The Rise of Digital Financialisation: The Case of India

ABSTRACT

Traditional notions of financialisation require updating to study the reorganisation of finance around digital infrastructures. We introduce the concept of digital financialisation, defined as the often-coerced merging of two hitherto separate aspects of citizens’ lives – interactions using digital technologies and financial transactions – into a new hybrid realm. This realm is undergirded by an infrastructure that harvests citizens’ data, which companies can monetise and governments can use for political surveillance. In developing countries, the state plays a key role in creating surveillance infrastructures, often using coercive means in the name of financial inclusion, as the demonetisation and Aadhaar projects in India show. Unlike the industry-finance conflict in ‘analogue’ financialisation, digital financialisation involves domestic and cross-border conflicts between tech and finance companies for control of the hybrid realm. The state mediates these conflicts. In India, it deploys a narrative of technocultural nationalism to cultivate its domestic political constituencies and downplay its reliance on foreign technology.     

Financialisation and Real Investment in the European Union: Beneficial or Prejudicial Effects?

This article presents an empirical analysis of the relationship between financialisation and real investment for non-financial corporations using panel data composed of 27 European Union countries over 19 years (1995 to 2013). On the one hand, financialisation leads to a rise in financial investments, diverting funds from real investments (‘crowding out’ effect); on the other, pressures from shareholders to intensify financial payments restrict the funds available for new real investments. We estimate an aggregate investment equation with the traditional variables (lagged investment, profitability, debt, cost of capital, corporate savings and output growth) and two further measures of financialisation (financial receipts and financial payments). The findings demonstrate that financialisation has damaged real investment in European Union countries, mainly through the channel of financial payments, either by interest or dividend payments. It is also found that the prejudicial effects of financialisation on investment were more severe in the pre-2007 crisis period. It is concluded that financialisation contributed to a slowdown of real investment by 1 to 8 per cent in the full and pre-crisis period, respectively. During the pre-crisis period, financialisation was the main driver of the slowdown of investment in the European Union.     

Veto Players and Central Bank Gold Sales

This paper offers a critique of the increasingly prevalent argument that the late twentieth century saw a ‘financialisation’ of capitalism anchored in the USA, the UK, and other leading Western economies. The objective of the paper is not to claim that there has been no such structural mutation, but that the studies which allegedly demonstrate this mutation are compromised by the anaemic geographies that structure and animate them. Such studies, the paper argues, fetishise the national scale and, in doing so, offer a restricted and potentially misleading reading of trends such as, most notably, historic growth in the share of corporate profits accruing to ‘finance’ within individual countries. Examining empirical data for the UK, but explicitly incorporating the international perspective typically missing from existing studies of financialisation, the paper points to the vital role of international expansion by UK financial institutions in growing the financial sector's share of profits. Whether so-called ‘financialisation’ has also contributed to this growth remains, the paper submits, open to question.     

Dimensions and Determinants of Financialisation: Comparing OECD Countries since 1997

ABSTRACT

The financialisation literature has grown over the past decades. Despite a generally accepted definition, financialisation has been used to describe different phenomena. We distinguish between financialisation of non-financial companies, households and the financial sector and use activity and vulnerability measures. We identify seven financialisation hypotheses in the literature and empirically investigate them in a cross-country analysis for 17 OECD countries and two time periods, 1997–2007 as well as 2008–17. We find different financialisation measures are only weakly correlated, suggesting the existence of distinct financialisation processes. There is strong evidence that financialisation is linked to asset price inflation and correlated with a debt-driven demand regime. Financial deregulation encourages financialisation. There is limited evidence that market-based financial systems are more financialised. Foreign financial inflows do not seem a main driver. We do not find indication that an investment slowdown precedes financialisation. Our findings suggest financialisation should be understood as a variegated process, playing out differently across economic sectors and countries.     

Where states and markets meet: the financialisation of sovereign debt management

Financial markets play an indispensable role in the management of sovereign debt, that is, the mechanics of how and from whom governments borrow. This paper suggests a novel, two-dimensional concept to measure the financialisation of sovereign debt management (SDM): (1) the reliance on financial markets as a governance mechanism and (2) the adoption of a sense-making framework grounded in financial economics. We split this concept into nine indicators and apply it to data from 23 OECD countries between 1980 and 2010. Our analysis illustrates the predominant commonalities across countries, but at the same time, country-specific differences. We interpret them as two sides of the same coin in the light of an overarching trend of increasing alignment to financial markets. This article is not only one of the first cross-national as well as longitudinal studies of the dynamics in SDM; it also reveals that the relationship between finance and governments in the SDM is by no means one-sided.     

Accounting for Income-Contingent Loans as a Policy Hybrid: Politics of Discretion and Discipline in Financialising Welfare States

Income-contingent loans (ICLs) are becoming widely adopted across higher education sectors internationally, and increasingly proposed for other policy domains. This article explores why this policy form has gained such wide popularity in the context of fiscal austerity and greater financialisation of social policy. It argues ICLs act as a policy hybrid, combining elements of a tax and a loan. The article traces the development of ICLs in their original and most developed context, Australia’s university sector. We connect the development of ICLs to changes in modes of state accounting associated with the application of private sector accounting techniques. These changes reflect financialisation inside the state, producing contradictory political dynamics. Drawing on Streeck’s conception of a shift from the ‘tax state’ to the ‘debt state’, we argue the hybrid construction of ICLs creates political tendencies in both directions, facilitating greater state discretion while also implementing market discipline. Alongside these contradictory state imperatives we highlight continued partisanship, pointing to new and ongoing forms of distributive politics. To the extent that accounting technologies allow the state to act as a special kind of creditor, we ask whether financialisation may also involve the emergence of an ‘asset state’.     

A Kaleckian Perspective on Financialisation and Distribution in Three Main Eurozone Countries before and after the Crisis: France,Germany and Spain

The purpose of this article is twofold. First, we examine if, and to what extent, a general Kaleckian analysis of the potential effects of financialisation on income shares in advanced capitalist economies is of relevance for the three Eurozone countries under investigation—France, Germany and Spain—in the period before the recent financial and economic crisis. Second, we study changes in the financialisation–distribution nexus that have occurred in the course of and after the financial and economic crisis. We find that the countries examined here have shown broad similarities regarding redistribution before the crisis, although there are some differences in the underlying determinants. These differences have continued during the period after the crisis and have led to different results in the development of distribution since then.     

Pragmatic financialisation: the role of the Japanese Post Office

The Japanese Post Office, one of the world’s largest financial institutions, was finally privatised in 2015, marking an appropriate time to examine financialisation in Japan. The literature on financialisation and changes in Japanese capitalism assumes convergence on Anglo-American capitalism with a diminishing of state power. The main argument of this paper is that financialisation is instead a more contingent process. This is put forth through an examination of how this process has been mediated by the Japanese state through the workings of the Japanese Post Office. The state has frequently shaped the direction of financialisation by intervening in the routing of household funds via the postal savings system in order to achieve its objectives in different circumstances, particularly evident in the protracted and contested nature of the post bank’s privatisation. Financialisation is thus not preordained; instead its path is hewn by crisis, catastrophe, demographics and the agency of domestic social actors.     

商品金融化与产品定价机制变革——从近代欧洲大宗商品交易中心形成过程谈起

近年来,在金融全球化背景下,商品金融化趋势愈加显著。商品金融化并非新生事物,早在近代欧洲,一些大宗商品贸易已开始被赋予金融属性。本文从近代欧洲大宗商品交易中心的形成过程的历史视角研究商品金融化与产品定价机制变革关系,对荷兰的大宗商品交易中心发展过程及商品金融属性的表现特征研究发现,各类金融衍生工具在近代初期已从商品交易中发展起来,并在阿姆斯特丹商品市场上大量应用。由于过分依赖资本收益,国内产业衰落,荷兰商品交易中心地位没能保持下去,在工业革命前半个世纪甚至更早,欧洲商品交易中心从阿姆斯特丹转移至伦敦。从交易中心的形成与转移,可以看到商品金融化进程中基本条件的意义与作用,以及商品金融化问题的本质。这同时揭示出当代商品金融化趋势与产品定价机制变革的关系。     

Derivatives and the financialisation of the Italian state

The existing literature on financialisation has devoted insufficient attention to how governments wield the market-based practices and technologies of financial innovation to pursue statecraft objectives. Because of this inattention, scholars have missed the opportunity to examine a crucial facet of the financialisation of the state. To remedy this limitation, the present article investigates how and why the Italian government designed derivatives-based strategies during the 1993–9 period. It argues that these tactics gained momentum in the context of the political struggles that developed in Italy beginning in the late 1980s. In particular, the study shows how a neoliberal-reformist alliance came to power and used financial innovation to comply with the Economic and Monetary Union (EMU) admission criteria. EMU dynamics enhanced the power position of the neoliberal-reformist coalition vis-à-vis the country's traditional political and business establishment. This work offers insights that go beyond the specificities of the Italian case. It encourages further research on how governments in other countries simultaneously exposed state institutions to financial speculation and gained access to a range of new instruments through which they could manage state affairs in a financialised manner.     

Beliefs, Bailouts and Spread of Bank Panics

This article highlights the spread of bank panics across countries, as the public reassesses governments' propensity to bailouts. Policymakers decide whether to save collapsing banking systems by weighing social costs of crises against the costs associated with raising taxes to finance rescue packages. Policymakers know those social costs of bank liquidation whereas the public does not. In this setup, financial crises may result from the public's self‐fulfilling prophecies about equilibrium outcomes, as lenders' expectations impinge on the taxation cost of bailouts. It follows that a banking crisis in a country leads creditors to reexamine policymakers' willingness to bailouts in other countries, which eventually makes their banks more vulnerable to self‐confirming depositors' runs.     

Rethinking the Financialisation of Non-Financial Corporations: A Reappraisal of US Empirical Data

This article assesses the claims of the shareholder value literature of the effects of financialisation on non-financial corporations and, particularly, the claim that fixed capital accumulation in the United States has been impeded by the increasing financial payments of non-financial corporations, and also by these firms transforming themselves into rentiers. The financialisation explanation of macro patterns assumes that trends in the 1970s and early 1980s are representative of the pre-financialisation era but that is not so. Another complication is the global sphere. The vast expansion of majority-owned foreign affiliates from the mid-1990s suggests that the managers of US non-financial corporations did not abandon growth objectives. Claims about rentieralisation also require further investigation. On the one hand, it is misleading to treat all external investment as a financial asset and to assume that corporate dividends provide a robust proxy for financialisation. On the other hand, the shift to external accumulation by US non-financial corporations is obscured due in part to the conceptual limitations of direct investment data, and the widespread strategy of forming non-bank holding companies to funnel cross-border activities.     

Strategies for Fiscal Reform in the Context of the EMU: the Case of Portugal

The authors use an endogenous growth dynamic general‐equilibrium model, which accommodates the institutional constraints of the Stability and Growth Pact, to study tax reform in Portugal. Simulation results suggest that tax cuts financed in a nondistortionary way increase long‐term GDP; i.e., they are efficiency improving, but do not always increase welfare. The tradeoff between efficiency and welfare is alleviated when reductions in public spending or increased public indebtedness finance the tax cuts. Since these mechanisms are not realistic under the institutional setting of the Stability and Growth Pact, tax reform in Portugal must involve trading off distortionary tax margins. In this case, the best strategy to increase both efficiency and welfare is to increase investment tax credits and finance them either through personal income taxes or through employers’ social security contributions.     

Financial structure and diversification of European firms

Small and medium enterprises have been shown to rely mainly on banks for funding and, unlike larger firms, rarely have direct access to capital markets. This article looks at the extent to which SMEs avail of a wider range of funding options and how their use differs across firms and countries. Across all countries, we find that firms are currently using two or three sources of finance to fund their operations and have had previous experience of other types of funding. There are some noticeable differences across countries with peripheral economies generally being less diversified. Differences across firm size and age groups are more marked than cross-country variation, with smaller and younger firms significantly more reliant on a limited set of finance types and older, larger firms having more diversified financial structures. Looking at individual sources of financing, we find that trade credit and informal sources of finance are extremely prevalent across all countries, with Irish firms being particularly likely to use them as sources of funding.     

Round the Houses: Homeownership and Failures of Asset-Based Welfare in the United Kingdom

This article explores the contingencies of financialisation and housing. More specifically, how the spatial and temporal dynamics of the UK housing market ensure that homeownership does not (and arguably cannot) deliver welfare provision in the way envisioned by asset-based welfare initiatives. The first section demonstrates the fundamental problem of conceptualising households as asset-holders; in particular, with regard to housing-based welfare strategies and as part of financialised growth strategies in the UK, more generally. We show that continuing to assume residential housing is a static and unchanging asset-class depoliticises how asset-based welfare intensifies household indebtedness. The second section demonstrates the temporal, spatial and social limits of homeownership in the UK. We argue that the financialisation of housing in the UK is a unique set of political and economic circumstances that cannot be repeated; therefore, current gains from residential housing are a one-off wealth windfall to particular (lucky) groups within society. The temporal and spatial limits of gains from residential housing mean that the same conditions cannot be repeated (often enough) in the way required for residential housing to provide a generalisable welfare function. Finally, the article concludes by suggesting the potential of new research that incorporates temporal, spatial and social contingencies of housing to demonstrate how financialisation materialises in everyday life.     

中小企业非正规金融内生成长分析——基于社会资本视角

在发展中国家和地区,非正规金融对于中小企业融资具有重要的作用。在非正规金融的私人契约治理机制中,社会资本构成了经济交易中的重要资源。由于社会资本的存在,非正规金融在一定程度上是中小企业自主自愿选择的结果。社会资本的动态变化推动非正规金融的关系型融资向契约型融资转变的同时,应该辩证地看待社会资本对非正规金融的影响。     

Financial Deregulation and the Role of Statecraft: Lessons from Britain’s 1971 Competition and Credit Control Measures

Within the financialisation literature, a number of approaches identify the coexistence of financial expansion and productive stagnation. Yet there is no consensus on which direction causality operates between these two phenomena. This impasse has been widened by the lack of attention paid to the role of statecraft strategies in mediating possible causal mechanisms. This article contributes to rectifying this shortcoming by focusing on the governance advantages granted to states through financial deregulation. By presenting archival evidence on Britain’s 1971 Competition and Credit Control deregulation, this article lends support to financialisation accounts that argue that weaknesses in the productive economy spurred financial expansion, yet it also indicates that the state’s desire for depoliticised forms of governance played a crucial role in mediating this relationship. This further suggests that International Political Economy should focus on the strategic manner in which states relate to markets.     

The Rise of Finance and the Decline of Organised Labour in the Advanced Capitalist Countries

The goal of this article is to provide a comprehensive evaluation of the impacts of finance and corporate governance reforms on organised labour since 1980. The argument is made that contemporary institutional and ‘Varieties of Capitalism’ as well as ‘Varieties of Unionism’ perspectives on labour market reform have overstated the power of states, institutions and organised interests in deflecting global economic pressures. Drawing on a range of recent Organisation for Economic Cooperation and Development (OECD) statistics and qualitative studies, it is claimed that current developments in finance and corporate governance mark a fundamental break with post-war developments. Capital has reasserted its power over organised labour and labour markets not only in the US and UK, but throughout Western Europe as well. In assessing how far this reversal has gone, the article focuses on three key political economic changes: i) the rise in finance and adoption of corporate ‘shareholder’ systems; ii) the expansion of mergers and acquisitions and their negative effects on unionisation and manufacturing jobs; and iii) the effects of financial pressures and corporate reform on collective bargaining and wages. This is the first study to report on comparative changes and qualitative reforms to both finance and labour in 13 OECD countries between 1980 and 2005.     

Generalised Social Security Finance in a Two-Country World

This paper develops an overlapping generations model with generalised finance of social security in a two-country world. Social security finance includes a pay-as-you-go, a fully funded, and an optimal system as special cases. An increase in social security funding of country 1 increases capital, income and consumption per head in both countries. Also, it increases foreign assets in country 1 and foreign debt in country 2. The optimal level of social security funding is below the golden rule level. During adjustment an increase in funding has negative effects on country 1 and positive effects on country 2.