FINANCIAL CAPITAL

Rising Power of Financial Capital since the 1980s in Mexico

Rising Power of Financial Capital since the 1980s in Mexico

Introduction

Mexico has experienced several financial crises since the 1980s, notably in 1982, 1994-95, and 2008-09. In each case of crisis, the stability of capitalist development and its evolving neo-liberal form has depended on the socialization of financial risks. I argue this is when the government and financial state managers can coordinate a response to financial crisis institutionally premised on drawing the worst financial risks into the state to diffuse the costs of risk onto society at large. Few approaches to finance and development have internalized socialization into their understandings of neo-liberalism, whereas here the socialization of financial risk is shown as not only class-based but as also necessary and constitutive of the current phase of finance-led neo-liberalism.

Since the mid-1980s, the world has seen a strong and steady increase in financial market liberalization and international capital mobility in many countries. Financial markets around the world are much more liberal today than they were at the beginning of the 1970s.

One important dimension of financial liberalisation is increasing access and exposure to international financial markets. Figure 1, taken from Chinn et al. (2008) presents indices of capital market openness for a large number of countries around the world. It shows that, over the same period, countries have opened their financial system substantially to capital inflows and outflows. Developing countries and emerging market economies followed the lead of the industrialized countries in this regard since the early 1990s. As a result, financial markets have become more internationally integrated. Beck and Demirgüc-Kunt (2009) show that financial systems have become increasingly interlinked with international markets. Lane and Milesi-Ferretti (2006) document the growth of foreign assets and liabilities in many countries. Financial market liberalization and opening national financial systems to world markets have promoted financial development and globalization around the world.

Chinn and Ito (2008) and Beck et al. (2002, 2009) use a variety of indicators to document that financial markets and institutions have grown faster than the rest of the economy in a large number of countries. Dorrucci et al. (2009) develop a composite index of financial development in mature and emerging market economies to illustrate the process of growing financial development in both groups of countries over the past decade. Financial development includes the growing size of financial markets (e.g., stock market capitalization, the volume of bond markets, and the assets of financial institutions compared to GDP), improvements in the quality of financial institutions and regulatory frameworks, financial innovation, and improved access to finance for the private non-financial sector. Generally, the empirical evidence suggests that financial development has been broad based in developed and emerging market economies.

Nevertheless, there remain large differences in the stages of financial development in different countries. The World Economic Forum's (2008) Financial Development Index illustrates these differences for 53 countries around the world. (Taylor, 2004)

Financial Crisis of Mexico in 1980s

In the wake of the 1982 debt crisis, Mexico began a long process of ...