and the rate of return on capital, which triggered an explosion of leverage
effects. Conversely, when the real estate bubble burst, the deleveraging of
highly indebted households and risk-averse firms sowed the seeds for the
probably lengthy process of adjustment that will take place during the 2010s.
Nevertheless, there is some continuity with the previ- ous period: financiers are
still the real instigators of public policy, including the bailing out of the whole
financial system—for the benefit of its CEOs and traders. The results of this
book could help in answering a fundamental question about the transition
from Bush to Obama: why has President Obama not yet been a
transformative president? It is remarkable that the entire process of financial
deregulation, globalization and pro-finance monetary policy inaugurated by
Alan Greenspan expanded under both Democratic and Republican administra-
tions, irrespective of ideological cleavages. This largely falsifies the conventional
wisdom according to which the free-market Republicans deregulate, and the
interventionist Democrats enforce strict regulations. Actually, the lobbying of
the various interest groups seems much more important than the ideological
rhetoric of the two parties and the demands of grassroots citizens. Thus, the
question arises: how can the American political system and society be more
representatively reconstructed?
But then, how to explain that equivalent processes of globalization and de-
regulation have taken place in countries where the transformation of
consumers into savers and of wage earners into pension fund holders and
finally into Ponzi speculators betting upon the unlimited rise of real estate has
lagged or only par- tially occurred, and where political systems differ, welfare
configurations are more extensive and domestic financiers have less bargaining
power? A case study of fi- nancial deregulation in the European Union would be a
natural extension of Cap- italizing on Crisis. Furthermore, the expectation of an
American lost decade raises the interest in an equivalent study for Japan, the
first modern country to demon- strate the possibility of such a painful process
of ‘muddling through’ without any rapid and strong recovery after a major
financial and economic crisis.
408 Review symposium

Wolfgang Streeck*
Max Planck Institute for the Study of Societies, Cologne, Germany

*
Correspondence: ws@mpifg.de

I find this to be one of the best analyses of the current financial and fiscal crisis,
even though the book’s narrative ends as long back as a decade Like few
others, Krippner demonstrates the power of a longitudinal perspective in the
social sciences, one that considers contemporary events as moments in a continu-
ous sequence of historical change. While the subject of the book is the origin of
the ‘financialization’ of the American economy and society in the 1980s,
nobody who has read it can regard the drama that began in 2008 as a surprise,
or as an accident on a road to ever-increasing capitalist prosperity.
By reconstructing its economic and political pre-history, Krippner helps us
understand the present crisis as another stage in the long, drawn-out departure
of capitalist democracies from their formative post-war era of high and steady
economic growth. Financialization—‘the tendency for profit making in the
economy to occur increasingly through financial channels rather than through
productive activities’ (Krippner, 2011, p. 4)—as well as its eventual demise is
shown to go back to the problems that were facing American policymakers
after the end of post-war prosperity in the late 1960s. By then, rising inflation
reflected exacerbating distributional conflicts for the adjudication of which no
viable political formula was available. As a solution to the emerging crisis of
legitimacy, American elites, according to Krippner, opted for de-politicizing the
economy through deregulation and a ‘turn to the market’: rather than govern-
ment, as under the Keynesian regime, it was the impersonal working of
‘market forces’ by which gains and losses were to be allocated in the harsher
economic world after the end of the ‘Golden Age’.
Deregulation, of finance as well as other sectors of the economy, was a political
decision for politics to withdraw from the control of and the responsibility for the
economy. The rise of the financial sector to hegemony that resulted from it was an
eminently political process. According to Krippner, the capacity of financializa-
tion to substitute for inflation, by providing American society with imagined
resources that made it feel richer than it was, was a chance discovery. High
inter- est rates, such as those which had resulted from the Volcker attack on
inflation at the end of the 1970s, happened to suck in foreign capital, which
flooded the American economy with purchasing power. Regained monetary
stability then brought interest rates down, allowing for an unprecedented
increase in public borrowing; enabling banks to extend ever more credit to
households and consu- mers; generating enormous profits in the financial
sector as well as widespread
 Capitalizing on 4

fictional prosperity based on asset bubbles of all sorts; and, most importantly,
ultimately relieving the pressure on American politics to address distributional
conflicts and the country’s underlying economic weaknesses.
In hindsight, I think, Krippner might have wanted to assign fiscal policy and
the politics of public debt a more prominent place, and perhaps distinguish
more clearly between the different phases in the post-1960s’ conflict avoidance
trajec- tory (on the following, see Streeck, 2011). With the defeat of inflation in the
early 1980s, public deficits increased dramatically, and public debt
accumulated, not just in the USA, but also in most other capitalist democracies.
In part, this reflected the fact that inflation could no longer be relied upon to
devalue the debt. It also indicated the renewed confidence of financial capital in
monetary sta- bility. For governments, low interest rates, again worldwide,
made debt finance much more affordable. In effect, what happened was that
public debt took the place of inflation as a mechanism for the mobilization of
not-yet-existing resources for satisfying politically critical present claims in a
world in which, as Krippner rightly points out, real growth was no longer
available for conflict paci- fication. As with inflation, however, public deficit
spending could not continue forever without causing serious economic and
political damage. Thus, the 1990s saw vigorous efforts by Western
governments, led by the Clinton administration, which had come to power on
an anti-deficit platform, to consoli- date their finances. Indeed, levels of public
debt declined somewhat, and the USA even ran a budget surplus at the end of
the Clinton era.
This, however, did not end the reliance of the American political economy
on ever-higher mountains of debt. The consolidation of public finances was
accom- panied by a rapid expansion of household indebtedness which ended
only with the crash of 2008 (for the entire crisis sequence, see Figure 1). In fact,
household debt increased at a rate that more than compensated for the decline
in public debt, the two adding up to an uninterrupted rise in overall debt levels.
This development, incidentally, which has been called
‘privatized Keynesianism’
(Crouch, 2009), was by no means limited to the USA and extended even to a
country like Sweden in the wake of its financial crisis of 1994 and its
subsequent pursuit of fiscal consolidation (Figure 2). While Krippner focuses on
the deregu- lation of financial markets under Reagan in her effort to identify
the origins of
financialization, she seems to underestimate the significance of the second
wave of deregulation in the 1990s th at further facilitated the access (especially
for consumers) to credit, enabling them to compensate with private means for
reduced public spending and social assistance of all sorts, at a time when
public investment declined even more than did public spending as a whole
(Streeck and Mertens, 2011).
The most pressing question asked by Krippner’s important book is what will
happen now, during the fourth phase of democratic capitalism’s long good-bye to
410 Review symposium

Figure 1 The post-prosperity crisis sequence: the United States.

Figure 2 Government debt and household debt: three countries.

post-war prosperity. Interestingly, Krippner’s travel guide on her journey back

to the origins of financialization is Daniel Bell’s seminal book of 1976, The
Cultural Contradictions of Capitalism. Indeed, Bell’s analysis of the
dilemmas of the
 Capitalizing on 4

politicized economy of post-war capitalism after it had lost the capacity to deliver
growth appears unexpectedly farsighted and fresh and is incom parably more
enlightening than today’s economistic and technocratic ‘varieties of capitalism’
literature (Bell, 1976).1 With hindsight, there seem to be only minor differences
between the contemporary problem descriptions of the 1970s offered by conser-
vatives like Bell and by representatives of the Left, such as Habermas and Offe.
Both the Left and the Right considered a breakdown of democratic-capitalist
legitimacy to be imminent —and neither anticipated the possibility that the
crisis might be suspended by a turn to the market, perhaps not forever, but
still for several decades. This possibility, however, now seems to have passed,
and as, according to Krippner, the era of financialization is over, the day of reck-
oning may finally have come.
Perhaps all that was wrong with the crisis theories of the 1970s was that
they did not know about the one ace capitalism still had up its sleeve, which
was ‘financialization’? That they described as imminent what was to come only
after a protracted detour through the intricacies of advanced finance, after an
interlude long in terms of human lives but still short sub specie aeternitatis?
Reading Krippner’s book, one cannot avoid thinking that perhaps the validity
of theories of capitalist crisis may be a matter of the different time horizons of
social systems on the one hand and human beings on the other. The time it
may take for historical chickens to come home to roost may just be too long
for one generation of social scientists. When the crisis theories of the 1970s
failed to materialize in the 1980s, the temptation was almost irresistible to con-
sider them disproved. Indeed, the slow movement of history as experienced by
humans with their limited lifespan may be the most important reason as to
why we are so inclined to decompose continuous trends into discrete events—
which, being construed as such, naturally offer themselves for ‘pragmatic’,
piece- meal treatment. Given the slow pace at which history moves, it may take
too much time for perceived ‘solutions’ to be recognizable as what they may in
reality be: temporary stopgaps. ‘Optimism’ may just be a function of a too
short time perspective.
Occasionally, Krippner suggests that the ‘crisis that wasn’t’ has now arrived,
and that the USA will finally have to address the ‘questions that first confronted

1
Like Krippner, Bell draws his empirics exclusively from the American experience. For him, however,
the USA stands for capitalism as a system, on the assumption that what happens elsewhere in the
capitalist world does not really matter much for its future. Recent events seem to justify this, in
that they are obviously driven much more by the commonalities and interdependencies than by the
‘varieties’ of national capitalisms. Krippner, for her part, focuses less on capitalism than on
American politics, which may be the only weak point in her analysis. Had she cared to look at
other countries, she would have seen that what was and is going on in the USA is more than the
pathology of the political system of just one country.
412 Review symposium

U.S. society in the late 1960s and 1970s regarding which social actors should bear
the burden of a fading prosperity’ (Krippner, 2011, p. 139). At the end of her
book, Krippner paraphrases Daniel Bell and his belief that issues like these will
become ‘the focus of intensifying social conflict’ unless it will be possible ‘to
forge .. . a new social compact about how to achieve social objectives with
limited resources’ (p. 139). But then she doubts, realistically, whether American
society will in fact be able to mobilize the political capacities required for what
would in essence be another New Deal, after the deep ‘depoliticization of the
economy that has been a key element of the turn to finance’ (p. 140).
What can we see, if we can see anything at all, behind the dust covering the
political-economic landscape of global capitalism after the implosion of its
finan- cial markets? Private indebtedness in the USA, and probably in most
other coun- tries as well, has been declining since 2008 while public debt has,
again, dramatically risen—the former due to default or forgiveness, the latter
due to the public absorption of the private losses incurred by the financial
sector as well as, largely futile as far as the USA goes, stimulus spending. Like its
European counterparts, the American government has since 2008 been
preoccupied with reassuring its creditors. In restoring its credibility on the only
battlefield that now counts—the international financial markets—the Obama
government is passionately supported by the Tea Party movement, even more
than it might want. Still, the question is whether ‘the markets’ will be
convinced. Having the Republican Party on board means that repayment of the
debt will have to be achieved without tax increases and, very likely, while
keeping the Bush tax cuts in place. All efforts to balance the budget will have
to rely on spending cuts and, importantly, economic growth called forth by or
taking place in spite of them, depending on how you see the economic world.
This makes high demands indeed on both the credulity and the cruelty of the
American people—who must be willing to accept that the real culprits in the
financial crisis are public sector trade unions and the poor, not to mention
pensioners and the sick, who have to be taught the hard way to sacrifice for the
prosperity of everybody else, in particular those doing ‘God’s work’ in the
money-making industry (Lloyd Blankfein, CEO of Goldman Sachs, on November
9, 2009, in response to a question from a reporter). Even though one can
probably once more count on American voters defending with their own blood
the tax privileges of the owners of private jets, the economic and political task
remains gigantic and may not in the end be feasible. Note that under the budget
deal of July 31, 2011, the national debt of the USA in percent of GDP will not
decline over the next decade but continue to increase, if at a somewhat lower
pace.
This raises the question of a White Knight riding in and providing Americans
with the cash for continuing what is left of their Way of Life at others’ expense,
even though it may by now have become obvious that they will never be able
 Capitalizing on 4

to settle their bills. That question may become urgent sooner than one might
think if there were indeed a second recession following the spending cuts.
There may also and to the same effect be higher interest rates on American treas-
ury bills due to declining confidence among investors—which would increase
the costs of debt service and require further spending cuts—or generally as a result
of higher capital requirements for banks or stricter regulation of the banking
‘indus- try’ (a causal nexus on which economists, as on any other important
subject today, differ fundamentally). Still, Americans can probably count on the
Saudis continuing to buy T-Bills in exchange for military protection, and on the
Germans not knowing better than supplying them with ever more Audis and
BMWs. Only the Chinese may eventually make trouble and demand for their
money, say, American withdrawal from the Strait of Taiwan (aka the Chinese
Sea), or abstention from the sort of costly exercises in overseas nation-building
for which American governments may feel a renewed appetite once the
disasters in Iraq and Afghanistan have been forgotten.
Hardly anything is for certain here, except that the coming decade, or
w decades, ill be a time of a deeply entrenched politics of austerity, of the
P ierson had envisaged in a series of farsighted papers more than 10
ago—and probably much worse (Pierson, 1996; 1998; 2001). ill such politics
be sustainable? As noted, sometimes Krippner seems to suggest that with
finan- cialization having served its function and exhausted itself in the process,
the moment of truth for American capitalism, and by implication for capitalism
in general, has finally come, after a stay of execution that had lasted for an
entire generation. No more excuses, no more tricks? The problem, as far as I
see, is that the four decades that have passed since the end of the Golden Age
have left Americans without any collective defences whatsoever, like trade
unions or a social-democratic or Communist political party, against the pincer
of austerity and ever-increasing inequality. Americans also are, and are likely to
remain, strangely reasonable and pragmatic while clinging to their strangely
unreasonable dream of getting rich individually at the expense of everybody else
and the society as a whole. This makes it improbable that they would at some
point take to rioting in the streets like the Greeks, the Spaniards or,
traditionally, the French. W
ill there be, in the language of both Bell and Krippner, a re-politicization of
the American political economy? I will believe it when I see the first windows
being smashed on Fifth Avenue.

References
Bell, D. (1976) The Cultural Contradictions of Capitalism, New York, NY, Basic Books.
Crouch, C. (2009) ‘Privatised Keynesianism: An Unacknowledged Policy Regime’, British
Journal of Politics and International Relations, 11, 382 – 399.
 414 Review symposium

Krippner, G. R. (2011) Capitalizing on Crisis: The Political Origins of the Rise of Finance,
Cambridge, MA, Harvard University Press.
Pierson, P. (1996) ‘The New Politics of the Welfare State’, World Politics, 48, 143 – 179.
Pierson, P. (1998) ‘The Deficit and the Politics of Domestic Reform’. In Weir, M. (ed.) The
Social Divide: Political Parties and the Future of Activist Government, Washington, DC,
and New York, NY, Brookings Institution Press and Russell Sage Foundation,
pp. 126 – 178.
Pierson, P. (2001) ‘From Expansion to Austerity: The New Politics of Taxing and
Spending’. In Levin, M. A., Landy, M. K. and Shapiro, M. (eds) Seeking the Center:
Politics and Policymaking at the New Century, Washington, DC, Georgetown
University Press, pp. 54 – 80.
Streeck, W. (2011) ‘A Crisis of Democratic Capitalism’, New Left Review, 71, 1 – 25.
Streeck, W. and Mertens, D. (2011) Fiscal Austerity and Public Investment: Is the Possible the
Enemy of the Necessary?, MPIfG Discussion Paper 11/12, Cologne, Max Planck Institute
for the Study of Societies.

Richard Swedberg*
Department of Sociology, Cornell University, Ithaca, NY, USA

*Correspondence: rs328@cornell.edu

The world is still very much suffering from the impact of the financial crisis, and
in this situation i t is tempting to read Greta Krippner’s book as an explanation
what brought it ut. To cite Fred Block (on the back of the book), ‘with
Capitalizing on Crisis, we finally have a persuasive account of the roots of the
2007 – 2008 financial disaster’.
But as with all excellent books—and Krippner’s is one of these—there are
many ways of reading it. What is most valuable to me about Capitalizing
Crisis is something quite different, namely its contribution to an institutional
history of the US economy . While this work may be important for an
understand- ing of the roots of the financial crisis (and I shall return to this
question later in this review), it is indispensable for an institutional history of
the US economy.
By way of explaining this viewpoint, let me tell the following anecdote. A few
years ago, there was a debate among economic sociologists at one of their strong-
holds in the USA about the tasks of economic sociology. On what should eco-
nomic sociology focus, in order to advance? There were two camps: those who
argued that it was important for economic sociologists to develop a
competence
 Capitalizing on 4

in current and past economic issues, and those who wanted economic sociologists
to first and foremost develop good sociological concepts and theories, with which
they can analyse economic phenomena.
The latter camp won out, and the same is perhaps true for economic sociology
in general, especially in the USA. As a result, economic sociologists today have a
number of concepts and approaches at their disposal, while they have little
knowledge of the US economy, say, from the 1800s onwards. I
nstead, there are
theories of embeddedness, performativity, a cultural approach to economic
No, it is wrong to say that they are totally missing. Some years ago, Neil Flig-
sociology and so on. Solid works on the history of the stock exchange,
savings,
stein presented us with a history of the giant corporation in the USA. Viviana
Zelizer has explored the history of life insurance, and Frank Dobbin and
Charles Perrow have both made valuable contributions to the economic
history of the early nineteenth century. There exist some other fine works by
economic sociologists on the history of the US economy, even if large gaps still
remain.
From this perspective, Krippner’s work is especially welcome. She covers the
period from the 1970s to around 2000 in the USA, with an emphasis on the
eco- nomic policy of the US government, and in this way she provides us with
some sorely missing information. This is information of which economic
sociologists are very much in need, not only to understand the background of
the financial crisis, but also, more generally, to understand important parts of
the post-World War II economic history of the USA.
Like any good author, Krippner brings an interesting theoretical perspective to
bear on her material, which is partly her own and partly borrowed from other
writers. Her knowledge of economic sociology and relevant works in economics
is as impressive as it is reliable. But what is especially rewarding to the reader, I
would venture, is the way that she uses the ideas of Daniel Bell to analyse
. She selects some of the most interesting ideas of this brilliant sociologist,
to
who just passed away and whose work has already (and unfairly) begun to fall
into oblivion.
The Daniel Bell that Krippner resurrects is not the neoconservative Bell, nor
the end-of-ideology Bell. It is instead the person who introduced the concept
of the public household into the US debate and who wanted to raise political
awareness among the American public, so that a well-functioning democratic
state could come into being. While realizing that the economy is central to the
modern state, Bell equated the state with democratic governance, and
Krippner does the same.
Bell’s idea that the USA was facing a serious crisis over who will get what at the
end of the 1960s is of special interest to Krippner. She skilfully develops it
further
 416 Review symposium

by dividing it into three different crises: a social crisis, a fiscal crisis and a financial
crisis. In this version,Bell’s idea not only informs her analysis, but also can be said
to constitute its very structure. After an int roduction and a discussion of what is
meant by the term financialization, there are chapters on the social crisis (Ch.
3), on the fiscal crisis (Ch. 4) and on the financial crisis (Ch. 5). The argument of
the book is then summarized and wrapped up in the final chapter (Ch. 6).
But Krippner is also a theoretician in her own right, and this is clearly evident
in Capitalizing on Crisis. The reader who wants to get a quick sense of her skill and
creativity on this account is especially referred to t he second half of the
chapter, which is devoted to the concept of depoliticization. ippner here
takes hold of the idea of depoliticization and turns it into a useful and sophisti-
cated concept, of much potential use in economic sociology as well as
elsewhere. She elegantly argues that policymakers in the USA used the strategy
of depoliti- cization during the 1970 – 2000 period and, in doing so, also succeeded
in under- mining their own power. In order to avoid hard choices, US
policymakers chose to transfer responsibility for many issues to the market.
The unintended result
this strategy, Krippner argues, was that they lost power them selves . A key problem
for today’s policymakers is precisely this: in transferring power to the market, the
politicians lost it themselves, and as a result they are quite powerless in relation to
the market.
It is important to emphasize that the history Krippner writes is not one of ra-
tional actors, but of actors who try to follow their interests but often end up h
very different results than they had intended. Ever sinceWeber’s The Protestant
Ethic, sociologists have been sensitive to the fact th at unintended es
can be more important than intended ones, and Krippner’s study illustrates
this phenomenon as well. The political actors in her book tried to solve each
of the three crises, but instead ended up with something very different from
what they expected: financialization.
Chapt 2 of Krippner’s book is devoted to the concept of financialization:
what it is and how to measure it (see also Appendix C, ‘Economic Data’). This
chapter contains an illuminating discussion of the different ways in which one
can define financialization as well as a presentation of the way in which the US
economy became financialized between 1970 and 2000.
standard e author argues that in
On thework
meritsin of
theChapter
literature on financialization.
2 alone, Krippner’s book deserves to become
trying to determine what financialization is, one should not look at what pro-
ducts are produced or what certain actors are doing, but at something else:
profit, more precisely, the relationship of the profit derived from finance to the
profit derived from all other sectors of the economy. She aptly describes her
analysis in Capitalizing on Crisis as ‘a profit-centered view of the economy’ (p. 50).
 Capitalizing on 4

Krippner also very carefully presents what data to include and what data to
exclude when one tries to decide what constitutes profit in the financial sector.
But even if Krippner’s chapter on financialization deserves much praise for the
solid data it contains, this does not exhaust its pioneering quality.It deserves
to be pointed out that the idea of focusing on profit is very unusual in modern
economic sociology . It may seem strange and counterintuitive that any social
sci- entist after Marx would fail to understand that the analysis of profit is
central to an understanding of a capitalist economy. Nonetheless, this is the
case, and Krippner’s focus on the role of profit is therefore especially
refreshing.
Krippner covers an enormous amount of material, and in doing so she has to
be selective. She is explicit about this, and the reader is told precisely which
factors she will look at and which will be left out. Still, now and then I felt that
the author’s silence on certain topics risked derailing her enterprise of tackling
financialization. In discussing the end of Bretton Woods, for example, she does
not mention that this represented the beginning of the creation of a truly
global financial market and that it is the instability of this market that made
the financial crisis of 2007 – 2008 possible (as well as many other financial
crises).
It is also odd that her book contains so little about the organizational structure
of the financial sector and the enormous changes that it has undergone during the
last 50 years. The old idea of a prudent bank with a modest profit level died, for
example, with Walter Wriston of Citicorp, and from this time onwards banks
were transformed into profit-making entities, just like any firm. Krippner men-
tions the emergence of the shadow banking system, but does not go into
greater detail. For a discussion of the many new financial instruments that
were developed during this important period, the reader will also have to go else-
where, say, to the work of Donald MacKenzie.
Finally, I also would like to have seen the author spend more time on the
topic of the function or the purpose of finance in modern times. Why do we
need finance in the first place? The Sunday school version (which is still
around) is that banks and other financial ‘intermediaries’ gather together
many small streams of deposits and then give loans to those who need it for
productive invest- ments. The function of finance, in short, is to help
production along.
But even the most cursory glance at modern finance shows that this does
not capture what happens in reality, something of which Krippner is well aware
(e.g. pp. 4 and 168, note 10). But what exactly is going on, then, in modern
finance? And if finance is not productive, and if it does not create many new
jobs itself, why do we want to keep it—especially if it is so unstable in nature
that it creates recurrent crises that spread to the rest of society?
Hopefully, other authors will write on these topics and complement, and
perhaps also complete, Krippner’s account of the period from 1970 to 2000
and what caused the financial crisis of 2007 – 2008. But in the meantime, it
is
 418 Review symposium

also clear that Krippner has written an excellent book, one of the best in modern
economic sociology. Sh e has made an important contribution to what caused the
current financial crisis, and she has also helped along the project of an institution-
al history of the US economy.
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