The Geopolitics of Financialisation and Development: Interview with Ilias Alami

This interview was originally published in German in the special issue on financialisation and development policies of the journal Peripherie, September 2021, No. 162/163. Frauke Banse and Anil Shah (both based at Kassel University) spoke with political economist Ilias Alami (Maastricht University) about some of his recent work on the relationship between geopolitics, financial flows for development and emerging forms of ‘state capitalism,’ as well as related new imperialist formations. The interview was conducted via email in May 2021.  

The interview covers a series of International Political Economy topics. Ilias first locates the emergence of the Wall Street Consensus in the long and turbulent histories of the relation between finance and development as well as in secular capitalist transformations. He then outlines some of the conceptual tools he’s developed in his work in order to make sense of the contemporary interconnections of money and finance and the reproduction of imperialism and race/coloniality. Next, he situates these interconnections within broader scholarly debates about financialisation and highlights the similarities and differences between ongoing sovereign debt crises in the global South and the so-called 1980s ‘Third World debt crisis.’ Finally, Ilias discusses the recent emergence of new forms of ‘state capitalism’ and their complex relation to the extension and deepening of market-based finance. 

Read More »

Does financialization provoke increasing prices? The case of Brazilian private health insurance 

Since the Brazilian Regulatory Agency for Supplementary Health’s (ANS) creation in 2000, health insurance inflation has grown at a much greater pace than general inflation. Indeed, after eighteen years the private health insurance price index was close to double the official inflation index, with its 382% (see here). 

The upward course of prices can be interpreted as a response to the problems arising from the escalating costs. Baumol (2012) calls this phenomenon “cost disease”, designating that labor relates differently to production: in the case of the goods, work would be incorporated into the product; in the case of services, labor would be the product being exchanged, making difficult to substitute factors.

Read More »

Neoliberalism and Resistance in South Africa: Economic and Political Coalitions

In the first quarter of 2021, amidst the social and economic devastation wrought by the Covid-19 pandemic, the South African Treasury announced, and subsequently defended, its decision to refrain from increasing the country’s extensive social grant payments—which now reach 18 million impoverished citizens—beyond the growth in inflation. Treasury officials have argued that a larger increase in social welfare protection is simply not currently feasible given the country’s rapidly rising public debt—which has now breached 80% of the debt/GDP ratio—and investor demands for fiscal consolidation. This type of fiscal restraint is unfolding in a context of heightened wealth inequality and an official unemployment rate now above 30%.

Those familiar with the financialization scholarship pertaining to developing countries—that strand which portrays the global financial markets as a force that can alter committed policy trajectories on a whim (Koelble, 2004), as well as the more nuanced literature (Mosley, 2000; Hager, 2017; Streeck, 2014; Ansari, 2017)—may recognize the Treasury’s framing of South Africa’s fiscal dilemma. However, as much of the international development literature on industrial upgrading and state policy has noted (Wade, 2018; Alami, 2019; Rodrik, 2006), there is a third option available to policy-makers in developing countries beyond the binary of debt build-up vs. austerity; namely, comprehensive, employment generating state-led development.

This is precisely the case I make in my new book, published by Palgrave (2021), Neoliberalism and Resistance in South Africa: Economic and Political Coalitions. In addition to documenting the onset of a financialized accumulation regime in post-apartheid South Africa since the democratic transition and the ANC’s adoption of economic liberalization, the monograph also highlights the missed opportunities that could have allowed the country to embark on a self-sustaining path of industrial up-grading, inclusive development, and internal revenue generation. Such missed opportunities include the early rejection by party leaders of the heterodox “Macro-Economic Research Group” (MERG) policy cluster, the removal of the trade unions from broader macro-policy-making processes, the rejection of a modest reconstruction and wealth tax, and the abandonment of much of the “Reconstruction and Development Program” (RDP) platform in favor of the orthodox “Growth, Employment, and Redistribution” (GEAR) package in 1996. Had some of these missed opportunities been pursued, South African state officials would likely be in a much better position to currently adopt expansionary fiscal policies, and perhaps could have lifted their citizens out of poverty via inclusive development instead of cash-transfers.

Yet, as my monograph further documents, since the democratic transition Treasury officials have continued, despite recommendations from other government ministries such as the Department of Trade and Industry (DTI), to veto or oppose heterodox policy proposals that could potentially offer South Africa a path away from the current neoliberal quagmire. Such proposed polices include capital controls, export taxes on raw materials, the utilization of foreign exchange reserves to capitalize State-Owned-Enterprises (SOEs), and targeting specific industrial sectors for subsidies and state promotion.

Read More »

Financialisation of healthcare in Brazil: new evidence

By Norberto Montani Martins, Carlos Ocké-Reis and Daniel Drach

The covid-19 pandemic is showing how important universal health systems are. As the virus continues to devastate communities and economies, many governments have started to look at them with different lens. Investing in public health systems should be mandatory, but austerity policies in peripheral countries are still the priority. Moreover, the increasing financialisation of the health sector produces conflicts that constraint the achievement of a truly universal and comprehensive public healthcare. This is what we address in our recent paper, where we argue that lead firms in the provision of healthcare plans seem to have become platforms for the accumulation of wealth by financial investors, a process that is making shareholder value the main guiding principle of firm behaviour.

A good example of such contradictions is Brazil. A universal health system called the Unified Health System (Sistema Único de Saúde, or SUS) was established in the 1988 Constitution. However, it would be misleading to affirm it has provided universal access and comprehensive care: since its inception, SUS faced an inadequate low level of public spending that jeopardized its mission. In the 2000s, the Brazilian government eventually increased public spending in healthcare, but a kind of paradox emerged as it also set up many policies to foster private healthcare and private accumulation in that sector (e.g., health-related tax expenditures).

Read More »

Latin America: still caught in the capital flows trap

In a recent article, I discussed the poor state of Latin American economies drawing on some rather obscure works by Raúl Prebisch, explicitly addressed to the disturbing role of capital flows on (primarized and open) Latin American economies. I find that the post-2008 cyclical trend of capital flows is an exacerbated version of what has been affecting Latin America since the days of Prebich .

Mainstream literature on capital flows to developing countries has shared two important commonalities since the 1990s. This literature, for example in the tradition of New Institutional Economics,  tends to assume a beneficial effect of capital inflows, which leads to an improvement of peripheral institutions, whose deficiencies are ostensibly the main cause of economic turmoil and/or failure in attracting capital flows. In doing so, however, mainstream economists deliberately overlook the asymmetric characteristics of the international monetary system and the persisting hegemony of the US Dollar. 

Read More »

The Strategic Logics of State Investment Funds: Beyond Financialization

State capital has increasingly taken on marketized forms. From state enterprises to sovereign wealth funds, it is increasingly difficult to find much difference at the operational level with cognate organizations in the private sector. Manager cadres have become professionalized, with many having spent significant time honing their skills in the private sector before taking up their positions in state entities. Business practices and corporate governance standards typical of private capital and the syllabi of elite business schools have become the norm. This includes, as to be expected, an embrace of a shareholder value logic. State entities in doing so are becoming increasingly financialized, not dissimilarly to their peers in the private sector.

Read More »

The New “Passive” Wall Street Counterparts for States in the Global South

By Jan Fichtner and Johannes Petry

In the past, during the time of the “Washington Consensus” developing countries from the Global South faced the IMF and the World Bank as their main counterparts in important matters of global finance. Based on our recently published research paper “Steering Capital” we argue that due to an ongoing paradigm shift in financial markets this constellation is changing profoundly. A new breed of Wall Street firms is emerging that occupies a pivotal position in the relationship between (developing) countries and financial markets – index providers.

This rise of index providers is grounded in the global shift towards passive investment. Formerly, investors gave their money to funds where a well-paid fund manager was picking stocks (or bonds) with the aim to produce above average returns – to “beat” the market in finance parlance. But now more and more investors invest in cheap passive funds (which comprise both exchange traded funds and index mutual funds) that merely track financial indices. Unlike actively managed funds, however, the passive index funds industry is characterised by enormous economies of scale – in terms of technology it is not a big difference if a passive fund has ten million or ten billion US$ assets under management. In addition, there is a strong first mover advantage. As a result, BlackRock, Vanguard and State Street dominate passive funds as the “Big Three”. Excellent recent work has since focused on how this “new money trust” is shaping the emergent ”American Asset Manager Capitalism”.

Read More »

How pension funds shape financialisation in emerging economies in Colombia and Peru

By Bruno Bonizzi, Jennifer Churchill and Diego Guevara

In early spring 2020 emerging economies (EEs) were hit by the largest ever episode of portfolio outflows. Stock and bonds were sold as investors flight to safer investments in Europe and the United States, showing once again the fragile nature of EEs’ financial integration. To overcome this problem, one suggested solution is to allow for a larger base of domestic institutional investors, such as pension funds, which can stabilise financial markets. While having a large institutional investor base can be a source of demand for domestic financial securities, it is important to review the evidence from the experience of those EEs where pension funds have existed for more than two decades. 

As we show in our forthcoming article, the experience of Colombia and Peru can be instructive. Their pension system, while maintaining a significant parallel public Pay-As-You-Go structure, has a sizeable funded private component with assets that have grown to over 20% of GDP. These were established as part of the Washington Consensus reforms in the 1990s, following the prior example of Chile. 

Read More »