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The financial sector has been entirely transformed since the mid-1970s. The changes are evident: rapid growth, deregulation, widespread introduction of new technology, profound institutional transformation. The weight of the financial sector has grown markedly in developed capitalist countries in terms of employment, profits, size of institutions and markets. Finance now penetrates every aspect of society in the developed world, and has also grown rapidly in the developing world.

The IIPPE working group brings together researchers to discuss aspects of financialisation, using a political economy and interdisciplinary framework and focuses its attention on:

  • Transformation of banking during the last three decades.
  • Changed relationships between banking/financial and industrial/commercial capital. How relevant is the concept of ‘finance capital’ today?
  • Growth of money markets and the role of securitisation in spreading risk.
  • Stock markets, bubbles and the centralisation of capital.
  • Market-based and bank-based financial systems in the course of economic development.
  • Future of development finance.
  • International institutions and the transformation of the global financial system.

To apply to join the IIPPE Financialisation of Contemporary Capitalism group, email iippe@soas.ac.uk or sign up to our Google group.

Contents

Financialisation

The financial sector appears to have been the greatest beneficiary of globalisation. Financialisation has meant that banks have shifted their activities away from large enterprises, while their lending to small and medium businesses remains uncertain. They now engage strongly in retail business, drawing profits out of the circulation of private revenue. New technology has facilitated the shift toward retail, while also transforming the activities of banks in collecting and assessing information. Financial innovation, together with new technology, has encouraged securitisation of banks assets, the spreading of individual risks, and the creation of new forms of systemic risk, apparent in the credit crunch since August 2007.

The money market has also expanded since the mid-1970s, while facilitating the creation of loanable money capital out of all temporarily idle sums of money across society and giving a boost to financial intermediation. The new intermediaries, however, are institutional investors – pension trusts, money funds, insurance companies and several others, including hedge funds. The expanded money market, however, is also prone to new forms of crisis due to the securitisation of assets.

Along similar lines, stock markets have expanded in both the developed and the developing world. But the contribution of stock markets to the investment needs of industrial capital remains negligible. Rather, stock markets have acted as the locus for several waves of mergers and acquisitions, thus accelerating the concentration and centralisation of capital. This process has given rise to a series of financial bubbles, some with disastrous effects for capitalist accumulation as, for instance, in Japan and South-East Asia.

Finally, the state has played a decisive role in the process of financialisation. To a certain extent this has taken place actively, through deregulation of finance and the management of economic policy in order to serve the interests of the financial sector. Equally important has been the expansion of the borrowing needs of the state, especially in the USA and Japan. The bulk of the assets traded in financial markets comprise state instruments of debt. State paper is the foundation of private portfolios, the bedrock of liquidity, as well as the benchmark for risk assessment and price formation in the financial sector. Without the state’s financing needs and practices, the expansion of finance during the last two decades would have been impossible. Finally the role of the state has been pivotal in prudentially regulating the financial system, while also resolving the various crises generated in the course of the last three decades.

These complex developments call for analysis from the perspective of political economy, including Marxist political economy. Neoclassical economics is too narrow in its approach and too limited in its assumptions to capture the complex and contradictory reality of these transformations of global capitalism. Rather, the functional specificity of capitals engaged in financial activity needs to be recognised, as well as their differences and similarities from productive capitals. Moreover, while developing analysis of financial prices, returns and risk, the class content of financial activity needs to be acknowledged rather than being presented in the neutral terms of the markets and their regulation. Finance forms a system with an overall role in the process of capitalist accumulation and operates in a broad context of social, political and familial relations. For this reason, furthermore, it is necessary to give an interdisciplinary content to research on finance.

Working Papers

The IIPPE Financialization Group is pleased to announce its Working Paper Series on political economy and heterodox research in finance. This working paper series aims at offering PhD students and young researchers the possibility to have their papers reviewed by two academics who are working in their field of research. Submission of Work on all aspects of heterodoxy and finance is encouraged, with a special but not exclusive focus on developing and emerging countries. Upon submission, the paper will be assessed by two referees, one senior and one junior academic, according to the topic of research at hand. If the paper is accepted, it will be – after necessary revisions - published as IIPPE Financialization working paper series. This process should give young researchers the chance to get feedback on their work in addition to their supervisor’s and make their work available to a broader audience. Confirmed senior academics currently include, among others: Ben Fine, Victoria Chick, Alfredo Saad Filho and Jan Toporowski. This broad range of people should allow an efficient matching of the paper and the expertise of the selected referee.

Working Paper No.1 The financial crisis of 2007-9 and emerging countries: the political economy analysis of central banks in the Brazilian and Korean economies Juan Pablo Painceira

Working Paper No.2 Credit Expansion and Currency Substitution Interaction: A Built-in De-stabilizer?' Ferda Donmez

Working Paper No.3 Can “Double Movement” Explain Globalization and Its Crisis? Gokcer Ozgur and Huseyin Ozel

Working Paper No.4 Transformation of the Turkish Banking Sector within the Financialisation Process of Turkish Economy Nuray Ergunes

Working Paper No.5 Fictitious Capital Speculation and Financialisation: Critical Moments of Instability, Crisis and Intervention in the Turkish Experience Ali Riza Gungen

Reading List on the Crisis and Developing Countries

This reading list aims at offering a comprehensive overview of the literature on the international financial crisis and developing and emerging countries. To distinguish from already existing sources of information, it exclusively focuses on academic literature, both mainstream and heterodox, and contains short critical summaries of the papers included. An initial list of around 20 references has been compiled, part of which has been supplemented with critical comments. To facilitate searches and location of relevant articles, the articles were sub-divided into five categories: Regional Studies, Empirical Literature, Theoretical Literature and Outlook/Policy Notes. In order to expand on this initial reading list, the contribution of all members of the IIPPE Financialisation Group would be helpful. The idea is to post articles, which have been read by members and are not on the reading list yet, on the IIPPE Financialisation Google group website. Ideally this would be with a small critical comment and a proposed classification to build on the informational content of the reading list. Either Jo or Nina will then add the reference to the reading list, which will thus hopefully expand to a comprehensive resource on the international financial crisis and developing/emerging countries.

We hope that this reading list will offer a service for those people working and interested on the subject and that we can use the collective effort of the IIPPE Financialisation group to create such a comprehensive list. If you have any further questions, please do not hesitate to contact us.

Click here to download the Reading List.

Future and Past Events

Ankara Inernational Research Workshop

14-15 September 2009

Given the theme of the workshop, The Crisis, Interdisciplinarity and Alternatives, it is not surprising that those presenting papers on finance made up a significant proportion of the participants in Ankara. Over the course of four panels, 20 papers were presented which ranged widely in both theoretical content and geographical focus.

Turkey was well represented on the finance panels, with papers examining the instability that ensued following to the neo-liberal reforms of the 1980s, and the effects of the entry of foreign banks into the Turkish financial systems. These papers drew on a range of theoretical concepts, emphasising aspects of the Turkish economy such as generation of fictitious capital, dependency and the destabilising effects of liquidity preference.

Other papers presented at the workshop examined areas such as exchange rate dynamics, central banking, monetary theory and international accounting regulation. Latin America provided the focus for a number of empirical investigations, with papers on Brazil, Argentina and Peru.

Finally, special mention should be given to the presence at the conference of a most distinguished participant: Professor Alessandro Vercelli of Sienna University gave a highly pertinent presentation on the classification scheme used in the the theoretical framework of Hyman Minsky, and in particular the near-ubiquitous use of the phrase Minksy moment since the onset of the financial crisis. Minsky's name has been heard a lot in recent months, but few are better placed to comment on the relevance of his work than Professor Vercelli.

Aside from the formal presentations, the workshop also provided an excellent opportunity to deepen the links between those engaging in heterodox research on finance, and in particular for discussion on the future activities of the IIPPE Financialisation Working Group. A number of areas for future activity were selected, included compiling an annotated reading list on the financial crisis and developing countries, and the launch of a working paper series.

SOAS Seminar Series on Money and Development

A Money, Finance and Development seminar series has been going now for over two years, and was extended this year by the addition of seminars on finance linked to the International Initiative for the Promotion of Political Economy (IIPPE). An important aspect of the series has been the focus on monetary theory, the relation of monetary economics to economic development, and recently the role of finance in contemporary capitalism. The international character of these discussions matches the international mission of the Initiative and will attract interest from outside.

Special Event: Valedictory Lecture by G.C. Harcourt

"The Crisis in Mainstream Economics": Valedictory Lecture by G.C. HARCOURT (University of Cambridge)

Introduced by Sheila C. Dow (University of Stirling)

Wednesday 12 May, 2.30PM, SOAS

MP3 Audio:

Introduction by Sheila Dow

Valedictory Lecture

Questions and Answers, chaired by Jan Toporowski


Image:Harcourt-poster.png

Recent Seminars

22 Feb Ioana Negru of Anglia Ruskin University Room 116  5.00 p.m. Economist Heal Thyself? Reflections  on the dismal science in the wake of the crisis  

1 Mar   Ronen Palan of University of Birmingham    Room V327 (Vernon Square) 5.00 p.m. The British Imperial Nexus and the Contemporary International Financial System  

8 Mar  Massimiliano La Marca of Unctad  Room 116     5.00 p.m. Capital Flow, Paradox? Growth, distribution and external imbalances in emerging economies  

Click here to download the programme for the second series of the Seminar

Links

Research on Money and Finance (RMF) is a network of political economists interested in money, finance and contemporary capitalism. RMF produces individual and collective work on current events as well as on theoretical issues. It also organises seminars and conferences.

International Working Group on Financialization

Current Members

  • Giovanni Cozzi is a Phd candidate in the Economics department at SOAS and is in the third year of full-time study. He is working on financial system development and exchange rate management in Southeast Asia, with particular reference to Malaysia. Participating in the NCCR-trade project (IP12.2 Exchange Rate Regimes) based at the World trade Institute, Berne (Project funded by the Swiss National Science Foundation)
  • Annina Kaltenbrunner is a PhD candidate at SOAS. Her research is on exchange rate dynamics in emerging markets and its implications for exchange rate management. More specifically, she analyses exchange rate behaviour in Brasil as the outcome of positions taken by heterogenous financial institutions in the foreign exchange market. She is also interested in the analysis and role of money in different theoretical economic approaches. Annina's research is partly funded by a project on exchange rates of the Swiss National Foundation.
  • George Lambrinidis is a PhD candidate in UADPhilEcon, the University of Athens Doctoral Program in Economics. His research looks into the nature of contemporary world money, following the significant changes that have occurred since the mid 1970’s in the structure of the capitalist mode of production. He is a scholar of the State Scholarships Foundation, Greece.
  • Jo Michell is currently undertaking doctoral research at SOAS, University of London. His area of research is the financial development of contemporary China. This is analysed using a flow-of-funds approach, with a particular focus on the role of the central bank. He also writes on the limitations of modern monetary theory, when considered in comparison with older approaches.
  • Juan Pablo Painceira is a PhD candidate at SOAS. He is currently doing research on the political economy of money and finance. His research is on the political economy of central banks in emerging countries since early 1990s, analyzing the Brazilian and South Korean experiences with focus in their roles in managing the foreign exchange reserves and their impacts on domestic public debt. He is also interested in the philosophy of science and macroeconomics. He has worked for several years in the Brazilian financial sector, at Banco Central do Brasil.
  • Guido Starosta is a Hallsworth Research Fellow in Political Economy in the Department of Politics, University of Manchester (UK). He teaches on Latin American Politics and his research interests lie in the political economy of development with a regional focus in Latin America. He has also been working on the theoretical and methodological dimensions of Marx's critique of political economy. His recent interest in commodity chains stems from an attempt to bring those two strands of research together, with the aim of comprehending that novel configuration of the world market on the basis of the Marxian 'law of value'.
  • Jan Toporowski has worked in fund management, banking and central banking. His most recent book, Theories of Financial Disturbance, was published by Edward Elgar in 2005. He has been teaching at the School of Oriental and African Studies, University of London, since 2004.
  • Radha Upadhyaya is a PhD Candidate in the Economics Department at SOAS under the supervision of Prof. Machiko Nissanke. Her research interests include competition, corporate governance and regulation of banks and bank failures with a specific focus on sub-Saharan Africa. Her thesis attempts to trace the evolution of banking industry in Kenya to understand the sources of shallowness and fragility. It shows how the performance of the banking system and the structure of the system are embedded in social relations and non-price factors. Radha is also interested in research methodology in particular mixed methods research. Prior to starting the PhD, she was a director of a small bank – Bullion Bank and also the director of a think tank – the Institute of Economic Affairs, both based in Nairobi, Kenya.
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