This is the second part of a four-part interview with Costas Lapavitsas, author of Financialised Capitalism: Expansion and Crisis (Maia Ediciones, 2009) and Profiting Without Producing: How Finance Exploits Us All (Verso, 2014). This part turns toward international aspects, including the contrasts between financialization in high-income and developing countries and the relationships between financialization and both neoliberalism and globalization. (See the first part here.)
Costas Lapavitsas, Guest Blogger
Dollars & Sense: You’ve anticipated our question about whether financialization is exclusive to high-income capitalist countries or is also happening in developing countries. How is it different in developing countries?
CL: Financialization in developing countries is a recent phenomenon, which has begun to emerge in the last 15 years in full earnest. We see a number of middle-income countries that are financializing, and we have to look at it carefully to understand it. One thing that is immediately obvious is that, in mature countries, financialization has been accompanied by weak or indifferent performance of the real economy. Rates of growth have been weak, crises have been frequent, unemployment has been above historical trends. We see a problematic state of real accumulation in mature countries. But when we look at developing countries, it is possible to see countries with phenomenal financialization, where growth has been reasonably strong. Brazil has been financializing during the last ten years, and yet its growth rate has been significant. Turkey has been financializing and yet its growth rate has been significant, and so on. So financialization in developing countries is not the same as in mature countries, because typically in the last ten years, it’s been accompanied by significant rates of growth.
The European Parliament has just released a major report with a clear message for all those engaged in the growing debate about the role of external private finance in development: quality matters far more than quantity. As the post-2015 debate on financing development continues, and the UN gears up for a major Financing for Development conference in 2015 or 2016, this timely paper – authored by four experts (I was one of the co-authors) gives clear recommendations on how European governments can ensure that fighting poverty stays at the heart of this agenda.
The Current Picture
Firstly, here are the main findings of the report’s review of all available data on global private finance flows:
Domestic private investment is significant and growing. Public and private investment, taken together, have grown as a proportion of GDP, from 24.1 % in 2000 to 32.3 % in 2011.
Outflows of private financial resources are extremely large. Most are not productive investments in other countries but repayments on loans (over USD 500 billion in 2011), repatriated profits on foreign direct investment (FDI) (USD 420 billion) or illicit financial flows (USD 620 billion).
Figures greatly overstate the real net financial private flows to developing countries. Foreign Direct Investment (FDI) is the largest resource flow to developing countries, but outflows of profits made on FDI were equivalent to almost 90% of new FDI in 2011. In addition, FDI includes the reinvestment of earnings from within the ‘destination’ country: not an inflow.
Argentina’s Economic Policy in a Time of Crisis: Don’t Throw the Baby Out With the Bathwater
Santiago Capraro, Guest Blogger
“Our definition of the concept of “monetary regime” had two parts to it: it is (a) a system of expectations governing the behavior of the public, and (b) a corresponding set of behavior rules for the policy-making authorities that will sustain these expectations.”
- A. Leijonhufvud, “Inflation and Economic Performance,” WP No. 223, UCLA, 1981.
In the first three months of 2014, the Argentine peso suffered a nominal devaluation of 20% (an annual rate of over 60%) and the real interest rate jumped from zero to around 10-15%. Argentina’s government has wanted to stop the fall of the Argentinean Central Bank’s (BCRA) international reserves. The drop in reserves has three origins:
The concept of the “middle-income trap” had been brought into fashion by Barry Eichengreen and colleagues (see their recent NBER Working Paper). The concept is used to describe the challenges, for countries with GDP per capita of around $16,000 (at 2005 prices), in achieving productivity growth and key institutional transformations.
Many economists have taken note of the fact that, as economies converge to this middle-income level, “easily-accessible” sources of growth based on the transfer of virtually unlimited supplies of labor from rural agriculture to urban centers and towards capital-investment-led high profit sectors gradually lose their stimulating impact. Technologies grow mature and finally become worn out. After this threshold is reached, sources of growth must be derived from technological and institutional advances and productivity gains, which can only be achieved by investments in human capital, research and development (R&D), and institutional reforms. This, however, is no easy task, and countries often get “trapped” at this stage of development, hence the middle-income trap.
Yet, as such, the middle-income trap is an average concept defined by national boundaries. Recent work reveals, however, that divergences persist, and often times are reinforced, between regions embedded within national economies and even within municipalities. In many instances, poverty-stricken regions co-exist side by side with rich and highly productive regions. The persistent co-existence of such divergent structures leads us to ask whether poverty is in fact being reproduced by the workings of the market mechanism favoring high-income regions. This observation has its roots in a long tradition in development economics of duality and dependency theories.
Australia is a coal country. It is big business—miners are important in politics and black gold exports dominate the country’s finances. But dirty and polluting coal evokes emotions in environmentally concerned people. Coal-based power provides 40 per cent of the world’s electricity and emits one-third of global carbon dioxide, which is pushing the world to climate change.
Given this, on my recent visit to Australia, it was obvious I would be asked about my opinion on Australian coal exports to India. My answer, at the end of a discussion on the environmental challenges the world faces, was that as long as Australia was addicted to coal for energy it would be hypocritical for it to ask countries like India to give up coal. It is also important to note that Australia’s per capita carbon dioxide emissions are the highest—18 tonnes per person per year, compared to India’s 1.5 tonnes per person per year.
The United Nations Post-2015 Development Agenda should not simply extend the Millennium Development Goals (MDGs), or reformulate the goals, but focus instead on global systemic reforms and secure an accommodating international environment for sustainable development.
The MDGs are based on a donor-centric view of development with a focus on poverty and aid. They do not embrace a large segment of the population in the developing world, notably in middle-income countries, which fall outside the thresholds set in MDGs but still have their development aspirations unfulfilled.
It would be agreed that development is much more than the sum total of MDGs or any such arbitrary collection of a limited number of specific targets. But it is not possible to reach an international agreement on all important dimensions of economic and social development and environmental protection.
Any international agreement on such specific development targets would naturally be selective, leaving out many dimensions to which several countries may attach particular importance.
Thus, instead of focusing on selective specific targets in the areas of economic and social development and environmental protection, we should aim at creating an enabling international environment to allow each and every country to pursue developmental objectives according to their own priorities with policies of their own choice. Read the rest of this entry »
Madhav Gadgil and K Kasturirangan are both scientists of great repute. But both are caught up in a controversy on how the Western Ghats—the vast biological treasure trove spread over the states of Gujarat, Maharashtra, Goa, Karnataka, Kerala and Tamil Nadu—should be protected. First the Ministry of Environment and Forests asked Gadgil to submit a plan for protection of the Ghats. When this was done in mid-2011, the ministry sat on the document for months, refusing to release it even for public discussion. Finally, court directed the government to take action on the recommendations. The Kasturirangan committee was then set up to advise on the next steps.
In April 2013, the Kasturirangan committee (I was a member of it) submitted its report, evoking angry reactions. Ecologists say it is a dilution of the Gadgil report and, therefore, unacceptable. Political leaders and mining companies have joined hands to fight against the report. A virulent political agitation, led by the church and communist party leaders, was launched in Kerala.
The debate on the two reports has been personal, messy and uninformed. Instead, we need to understand the differences and deliberate what has been done and why. As I see it, there are three key differences between the Gadgil and the Kasturirangan report. First is on the extent of the area that should be awarded protection as an eco-sensitive zone (ESZ). The Gadgil panel identified the entire Ghats as ESZ. But it created three categories of protection regimes and listed activities that would be allowed in each based on the level of ecological richness and land use.
The Economist had a few weeks ago an issue on Argentina (here; subscription required), which I wanted to address, but had no time before today. The argument implies that the current Argentine woes (discussed here before) are part of a pattern which is associated to the long decline in income per capita from the late 19th century and early 20th century until now.
The Economist suggests that:
“In 1914 Argentina stood out as the country of the future. Its economy had grown faster than America’s over the previous four decades. Its GDP per head was higher than Germany’s, France’s or Italy’s. It boasted wonderfully fertile agricultural land, a sunny climate, a new democracy (universal male suffrage was introduced in 1912), an educated population and the world’s most erotic dance. Immigrants tangoed in from everywhere. For the young and ambitious, the choice between Argentina and California was a hard one.”
In a sense that’s true. According to Maddison’s data in 1913 Argentina per capita GDP (in 1990s dollars) was 3,797 while France and Germany had respectively 3,485 and 3,648 (data available here). However, the reasons for the decline in the 20th century are based on simplistic notions, typical of the so-called New Institutionalism of North and more recently Acemoglu and Robinson (for a critique go here). In their words:
“Building institutions is a dull, slow business. Argentine leaders prefer the quick fix—of charismatic leaders, miracle tariffs and currency pegs, rather than, say, a thorough reform of the country’s schools.”