Author: jpetry1

The New 鈥淧assive鈥� Wall Street Counterparts for States in the Global South

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By and Johannes Petry

In the past, during the time of the 鈥淲ashington Consensus鈥� developing countries from the Global South faced the IMF and the World Bank as their main counterparts in important matters of global finance. Based on our recently published we argue that due to an ongoing paradigm shift in financial markets this constellation is changing profoundly. A new breed of Wall Street firms is emerging that occupies a pivotal position in the relationship between (developing) countries and financial markets – index providers.

This rise of index providers is grounded in the global shift towards passive investment. Formerly, investors gave their money to funds where a well-paid fund manager was picking stocks (or bonds) with the aim to produce above average returns – to 鈥渂eat鈥� the market in finance parlance. But now more and more investors invest in cheap passive funds (which comprise both exchange traded funds and index mutual funds) that merely track financial indices. Unlike actively managed funds, however, the passive index funds industry is characterised by enormous economies of scale – in terms of technology it is not a big difference if a passive fund has ten million or ten billion US$ assets under management. In addition, there is a strong first mover advantage. As a result, BlackRock, Vanguard and State Street dominate passive funds as the . Excellent recent work has since focused on how this is shaping the emergent .

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Financializing state capitalism: Exchanges, financial infrastructures & the active management of capital markets in China

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DCE trading floorThe development of capital markets has been a core focus of financialization research. For Epstein, financialization 鈥�鈥�, while Pike and Pollard define financialization as the 鈥�鈥�. Other scholars also attribute a significant role to capital markets in financialization processes, be it in the , the rise of , or 鈥�鈥�. At the heart of and as a precondition of many aspects of financialization stand capital markets and their development.聽

This is not only the case when it comes to financialization in advanced economies, but also with respect to the study of . Financialization processes are not uniform, they are rather variegated and refracted by national institutional settings that lead to . As Lapavitsas and Powell emphasized, 鈥�鈥�. This has also been picked up in debates about the relationship between financialization and the state. Previously, many scholars argued that financialization often results in a and the effects on developing economies are often described as potentially negative with financialization for instance or . But stemming from earlier discussions on , more recent scholarship has highlighted that . It argues that an increasing takes place in which state and (quasi-)state institutions often co-constitute financialization processes.聽

Contributing to the growing literatures on variegated financialization and the state, in a paper titled 鈥�鈥� (recently published in ) I argue that states are not only important actors facilitating financialization but can also exercise a considerable degree of control over financialization, thereby shaping its very form. Instead of a financialization process that , what we see in China is a 鈥榝inancialization with Chinese characteristics鈥� where the state actively tries to manage financialization and its social outcomes.聽Read More »