
© Council for the Development of Social
Science Research in Africa, 2015
(ISSN
0850-3907)
Politics of
Financialisation and Inequality:
Transforming
Global Relations for Inclusive Development
Samuel Oloruntoba*
Abstract
Inequality
remains one of the most fundamental challenges of the contemporary world. It
has become a global phenomenon which affects the underclass, the deprived and
the poor both in the global north and south. Despite the advancement in
technology which has fueled economic growth and fostered cross-national
mobility of factors of production, inequality and its twin, poverty, remain
major issues of inquiry among scholars, consideration for policy makers and
concern for the poor. Most studies on inequality have been preoccupied with the
economic forces. This article locates the growing degrees of inequality in the
world within the global politics of financialisation in which the transnational
capitalist class (TCC) adopts a reactionary ideology of neoliberalism to
further their interest through the creation of massive fictitious wealth,
maintenance of stranglehold on domestic and international policy institutions
and spreading of the illogic of the sanctity of the market. I argue that
capitalism in its current form is unsustainable for the human society.
Consequently, the structure of power that informs and maintains the current
order must be transformed to foster inclusive development. Despite the
resistance to such transformations by the members of the TCC at the core, the
process is inevitable due to the internal contradictions within the system
itself, the emergence of new loci of power from different regions of the world
and increased revolutionary pressures from below. Overall, the article
concludes that there is an inextricable link between financialisation and
global inequality.
Résumé
L’inégalité reste l’un des défis majeurs du monde contemporain.
Elle est devenue un phénomène mondial qui affecte les classes inférieures, les
démunis

* Thabo Mbeki African Leadership
Institute, University of South Africa, Pretoria, South Africa. Email:
soloruntoba09@gmail.com
et
les pauvres tant dans les pays du Nord que dans ceux du Sud. Malgré les progrès
de la technologie qui ont alimenté la croissance économique et favorisé la
mobilité transnationale des facteurs de production, l’inégalité et sa jumelle,
la pauvreté, restent des questions d’intérêt majeur parmi les chercheurs, les
décideurs politiques et une préoccupation pour les pauvres. La plupart des
études sur les inégalités se sont préoccupées des forces économiques. Cet
article situe les degrés croissants d’inégalité dans le monde dans la politique
mondiale de financiarisation dans laquelle la classe capitaliste transnationale
(CCT) adopte l’idéologie réactionnaire du néolibéralisme pour poursuivre leurs
intérêts à travers la création d’une fictive richesse immense, le maintien de
la mainmise sur les institutions politiques nationales et internationales et la
propagation de l’illogisme du caractère sacré du marché. Je soutiens donc que
le capitalisme dans sa forme actuelle est insoutenable pour la société humaine.
En conséquence, la structure du pouvoir qui informe et qui maintient l’ordre
actuel doit être transformée pour favoriser un développement inclusif. Malgré
la résistance à ces transformations par les principaux membres de la CCT, le processus
est inévitable en raison des contradictions internes au sein du système
lui-même, l’émergence de nouvelles instances de pouvoir dans les différentes
régions du monde et les pressions révolutionnaires croissantes, à partir de la
base. Dans l’ensemble, l’article conclut qu’il existe un lien inextricable
entre la financiarisation et l’inégalité dans le monde.
Introduction
The global capitalist system has
witnessed massive transformations and changes over the past four decades. The
changes have been informed by the shift in both theoretical nuances and policy
at the core and periphery of global capitalism. Although there has been some
improvement in the global economy in terms of the reduction in the numbers of
people living in absolute poverty, inequality has increased in-country and
between countries (Stiglitz 2012). These problems have in turn been exacerbated
by high rates of unemployment; dwindling fortune of workers in terms of wages
as share of corporate profits; intensification of regime of ‘accumulation by
dispossession’; shift from production and manufacturing to financialisation;
excessive profits and bonuses for corporate executives; technicisation of
production processes and change from community values to individualism (Guillen
2014; Nolke Heires and Bieling 2013).
The change in the nature of global capitalism from
production to financialisation is not a natural evolutionary process. Rather,
it was a deliberate art of political coalition among the group of
pseudo-capitalists called ‘capitalist rentiers
and financists who have derived massive benefits from the current
neoliberal hegemony and financialisation’ (Bresser-Pereira 2010:500).
Bresser-Pereira describes capitalist rentiers as non-active capitalists such as
stockholders who own no business enterprises in which they work, or contributes
to their profits or expansion. On the other hand, he describes financists as
the executives and traders who manage financial organisations or trade on their
behalf, earning salaries and performance bonuses (p.500). Harvey (2007)
provides a detailed historical account of how conservative intellectuals,
business and political elites at the core of global capital such as the United
States of America, Britain, Germany and Canada framed and institutionalised the
global hegemony of neoliberalism as a political economic force which controls
how global capitalism operates today. In what Wade (2013) calls the ‘art of
power maintenance’, the US, despite the global financial crisis of 2007-2009,
seeks to maintain the dominance of the neoliberal economic paradigm both at
home and abroad.
Despite this resistance, I argue that capitalism in
its current form is unsustainable for the human society. Consequently, the
structure of power that informs and maintains the current order must be
transformed to foster inclusive development. Notwithstanding the resistance to
such transformations by the members of the TCC at the core, the process is
inevitable due to the internal contradictions within the system itself, the
emergence of new loci of power from different regions of the world and
increased revolutionary pressures from below.
This article engages with the following questions,
through the theoretical lenses of International Political Economy (IPE) and the
theory of global capitalism (Robinson 2004): What is financialization and its
link with the hegemony of neoliberal economic order? How have the
financialisation processes contributed to inequality? What are the emergent
alterations in the structure of global power that provides hope for
transformation of global relations? What are the imperatives and the mechanisms
for fostering such transformations? In the main, the article shows that there
is an inextricable link between financialisation and global inequality.
Financialisation and the Hegemony of
Neoliberalism
The theoretical foundation of the
contemporary global capitalist order with its penchant for market orthodoxy
took root in the 1960s when development economics was replaced by neoclassical
economics (Gilpin 2001). Proponents of this variant of economics such as Alfed
Marshall, Leon Walras and Vilfredo Pareto focused their theoretical explanation
regarding the functioning of the economy on the attainment of equilibrium points. They consider the value
of labour and the wages that the workers earn in terms of its marginal
productivity. Contrary to the concerns of classical economists such as David
Ricardo and Jeremy Bentham for income equality and utilitarianism, neoclassical
economics gives credence to capital and profit (see Marshall 1961; Pareto
1971).
In what Fine (2009) has aptly described as ‘Zombie
Economics’, neoclassical economics became intertwined with mathematical
abstraction and modelling under the steady guide of economists such as Paul
Samuelson. As Bresser-Pereira (2010:500) notes, ‘neoclassical economics became
a form of meta-ideology which legitimises mathematically and ‘“scientifically’’
neoliberal ideology and deregulation’. By this devotion to mathematical
abstraction, it delegitimises other social sciences disciplines such as
sociology, anthropology and political science thus denying itself the needed
multidisciplinary perspective and approach to understanding the challenges of
the society. As Montgomerie (2008:233)
argues,
attempts to
draw ‘scientific’ conclusions require the adoption of many assumptions about individual and state
behavior (mainly that both are rational acting utility maximizers) and an
evaluation of change by molding social relationships discrete categories of
dependent and independent variables… critical approaches reject these orthodox
assumptions and methods by analyzing markets as constellations of social
relationships.
The failure of the post-Keynesian
principles of full employment to sustain economic growth, the collapse of
state-owned enterprises and the economic crisis of the 1970s laid the basis for
the enthronement of neoliberal economics in its most virulent form, which
continues till today (Fine 2009). Both at the micro and macro levels, concern
for profitability and cost efficiency became the dominant consideration in the
formulation of economic policy. With the possible exception of Germany, most
developed countries ensured that their industrial production sectors relocated
to regions of low costs of labour in Asia, particularly China. In the place of
industrial production was the emergence of new financial sheriffs and smart
innovators of short-term financial products such as swap options, derivatives,
bonds and securities with a promise of high return on investment within a short
period of time.
The massive reforms in the public sector in United
States of America and Britain under Ronald Reagan and Margaret Thatcher were
based on neoclassical economic principles of efficiency, equilibrium and
profitability. The 1980s witnessed a gale of privatisation of state-owned
enterprises, deregulation, deunionisation and a drive towards the
financialisation of the economies of developed countries. A replica of these
reforms was the Washington Consensus that James Williamson saw as the panacea
to the debt crisis of Latin American countries (Williamson 1990). The
structural adjustment programmes which African countries were made to adopt
from the 1980s also fall in this category. For detailed account of the
structural adjustment programmes on African economies, see Soludo and
Mkandawire (1999) and Olukoshi (1998), among others.
Riding on the historic wave of neoliberalism and
globalisation, financialisation has become an important feature of the regime
of accumulation that has defined the global capitalist system over the past
three decades. Scholars have interrogated this episodic phenomenon from various
perspectives which range from the development of new financial products; change
in the core mandate of commercial banks from lending to arbitrage functions;
substitution of manufacturing with financial markets; and, general redirection
of economic activities from the real sector to intangible products as well as
the primacy of the interests of shareholders and company executives at the
expense of other stakeholders, especially labour (Zwan 2014; Nolke, Heires and
Bieling 2013; Guillen 2010; Palley 2007). Palley (2007:2) sees financialisation as ‘a process
whereby financial markets, financial institutions, and financial elites gain greater
influence over economic policy and outcomes’. He also notes that ‘the
principles of financialisation are to elevate the significance of the financial
sector relative to the real sector; transfer income from the real sector to the
financial sector and increase income inequality and contribute to wage
stagnation’ (p.2 cited in Zalewski and Whalen 2010). Epstein (2005, cited in
Dore 2008: 1097-1098) sees financialisation as ‘the increasing role of
financial motives, financial markets, financial actors and financial
institutions in the operation of the domestic and international economies’.
Dore (2008) identifies four changes that have taken place in the global economy
on account of financialisation over the past thirty years. These changes
include:
an increase
in the proportion of the income generated by the industrial/
post-industrialized economies, which accrues to those engaged in the finance
industry; the growth in and the increasing complexity of intermediating
activities, very largely of a speculative kind, between savers and the users of
capital in the real economy; the increasingly strident assertion of the
property rights of owners as transcending all other forms of social
accountability for business corporations, the increasing efforts on the part of
government to promote an ‘equity culture’ in the belief that it will enhance
the ability of its own nationals to compete internationally (Dore 2008: 1098).
The pursuit of geopolitical interests
through financialisation has informed the use of international institutions
(IFIs) such as the International Monetary Fund
(IMF) and the World Bank as well as private rating agencies to maintain
the current dominance of global finance. Stiglitz (2002) narrates how the US
Treasury, the IMF and the World Bank work in tandem with one another to design
and project economic policies which suit the interests of the country as global
policies. Even though the latest global economic crisis has generated so much
debate about the limitations of a financialised global economy, the US has
continued to keep the current structure of power, preferring to use taxpayers
money to bail out the so-called too big to fail banks and corporations.
Wade (2013) has demonstrated how the US government
objected to the efforts of the General Assembly of United Nations to seek for
reform the global financial system through the Stiglitz Commission on financial
reforms of the international monetary and financial system in the aftermath of
the 2008 crisis. According to Wade, in objecting to the mandate of this
Commission (where developing countries could have a say), the US insisted that
it is only the IMF and the World Bank that have the capacity and responsibility
to deliberate and take actions on global financial matters. The failure of these
two institutions to prevent the crisis means nothing to the US as long as its
interest remains covered and protected. Such reluctance on the part of the US
further demonstrate the overbearing influence of conservative financial
oligarchy and their lobby groups on the financial policy-making apparatus in
the country. Given the dominant position of the US in global economy, this has
implications for policy direction and possible solution to the problems of
poverty and inequality (Stiglitz 2010)
Financialisation and Global Inequality
There is an inextricable link between
financialisation and global inequality. This link is reinforced by the changes
in the structure of finance capital, technological innovations, ideological
orientations and values as well as the dynamics of global capitalism. While the
above are the general conditioning factors, it must be emphasised that there
are varieties of capitalism across countries and regional contexts. Thus, the
experiences of Nordic countries are remarkably different from those of the
Anglo-America world in the way financialisation has affected inequality. These
differences are also noticeable in the periphery of global capitalism like
Africa, where weak capacity for capital accumulation ensures greater degree of vulnerability
to financialisation-induced crises.
Minsky (1990a, cited in Zalewski and Whalen 2010)
uses the binary concept of managerial capitalism and managed-money capitalism
to explain the changes in the structure of finance, the process of accumulation
and the overall macro-economic performance and how these connect with
inequality. Zalewski and Whalen (2010) elaborate thus:
During the
period of managed capitalism, the financial structure was conservative with low
debt levels and attenuated speculative impulses. Many leading corporations
exercised considerable market power; and because the enabled them to generate
sufficient cash flows to self-finance capital accumulation, they were generally
insulated from shareholder demands. Moreover, macroeconomic conditions were
largely stable and, aside from an occasional mild recession, the United States
avoided serious economic disruption. Collectively, these forces led to a
substantial accumulation of wealth that was more equitably distributed
throughout society than in earlier decades (Zalewski and Whalen 2010:760).
Zalewski and Whalen further note that
the aforementioned changes created the conditions from which managed-money
capitalism emerged as ‘the confluence of greater wealth, accelerating
inflation, deregulation, and financial and technological innovation in the
1970s led to disintermediation as funds flowed from bank deposit accounts to
mutual funds and securities’ (p.760). As these processes evolved, the
traditional roles of banks changed from bank-based to market-based systems,
with the latter creating incentives for excessive risk-taking. Because the
market-based system responds to and is fueled by innovation, company executives
receive high pay and bonuses including compensation with stock options. In a
bid to satisfy shareholders and boost equity values, wages of workers as well
as their welfare become the first casualty. These lead to ‘greater inequality
and financial instability in the economy’ (Zalewski and Whalen 2010:762).
Guillen (2014) establishes the link between financialisation and financial
profit. He sees financial profit as a kind of ‘extra-ordinary surplus-value’
which is appropriated by monopolyfinancial capital by means of the monopolistic
control it exerts on the issue and circulation of fictitious capital’ (p.451).
The hegemony of the finance-dominated accumulation
regime fosters inequality through emphasis on development of financial aspects
at the expense of real products. As industry becomes dominated by banks and
decline sets in industrial profits, finance capital seeks new ways of
expression through the creation of new short-term products that can lead to
high rate of returns. The internal contradictions that characterise this
process inevitably lead to circles of booms and bursts, crisis and recovery,
growth and decline and the attendant crisis of global capitalism. These
contradictions are manifestations of the power of monopoly finance capital to
see regulation as a disincentive to accumulation at the firm level as well
national prosperity. The failure of regulation inevitably leads to crisis, (see
Stiglitz 2010) which normally necessitates the imposition of austerity
measures, the withdrawal of social services and the weakening of the capacity
of the welfare state to support the poor and the vulnerable members of the
society.
The change in the structure of the global economy
from production to financialisation also has implications for low-skilled
workers as well as small-scale industrial owners who now lack access to loans
and credit. Using the Gini-coefficient
that has been estimated by the Organization for Economic Cooperation and
Development (OECD) for some sets of countries to measure disposable household
incomes, Zalewski and Whalen (2010:764) find that ‘overall, the movement toward
a greater reliance on financial markets has been accompanied by an increase in
inequality’. Due to ideological orientations of political leaders, long-term
tradition on the composition of the society and the differences in shared value
of responsibility for decision-making, the varieties of capitalism among the
Anglo-American world, the Nordic countries and Eastern European countries
become obvious. In the study by Zalewski and Whalen, the rate of inequality in
the Anglo-American world such as Britain and the United States of America is
far higher than the Nordic countries. Correspondingly, the power that the
United States exerts on the IFIs has ensured that type of capitalism that the
country operates is transported to many developing countries of Africa, Latin
America and Asia.
The weak base for capital accumulation in many
developing countries makes their situations dire as it significantly increases
their levels of inequality. Apart from the wide gap in within-country
inequalities, the differences in the degree of capital accumulation and the
depth of financial inclusion between developed and developing countries also
foster betweencountry inequality in which case the developed countries have
more percapita income than developing or least developed countries. To
summarise this section, it is argued that the increased financialisation of the
global economy has created and accentuated conditions that foster between and
within country inequalities.
Shifting Boundaries of Power and Alternatives to
Financialisation
The decline in the industrial
capacity of the United States of America and many of the member countries of
the European Union represents the particularistic feature of capitalism. The
search for higher degree of accumulation through reduction in the costs of
operations, coupled with low rate of return on investment at the core of global
capitalism has led to shifting boundaries of centres of industrial powers. The rise of China and the emergence of other
industrial powers like India, Brazil and, to a large extent, South Korea
present distinct possibilities for varying alternatives to the hegemony of
finance-led global capitalism. Unlike the United States where the economy
remains unduly financialised, the emerging countries combine industrial
production, technological innovation and agricultural revolution to boost
economic growth. Countries such as Brazil, which did not follow the
Anglo-American orthodoxy of full liberalisation, have succeeded in reducing
poverty and inequality (Oloruntoba 2015).
The latest global economic crisis has clearly shown
the limits of a financialised economy such as the European and US economies.
Whereas these economies went to their lowest levels of growth and deficit in
more than seventy years, the emerging countries showed resilience as they did
not only successfully mediate their ways through the crisis, but have continued
to grow (IMF 2011). Although China’s rate of growth has declined in the past
one year, the growth rate remains remarkably higher than the EU and US where
financialisation still holds sway. Despite the inherent limitations of the
Africa rising narrative (see Fioramonti 2014; Oloruntoba 2014), the continent
has also been growing despite the crisis.
One of the challenges of financialised economies is
the failure of regulation. The finance monopoly capital of the contemporary
times has framed a narrative of ‘too big to fail’ in order to ensure that banks
and corporations that are badly managed end up getting bailed out by the state
in the event of crisis. The failure of regulation both at the domestic and
international levels gives room for opportunistic and excessively risky
behaviours by corporate executives in banks, investment and hedge-fund
companies, which hurt household, national and the global economies. As
Bresser-Pereira (2010:501) argues, ‘the 2008 global crisis began as financial
crises in rich countries usually begin, and was essentially caused by the
deregulation of financial markets and the wild speculations such deregulation
makes possible’.
It would appear that the emerging economies are
avoiding this trap. Gallagher (2014) shows how emerging countries such as
China, Brazil, India and others deployed the right mix of policies to exert
control over the movement of capital in the period before and after the latest
economic crisis. These policies effectively helped to limit the negative
effects of the crisis over the respective economies. The relative stability and
steady growth that these countries have experienced and continue to experience
to a qualified extent, on account of creative regulation of capital, could spur
a bandwagon effect to other ewly industrialising countries. As noted earlier,
the salience of power and consideration for geostrategic interests of the
United States will compel the country to resist sudden displacement of the
current regime of accumulation through financialisation. Such resistance is
already playing out in the various moves of the United States to check-mate the
rising influence of China. The control that the US exercises over the US dollar
as the international currency as well as in the IMF provides the country with
political leverage to resist any change in the current order. However, various
factors combine to turn the possibility that the new constellation of power of
emerging countries present into a reality of transforming global relations and
reducing global inequality. The next section deals with the issue of
transforming global relations and reducing global inequality.
Imperative of Transforming Gobal Relations for
Inclusive Development
The preceding sections have described
the way financialisation of the global economy has fostered inequality both
within and between countries. There are compelling reasons to transform global
relations in such a way that global inequality will be reduced. These reasons
have both historical and contemporary imports. Historically, the US had
operated a variant of capitalism that ensured steady growth and shared
prosperity among the citizens. Particularly, the Fordist regime of
accumulation, which led to the 30 glorious years of capitalism from 1948 to
1977, was characterised by regulated financial markets, financial stability,
high rate of economic growth and a reduction of inequality (Bresser-Pereira
2010:504). Stiglitz (2012) shows how the current regime of financialisation has
divided the society between the haves and the have-nots, and between the
richest one per cent and the 99 per cent who are struggling to survive. The
fear that the majority of the population will not be able to afford education,
and the resultant propensity to build dynasty of poverty both in the US and
other parts of the world, necessitate a change from the current neoliberal
paradigm.
Since power and interests are involved, the necessary
change may not come easy. However, new political forces can emerge, especially
with support from the middle class, that will force these changes in the US and
elsewhere. The current rate of inequality in the US, especially in its racial
essence, is not sustainable in the long run for peaceful co-existence in that
society. Thus, political action is required to ensure that the gap between the
rich and the poor is bridged through appropriate social policies, especially in
education and health.
The imperative of transforming global relations is
reinforced by the changes in the global geography of power in which emerging
countries are now forming various alliances backed by relevant institutions. In
particular, the decision of Brazil, Russia, India, China and South Africa
(BRICS) group of countries to establish the BRICS Development Bank may be a
watershed in the ongoing realignment of forces for the reconfiguration of
global power relations – the BRICS countries signed an agreement to set up a
bank with a $100 billion liquidity reserves of $50 billion, with each country
contributing $10 billion. The agreement also includes the establishment of a
Contingency Reserve Arrangement in the first effort to balance the world
financial order (Totten 2014). Apart
from these concrete steps, the BRICS countries have also called for
diversification in the portfolio of currency of international trade. They have
also gone beyond mere rhetoric to engage in what Totten calls dollar-less BRICS
energy deals, currency swaps and foreign direct investments. There is no doubt that these countries are
well positioned to effect the changes in the global relations of financial
powers at these auspicious times. Their cumulative contributions to the global
economy as well as population invest them with the moral obligation to
undertake this onerous task. As Totten (2014) notes, the BRICS countries
collectively account for nearly $16 trillion in Gross Domestic Product (GDP)
and 40 per cent of the world population. As each country acts to maximize its
own utility, the emerging economies of the BRICS nations can create a
paralleling international financial system ultimately challenging the hegemony
of the current western-dominated system.
The role of China in engendering the transformation
in global relations of power is particularly significant. Given the country’s
rate of economic growth, its demand for minerals and other commodities as well
as availability of surplus fund for investment abroad, China has been forming alliances
and entering into trade and investment partnerships in all developing regions
of the world, particularly Latin America and Africa. The close relationship
that exists between China and Russia, which is demonstrated in their mutual
commitment to topple the US dollar as a currency of international trade, are
strong prospects for the decentralisation of global finance. The US may pre-empt the implications of
de-dollarisation of international transactions on its economy and act such that the overdue reforms of the IMF are
carried out without much further delay. The country also has an option of
engaging in belligerent attitude towards China and Russia as well as seeking to
break the BRICS alliance through divide and rule tactics. However, no matter the
option that it takes, a new momentum that will lead to changes in the current
financial order has started and this is likely to continue in the near future.
The significance of these new alliances and
realignment of forces to reduce global poverty and inequality is the
alternative that it presents to the current regime of accumulation that is
based on financialisation. With the possible exception of South Africa with
high degree of mineral exports and liberalised policy on capital flight, the
BRICS countries owe their growth to
industrialisation and manufacturing exports. To a significant extent, they also
deviate from the mainstream orthodoxy of free market and capital accounts
liberalisation. Rather, they followed the path of cautious and calculated engagement
with the globalisation processes.
Scholars have expressed concern over likely problems
that may emerge from the BRICS alliance.
For instance, Desai and Vreeland wrote in the Washington Post of 14 December
2014 that intra-country quibbles, lack of coordination, disputes at the
WTO, absence of capacity for monitoring and surveillance, but, importantly, the
structural disparity between the Chinese economy and those of other members of
the alliance as the most likely reason why the BRICS Development Bank might not
be able to make the expected changes in the global financial order (Desai and
Vreeland 2014). Their skepticism was also borne out of the failure of previous
regional initiatives such as the Corporacion
Andina de Fomento (CAF) or Development Bank of Latin America which was
formed by the Andean nations in the 1960s, the Chiang Mai Initiative of the
Asian countries of 2000s and the Bank of the South established in 2009.
Desai and Vreeland note in respect of the dominant
position of China in the BRICS that ‘the
structural disparity between China and the rest of the BRICS members (the
Chinese economy being larger than the economies of all other BRICS combined) is
at the heart of the matter for any BRICS institution. China’s dominant position
makes coordination in terms of operations and funding priorities difficult to
imagine (Desai and Vreeland 2014). Despite these fears, there is no reason to
expect a failure. What is important is for the BRICS member countries to guard
against possible deliberate attempts by the US to sabotage the well-meaning
efforts to transform the global financial relations.
There are several ways in which this can be achieved.
First, is the recognition that what is at stake is power, hegemony and
domination. Although the Anglo-American world is in decline, at least
economically, the control that they exert over the global institutions such as
the IMF, the World Bank and the WTO remains intact. The need to maintain this
control explains why the much-needed reforms at the IMF remain in limbo. The
role of the US in this ‘art of power maintenance’ remains very critical (Wade
2013). Conservative political elites in the US remain hostile to any form of
change in the current global order. As Desai and Vreeland note in their analysis
of the prospects and challenges of the BRICS Development Bank, the US Congress
only mentions the proposal for the reform of the IMF in the context of another
issue. Even when this was mentioned, the proposal was rejected. In other words,
the US Republican Party-dominated Congress is not particularly interested in
supporting any meaningful reform of the IMF.
As mentioned earlier, the US also resisted the
proposal of the sixty-third President of the United Nations General Assembly
towards reform of the financial system back in 2008. For instance, in objecting
to the decision of Migne d’ Escoto, the sixty-third President of the United Nations General
Assembly, to set up the Commission of Experts on Reform of the International
Financial and Monetary System, the US delegate to the June 2008 conference
argued that:
our strong view (emphasis mine) is that the
UN does not have the expertise or mandate to serve as a suitable forum or
provide direction for meaningful dialogue on a number of issues addressed in
the document, such as reserve systems, the international financial institutions
and the international financial architecture.
The
US position fits well with how Arrighi (2004) and Braudel (1992) conceive
financialisation. Guillen (2014:452) echoes the view of these scholars thus:
It is
postulated that financialisations are not recent phenomenon of contemporary
history, but have historically been linked to periods of hegemonic transition,
where the hegemonic power of the moment
as historical and contemporary phenomenon where the hegemonic power of
the moment attempts to use its monetary and financial domination to preserve
its position. Such is the case with the United States, the driving force behind
contemporary financialization.
Given this reality and the abundance of evidence to
support US’s tactics to block progressive change, the BRICS countries must
recognize the dynamics of geopolitical interests and respond accordingly.
Recognition of this dynamic will also ensure that the BRICS countries manage
any inevitable infighting that may arise in the discharge of both
responsibilities and enjoyment of benefits of the new Bank. The governance
structure of the development bank, which precludes new members joining the bank
from going beyond certain thresholds, is a step in the right direction.
Resistance to the opposition of the US to the reforms
of the international financial relations will require building alliances and
cooperation with other developing countries, especially in Africa, Asia and
Latin America. Global south cooperation and solidarity in the form of the
Bandung accord of 1955 and the Group of 77+China is imperative. Such
cooperation is needed to bolster greater support and inject additional
resources to the BRICS Development Bank. Some of the countries in the global
south that are not yet part of BRICS have substantial external reserves,
sovereign wealth funds and pensions that are currently held in US banks and in
US dollars. These funds can be withdrawn, converted to another currency and
channelled to the BRICS Development Bank, thereby increasing the quantity of
money available to boost development.
Apart from the stated goals of the new BRICS
Development Bank to help countries in difficult economic situations, another
way they can help in transforming global financial relations is to ensure that
they follow a different path in managing the mobility of capital. As Gallagher
(2014) has argued, BRICS countries have, to a large extent, engaged in capital
controls before and during the last global economic crisis. The decision of the
BRICS countries to de-dollarize international trade through the use of other
currencies should also be followed through.
Conclusion
The article has examined how
financialisation of the global economy has fueled global inequality over the
past four decades. The change from the Fordist regime of accumulation to a new
form of financial oligarchy, especially at the core of global capitalism, has
global implications. The inherent contradictions in the financialised global
economic structure inevitably lead to crises. Such crises, as a UN Report
shows, are ‘demonstrations of failure at many levels-of theory and philosophy,
of institutions, policies and practices, and less overtly of ethics and
accountability’ (UN, 2009:1). Continuation of the economic practices that
foster inequality is favoured by powerful forces whose interests are satisfied
by the current economic structure both at the firm and national levels is
problematic. The role of the US in maintaining the current global economic
order is particularly emphasised in the article.
The article also argues that the necessary change in
the global geography of power from the Anglo-America controlled capitalist
system to a more diversified one under BRICS could portend great possibilities
for transforming global relations. The establishment of the BRICS Development
Bank and the seemingly firm determination of the BRICS countries to de-dollarize
their international transactions present a bright prospect for altering the
current global economic power structure a way that will have multiplier effects
on efforts geared toward reduction in global inequality.
Given the link between deregulation, capital account
liberalisation and global economic crisis, it is imperative that regulation
should be taken more seriously. The last global economic crisis brought to the
fore the imperative of effective regulation of capital both at the domestic and
international levels. At the national level, the capacity of the state should
be strengthened to regulate capital in a way that will ensure a right balance
between accumulation and investment in productive sectors of the economy. A
right balance also needs to be ensured between the state and the market.
The last global economic crisis laid
bare the fallacy of market perfection and efficiency. Furthermore, the role of
the central bank in the national economy should also be defined in such a way
that it engages more critically in supporting overall macro-economic
performance rather than simply targeting inflation or interest rates (UN 2009).
At the international level, the need to restructure the international financial
institutions cannot be over-emphasised.
As the IMF has proved incapable of correctly
pre-empting or effectively addressing the crisis of global capitalism, a new
global financial architecture in form of a World Finance Organization whose
motive force is effective regulation of capital and optimum allocation of
financial resources for development should be created. In this regard, the
proposed world body can also be responsible for exercising control over illicit
financial inflows from developing to developed countries.
Regardless of how entrenched the power of the
transnational capitalist class is in maintaining the current levels of
inequality, it will be in their long-term enlightened self-interest to work
toward the reduction of inequality. Apart from the inevitable violence that may
result from the continued impoverishment of the subaltern classes, inequality
among and within countries disrupts the maximisation of social well-being for
all citizens. Inequality will also continue to fuel migrations from regions of
low development to regions of high development with all the attendant
consequences regarding inevitable increases in security and social spending.
Lastly, moving from financialisation to a manufacturing-based economy with high
labour intensity content is one sure way to reduce inequality. Where they exist
at all, the current industrial policies in Africa, as elsewhere, are unduly
capital-intensive and technology-driven. Given the low rate of skill
acquisition in most parts of the continent, it is imperative to formulate
industrial policies that promote low capital and high labourintensive
manufactures (Motsohi 2015). This way, low-skilled people can be employed, and
hence lead to the reduction in inequality.
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