THE 20 CONTRADICTIONS OF THE FINANCIAL CAPITALISM

To understand what has been going on in the development finance’s trend, we have filled the dots of the related narrative and pieced them together (see previous blog: Filling the dots of the financial narrative:  https://ascaniograziosi.net/2021/01/24/filling-the-dots-of-the-financial-narrative/). It emerged the dominant role of the finance over the economy, called financialization that produced virtual affluence instead of real wealth and therefore the inability of being a suitable leverage of the sustainable growth.

From the gap between the changes and the impact emerged the following contradictions and failures:

  1. According to the World Bank estimates for 2017 the Gross Domestic Product (GDP), that’s to say the market value of all final goods and services produced by 188 nations has been about US $ MM 80,683,787 ([1]). Also, and in contrast with above, it has been estimated that the liquid assets, namely the money floating around in search of suitable offshores, should be much more (some 10 times?) of above-mentioned amount. Whatsoever the percentage, we do think that even a small slice of $ 80,7 trillion could make it the difference, if invested in the real economy. It has been valued that over the past ten years US $ 3 Billion (three thousand million) have been reinvested in financial activities; in other words, this has been done to maximize the market value of the shareholders’ worth.
  2. After Lehman Brothers’ bankruptcy in 2008, significant changes have been made but the financiers didn’t change the conduct in business and the related narrative didn’t mention any tangible result. In a recent interview, Christine Lagarde, former MD of International Monetary Fund and now Boss of the ECB said: “After ten years from Lehman Brothers default the finance system changed a little bit”.
  3. The dissatisfaction on above situations has found echo with the Big Finance Players and concrete discussions are ongoing. On the matter we may refer to the World Bank annual meetings (October 2018): “The World Bank Group  faces the difficult task of positioning itself at the forefront of the world’s most urgent challenges, while also navigating politically charged issues that could divide its largest shareholders” [2].
  4. The EC in order to respond to the challenges – ranging from poverty, conflicts, migration, climate-change and demographic challenges – of the world proposed that “the development finance needs to rely on a combination of funding sources [3]
  5. In a very recent book, an Indian physician and economist defined “catastrophic” the concentration of wealth: in 2010 there were 388 billionaires controlled a patrimony equal to that of the poorest half of humanity; in 2017 they were reduced to 8, and in 2020 there will be a single holder for all that wealth.  With creativity, imagination, solidarity and interconnection, according to Shiva, we can “create a planetary movement with which to break the chains and defeat the money machine and the mere simulacrum of democracy”. Utopia or real possibility? In fact, according to the author of the book “Il pianeta di tutti”, we suffer from three serious separations: between man and nature, between humans and humans, and between the I and OUR integral and interconnected being.
  6. From a World Bank survey came out that “African investors remain risk-averse”  [4] and …. the funding requests lack “speaking the language required for investment”, as the expert panels concluded when last year addressed on how to leverage growth opportunities to support global connectivity.
  7. From a letter sent to OECD, “Politically-motivated” approach, “guided by finance ministries,” risked eroding the whole system [5].
  8. In August 2018 McKinley shared the results of a research on the international financial trend and straightforward said that after 2008 crises, the world economy has recently returned to robust growth. But some familiar risks are creeping back, and new ones have emerged at country and institutional level: global debt continues to grow, fuelled by new borrowers; corporate borrowing; households are financially unwell; banks – thanks to regulations – are safe but less profitable; non-performing loans in the emerging economies; digital disruptions. Foreign direct investment is now a larger share of capital flows, a trend that promotes stability and global imbalances between nations have declined. Some new risks have emerged: corporate debt-dangers, real estate bubbles, China’s growth in debt and some others.
  9. In a recent conference the U.N. Deputy Secretary-General Amina Mohammed said: “If national and international financial systems don’t change, the Sustainable Development Goals will not be achieved”. According to the UN Report [6]“ “Achieving sustainable development requires multilateral action to address global challenges; revisiting the global institutional architecture; and strengthened regional and national action, including adjusting policies to the changing global landscape”.
  10. However, the problem isn’t in the hands of the Big Stakeholders but also of the Executives of the banks; there is the paradox of the European banks have huge amount of liquid asset deposited with the ECB and pay 0,5% (since Sept 2019, 0,4%), instead of investing it in the real economy.
  11. The financial capitalism is under siege as admitted by their prominent representatives: “I see many, many low-income countries and emerging-market economies spend millions of dollars commissioning consultants to build their strategic plan; in another interview, she said: “After ten years from Lehman Brothers default the finance system changed a little bit”.[7]
  12. “Only around 15% of the money flowing from financial institutions actually makes its way into business investment. “The rest gets moved around a closed financial loop, via the buying and selling of existing assets, like real estate, stocks, and bonds”.[8]
  13. The interview released by a finance’s insider informs us about the microfinance idea: The Past, Present and Future of Financial Inclusion [9]
  14. The article Countdown to 2030: A race against time to end extreme poverty [10]
  15. In the annual World Bank meeting held in the spring 2018 [11], it has been said that “African investors remain risk-averse” and …. the funding requests lack speaking the language required for investment “. But no intervention has been formulated to face the situation.
  16. The World Bank published a study showing 7.5 percent of aid payments may leak out of needy countries into offshore accounts, which flow to tax havens [12]
  17. The World Bank updated the data on the fight against poverty with the publication of the document “Piecing together the Poverty puzzle”, which discounted the missed target at the end of the period (2030) and wrote that he will continue to monitor the situation while anticipating that the update will include progress “At the two higher poverty lines of US $ 3.20 and US $ 5.50 and on the new societal poverty line” [13].
  18. COVID-19 Is Crushing Small Business: Can Banks Move Fast Enough? [14]
  19. The banking industry was much stronger before COVID-19 than before the financial crisis of 2008. However, the need for different strategies around marketing, innovation and digital banking was clear well before the pandemic hit. The question becomes whether financial institutions will remain committed to new banking models post-crisis? [15]
  20. It is worthwhile to note that in September 2019, the Africa Development Bank reported on the results of a Survey that quantified the following global market gaps:
  1. The estimated global trade finance gap is large but stable at $1.5 trillion.
  2. Achieving the Sustainable Development Goals is at risk if the persistently large trade finance gap continues to hamper international trade.
  3. More than 70% of surveyed banks see a shortage in servicing the trade finance needs of the global market.

The conclusions have indicated that there isn’t need to issue new rules of the finance game, but a functional approach of the players (Stakeholders) in the context of a development model moving from CREDIT-BASED ECONOMY a COMMUNITY-BASED ECONOMY. In the new logic framework we have elaborated two operational proposals referring to the programmes of the World Bank-IFC in MENA Countries. For more: THE THEORY OF CHANGE APPLIED TO FINANCE FOR DEVELOPMENT http://reader.ilmiolibro.kataweb.it/v/1252660/the-theory-of-change-applied-to-finance-for-development_1268103


[1] https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal).

[2] (https://www.devex.com/news/world-bank-s-jim-yong-kim-weighs-in-on-africa-s-industrialization-92820)

[3] https://ec.europa.eu/commission/sites/beta-political/files/soteu2018-investment-outside-eu-communication-644_en_0.pdf)

[4] https://lnkd.in/gu2V2Gw)

[5] https://www.devex.com/news/donors-in-the-dark-on-unprecedented-private-sector-critique-94295

[6] https://www.devex.com/news/un-report-financial-systems-must-change-or-sdgs-will-fail-94605

[7] When we acted as Economist with the Central Bank of Somalia, we do recall the meetings with IMF and WB Staff coming for either a Stand-by Agreement or a Development Programme: we have witnessed their influence on how to design and implement development strategies.

[8] https://evonomics.com/rewrite-the-rules-of-the-economy-tim-oreilly/

[9] https://impactmoney.net/impact-investing/interview-with-elisabeth-rhyne-the-past-present-and-future-of-financial-inclusion/

[10] https://blogs.worldbank.org/voices/countdown-2030-race-against-time-end-extreme-poverty#comment-175441

[11] https://www.devex.com/news/world-bank-s-jim-yong-kim-weighs-in-on-africa-s-industrialization-92820

[12] https://uk.news.yahoo.com/world-bank-aid-leakage-may-flow-tax-havens-224500266.html.

[13] https://openknowledge.worldbank.org/handle/10986/30418.

[14] https://thefinancialbrand.com/94173/covid-19-coronavirus-small-business-banks-lending-credit-fees/?edigest.

[15] https://thefinancialbrand.com/94256/reimagining-digital-banking-transformed-covid-19-coronavirus-trends/?edigest

Autore: graziosiascanio

I am doctor in Economics. I am based in London (+44 7943286549) and Rome (+39 3273211887). I do have a banking background and specialization in Microfinance, Project Management-Monitoring-Evaluation, Risk Fund. I have accumulated more than 30 years of experience in 28 Countries and collaborated with the major international development organizations such as World Bank Group, Ministry of Foreign Affairs-Italian Co-operation, European Union, Danish Cooperation, FAO, UNDP and Others in East Europe, Caribbean, Central Asia and Africa.
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