Capital Markets and ‘Financialisation’ of the World

Global Investment Policy

‘Financialisation’ of the world is one of the attributes of the economic aspect of globalisation: extension of monetary economics in breadth and depth (breaching the former ethical limits to the market). The financial sector of the global economy is growing faster than the ‘real economy.’ Whereas international aid from the developed countries to the ‘third world’ countries has decreased over the last two decades (one of the manifestations of weakening of the state as the aid donor as well as beneficiary), private capital investment has grown enormously over the same period, including investment in developing countries. There are over 50 stock exchanges on all the world’s continents (Prague Stock Exchange has lost some of its economic importance it enjoyed the 19th century). Capital is a precious asset, and the global competition among countries of various continents and regions definitely helps attract the ‘skittish animal.’

Efficiency and Effects of Investment

Capital transactions, however, may be of very different natures. The aspect of speed – capital mobility / volatility – is one of prime importance. For countries where the capital ‘lands’, foreign direct investment (FDI) is most valuable, be it ‘greenfield’ investment or privatisation acquisitions important for economies in transitions. Similarly, investment in joint ventures is a stabilisation factor for development: as long as an investment ‘foundation scheme’ is underway, the owner (capital group) cannot shed its proprietary liability toward the host country so easily. Portfolio investment is much more mobile, i.e. capital flowing into investment and pension funds and housing savings, whose shares are traded on stock markets on a daily basis. Capital transactions by traders in individual currencies are even more ephemeral.

Global Regulation Possibilities

The functions that capital markets perform globally are an irreplaceable generator of economic information on the performance of businesses quoted on stock markets (tens of thousands nowadays), as well as on the efficiency of public administration effected by politicians governing the various countries. There is no argument about that; and there is no substitution for capital markets in this respect. What is the subject of expert as well political debate, however, is whether and in what form such capital transaction should be ‘regulated globally.’ Financial crises, erupting in various countries, regions, and even entire continents from time to time show the danger of destabilisation of financial markets. And it is the most mobile, speculative capital transactions that pose the greatest threat to stability. For over a quarter of a century now, discussions have reappeared from time to time about the proposal by James Tobin, a US economist, to introduce a tax that would burden these very speculative capital transactions with the dual purpose of ‘trimming down’ the most risky investment and feeding a sort of global stabilisation fund for ‘putting out’ the fires of financial crises. The opponents to the Tobin Tax object that introducing it would be counter-productive: paradoxically, it might increase the risk of the investors’ moral gambling (“once the risk of a crisis can be compensated for”).

The Efficiency and Influence of Multinational Corporations

According to Dembinski’s calculations, 800 of the biggest multinationals employ approximately 30 million workers, which is but 1% of the world’s active productive population. Concerning labour productivity, these ‘giants’ are thus about ten times more efficient than the world average labour productivity. This does not come ‘for free’, though: The same exclusive group represents about 60% of the global capitalisation of the world’s financial markets. Therefore, vice versa, the capital intensity of the multinational giants is ten times higher than it is in the rest of the world. Thanks to their influence, the ‘giants’ get a decisive share on the savings of the entire world’s ‘households’ in global stock exchanges by means of emitting their obligations and stocks and their privileged access to bank accounts globally. Thanks to their privileged access to capital, the giant multinationals are capable of substituting labour with capital at a level inaccessible to others.