The Power of Inaction

Cornelia Woll details the varying relationships between financial institutions and national governments by comparing national bank rescue schemes in the United States and Europe.

Cornelia Woll is Professor of Political Science at Sciences Po Paris and Co-Director of MaxPo and LIEPP. She is the author of Firm Interests: How Governments Shape Business Lobbying on Global Trade, also from Cornell, and coeditor of Economic Patriotism in Open Economies.

This book compares bank bailouts across six countries in the wake of the failure of Lehman Brothers in September 2008. Using extensive interviews conducted with bankers, lawmakers, and other key players, the author argues that collective inaction by the financial industry allowed bankers to avoid shouldering more of the bailout, forcing national governments to deal with banks on a piecemeal basis and, ultimately raising the cost to taxpayers.... In all, the book argues persuasively that collective inactivity had important consequences for bailout arrangements and ultimately affected how the public and private sectors shared the cost burden of these massive policy decisions. Summing Up: Recommended. Upper-division undergraduates and above.

Lucia Quaglia:

The book is meticulously researched and cogently written. It speaks to and substantially develops the literature on the power of the financial industry in public policy, providing novel insights into the different relations between the banking industry and national governments across a variety of countries. The narrative is enriched by material gathered through several semi-structured elite interviews with policy-makers and representatives of the financial industry in a variety of countries.... One of the greatest achievements of the book is to draw attention to the (so far overlooked) politics of bank bailouts, rather than the economic conditions in which they took place.

Rawi Abdelal, Herbert F. Johnson Professor of International Management, Harvard Business School:

The Power of Inaction is a brilliant, deeply insightful analysis of the political economy of government responses to banking sector crises. Woll has synthesized myriad arguments across disciplines and narratives among nations to produce a unique approach to one of the central questions of our time.

Desmond King, University of Oxford:

Cornelia Woll has produced a richly researched and important analysis of the wave of bank bailouts in advanced democracies prompted by the 2007–2008 Great Recession. In a theoretically sophisticated analysis, Woll asks and addresses the question: What influence did financial industry actors exert on national governments to help them protect their banking and investment institutions? From detailed case studies of the United States, the United Kingdom, Denmark, France, Ireland, and Germany, Woll develops a persuasive argument about how the degree of collective action achieved by a country's financial sector matters fundamentally for the level and content of government intervention and support during a crisis. Not only does the theoretical argument help explain the recent crisis but it provides a framework for understanding state-financial sector relations in general. I highly recommend The Power of Inaction.