Introduction
Casino Capitalism is a vivid description of the international financial markets, their behavior, and the economic strength they yield to various entities. The book goes on to describe the advantages of international financial markets and some of the evils associated with the same. The author, Susan Strange was a former student of the British international relations studies; she is mostly renowned for her contributions to the creation of the international political economy. Apart from her major publication of the Casino Capitalism in 1986, she also published other books, namely: States and Markets (1988), The Retreat of the State (1996) and Mad Money in 1998. Before engaging in publication, Susan worked as a financial journalist for the Economist and the Observer. Later on, she also worked with other institutions in Britain and around the world, including the European University Institute (Italy), the University of Warwick, and the Aoyama Gakuin University in Tokyo Japan.
The analysis of the political economy by Susan in the book was distinctive, pioneering a contemporary analysis of the global financial market. In her analysis, she provided early warning of “casino Capitalism using the normative political theory. Her primary question related to the people who benefited from from the Casino Capitalism, which were state centric and powerful non-state players who had started shaping the global politics. In the book, Susan critics various approaches related to Casino Capitalism such as unbridled market power, social control of markets and favored regulations. According to Susan, the Casino Capitalism could cause financial market panics, volatility and crashes.
Book genre
The book Casino Capitalism gives crucial insights on the international economy, specifically the financial markets and as such, it can be considered an economic book. The insights are important for the improvement of the banking sector and the world financial system, which as described has been influenced greatly by democratic factors. The book begins with an introduction by Mathew Watson, who besides describing the personal and professional achievement of the author provides an insight of the historical context of the book and the relevance of the book in the modern international economics.
The Casino Metaphor
According to the author the financial system in the west had increasingly come to resemble casino gambling where the players have various options of games to play (black jack, poker, roulette) and bag major winnings in the sense that the financial systems offer various options such as options, forward contracts, bonds and government securities. The players in the financial markets are the banks and as in the casino business, they stake large amounts of money with the speculations that they would gain tremendous profits in the future. According to Susan, the casino-based capitalism adopted by the banks and other financial institutions is the kind 1940s world. The latter had caused the breakdown of major financial systems in the past, such as the Bretton Woods systems, and if the necessary amendments were not made, the situation would be replicated in other financial markets.
The ‘states and markets' perspective
Borrowing from the idea of casino gambling, Strange explains the role that states play in the creation of stable national economic systems. Following the line of argument that ‘if the systemic mode of governance changes, then it seems reasonable to presume that the participants within the system will calibrate their behavior' (P. 5). While adopting this premise, the author does not dismiss the role of the evolution of the international financial system that occurred during the 1980s, which evidently had an impact on determining the trading partners as well as the mode of trade.
The book provides insight on the path followed by nations towards financial liberalization by preempting the ongoing trend towards financial evolution and innovation. To achieve this, Strange assets that there is a need for an external regulation of the financial market environment by a selection of political authorities and make changes in the internal mechanisms of the trading instruments (bonds, securities, futures and forward contracts). This was meant to as to allow the various players in the economy understand the influence of politics in the development of a stable economy. This notion provides the financial market players with the consequences of evading government control of their activities, although it is evident that the author is not through about the latter. The subject was furthered by the author Peter Bernstein in 1992, a writer commemorated for writing the first history of the world financial evolution.
As in other of her publications such as the Mad Money, Susan explains the workings of both the governments and the financial systems at both national levels and international level. She is keen to dissect the internal factors that determine changes in the national monetary systems.
Notably is the mention of the methods used by various parties to negotiate for power when it comes to the control of financial markets.as she describes it one of these methods is Relational power, which is the ability of an entity to systematically emerge on top of negotiations. However, Susan favors structural power, which she describes as the ability of an entity such as the government to decisively shape the nature of negotiations such that it is the outcomes are in the favor of the later. According to the author, it does not matter the source of power or leadership when it comes to the control financial markets. The source of power, however, has a significant role in influencing transformation in the economy. Therefore, it is vital the entities with authority to use their power to develop the right strategies, policies, and relationships to ensure financial soundness.
Casino Capitalism is described as the transition from the relatively stable financial systems during the sixties to the economic scene of the seventies and the eighties. The book specifically labels the casino capitalism to be a characteristic of the world's largest economies such as the America, Russian and some of the European markets. Firms in these advanced economies are heavily involved in the financial markets trading; and the casino capitalism alludes to their situation as they can lose billions of money invested say as mortgage securities as a gambler can do with the flip of a card. This is the case with some of the companies in the current economy, as some have lost their entire investment due to the instability of the financial systems as they strive to amass massive amounts of capital from various investments.
Regardless of the rather ineffective approach in providing a precise relationship in the determinants of investment in a capitalistic economy, the Susan's approach is still useful in the following sense. The neoclassical economists believe that the change of financial markets and the institutions that change with them is influenced by the possibility of profit gains. Concerning this notion, Strange offers an effective solution that is ‘a monetary system cannot work effectively unless there is a political authority' (p. 25) this assertion is mostly correct as most governments have sought to control and regulate the actions of players in their financial markets to achieve stability and at the same time prevent the adverse effects that could result from national and international financial crisis. She indicates that the short term and long term changes in the financial markets need to be from a collaborative effort of the various players in the financial systems and the pertinent authorities, if efficient investment and capital development is to be achieved. Additionally, she indicates that changes in the economy cause a shift in the balance of leadership between the market players and the government. As such, the author provides vital information to shed light on the need for government regulation towards the journey of achieving financial stability in highly capitalistic economies.
The above insight sheds light on some of the world's major financial markets collapse, such as the Bretton Woods system. Strange finds the ‘chaos' in the international monetary regime as the attributed by the primary decisions made in the USA in the early postwar period as the main reasons for the meltdown of the system. Her main point regarding the matter is the assertion that the public domestic needs were made the priority and had a better part of the decision-making process concerning economic changes at the time. Consequently, the authorities played havoc while attempting to create the order required for the achievement of global financial stability.
In as much as the Strange strives to develop a logical evolutionary process that continues to influence the international economic changes, it is clear that she is biased by the notion that the United States of America played a significant role in the collapse of the Bretton system. This is not arguable considering that the author has a British background. It is, however, interesting that she never at one point directly blame the latter for the collapse, which preempts her premise of government playing a role in the destruction of financial markets.
Strange goes on to introduce the role of the increased volatility of interest rates as well as financial instruments in the deterioration of capitalistic economies. Evidently, the global capital markets have become more friable. Combined with the increase of the unaccountability of the governments or the concerned government authorities, this has further worsened the efforts to achieve global financial stability. Strange challenges the readers ponder upon the contribution or effectiveness of the government towards developing policies and regulations that would enhance the development of better and more stable financial systems. She, however, subtly intends to indicate how the governments, which have the responsibility of intervening in the financial markets, have continued to fail.
The continuous sequence of portfolio diversification and flight capital, as well as the resultant issues, are found to be missing from the observations made by Strange. Throughout the chapters, Susan fails to examine and explain the role of portfolio selection on exchange rates in a bid to elaborate why the fluctuations in the exchange rates go beyond the theoretical arguments provided in the book. On the contrary, she constantly alludes to the attractiveness of the USA (due to large capital endowments) which led to the liberalization of markets, which ultimately led to the reduction in value of the dollar as other currencies in the international market gained value. She indicates the dependency that a government can create by the involvement of international trade due to poor portfolio selection, as it is the case with the post war American economy, which became heavily dependent on trading partners and other investors.
Apparently, Strange gives up on the chaos she identifies as the hindrances towards achieving national and international economic stability. To begin with, her assertions do not incorporate portfolio choices made by nations in international trade. It follows that the order that would lead to economic stability is easier said than done: ‘order will replace substantial foreign assets, at the modern Germany and Japan, are forced by the international arrangements to become deficit countries on their trade accounts.' (p. 76). As such, Susan posits that the achievement of economic stability in a country is a daunting task posing political stability as an essential aspect in ensuring economic stability. Her theory is in line with financial theories that present that political stability is an essential aspect in enhancing the achievement of economic stability.
The beggar-my-neighbor scheme
Another theme presented in the book concerning the development of stable economies is the beggar my neighbor, which is a term used to describe the activities of governments to maintain the national profit and employment at most desirable levels through the depression of the profit as well as the employment of their trading partners in the international market scene. In relation to the Keynesian, model of sterile global assets for trade purposes, national banking authorities with adequate competitive advantage in terms of their possession of assets for international commerce would have to accept in a bid to maintain their profits and desirable employment levels making the beggar my neighbor scheme inadequate. However, as Strange explains the current countries that ‘beggar, the USA, a global economic giant, is reliant on the US economy for dollar generating assets, which in turn they use to foster economic growth and improve the employment levels. As such, Susan's analysis concerning the beggar my neighbor model provides a better insight compared to that presented by past economists such as Keynesian.
Conclusion
The book Casino Capitalism provides an explanation of the reasons behind the collapse of national and international financial markets. The author uses the metaphor of the casino gamblers to indicate the activities of various parties involved in the monetary system and the amount of power yielded by each. As a casino has gamblers with gambling options to choose from, the financial markets have many players with equal but different options to choose from. At the same time as there are some dirty players in casinos, the same occurs in the financial industry where those parties with power could use the authority and access of financial information bestowed on them for their personal gains. As such, the book provides a historic journey of how institutions and governments have failed to deliver the responsibilities bestowed in the in the power sharing mode of developing effective financial systems and the adverse consequences that followed. These include reduction of employment opportunities and deterioration of the living standards.
Susan effectively shows the role of governments in the path towards the achievement of financial stability, which would, in turn, lead to the improvement of the global economy. According to the author, some of the reasons that have continued to hamper the stability of both national and international economies is the fluctuations in market interest rates, volatility of exchange rates especially under the floating exchange rate system. In this light the author suggests that government or the parties with authority to intervene in the financial markets should develop the right strategies to ensure the stability of the markets. In line with the beggar my neighbor scheme, this would help reduce the pressure that economic giants such as Germany, Japan and the USA can reduce pressure on the relatively less powerful countries economically.
However, it is noticeable that some of the authors ideas and assertions are inadequate in explaining the factors that foster economic development. Irrespective of the weaknesses in her arguments, it is essential to acknowledge that numerous arguments presented in her book has been experienced in the modern economies.
For instance, the book does not give an exact relationship between the capital development and the change in the global financial systems that occurred in the post war period. At the same time, she does not provide a satisfactory description of the determinants of the level of capital investment. Additionally, her assertion that the USA is the global giant economically is a trend that has now changed with the emergence of other countries like China as the world's top economic powers. However, her assertion that there is a need for a collaborative effort by politicians, institutions such as central banks and the financial markets is valid and significant in the past and the present economic scene. The achievement of economic stability requires a collaborative approach that ensures the involvement of the politicians and other policy makers to ensure the stability of the economic system
Work Cited
Strange, Susan. Casino Capitalism: With an Introduction by Matthew Watson. Manchester: Manchester Univ Press, 2015. Print.
Kumar, Susmit. Casino Capitalism: The Collapse of the Us Economy and the Transition to Secular Democracy in the Middle East. Bloomington: iUniverse, 2012. Print.
Sinn, Hans-Werner. Casino Capitalism: How the Financial Crisis Came About and What Needs to Be Done Now. Oxford: Oxford University Press, 2010. Print.
