Subordinate Financialization in Emerging Capitalist Economies

Abstract

In the explosion of literature on financialization, there is a much smaller but growing interest in what the phenomenon means for emerging capitalist economies (ECEs). We hold that for agents located in ECEs, the encounter with financialization is from a subordinate position: first, in relation to global production, ECE firms occupy subordinate locations in global production networks, providing cheap labor and raw, or at best, intermediate inputs; Second, in relation to global finance, ECEs are structurally subordinated to ACEs, that is, both trade and the most liquid capital markets are denominated in the currency of ACEs. Subordination in production means firms based in ECEs are able to capture less of the value created than firms higher in the hierarchy and must pay more to hedge macroeconomic risk. In circulation, strategies may emerge in ACEs wherein increased household indebtedness and/or asset market inflation maintain aggregate demand. In finance, ECEs’ subordinate position in relation to money and capital markets means that capital inflows are predominantly short-term, seeking financial yields rather than assuming productive risk. The results are continued volatility, external vulnerability and subordination to the currencies of the ACEs, which themselves serve to further deepen domestic financialization. We conclude that, while by no means pre-destined, financialization as experienced in ECEs may serve to further cement their subordinate position in the global structure.