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

Part 2

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.

Read the rest of this entry »

Jesse Griffiths, Guest Blogger

Jesse Griffiths is Director of the European Network on Debt and Development (Eurodad). The Eurodad report “Conditionally Yours: An Analysis of the Policy Conditions on IMF Loans,” co-authored by Griffiths and Konstantinos Todoulos, was released today.

Ukraine is the latest country faced by a debt crisis to be forced into the arms of the International Monetary Fund (IMF). The reality of the situation was pithily expressed by the Ukrainian Prime Minister, Arseniy Yatseniuk, who recently said he “will meet all IMF conditions… for a simple reason… we don’t have any other options.”

The European Network on Debt and Development (Eurodad) has, over the past decade, produced several reports criticising the excessive and often harmful conditions that the IMF attaches to its loans. The IMF claims to have seen the light and limited its conditions to critical reforms agreed by recipient governments. We decided to put that claim to the test in our latest report, published on Wednesday (April 2), and examined all the policy conditions attached to 23 of the IMF’s most recent loans. What we found was truly shocking. The IMF is going backwards—increasing the number of policy conditions per loan, and remaining heavily engaged in highly sensitive and political policy areas.

Here’s what we found:

  • The number of policy conditions per loan has risen in recent years, despite IMF efforts to ‘streamline’ their conditionality. Eurodad counted an average of 19.5 conditions per programme: a sharp increase compared to the average of 13.7 structural conditions per programme we found in 2005-07.
  • Almost all the countries were repeat borrowers from the IMF, suggesting that the IMF is propping up governments with unsustainable debt levels, not lending for temporary balance of payments problems—its true mandate.
  • Widespread and increasing use of controversial conditions in politically sensitive economic policy areas, particularly tax and spending, including increases in value added tax (VAT) and other taxes, freezes or reductions in public sector wages, and cutbacks in welfare programmes including pensions. Other sensitive topics include requirements to reduce trade union rights, restructure and privatise public enterprises, and reduce minimum wage levels.

Recent studies on related topics by the Center for Economic Policy Research (CEPR) and Development Finance International (DFI) have found similar findings.

What is to be done? Trying to cajole the IMF to improve itself is not what’s needed. Instead, we advocate for the IMF to go back to basics and fulfill the role that’s really required. It should focus on its true mandate as a lender of last resort to countries that are facing temporary balance of payments crises. Such countries need rapid support to shore up their public finances, not lengthy programmes that require major policy changes. Why not extend the example of the IMF’s new but little used Flexible Credit Line to all IMF facilities—requiring no conditionality other than the repayment of the loans on the terms agreed?

If countries are genuinely facing protracted and serious debt problems, then IMF lending only makes the situation worse. Instead, let’s prioritise developing fair and transparent debt work-out procedures to assess and cancel unpayable and illegitimate debt. However, the IMF should not be the venue for such debt work-out mechanisms: as a major creditor, they would face an impossible conflict of interest. Of course, this revamped role for the IMF is only possible if it addresses its crisis of legitimacy, and radically overhauls its governance structure to give developing countries a fair voice and vote, and to improve transparency and accountability.

Partners we work with who live under the grim cloud of an IMF programme learn to hate the institution. A conditionality-free IMF with a democractic makeover could be an institution the world could learn to love.

Triple Crisis welcomes your comments. Please share your thoughts below.

Martin Khor

The tide is turning against investment treaties that allow foreign investors to take up cases against host governments and claim compensation of up to billions of dollars.

Indonesia has given notice it will terminate its bilateral investment treaty (BIT) with the Netherlands, according to a statement issued by the Dutch embassy in Jakarta last week.

“The Indonesian Government has also mentioned it intends to terminate all of its 67 bilateral investment treaties,” according to the statement.

It has not been confirmed by Indonesia. But if this is correct, Indonesia joins South Africa, which last year announced it is ending all its BITS.

Several other countries are also reviewing their investment treaties.

This is prompted by increasing numbers of cases being brought against governments by foreign companies who claim that changes in government policies or contracts affect their future profits.

Many countries have been asked to pay large compensations to companies under the treaties.

The biggest claim was against Ecuador, which has to compensate an American oil company US$2.3bil (RM7.6bil) for cancelling a contract.

Read the rest of this entry »

Jayati Ghosh

Cross-posted from International Development Economics Associates (IDEAs) (networkideas.org). This article was originally published in the Frontline, January 24, 2014.

It was no surprise to anyone in Chile or outside when Michelle Bachelet romped home convincingly in a landslide victory in the run-off for the Presidential election in December. Indeed, the only surprise was that while she took 62 per cent of the vote, the voting rate itself fell to only 44 per cent of the electorate.

Bachelet, the pediatrician mother of four who was also among the students persecuted by the military dictatorship in the 1970s, has already served as President once. She completed her first term with an incredible 84 per cent popularity rating, which must be a record for any democratically elected leader after four years in office. But the current Chilean Constitution does not allow consecutive terms as President, so she could not contest again. In the interim, between 2011 and 2013, she was the first Secretary General of the newly founded international organization UN Women, but resigned from that position earlier this year to run for President again.

This time around she campaigned on the basis of a more explicitly progressive and transformative agenda, leading a coalition (Nueva Mayoría or New Majority) that includes a wide spectrum of political orientation, from the Christian Democratic Party in the centre to Bachelet’s own socialist-leaning Concertacion to the Communist Party and an array of even more radical student leaders on the left. The very emergence of this coalition and its electoral success suggests that Chile has is finally shaking off some of the torpor induced by the acceptance of neoliberal economic policies by both centre-right and centre-left parties over the past decades.

Read the rest of this entry »

Matías Vernengo

Cross-posted from Naked Keynesianism.

The coverage on Mandela, no doubt one of the greatest leaders of the 20th century and essential for the ending of Apartheid, was as  is often the case a bit simplistic, which actually reduces the struggles he had to fight to relatively simple and manicheistic choices between good and evil (e.g., like in Bush’s famous “if you’re not with us, you’re against us,” ‘against us’ meaning with the terrorists). His actual legacy is considerably more complex, and a few publications had noted it (see here for three myths about his political legacy, including the racist notion that without him blacks would have murdered all whites; hat tip Butch Montes).

His economic legacy is also considerably more complicated than what one might expect, and there was virtually no coverage in the press about it. John Pilger in Counterpunch relates how Mandela was in neogotiations with the Apartheid regime since the early 1980s, and that “the apartheid regime’s aim was to split the ANC [African National Congress] between the ‘moderates’ they could ‘do business with’ (Mandela, Thabo Mbeki, and Oliver Tambo) and those in the frontline townships who led the United Democratic Front (UDF).” He further quotes an ANC Minister suggesting that their policies were Thatcherite and saying: “You can put any label on it if you like … but,  for this country, privatisation is the fundamental policy.”

Read the rest of this entry »

Robin Broad and John Cavanagh

With the help of Forbes magazine, we and colleagues at the Institute for Policy Studies have been tracking the world’s billionaires and rising inequality the world over for several decades. Just as a drop of water gives us a clue into the chemical composition of the sea, these billionaires offer fascinating clues into the changing face of global power and inequality.

After our initial gawking at the extravagance of this year’s list of 1,426, we looked closer. This list reveals the major power shift in the world today:the decline of the West and the rise of the rest. Gone are the days when U.S. billionaires accounted for over 40 percent of the list, with Western Europe and Japan making up most of the rest. Today, the Asia-Pacific region hosts 386 billionaires, 20 more than all of Europe and Russia combined.

Read the rest of this entry »

Erinc Yeldan

The First World Keynes Conference convened over the heated days of June 26-28 at the Izmir Economics University.  Given the current impasse in mainstream economics over the ongoing great recession, it is no surprise that the Conference attracted quite a few dissident voices from many alternative paradigms and fields of research.

It is quite clear to all social scientists able to maintain their sense of scientific clarity that the causes of the global crisis lie beyond the rhetoric of toxic assets, in the realm of what should be called Toxic Economics Textbooks[1].  As the opening lines of the Conference Invitation attest,

“The vastly dominant mainstream model –New Consensus Macroeconomics (NCM) and the related Dynamic Stochastic General Equilibrium (DSGE) model – has not only suffered a severe blow by the eruptions of the recent world financial crisis but must be seen as part of its cause: the quasi-religious believe in super-efficient markets and the self-regulatory capabilities of the representative agent, the main assumption of the framework, pursuing relentlessly its own egoistic interests has distracted most professional economists from investigating the unthinkable: a violently unstable economy. The uncritical acceptance of very restricted formal models as a good approximation of reality has led many economists to produce tools which reinforced organic instability.”

Read the rest of this entry »

Alejandro Nadal

Managing neoliberalism is an uncomfortable proposition, especially when you are a centre left government. The rhetoric from the government palace insists in painting a pretty picture of social progress in a context of economic development. But the truth is somewhat different: the constraints of the neoliberal policy package conspire to cancel the successes that may be attained in the realm of equity or growth. The fact is that neoliberalism is not made for development.

During the past decade a new myth was born concerning Brazil’s economic performance. Its growth rate was above Latin America’s mean rate (2.2 per cent) and its exports allowed for a significant surplus. Besides, the increase in social expenditures resulted in a significant reduction in poverty and hunger. What possibly could go wrong?

The angry demonstrations that spread throughout Brazil’s cities a few days ago were triggered by several factors. They range from the bad quality of public services in transportation, health and education, to widespread corruption and the lavish expenditures in preparation for the World Cup. Violent repression fuelled the vigorous protests against a political elite more preoccupied with preserving their well-paid jobs than anything else. Some analysts have advanced the hypothesis that various conservative forces in Brazil were behind the wave of discontent with an eye on the 2014 elections. That may very well be true and the drop in popularity of Brazilian president, Dilma Rousseff, is a bad sign in this context. She has tried to recover the initiative by announcing a plan for “political reform” that would lead to greater democracy, transparency and better public services. It is too soon to conclude whether this move will be successful or not. In any case, events in Brazil force a more rigorous analysis of the structure and performance of the economy.

Read the rest of this entry »

Erinc Yeldan

They are referred to under different identifiers: generation-Y; millennium generation; globalization generation; Net-generation… roughly they are the cohort of post-1980 newborns, coming from distant geographies, different nations. Yet, they are claimed to share astonishingly common characteristics:  narcissistic love of the self; the me, me, me approach to life; impatience; intolerance of all forms of hierarchy; a fetishistic loyalty to technology and brands; almost non-existing interest in social events; apolitical nihilism; non-reading, etc etc…

The peculiar characteristics of the post-1980 generation has been the subject matter of quite some research, but the subject gained popular interest recently through an editorial led by the popular Time Magazine, where most of the adjectives indicated above had been liberally adopted.  The Time approach to the generation-Y consisted mostly of a superfluous description of the peculiarities of the young and the hot-blooded consumers.  There was not much mention of the surrounding dictates of the neoliberal global assault on the young citizens, nor on the conditions of the political-economy embedded within today’s bubble capitalism.

Read the rest of this entry »

Cornel Ban

In the aftermath of the economic crisis that began in 2008 it has become fashionable to say that the BRICS buried the Washington Consensus with their state-led economic models. This rhetoric has been supported by BRICS countries themselves and has made ripples in the international financial press. But is there solid evidence for such assertions? A closer look at the empirical reality suggests a more mixed picture. As Marion Fourcade put it, in the BRICS the Washington Consensus is in fact “more invisible than irrelevant.

The life of BRICS has had interesting turns. First, they were known as a group via Goldman Sachs investment product more than a decade ago, responding to the insatiable demands for accountability, and profit, that emanates from the financial nebulae. Then, BRICS became one of the few beacons of the global economy during the Great Recession and they did so unmoored from the institutional enforcers of the Washington Consensus. In a demonstration of the performative effects of financial marketing, the BRICS governments picked on the new acronym and formed an inter-governmental alliance of South-South cooperation with an ambitious agenda in international economic institutions.  A decade after the term BRICS was coined by investment bankers, Robert Wade noted that the economic map of the world had the United States, the European Union and the BRICs as the three poles of the emerging economic multipolarity. In all the BRICs, the liberal economic drive of the Washington Consensus dramatically altered their ideational and institutional landscape but that the commands of this development paradigm were only selectively institutionalized. The most important pattern the role of the state as a critical actor in development has been rediscovered in ways that go beyond the modest institutionalist turn experienced by the Consensus after the East Asian crisis but without crafting a consummate counter-hegemonic “state capitalist” economic model.

Read the rest of this entry »