The articles in this special issue survey comparatively the shape of power and finance. The introduction sketches the history of the study of the political role of financial markets and examines the reasons for the comparative neglect of the subject by the discipline of political science.

This article extends a recent line of research arguing that the power and capacity of political actors (including states) is not just the product of particular fixed attributes but is also the outcome of political relations between key interlocutors, including ideational relations. State elites, especially government leaders, have persisted with a mindset that still values the economic centrality of a large and complex banking sector. This way of thinking has conditioned the relationship between, on the one hand, the US and UK governments and, on the other, Wall Street and the City of London and has led to a form of ‘dysfunctional embeddedness’. Government leaders may have been able to win high-profile policy victories over the banking sector in the post-crisis period, but in accepting a large, complex and constantly evolving financial system with high levels of systemic risk, they have unwittingly placed themselves at a continuing disadvantage in the regulatory arena.

Understanding the role of the American state in the era of neoliberal finance requires a scale of analysis that can identify not only the domestic but also the international role of the informal empire the US established in the middle of the twentieth century for superintending capitalism on a world scale. This article demonstrates that it was not so much neoliberal ideology that broke the old system of financial regulations, as it was the latter’s increasingly dysfunctional effects as finance outgrew the New Deal incubator through the post-war decades. Through the Bretton Woods crisis and the stagflation of the 1970s, institutional reform in the financial sector became a key dimension of broader competitive capitalist strategies for innovation and expansion. While this certainly involved extensive leveraging and speculation, it met the hedging needs not only of financial institutions but also of the many corporations seeking protection from the rapidly evolving vulnerabilities associated with global trade and investment. Yet the financial volatility that inevitably resulted from those very transformations meant that the Federal Reserve’s function as lender of last resort was increasingly called upon, just as the Treasury came to define its role as that of ‘failure containment’ on a global scale. On the basis of this theoretical and historical perspective, the article analyses the causes and consequences of the 2007–8 financial crisis and the ‘old/new practice of failure containment’ that has characterized the American state’s response to it.

Four faces of power are summarized, based on the established literature in political science and the work of Foucault: they are power over decision, the power of agenda control, hegemonic power and capillary power. The four faces correspond also to four strategies used by City elites in the UK to protect markets from democratic control. Strategies have developed out of conjunctural crises. The most recent strategy, which involved a form of capillary power, was greatly damaged in the financial crisis of 2007–8. Since then the City has been obliged to retreat to a reliance on the exercise of power over decision, which involves open lobbying.

Comparing bank rescue schemes in France and Germany during the banking crisis of 2008–9, this article argues that collective inaction is a little-studied aspect in the exercise of power in business–government relations. Contrary to studies that focus on lobbying, structural power or the influence of beliefs, the comparison highlights that governments depend on contributions from the financial industry during crisis management. In the negotiations to design bank support schemes, some countries, such as France, succeeded in engaging their financial sector collectively. Such public–private burden-sharing arrangements alleviate the public budget and increase mutual surveillance between banks during government support. In other countries, such as Germany, a collectively organized industry response failed, which forced the government to design an entirely public support scheme. The German government reacted to this perceived imbalance by imposing tighter banking regulation to avoid a repetition of the impotence it experienced in 2008.

The Greek financial system was typical of a state-directed credit-based southern European model. Financial liberalization from the late 1980s and early 1990s was mainly state directed, aimed to serve the objectives of disinflation and the single European market. As a result of liberalization, the banks emerged as powerful players in the 1990s. The cheap-credit, rapid credit-growth period of 1998–2008 allowed banks to maximize sectoral profits, incomes and power. Debt-driven growth also served the government’s objectives of delivering relatively effortless rapid prosperity. The banks’ decline following the 2010 public debt crisis resulted mainly from the fiscal failure of the sovereign and the current account imbalances of the euro area. In crisis, the banks cannot escape the confines of their sovereign, which itself is heavily constrained by the surrounding euro area economic structure. Such structural limitations circumscribe the power of bankers.

When it comes to analyses of financial power in Latin America, there has been a tendency to assume it is mostly external, relatively homogeneous, and usually constraining of domestic policy autonomy. Increasingly, however, when speaking of financial power in the region, a focus exclusively on foreign capital misses a significant part of the empirical landscape, one inhabited by large domestic institutional investors: public and private pension funds. A focus on these funds reveals that a neat state–finance dichotomy is often unrepresentative of the type of blurred web of interests, influence and ownership that characterizes even those economies that have embraced a significant degree of liberalization. In fact, pension finance is far from uniform across countries. In order to capture this diversity in Latin America, a new typology is suggested that departs from the Anglo-American notion of ‘pension fund capitalism’ and further specifies pension finance as also revealing dynamics best described as ‘pension fund developmentalism and statism’. The typology is not only aimed at capturing more empirical nuance in Latin America; it can also serve as reference for cross-regional analyses of these often neglected, but increasingly powerful financial actors in emerging economies.

The main argument to be developed in this article posits that fundamental changes and variations in the financial market structure of East Asian economies have been predicated on the emergence and configuration of the dominant coalitions. The coalitions have been forged by private market agents, economic policymakers and political elites who have developed particular interests in financial market changes as a response to economic and political imperatives both at home and abroad. In East Asia, the dominant coalitions that have borne crucially on regulatory rules and market practices have differed in the policy preferences of key actors in the coalitions and the power structures of these coalitions. It is these differences that have exerted divergent shaping influences on financial market development.

This article examines financial innovation as a source of structural power of finance originally identified by Susan Strange. I build a synthesis based on complex network theory and the field of evolutionary finance which yields a conception of finance as a complex ecological habitat. On the one hand, the interaction between various entities inhabiting the financial system endows this complex habitat with a tangible degree of autonomy vis-à-vis politics, society and economy. On the other hand, the evolutionary process guiding this financial ecology is built on complexity and innovation and hence is fragile. The structural power of finance today, therefore, is necessarily twofold: it manifests the effects of the endeavours (intentional and otherwise) of financial agents; crucially, it also rests on the seemingly boundless ability of the financial system to adapt, change and evolve.