Understanding the financialisation of international development through 11 FAQs

Heinrich Böll Stiftung North America
Place of publication
Washington, DC
Date of Publication
August 2018
Number of Pages
28
Licence
All rights reserved.
Language of publication
English

This article explores how growth of the finance sector can overtake growth in the "real" economy, including manufacturing or trade, and depress wages as returns to capital are protected or increased. In developing and emerging countries, financialisation deepens the vulnerability of local financial systems when they are subject to the volatility of global capital markets and the interest rate decisions of large countries, particularly the US. Without proper controls, financialization can redirect the development process towards securing the profits of private companies and private finance.

Financialisation is a contested term and historical phenomenon. Its driving force is the creation of new asset classes and the preservation of their real value to facilitate financial profits. Its core business model relies on generating profits from daily changes in the price of securities and commodities, held outright or via derivatives, and financed through repo markets. Financialisation stands for globalised financial capitalism, or financial globalisation. It re-engineers financial systems around securities and derivative markets, embedded in fragile and concentrated ecosystems of market-based banks and shadow banks. It generates increasing concentration within the financial sector, higher wealth inequality and more precarious labor. Through the World Bank’s new Maximising Finance for Development Agenda, financialisation is colonising international development. In so doing, it reduces the space for alternative development strategies in developing and emerging countries (DECs).