States' interests as limits to the power of finance: Regulatory reforms in early local government financialization in the US and UK

Through a comparison of typical and deviant cases, this study probes and refines the augmented power model which argues that the structural power of the financial industry fosters its instrumental power in influencing regulatory reforms under certain scope conditions. It shows the industry's success in influencing policymakers to authorize municipalities to use derivatives and thereby to financialize their debt management in the US (typical case). The failure of banks to acquire such a law in the UK (deviant case) reveals a hitherto little-noticed condition under which this power explanation collapses: states' fiscal and monetary constitution. We demonstrate that analyzing the operation of finance power requires a precise consideration of how states' fiscal and monetary constitution structures governments' responses to financial industry's regulatory preferences. Moreover, we conclude that synthesizing business power research with literature on the mutual dependence between states and finance helps to explain patterns of state financialization.