Financializing state capitalism: Exchanges, financial infrastructures & the active management of capital markets in China

DCE trading floorThe development of capital markets has been a core focus of financialization research. For Epstein, financialization ‘means the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies’, while Pike and Pollard define financialization as the ‘growing influence of capital markets, their intermediaries and processes in economic and political life’. Other scholars also attribute a significant role to capital markets in financialization processes, be it in the dissemination of market-based financial activities and practices, the rise of shareholder value-oriented corporate governance, or ‘the increased ability to trade risk’. At the heart of and as a precondition of many aspects of financialization stand capital markets and their development. 

This is not only the case when it comes to financialization in advanced economies, but also with respect to the study of financialization in developing and emerging economies. Financialization processes are not uniform, they are rather variegated and refracted by national institutional settings that lead to different trajectories of financialization. As Lapavitsas and Powell emphasized, ‘both the form and the content of financialization vary according to institutional, historical and political conditions in each country’. This has also been picked up in debates about the relationship between financialization and the state. Previously, many scholars argued that financialization often results in a relative loss of state power vis-à-vis finance and the effects on developing economies are often described as potentially negative with financialization for instance decreasing their borrowing capacity and thereby policy space or deepening existing power asymmetries between states. But stemming from earlier discussions on transformations of the developmental state, more recent scholarship has highlighted that financial market development has often been actively facilitated by states. It argues that an increasing hybridization of financialization processes takes place in which state and (quasi-)state institutions often co-constitute financialization processes. 

Contributing to the growing literatures on variegated financialization and the state, in a paper titled ‘Financialization with Chinese characteristics? Exchanges, control and capital markets in authoritarian capitalism’ (recently published in Economy & Society) I argue that states are not only important actors facilitating financialization but can also exercise a considerable degree of control over financialization, thereby shaping its very form. Instead of a financialization process that follows a neoliberal logic and constrains state power, what we see in China is a ‘financialization with Chinese characteristics’ where the state actively tries to manage financialization and its social outcomes. Read More »

Pandemic Discourses – A Global Contagion Demands Global Perspectives

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By Sakiko Fukuda-Parr, Manjari Mahajan, and Mark W. Frazier

As the inaugural issue of Pandemic Discourses goes online, 4.7 million cases of COVID-19 and nearly 320,000 deaths have been recorded by the World Health Organization. The waves of cases and deaths have been closely followed by mounting economic losses, leaving governments, communities, and individuals scrambling to find appropriate responses. Yet, even in this uniquely global moment, popular discourse around the pandemic has remained trapped within familiar terms.

Media coverage has to a large extent focused on experiences of the United States and Europe. The frameworks developed to respond to the pandemic have also been US/Euro-centric, frequently inward-looking and isolationist, paying scant attention to expertise, knowledge, and capacities elsewhere. The experiences of other parts of the world, even when taken into account, often serve to cement prior prejudices. In response to this lopsided discussion, Pandemic Discourses aims to foster a more expansive dialogue that encompasses voices from the global South, including China, India, and beyond.Read More »

RMB internationalisation as an extension of Chinese state capitalism

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Why has the RMB gone global?

More than a decade has passed since the launch of what is now widely known as ‘RMB internationalisation’, or the strategic attempt by the Communist Party of China (CPC) to expand the global reach and usage of the Chinese currency, the renminbi (RMB). Such is the scale and ambition of this strategy, some policymakers and scholars have proclaimed RMB internationalisation as a form of reserve currency succession – as a challenge to the US dollar as the world’s preferred currency for market exchange. This development is especially intriguing given how the financial system within China remains relatively insulated in spite of market oriented reforms since 1978. Could RMB internationalisation truly be about global currency supremacy when financial flows in and through China continue to be highly scrutinised?Read More »

When does state-permeated capitalism work?

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In recent years, state capitalism has become an important buzzword in the development economics discussion (again). In view of the very different ways in which this term is used, Ilias Alami and Adam Dixon recently highlighted the dangers of using the term too loosely in an article in Competition and Change. In view of its recent popularity, state capitalism could suffer a similar fate to the terms “neoliberalism” or “financialisation” by becoming a very loose rallying cry without any significant analytical value. To overcome this problematic situation, Alami and Dixon propose that future research should (1) develop a theory of the capitalist state, (2) circumscribe the time horizons of state capitalism, and (3) locate state capitalism more precisely in territorial and geographical terms.

Although I am not sure whether the genius can be put back into the bottle by developing a unified theory of the state (too many different theoretical traditions are involved by now), I am very sympathetic to the latter two demands. Our recently published book “State-permeated Capitalism in Large Emerging Economies” (Routledge) is a modest contribution to the latter goals. It deals with the economic development of Brazil, India, China and South Africa between 2000 and 2015. Departing from a comparative capitalism perspective, we have developed an ideal type of state-permeated capitalism as opposed to liberal, coordinated and dependent capitalism – and examined to what extent large emerging markets are approaching this ideal type. Read More »

The Specter of State Capitalism

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By Adam Dixon and Ilias Alami

Oh, how the righteous have fallen! As the global economy succumbs to COVID-19, we are haunted by the specter of state capitalism. Last week chief economic advisor to the White House, Larry Kudlow, suggested that the US government could take equity stakes in corporations in return for aid. Housing evictions are being postponed. Payroll for employees in some parts of the private sector are to be covered. And the list continues. In the UK, plans are afoot, dare one say, to renationalize the struggling airline sector and other companies.

At the moment, critics of such statist measures are too worried about their own personal health to make a fuss. But as we flatten the curve of the infected and the wheels of the market start turning again, the righteous apostles of the free market will return with a vengeance, and the state capitalists will tumble from their temporary thrones.

As with the last crisis just a decade ago, the state capitalists provided much needed support and took a humble bow (at a profit) when their services were no longer needed. Bailing out General Motors was a good deal for the US taxpayer, as was TARP. Certainly, the same will happen this time around. Or will it?

Since the election of Donald Trump in the US and the Brexit vote in the UK, the prophets of the free market have been decisively pushed out of the halls of power or forced to accept a different religion (typically that of an authoritarian and nationalist form of neoliberalism). National capital comes first!

Without a doubt, Trump and the Brexiteers did not foresee needing state ownership of industry and explicit state direction to achieve their goals. There are plenty of ways the state fosters, guides, and shapes private capital. Capitalism is never without the state, except in some libertarian utopia. State ownership just makes this relationship more explicit.

The embrace of Singapore as a post-Brexit economic model for the UK is telling in that respect. The government of Singapore continues to be a major shareholder of Singaporean industry and commerce, with no plans to change. Why should it? It owns successful and competitive companies. Indeed, state-owned enterprises the world over are demonstrating their competitive prowess. They aren’t the bureaucratic corporate sloths that we are told necessarily come with state ownership. Capital centralized in the hands of the state is resilient and growing for a reason. State-owned enterprises and state-controlled investment vehicles, such as sovereign wealth funds, are multiplying and growing the world over.

For the British elite, Brexit reflected an underlying lament of the sale of British industry (and finance) to foreign owners, even though many became rich that way. They know that restoring such past glory requires explicit action of the state, likely through more centralization of (national) capital. This is a reason behind the refusal to agree to level playing-field provisions with the EU in the future relationship negotiations. But there is more to this than returning to some past glory. Global capital accumulation is driven increasingly by capital centralized in the hands of the state.

The Trump administration’s battle with China (supported implicitly by other Western powers) is not driven by some desire to protect liberal rules-based international order. Rather, it is a battle of national capital. Afterall, China is capitalist.

China’s shift from assembling goods to also designing them, and doing so competitively, has unsettled the hierarchies of the world economy. But China is unwilling to relinquish its development model and its ownership of large swaths of Chinese industry. That is not in the DNA of the Chinese elite. Large state ownership is both necessary to secure the political dominance of the party state at home, and to expand and consolidate the integration of Chinese firms into global supply chains under favorable terms.

This is met in the US (and to a lesser extent other Western economies) by an increasingly aggressive form of techno-nationalism — a form of economic nationalism in the realms of trade, industrial, and investment policy, that aim at securing exclusive control of key scientific-technological innovations. National elites in the West more generally are realizing that they need state power to compete in the global economy. In reality, they always have. But the cloak of free-market neoliberalism energized their buccaneering self-confidence that they were above it all. That fiction is over.

The extension of state prerogatives by non-Western powers used to fuel all sorts of anxieties among state actors and observers in the West. Now, these very same modalities of state intervention are being called for, if not praised, by commentators across the political spectrum. Some even look with envy at the agility with which non-Western state capitalists are currently managing the crisis. The pace at which this ‘new normal’ is emerging is remarkable. We are all state capitalists now (or we all want to be).

COVID-19 and the generalized economic crisis it has catalyzed may hasten changes toward explicit forms of state capitalism in the West. Yet, a decloaked state at the helm does not necessarily mean a more progressive and just economic system (just like it does not mean a move toward state socialism). Who will bear the brunt of the costs of the current transformations, and who will benefit from the consolidation of the ‘new’ state capitalism, will be the outcome of a tense political process. This much we know.

Adam Dixon is Associate Professor of Globalization and Development at Maastricht University. Ilias Alami is a postdoctoral researcher at Maastricht University.

Photo by Governor Tom Wolf. Pennsylvania Commonwealth microbiologist Kerry Pollard performs a manual extraction of the coronavirus inside the extraction lab at the Pennsylvania Department of Health Bureau of Laboratories on Friday, March 6, 2020.

 

Revisiting Hirschman’s Tunnel Effect and Its Relevance for China

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As within-country inequality is on the rise worldwide, considering how people actually perceive inequality in their societies and how they respond to it is a question worth asking. In 1973 Albert Otto Hirschman proposed an explanation of changing tolerance for inequality associated with different ‘stages’ of the development process. In this post I’ll revisit Hirschman’s theory and link it to emerging studies of how inequality is perceived in China. The Chinese people generally seem to be satisfied with rising inequality, yet it is unclear how long this tolerance will last.Read More »

The BRICS and a Changing World

This July and August, I led an international group of experts in preparing an Economic Report on the role of the BRICS countries (Brazil, China, India, Russia and South Africa) in the world economy and international development.  The Report was commissioned as an input to the Summit of BRICS countries that took place in early September 2017 in Xiamen, China.

It surveys the BRICS countries’ sizable contribution to global growth, trade and investment, evaluates the prospects for this to continue in the future, and explores the possible role that these countries can play in bolstering the global economy, in reshaping international economic arrangements and in contributing to the Sustainable Development Goals and to international development generally. An important conclusion in the report is that continued BRICS growth as well as policy initiatives can substantially benefit other developing countries (the report uses the IMF category of Emerging Market and Developing Countries, or EMDCs) – and developed countries too.  I will  be pleased if the report will be circulated widely, and welcome all reactions.Read More »

How India can benefit from FDI: lessons from China

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by Ilan Strauss and Vasiliki Mavroeidi*

With the launch of India’s Make in India campaign, Karl P. Sauvant and Daniel Allman asked in their recent Perspective: “What can India learn from China?”, focusing on attracting FDI. However, the issue is not only attracting FDI, but benefitting from it fully. Liberalization alone will not enable Make in India to transform India into a manufacturing hub. Targeted industrial policies are required to ensure that FDI upgrades domestic capabilities.

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