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Paradigm Shift or Groundhog Day?

The Public Debate on Post-Crisis Banking Regulation in the United Kingdom

Master's Thesis 2013 77 Pages

Politics - International Politics - Region: Western Europe

Excerpt

Table of Contents

1. Introduction

2. The Case – British Economic Policy and the City of London
2.1 Patterns of British Economic Policy – The Conservative Experiment of Margaret Thatcher
2.2 Labour’s Ideological Change of Course

3. Theoretical Framework – Ideas in the Economic Policy-Making Process
3.1 Who Influences the Policy-Making Process? – State-Centric vs. Pluralist Views
3.2 The Media as Marketplace for Economic Ideas
3.3 Operationalization of the Research Question

4. Research Methodology
4.1 Definition: Content Analysis as Empirical-Scientific Method
4.2 Case Selection
4.3 Units of Analysis

5. Data and Analysis
5.1 Which topics are emphasized by which newspapers? What were the main topics before and after the election (Q1)?
5.2 Which actors determined the public agenda before and after the election? Did the newspapers provide a forum especially for conservative, liberal, etc. actors (Q2)?
5.3 Which contents were ascribed to the respective parties in the news coverage? What were their main arguments pro and contra banking regulation and have they changed after the election (Q3)?
5.4 Did the newspapers simply express the arguments of different actors or did they articulate additional ideas and arguments (Q4)?
5.5 Did the newspaper’s political orientation influence the news coverage? How much space did the different newspapers dedicate to the topic before and after the election (Q5)?

6. Regulatory Change – What Happened After the Election?
6.1 Institutional Reform – The New Financial Regulatory Architecture
6.2 Structural Reform – The Independent Commission on Banking

7. Reflection & Discussion

References

Annex

List of Abbreviations

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1. Introduction

The United Kingdom (UK) has been at the epicentre of the global financial crisis erupting in 2007. The City of London’s global interconnectedness as well as the long-established culture of regulatory self-independence that had governed the financial industry for decades triggered a near meltdown in the British banking system in late 2008 and the country’s first recession in 17 years. Next to the immediate consequences for depositors and the British economy as a whole, the financial crisis led to a fundamental change of direction in national economic policies and destabilized a system of politics that had governed financial regulation in the UK for over two decades (cf. Johal, Moran & Williams 2012). In 1979, the Thatcher administration replaced the decaying manufacturing industry with a finance-led service sector and hence made the City of London the centrepiece of a self-ruling world based on the principles of privatisation and deregulation. During the following period of economic boom stretching from 1986 to the outbreak of the financial crisis in 2007, the British banking sector was commonly pictured as ‘the goose laying the golden eggs’ (Haldane 2009:1). The banking crash in September 2007, however, destroyed the illusion that an economic system which relied on light-touch financial regulation to promote the international competitiveness of the City was competent at the job of securing financial stability. The scale and prolonged effects of the financial crisis provided the central backdrop to the general election in May 2010.[1] Being no longer able to rely on uninterrupted economic progress, the governing Labour party was forced to compete with the Conservatives over a new regulatory regime that could prevent the British economy from drowning in a recession (cf. Johal, Moran & Williams 2011).

The financial crisis spurred ad-hoc policy responses around the globe and energized efforts to strengthen financial supervision in the affected countries. Due to the City of London’s key position as a leading global financial centre, the regulatory reforms that were initiated by the change of government in May 2010 have attracted a lot of interest in professional circles and hence been chosen as central object of investigation for this thesis. However, instead of focusing solely on the change of policy in financial supervision, the thesis will analyse the developments in the public debate on post-crisis banking regulation that has accompanied the general election in 2010. The reason for this approach is the following: in democratic societies, politicians ultimately depend on the goodwill of the electorate. The public opinion is the determinant factor for the ability to win elections – hence politicians must be concerned with the mobilisation of support for their respective electoral programs which are usually backed by a particular ideological leitmotif. The near collapse of the global banking system, however, destroyed the public confidence in governmental capacities to cope with the effects of the financial crisis. As a result, the challenge governments are facing today is not only to find more effective economic policies but to articulate moral visions – new leitmotifs – capable of restoring their legitimacy in difficult times. In the British context, the search for a new legitimizing narrative to restore public confidence in the state as well as market power characterised the electoral campaign of all three major parties. Therefore, the aim of this thesis is to investigate how the change of government in May 2010 has been perceived by the public and whether a potential replacement of the pre-crisis consensus on the need for a light-touch regulatory regime in favour of a new leitmotif in banking regulation has been the subject of public debate. The research question is as follows:

Did the change of government in May 2010 initiate a fundamental shift in the public debate on banking regulation in the United Kingdom?

The thesis will start with a brief presentation of the case study: what role has the City of London played in British economic policy during the previous decades and in how far has that role changed after the outbreak of the financial crisis? The literature for this chapter focused on post-crisis institutional change in financial market regulation with a special focus on the United Kingdom. The most recent work in this regard is an article published by Johal, Moran and Williams in 2012: ‘Post-Crisis Financial Regulation in Britain’.[2] The authors provide a detailed overview of the historical legacy of the City, the pre-crisis institutional set-up as well as the present state of regulatory change (as of September 2011) in the UK. The article, together with earlier publications by Johal, Moran and Williams[3] served as background information for this thesis and was a starting point for further research on current regulatory changes in British banking supervision.

Due to the clear focus on the domestic level, both the international and cross-border perspective in terms of financial stability and reform have been largely neglected. Only exception is the work of Quaglia (2011) who places the issue of post-crisis financial regulation in the UK in a broader context by asking whether the British bank rescue plan announced in 2008 was pacesetting for the adoption of similar plans across the European Union (EU). The article has added value for the thesis in so far as it gives a clearly structured overview of a central aspect of crisis management conducted by the Labour party and hence facilitates the later textual classification of the empirical data.

All of the above-mentioned articles are used as a measuring stick against which the findings of the empirical part of the thesis can be categorized. The articles do not provide straightforward answers to the research question but give an overview of the pre-crisis institutional patterns that governed financial market regulation in the UK as well as the most important aspects of crisis management conducted by the Labour party. Since the thesis concentrates on a potential shift in the public perception of banking regulation after the change of government in 2010, such a measuring stick is essential in order to classify the findings.

The theoretical framework of the thesis (chapter 3) is based to a large extent on the assumptions of Peter A. Hall, a Canadian political scientist who emphasizes the role of economic ideas in the policy-making process and argues that politicians operate within an interpretative framework of ideas and standards that guide their actions and specify their goals (cf. Hall 1993). The idea to focus on the public debate on post-crisis banking regulation in order to locate the underlying leitmotifs that are able to mobilise support for a policy-change was significantly inspired by Hall’s volume ‘The Political Power of Economic Ideas: Keynesianism Across Nations’ which he edited in 1989. By using three different approaches (state-centred, economist-centred, coalition-centred), Hall examined in how far economic ideas are able to have an influence over policy-making and which actors and institutional configurations impede or facilitate the entry of innovative ideas into policy. The main assumptions of all three approaches have been adapted to the particular research interest of this thesis and provide the theoretical foundation for the empirical analysis. Hall’s case study on economic policy-making in the UK[4] in which he described the media as ‘outside marketplace for economic ideas’ provided additional significant input for the thesis: the assumption that the struggle to find a new leitmotif for banking regulation was a ‘society-wide affair, mediated by the press, deeply imbricated with electoral competition, and fought in the public arena’ (1993:287) provided the rationale to conduct a media analysis in order to investigate the public debate on post-crisis banking regulation that accompanied the general election in 2010. Finally, one of Hall’s latest publications[5] in which he discussed different types of policy response to the financial crisis built the bridge between the importance of economic ideas in the policy-making process and the challenge governments are facing today in the light of the financial crisis: Hall argues that since the narratives of the past no longer suffice, governments have to find new legitimizing leitmotifs for their role in the economy (cf. 2010:8). As outlined above, this assumption essentially summarizes the research interest of this thesis.

The fourth chapter will outline the research methodology, including the general research approach (media analysis), case selection, and the system of categories used for the measurement of variables. In this regard, the literature concentrated on unobtrusive research methods, especially content analyses. Information on the theoretical foundations, conceptualization and implementation of content analyses in general have been derived to a large extent from classical works of communication science (e.g. Früh 2007; Merten 1995; Altheide 1996) as well as Raupp and Vogelsang (2009) who focus explicitly on the information processing role of the media in societies and thus provided insight into the conceptualization of media analysis in particular. However, none of the above-mentioned publications directly apply content analyses to a specific political context – the adaptation of the media analysis to the specific research interest of this thesis was conducted independently.[6]

Chapter 5 contains the data evaluation which will systematically examine the results of the media analysis according to the theoretical expectations formulated in chapter 3 and aims at answering the question whether the news coverage on post-crisis banking regulation (independent variable) can actually be regarded as an explanation for a possible paradigm shift in the public debate on this topic (dependent variable).The data evaluation is accompanied by a document-based analysis of the actual regulatory reforms that have taken place after the coalition government came into power in May 2010 (chapter 6). This step serves to put the findings of the previous media analysis into perspective and thus to demonstrate the impact of the independent variable on the political reality of financial regulation in the United Kingdom. The subsequent chapter 7 will summarize the main findings of the empirical analysis, provide the answer to the research question and discuss its implications. Additionally, the chapter will point out the limitations of the empirical evidence and briefly discuss in how far the findings of the thesis could be located in a broader research context.

2. The Case – British Economic Policy and the City of London

When industrialized capitalism reached its zenith in the nineteenth century, the City of London was already an established power in the world financial markets. Due to the supremacy of the British Empire, the City became the centrepiece of the world economy in which most of the trade was conducted in sterling and in which Britain owned an enormous range of foreign assets (cf. Coggan 2002). Deeply integrated into ruling democratic elites, the City developed and prospered around a distinctive regulatory ideology:

‘[…] financial markets were delicate and complex mechanisms which could not be effectively ruled by anything as rigid as law, and which could only be controlled by the development of cultures of discipline in the markets, and by the independent organisation of those markets’ (Moran 1981, as quoted in Johal et al. 2012:68).

Although the two world wars ended Britain’s financial predominance and transformed the regulatory ambitions and resources of the state, until the outbreak of the financial crisis in 2007 the City largely succeeded in maintaining its system of regulatory self-independence and consolidated its dominance as an international financial centre concentrating on wholesale finance.

The aim of this chapter is to briefly outline the different schools of thought that have governed the British economy – and thus the City of London – throughout the previous decades. The focus is on the Conservative era between 1979 and 1997 and the years of the Labour government between 1997 and 2010. The chapter will reveal that understanding the economic policy outcomes in the UK requires an understanding of the structural character of the financial system in which economic and political forces are highly interconnected.

2.1 Patterns of British Economic Policy – The Conservative Experiment of Margaret Thatcher

Economic and political forces are deeply interconnected: ‘the significance of economic developments cannot be understood separately from the political context that brackets them’ (Hall 2010:1). Historically, the post-war period after the Second World War was marked by two distinct economic schools of thought: the Keynesian welfare state and a neoliberal economic policy which was introduced by Margaret Thatcher in 1979 and lasted until the outbreak of the financial crisis in 2007. It has to be kept in mind that the economic ideas of Keynesian demand management which the Labour party adopted in the 1950s were to become the party’s ideological leitmotif for the next 30 years. However, due to the limited scope of this thesis, the chapter will solely focus on contrasting the economic paradigm which the Conservative party adopted in 1979 with Labour’s economic policy during its term of office between 1997 and 2010.

In the 1970s, low rates of economic growth combined with high rates of unemployment severely challenged the hitherto uncontested Keynesian school of thought based on the idea of aggregate demand management. Together with an increasing competition in increasingly globalised international markets and the declining political salience of the class conflict between capital and labour, these developments eventually terminated the Keynesian consensus that had underpinned British economic policy-making since the Second World War and opened the door for the conservative experiment of Margaret Thatcher. The party’s approach combined ‘a political critique of growing state intervention based on theories of political overload with an economic critique of Keynesianism founded on monetarist conceptions of the economy’ (Thatcher 1980, as quoted in Hall 1986:100). The monetarist policy was based on the assumption that the British state had grown too large. Therefore, public expenditures and the scale of government activity had to be reduced to make room for reductions in taxation.

After the City of London had experienced comparatively hard times during the years of Labour government, it rose to new heights under Margaret Thatcher: far reaching privatisation measures shifted whole industries out of the domain of the public into the realm of the markets and were accompanied with a wide programme of deregulation which shifted control over economic life from public institutions to the private sector (cf. Froud, Moran, Nilsson & Williams 2010). These changes accelerated in the 1980s when the globalisation of financial markets intensified the competitiveness of financial centres and culminated in the ‘Big Bang’ of 1986: the sudden deregulation of financial markets in the UK, in order to secure the City of London’s position as leading global financial centre. The policy measures of the Thatcher government initiated a period of economic boom in the UK that stretched from the early 1990s to the outbreak of the financial crisis in 2007 and was based on the narrative that the country was creating a new economy based on post-industrial sectors with a finance-led service industry (cf. Johal et al. 2012). London’s comparative advantage as a global financial centre became the overall aim of economic policy-making and was constantly evoked by the financial elite and its political allies who kept on emphasizing the central role of finance in creating employment in a post-industrial economy.

2.2 Labour’s Ideological Change of Course

When Labour came into power in the middle of an economic boom in May 1997, it saw little reason to change the successful economic project initiated by the Conservative party almost 20 years ago. Instead of relying on its traditional Keynesian-inspired ideology, Labour affirmed its predecessor’s commitment to light-touch financial regulation and implemented a series of high-profile institutional reforms like granting operational control of monetary policy to the Bank of England (BoE) and creating a single financial regulator, the Financial Services Authority (FSA).[7] The FSA inherited both the BoE’s historic responsibility for bank supervision and the responsibilities of the Securities and Investment Board which was created in 1986 to oversee a complex system of self-regulatory organisations that covered the main city markets. The potential power of a single financial regulator was limited by three central aspects (cf. Johal et al. 2012): the FSA was paid for by a levy on the markets, it was located in the City rather than in the government quarter and it recruited its staff from the City itself instead from the civil service. Hence the FSA was always conceived of as ‘the property of the markets’ (Johal et al. 2012:71) and became the centrepiece of a regulatory system which collapsed dramatically after the outbreak of the financial crisis in 2007.

Froud et al. (2010:26) argue that the institutional changes introduced by the Labour government amounted to a kind of ‘naturalization of financial markets, in a world where public policy and institutions had to accommodate to the play of market forces.’ The banking crash in September 2007, however, destroyed the illusion that an economic system which relied on light-touch financial regulation to promote the international competitiveness of the City was competent at the job of securing financial stability. One of the immediate effects of the crisis was hence the ‘repoliticisation of financial regulation’ (Froud et al. 2010:27): the issue suddenly was of the highest priority for the Prime Minister and Chancellor[8] and soon moved the stability of single financial institutions as well as the macro-stability of the whole banking system on top of the political agenda. The degree of exposure of the City of London to the financial crisis forced the government to adopt a far-reaching banking rescue plan in October 2008 which focused on the protection of retail depositors and was articulated on four key points (HM Treasury 2009:4f.):

- making £200bn available under the Bank of England’s Special Liquidity Scheme (SLS), allowing institutions to swap their pre-existing assets (which had become illiquid) for Treasury bills over a three-year period;
- establishing a Credit Guarantee Scheme (CGS) of up to £250bn, to provide banks with a guaranteed source of funding, and hence improve the flow of credit to the economy;
- setting up a £50bn Bank Recapitalisation Fund to make capital available to eligible banks and building societies, taken up by Royal Bank of Scotland (RBS), Lloyds TSB and HBOS[9];
- offering capital protection for banks through the Asset Protection Scheme, which provides government protection against future credit losses on certain assets, in exchange for a fee, to support the banks and allow them to continue making loans to creditworthy businesses and households.

Another immediate act of crisis management conducted by the Labour government was to abolish the clear separation between the roles of democratically elected politicians and financial regulators – one of the key principles of the system for governing markets that had evolved in the decades after 1979 (cf. Froud et al. 2010). In the aftermath of the banking crash in 2007, the industry had to turn to the democratic state for the resources and authority to prevent systemic collapse; the government, on the other hand, had to rely on the expertise and specific knowledge of the financial elite due to the complexities of crisis management.

Despite the prompt and innovative measures that were taken in the immediate aftermath of the crisis, the White Paper of July 2009 which outlined the Treasury’s proposals for reforming the institutional architecture of banking regulation in the UK made clear that the Labour government was not ready to abandon its benign attitude to the financial markets. On the contrary, the government reasserted the traditional narrative about the key role of the financial sector in a post-industrial economy and rejected any fundamental restructuring of the industry. The proposals outlined in the White Paper were hence formulated very cautiously:

- Capital requirements were linked to the size and complexity of a firm but any proposals to break up large, complex banking conglomerates and separate investment and retail banking were rejected;
- The FSA’s dominant position as a regulator was retained and only complemented by the creation of a statute-based Council for Financial Stability;
- The public ownership of the banking system acquired in the crisis was said to be only a transitional stage and not the prelude for any long-term reshaping of the banking system.[10]

3. Theoretical Framework – Ideas in the Economic Policy-Making Process

‘The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood.’[11]

As previously mentioned, the theoretical framework of this thesis is based to a large extent on the assumptions of Peter A. Hall who places ideas at the centre of the economic policy-making process. In his work ‘The Political Power of Economic Ideas: Keynesianism across Nations’ (1989), Hall focused on the question whether and to what extent economic ideas are able to influence public policy. In a later publication, the author linked the concept of ideas to policy-making as a process of social learning which he defines as a ‘deliberate attempt to adjust the goals or techniques of policy in response to past experiences and new information’ (Hall 1993:278). Learning is thus indicated when policy changes are the result of such a process.

For Hall, the concept of social learning implies that ideas are a central feature of the policy-making process. Based on the observation of Anderson (1978) that ‘the deliberation of public policy takes place within a realm of discourse’[12], Hall argues that

‘policy-makers usually work within a framework of ideas and standards that specifies not only the goals and instruments of policy-making, but also the very nature of the problems they are meant to be addressing’ (Hall 1993:279).

The following chapter will take Hall’s assumption of policy-makers operating within an interpretative framework (to which he refers to as ‘policy paradigm’) as a starting point for the theoretical framework of this thesis. Starting from a general perspective, the first section will outline in how far ideas are able to influence the policy-making process by contrasting state-centric against pluralist views and explaining which actors and institutional parameters are involved in this process. The subsequent section will outline how the media fit into this context and what role they play in shaping the public debate. Proceeding from a relatively abstract general framework to specific hypotheses, the section will conclude with the formulation of five sub-questions which will guide and structure the media analysis of the news coverage on post-crisis banking regulation in the UK.

3.1 Who Influences the Policy-Making Process? – State-Centric vs. Pluralist Views

In his case study on economic policy-making in Britain, Hall (1993) relied heavily on theories of the state which argue that

‘the state, broadly understood as the executive, legislative, judicial apparatus of the nation, has an important impact of its own on the nature of public policy and considerable independence from organised social interests and the electoral coalitions that might otherwise be said to drive policy’ (Hall 1993:275).

State-centric approaches are based on the assumption that the entrance of new economic ideas in the political decision-making process is influenced by the institutional configuration of the state and its prior experience with related policies: states will usually be predisposed towards policies with which they already have some favourable experience. When following this line of argumentation, the process of social learning is limited to a dimension of policy-making that confirms the autonomy of the state from external societal pressure. Although it is undeniable that the institutional arrangements for policy-making[13] play a critical role in impeding or facilitating the entry of innovative ideas into policy, the thesis is based on the assumption that any theory that is capable of explaining economic policies must be grounded in a broader view of the general determinants of state action (cf. Hall 1986). Thus, the theoretical framework is not limited to a purely state-centric view but takes into consideration pluralist assumptions as well. In how far can other political variables like electoral competition, societal pressure from interest groups or expert advice from professional economists influence the outcome of economic policy-making?

Contrary to state-centric views, the economist centred-approach (cf. Hall 1989) suggests that economic ideas can have a persuasiveness, and hence a political dynamism, of their own if they have advocates (economic professionals, epistemic communities, etc.) who are able to make their views known within the government. This precondition indicates that the impact of expert advice on economic policy depends heavily on the institutional parameters mentioned above ‘that structure communication within the economics profession and between economists and policy-makers’ (Hall 1989:9): how open are public authorities to external advice from professional economists? Does a large and sophisticated body of academic professionals exist in the first place? How much influence do professional economists, as opposed to civil servants, have inside the administrative apparatus of the government?

The economist-centred approach stresses the role of professional experts and focuses on the quality of ideas themselves. However, for ideas to have an actual influence over policy-making, they must mobilise support among broader coalitions of societal groups on whose votes elected politicians ultimately depend. The coalition-centred approach (cf. Hall 1989) brings politicians and societal groups more directly into the explanation of policy and is based on the assumption that economic policies derive from the interaction of several sets of societal actors. In democratic societies, policy-making does not occur within a shielded black box in which public officials operate completely independent from external pressure. A major source of power involves the ability to win elections; hence politicians must be concerned with the mobilisation of support for their respective electoral programs. The political system needs to be understood as a network of political parties and interest intermediaries that seek to influence policy (cf. Hall 1986).

The Advocacy Coalition Framework (ACF) developed by Sabatier and Weible (2007) provides additional insight in this context because it succeeds in bridging the assumptions of both the economist- and coalition-centred-approach: the ACF assumes that policy-making in modern societies is so complex that participants must specialize in a given policy subsystem in order to be influential. Thus, according to Sabatier and Weible (2007:196) policy-making occurs among the so-called ‘iron triangle’ including legislators, agency officials and interest group leaders as well as specialised professionals (university scientists, epistemic communities, etc.) who provide scientific and technical information and are thus among the central players in a policy process. Each of these actors has particular interests and is motivated to translate those interests into actual policy. With regard to economic policy-making in the UK, this assumption seems especially valid because of the significant influence the City of London and its financial experts exert on the government. As outlined in the previous chapter, the financial industry traditionally has leverage over British economic policy due to its vital role in creating employment in a post-industrial economy. There is also the fact that in recent decades, the financial elite has systematically reorganized and professionalized its lobbying operations to convert its economic power into actual influence over policy-making – a fact that is also reflected in the relationship between the City and the Conservative party: when David Cameron became Conservative leader in 2005,the financial services industry was the source of just under a quarter of total cash donations to the party; by 2010 the figure had risen to just over 50 per cent (cf. Johal et al. 2012, quoting the Bureau of Investigative Journalism 2011). Hence especially in the British context Hall’s statement is true when he argues that ‘no government can operate effectively in a […] capitalist polity without the support of a substantial portion of owners and managers of business’ (1989:96).

The thesis is thus based on the assumption that the British state and society cannot be analysed as separate spheres. As Hall (1989:13) argues: ‘Politics is ultimately about the conflict among groups with divergent interests for claims on scarce resources.’ The role of economic professionals and interest groups (especially the financial industry) in shaping the economic policy-making process has already been briefly discussed. A third and significant political variable is the electoral competition between political parties which are ‘the agents of collective purpose in a democracy’ (Beer 1969, as quoted in Hall 1986:91). Political parties transform the multiple claims and demands of societal groups into concrete programs backed by a particular moral vision which is rooted in longstanding partisan sentiments. Until the 1950s, the Labour party continued to stand by its long-time economic platform of nationalization and planning before power within the party gradually shifted toward those who argued that a ‘socialist economic policy could be built around Keynesian demand management rather than further nationalization’ (Crosland 1956, as quoted in Hall 1986:71) – an economic idea that were to dominate Labour for the next 30 years. The new economic policy was organized along a deepening class cleavage between capital and labour which deeply characterised the party system as a whole: Labour emerged as the opponent of the main business-friendly party, the Conservatives, whose laissez-faire ideology traditionally favoured the City of London.

In terms of economic policy, the two main British parties have thus traditionally offered the electorate a choice – a fact that has been severely challenged during the 2010 general election. When Labour came to power in the middle of an economic boom in May 1997, the party saw no reason to break with the successful economic project initiated by the Conservatives two decades ago. Instead, Labour adopted the narrative of the vital role of the City for the British economy and thus largely assumed the traditional Conservative ideology. Hence in 2010, the Conservatives had to adopt a far more radical position in terms of regulatory change than the traditional party ideology would have suggested in order to distance themselves from the governing Labour party. The effects of the electoral competition on economic policy-making will be discussed in detail in chapters 5 and 6.

3.2 The Media as Marketplace for Economic Ideas

How do the media fit into this context? Hall’s reference to ideas as interpretative frameworks in which policy-makers operate underlines the importance of developments in the realm of political discourse: policy innovation depends on the availability of new ideas that are able to provide the rationale for policy departures (cf. Hall 1989). The thesis is based on the assumption that the media are a key figure when it comes to the public debate about economic issues between politicians and societal groups. Hall (1993:286) describes them as a ‘marketplace for economic ideas’ outside the state: acting as an intermediary between the state and society in democratic polities, the press shapes and influences public debate by selecting and placing selected topics on the public agenda, commenting on these issues and giving external actors who transmit societal demands (political parties, economic actors, etc.) a forum to express their opinion. In this way, the media determine the issues of which the public is aware of and discusses about: ‘the mass media set the agenda for each political campaign, influencing the salience of attitudes towards the political issue’ (McCombs & Shaw 1972:177).

As already mentioned in the introduction, the aim of this thesis is not to investigate directly the policy change in post-crisis banking regulation in the UK – for this purpose it would have been much more straightforward to look at white papers and parliamentary debates directly.[14] Instead, the focus is explicitly on the public debate on post-crisis banking regulation in order to locate the underlying ideas and leitmotifs that are able to mobilise support for a policy change. In acknowledgement of the important role the media play in shaping the public debate, the thesis will use a discourse analysis of the news coverage on the 2010 general election to investigate and explain the shape of the debate on post-crisis banking regulation in the UK. The research question stated in the introduction of the thesis is hence further specified as follows:

How has the public debate on post-crisis banking regulation been depicted in British newspapers during the news coverage of the 2010 general election?

Why do ideas play such a fundamental role in economic policy-making? Why is it important that governments operate within a framework of ideas and standards that specify the goals of policy and the instruments used to attain them? One answer is that economic policy-making must be understood as an essentially political process that is able to polarize members of society. Hall (1986:1) argues that ‘the effects of economic policy alter the welfare of millions, and its making is a process deeply conditioned by broader struggles between competing parties, ideologies, and social classes.’ In the British context, the near collapse of the banking system in late 2007 destroyed the public confidence in governmental capacities to cope with the effects of the financial crisis and consequently led to the erosion of the old neoliberal paradigm which had guided economic policy-making for more than three decades. The financial crisis produced a shock to economic orthodoxy that has the potential to pave the way for new economic ideas that could trigger a policy change. This assumption is backed by Sabatier and Weible (2007:198) who argue that policy change occurs either in response to new information or due to significant perturbations external to the policy subsystem which are able ‘to shift agendas, focus public attention and attract the attention of key decision-making actors.’

The increasing public distrust in Labour’s pre-crisis economic paradigm opened a competitive gap for the Conservative party and the Liberal Democrats. Making the public debate about the UK’s future economic orientation (the future shape of banking regulation in particular) the object of electoral competition, both parties ‘manoeuvred to stake out a distinctive position on institutional change in the 2010 general election’ (Johal et al. 2012:79). All three major parties were confronted with the challenge not only to find more effective economic policies but also to articulate moral visions – new leitmotifs – capable of restoring their legitimacy in the aftermath of the financial crisis. Although the enthusiasm for competitive financial markets operating in a self-ruling world has declined among the public, ‘a new era of optimism about what states can do will not necessarily follow’ (Hall 2010:7) because citizens currently have as little faith in states as they have in the markets. This challenges the ideological platform of both Labour and the Conservative party: the financial crisis destroyed the Thatcher-era assumption that competitive markets automatically deliver services more efficiently than the government could do. At the same time, the crisis presents an existential challenge to traditional Labour thinking because the option of expanded government intervention is no longer available as the bail-out of banks such as Northern Rock has left the Treasury without significant resources for at least three to five years. Thus, the UK needs a whole new agenda of policies and ideas which are able to supersede the old conflict between the state and the market.

3.3 Operationalization of the Research Question

The thesis focuses on the tripartite relationship between the state, societal groups and the media acting as intermediary between the former two. A central question in this context is: what impact do the media have on this relationship? Are they articulating ideas capable of mobilizing societal groups or simply expressing rational interests and calculations of both actors? In chapter 5, the concept of process tracing as a scientific method for studying causal mechanisms[15] will be used to systematically examine the results of the media analysis and to determine whether the news coverage (independent variable) can actually be regarded as a causal explanation for a possible paradigm shift in the public debate on banking regulation (dependent variable). The thesis is based on the assumption that the media analysis will reveal different focal points of the three main British parties regarding banking regulation and hence be able to answer the question whether the new government can be associated with new ideas and legitimizing narratives for regulating the British banking sector. Central for the thesis is hence to find indicators for a potential paradigm shift initiated by the general election: in how far has the news coverage changed before and after the election? How can this change be depicted? For this purpose various sub-questions have been formulated in order to structure the analysis:

- Q1: Which topics are emphasized by which newspapers? What were the main topics before and after the election (agenda-setting theory)?
- Q2: Which actors determined the public agenda (journalists/economic commentators, political parties, experts/epistemic communities…) before and after the election? Did the newspapers provide a forum especially for conservative, liberal, etc. actors?
- Q3: Which positions/contents were ascribed to the respective parties in the news coverage? What were their main arguments pro and contra banking regulation and have they changed after the election?
- Q4: Did the newspapers simply express the arguments of different actors or did they articulate additional ideas and arguments?
- Q5: Did the newspaper’s political orientation influence the news coverage? How much space did the different newspapers dedicate to the topic before and after the election?

4. Research Methodology

The following section will outline the main features of content analysis and set out how the scientific method will be used to empirically analyse the five sub-questions formulated in the previous chapter. The data evaluation in chapter 5 will eventually show whether the research strategy is suitable to demonstrate a valid relationship between the news coverage on post-crisis banking regulation (independent variable) and a possible paradigm shift in the public debate on this topic (dependent variable).

4.1 Definition: Content Analysis as Empirical-Scientific Method

According to Babbie (2010:357), content analysis is used to answer the classic questions of communications research: ‘Who says what, to whom, why, how, and with what effect?’ Therefore, content analysis can be defined as ‘an empirical method for the systematic, intersubjectively understandable description of content and formal features of texts, usually aiming at an interpretative inference to external facts and circumstances’ (Früh 2007:27). In an empirical-explanatory process, texts are systematically taken apart and assigned to different (pre-)defined categories. The selection of texts, their decomposition as well as categorisation depend on the specific research interest.

Empirical research is a social process. Thus, the social and cultural environments in which one operates as an investigator contribute to how one views research problems, data sources, and methodological approaches (cf. Altheide 1991). In order to minimize the influence of such external factors on the research results, every content analysis has to comply with the scientific criteria of intersubjective reliability and systematics. The former criterion is met when the research question, the general research approach as well as the collection and evaluation of data are openly documented by the researcher. That way analyses become reproducible: they can be verified by third parties and implemented again if necessary. The criterion of systematics is met when a clearly structured and documented approach is used to answer the research question, including the formulation of hypotheses, a reasonable case selection and the development of categories to measure the variables (cf. Früh 2007). To ensure that the results generated from the media analysis are valid and reliable, the before mentioned criteria have been taken into account as comprehensively as possible and are documented in detail in a codebook which can be found in the annex of the thesis.[16]

A central assumption of this thesis is the important role that mass media play in the functioning of modern democracies: the information function of press and broadcasting is a prerequisite for the formation of public opinion (cf. Raupp & Vogelsang 2009) and often the only contact many have with politics. McCombs and Shaw (1972:185) argue that ‘the media are the major primary sources of national political information; for most, mass media provide the best – and only – easily available approximation of ever-changing political realities.’ As outlined in the previous chapter, the thesis considers the media as mediator between voters and the actual political arena: by choosing and evaluating policy-relevant information, editors force public attention to certain issues, build up public figures images of political figures and generally exert a considerable influence on voters’ judgement of what they consider to be the main thematic issues of a political campaign (cf. ibid.) Based on this argumentation, McCombs and Shaw formulated their agenda-setting theory, stating that ‘the mass media set the agenda for each political campaign’ (1972:177). This theory is one of the main reasons why a content analysis of the news coverage on the 2010 general election has been chosen as research methodology to investigate a possible shift in the public debate on post-crisis banking regulation in the UK.

[...]


[1] The United Kingdom general election of 2010 was held on Thursday 6 May 2010 and resulted in a hung parliament where no party was able to command a majority in the House of Commons. The heretofore governing Labour party gained 29% of votes and lost 6.2% compared to the previous election. The Conservative party under David Cameron won the largest number of votes (36.1%) but still fell twenty seats short. The party eventually entered a coalition with the Liberal Democrat party which emerged as the third-strongest party from the election (23.0%). The coalition government was the first one in British history to eventuate directly from an election outcome. For more detailed information see: http://news.bbc.co.uk/2/shared/election2010/results/ (last accessed July 9, 2010)

[2] Published in: Mayntz, Renate (ed.): Crisis and Control. Institutional Change in Financial Market Regulation. Frankfurt a.M. 2012: Campus, 67-95

[3] See for example Johal, Sukhdev/ Moran, Michael/ Williams, Karel (2011): The Financial Crisis and its Consequences. In: Nicholas Allen, John Bartle (ed.): Britain at the Polls 2010. London: Sage, 89-119; or in cooperation with Froud and Nilsson: Froud, Julie/ Moran, Michael/ Nilsson, Adriana/Williams, Karel (2010): Wasting a Crisis? Democracy and Markets in Britain after 2007. The Political Quarterly 8, pp. 98-119

[4] Hall, Peter (1993): Policy Paradigms, Social Learning, and the State – The Case of Economic Policymaking in Britain. Comparative Politics, Vol. 25, No. 3, pp. 275-96

[5] Hall, Peter (2010): The Significance of Politics. In: Hemerijck, Anton/Knapen, Ben/van Doorne, Ellen (eds.): Aftershocks: Economic Crisis and Institutional Choice. Amsterdam University Press

[6] Additional input was derived from comparable case studies on electoral campaign coverage or political reporting in general. Particularly worth mentioning are Wilke & Reinemann’s long-term study of campaign coverage in the German press (2001) as well as various publications by Gerhards, Offerhaus & Roose on ‘The European Union and the Attribution of Responsibility in the Mass Media’ (2004, 2006, 2007, 2009).

[7] The legislative foundation for these institutional changes is the Financial Services and Markets Act (2000). The complete document can be found here: http://www.legislation.gov.uk/ukpga/2000/8/pdfs/ukpga_20000008_en.pdf (last accessed July 6, 2013)

[8] At that time Gordon Brown and Alistair Darling

[9] In November 2008, the authorities were obliged to establish United Kingdom Financial Investments (UKFI) as a vehicle for managing the government’s shareholdings in The Royal Bank of Scotland Group plc. and Lloyds Banking Group plc. UKFI’s overarching objective is to manage these shareholdings commercially to create and protect value for the taxpayer as shareholder and to devise and execute a strategy for realising value for the Government’s investments in an orderly and active way over time within the context of protecting and creating value for the taxpayer as shareholder, paying due regard to the maintenance of financial stability and acting in a way that promotes competition. http://www.ukfi.co.uk/about-us/what-we-do/ (last accessed June 19, 2013)

[10] The three aspects are only an excerpt taken from the White Paper which comprises 176 pages in total. The complete document can be found here:

http://www.official-documents.gov.uk/document/cm76/7667/7667.pdf (last accessed July 6, 2013)

[11] John Maynard Keynes (1936): The General Theory of Employment, Interest and Money. London: Macmillan as quoted in Hall (1989:3).

[12] Anderson, Charles (1978): The Logic of Public Problems: Evaluation in Comparative Policy Research. In: Ashford, Douglas (ed.): Comparing Public Policies (Beverly Hills: Sage) as quoted in Hall (1993).

[13] Institutional arrangements include patterns of recruitment to administrative posts, hierarchical patterns of authority that could influence the information flow within individual bureaucracies, or the bureaucratic capacities of states to implement new programs quickly and efficiently (cf. Hall 1989).

[14] Although the media analysis constitutes the main empirical part of the thesis, a subsequent step will include a document-based depiction of the actual regulatory reforms that have taken place in the area of banking regulation after the general election. This step serves to demonstrate the impact of the independent variable and to verify the results of the analysis with regard to the research question. The approach will be outlined in more detail in the following chapter.

[15] Collier (2011:823) defines process tracing as the ‘systematic examination of diagnostic evidence selected and analysed in light of research question and hypotheses posed by the investigator.’

[16] Coding is the process of transforming raw data into a standardised form suitable for analysis (cf. Babbie 2010). Hence, the codebook specifies all survey steps, converts the research questions into variables and entails detailed instructions for the coder.

Details

Pages
77
Year
2013
ISBN (eBook)
9783656496496
ISBN (Book)
9783656497592
File size
1.7 MB
Language
English
Catalog Number
v233308
Institution / College
University of Twente – School of Management and Governance
Grade
2,0
Tags
financial crisis banking regulation United Kingdom

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