This chapter provides a historical overview of the profitability crisis that undermined the postwar economic boom, gave rise to the phenomenon of stagflation, and ultimately drove the financial liberalizations explored in this book. This chapter puts forward a novel historical categorization of British stagflation, by identifying two distinct phases within Britain’s experience of the global profitability crisis. The first, from 1967 to 1977, was characterized by low rates of profit, rising inflation, and repeated current account imbalances that resulted in currency crises. The second, from 1977 to 1983, still saw low profitability and high inflation, but the rising price of sterling ensured that there were no sterling crises. The chapter then details how governments combined governing strategies of depoliticized discipline and palliation in different ways during these two periods of acute crisis in order to navigate the contradictory imperatives of global competitiveness and domestic legitimacy. Policies of financial liberalization constituted attempts to support these strategies.
Theoretical Discussion of the Financial Liberalization: The Political Economy of a Policy’s Paradox