On 17 June, a Facebook white paper
proposed a new global digital currency it plans to launch in the first half of 2020. The Libra will be managed by a ‘not for profit’ Swiss-based Facebook-led consortium of ‘for profit corporations’, with Uber, eBay, Lyft, Mastercard and PayPal among its founding members.
For decades, the two Bretton Woods institutions have rejected the contribution of industrial policy (IP), or government investment and technology promotion efforts, in accelerating and sustaining growth, industrialization and structural transformation.
Finally, two International Monetary Fund (IMF) staff members, Reda Cherif and Fuad Hasanov, have broken the taboo. They embrace industrial policy, arguing against the current conventional wisdom that East Asian industrial policies cannot be successfully emulated by other developing countries.
The relationship between finance and the real economy is arguably at the root of the contemporary economic malaise. Unlike earlier acceptance of simple linear causation, recent recognition of a curvilinear relationship between finance and economic growth
, implying ‘diminishing returns’, has important implications.
With growing economic conflicts triggered by US President Donald Trump’s novel neo-mercantilist approach to overcoming his nation’s economic malaises, many voices now argue that bad free trade agreements are better than nothing.
After US withdrawal following Trump’s inauguration in early 2017, there is considerable pressure on signatory governments to quickly ratify the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), the successor to the TPP.
Financialization has involved considerable ‘innovation’, often of opaque, complex and poorly understood financial instruments. These instruments typically have large debt components involving leveraging, deepening connections across markets and borders.
The emergence and growth of financialization from the 1980s has been driven by several factors operating at various levels – national and international, ideological and political, and of course, technological. The 1971 collapse of the Bretton Woods (BW) international monetary system arguably paved the way for financial globalization.
Finance has not stopped at dominating the real economy. The tentacles of finance have reached into significant, if not most parts of society
characterises modern society, where finance is dominant, as a ‘portfolio society’, in which aspects of social life have been securitized and transformed into a kind of capital or investment to be managed.
Over recent decades, the scope, size, concentration, power and even the purpose and role of finance have changed so significantly that a new term, financialization, was coined to name this phenomenon.
Financialization refers to a process that has not only transformed finance itself, but also, the real economy and society. The transformation goes beyond the quantitative to involve qualitative change as finance becomes dominant, instead of serving the needs of the real economy.
After the failure and abuses of privatization and contracting-out services from the 1980s, there has been renewed appreciation for the role of the state or government. Earlier promoters of privatization have taken a step backward, only to take two more forward to instead promote public-private partnerships (PPPs).
Privatization has not provided the miracle cure for the problems (especially inefficiencies) associated with the public sector. The public interest has rarely been well served by private interests taking over from the public sector. Growing concern over the mixed consequences of privatization has spawned research worldwide.
Over the last four decades, growing concentration of market power in the hands of oligopolies, if not monopolies, has been greatly enabled by ostensibly neo-liberal reforms, worsening wealth concentration and gross inequalities
in the world.
The World Bank has successfully promoted its ‘Maximizing Finance for Development
’ (MFD) strategy by embracing the United Nations’ Sustainable Development Goals, internationally endorsed in September 2015.
It has also secured support from the G20 of twenty biggest economies, and effectively pre-empted alternative approaches at the third UN Financing for Development summit in Addis Ababa in mid-2015.
At the risk of reiterating what should be obvious, the question of private or public ownership is distinct from the issue of competition or market forces. Despite the misleading claim that privatization promotes competition, it is competition policy, not privatization, that promotes competition.
The World Bank’s Enabling the Business of Agriculture
(EBA) project, launched in 2013, has sought agricultural reforms favouring the corporate sector. EBA was initially established to support the New Alliance for Food Security and Nutrition
, initiated by the G8 to promote private agricultural development in Africa.
The World Bank has successfully built a coalition to effectively advance its ‘Maximizing Finance for Development’ (MFD) agenda. The October 2018 G20 Eminent Persons Group’s (EPG) report
includes proposals to better coordinate various international financial institutions (IFIs) in promoting financialization.
In most cases of privatization, some outcomes benefit some, which serves to legitimize the change. Nevertheless, overall net welfare improvements are the exception, not the rule.
Never is everyone better off. Rather, some are better off, while others are not, and typically, many are even worse off. The partial gains are typically high, or even negated by overall costs, which may be diffuse, and less directly felt by losers.
The World Bank has successfully legitimized the notion that private finance is the solution to pressing development and welfare concerns, including achieving the Sustainable Development Goals (SDGs) through Agenda 2030.
A recent McKinsey report
estimates that the world needs to invest about US$3.3 trillion, or 3.8 per cent of world output yearly, in economic infrastructure, with about three-fifths in emerging market and other developing economies, to maintain current growth.
With the Washington Consensus from the 1980s being challenged, President Donald Trump withdrawing the United States from the Trans-Pacific Partnership (TPP), and China pursuing its Belt and Road Initiative (BRI), most notably with its own initiatives such as the multilateral Asian Infrastructure Investment Bank (AIIB), the political and economic landscape in East Asia continues to evolve. Jomo Kwame Sundaram was interviewed about likely implications for developing countries in the region and beyond.
Privatization has been central to the ‘neo-liberal’ counter-revolution from the 1970s against government economic interventions associated with Roosevelt and Keynes as well as post-colonial state-led economic development.
Many developing countries were forced to accept privatization policies as a condition for credit or loan support from the World Bank and other international financial institutions, especially after the fiscal and debt crises of the early 1980s. Other countries voluntarily embraced privatization, often on the pretext of fiscal and debt constraints, in their efforts to mimic new Anglo-American criteria of economic progress.
As the possible implications of Britain’s self-imposed ‘no-deal’ exit from the European Union loom larger, a new round of imperial nostalgia has come alive.
After turning its back on the Commonwealth since the Thatcherite 1980s, some British Conservative Party leaders are seeking to revive colonial connections in increasingly desperate efforts to avoid self-inflicted marginalization following divorce from its European Union neighbours across the Channel.
Do politicians’ words matter? Since becoming US President, Donald J Trump has dismissed his opponents and others he does not like as evil, stupid or both. He has referred to undocumented immigrants as animals, and to poor countries as shitholes.