Introduction

This chapter introduces the concept of financialization, surveys the scholarly literature on this topic, and makes the case for this book’s novel contribution to these debates. It is widely recognized that the world economy has become financialized, yet the role of states in furthering this process has been underexamined. While many accounts point out that states were crucial in propelling financialization through policies of financial liberalization, these accounts tend to argue that the state did so either due to the lobbying power of financial elites and the influence of neoliberal norms or because policymakers were seeking to construct an alternative growth model based on financial accumulation. These two accounts of the role of states in spurring financialization—which can be termed interest-based and ideational explanations and functionalist explanations—fail to capture the reactive and ad hoc nature of the policymaking that resulted in financial liberalization. In the case of Britain, the agenda of financial liberalization in the 1970s and 1980s that propelled the City of London’s ascent was not chiefly driven by lobbying or ideology, nor was it intended to inaugurate a financialized growth model. Instead, by analysing declassified state archives, this book shows that policymakers pursued such policies as short-term measures to navigate through the stagflation crisis of that era. Financial liberalization was deployed in a messy fashion, either to postpone the worst effects of the crisis so as to maintain governing legitimacy, or to enact painful economic restructuring in a manner that shielded the state from political backlash.