By Robert Bain /
In the 80 years since their founding, the Bretton Woods Institutions (BWIs), the World Bank and the International Monetary Fund (IMF), have been no strangers to controversy. Their promotion of neo-liberal Washington Consensus in the 1980s and 1990s has been rightfully criticised, but their de-facto embrace of what has been called the Wall Street Consensus – an elaborate effort to put finance at the heart of development – and the financialisation of development is less well recognised.
Financialisation is arguably the most important thing happening in the world today that most people have never heard of. It has transformed the global economy to the extent that, according to economists, we no longer live in the age of industrialised capitalism, but of financialised capitalism. It has had a profound effect on Global North economies, but if anything far more profound on those of the Global South, reinforcing the dominant position of the Global North in the world economy while stalling the South’s long-promised economic transformation.
Though financialisation originated in the Global North, it has been spread to the Global South not least by the work of the Bank and IMF. This article explains what financialisation is, its negative effects and the role of the BWIs in spreading it by considering two critical areas on which financialisation has had significant impact – agriculture and the sovereignty of Global South countries.
Financialisation and the BWIs
‘Financialisation’ refers to the disproportionate growth in size and importance of the financial sector over the last approximately four decades, and the way this has distorted the real economy – everything that isn’t finance.
The most obvious measure of financialisation is the massive and disproportionate growth of the financial sector over the last four decades: in 1980, global financial assets were 1.5 times the size of the world’s economy, but now are at least 3.5 times global GDP. This was enabled by the global shift to fiat money, government-issued currencies not backed by gold or any other commodity, when the US ended the convertibility of the US dollar into gold in 1971, but it was driven by the neoliberal reforms that started in the 1980s. Such reforms included liberalising and deregulating economies and restricting or undermining labour rights to remove restrictions on the untrammelled pursuit of profit. Corporate and marginal income tax rates were pushed lower, limiting the fiscal capacity of states to pursue redistributive social welfare policies and driving inequality, but also facilitating the accumulation of wealth by elites and the investment of this wealth in the growing financial sector.
The massive global growth of finance has enabled speculators – investors who buy assets in the hope of making short-term profits from market fluctuations – to intervene powerfully in markets for housing, energy and food, among other things, ‘bidding up’ prices to realise profits in excess of those which market fundamentals of supply and demand would normally allow. This has pulled investment away from productive activities, and directed it toward pushing up asset prices. Entire economies have been transformed into ‘investable landscapes’ for speculators and financial investors, full of opportunities for profitable investment and optimised for the extraction of value, with reduced protection and bargaining power for labour facilitating the increased capture of wealth and the consequent contraction of labour’s share of national economies and wage stagnation. Finance has become an engine for the extraction of profit from the real economy.The human rights impacts of financialisation have been so severe that 17 United Nations Special Rapporteurs on Human Rights, including those on the right to development, safe drinking water, housing and a democratic and equitable international order have recognised it as a threat to human rights.
The BWIs laid the foundations for the financialisation of development and the Global South in the 1980s and 1990s with their support of the neoliberal Washington Consensus. They pushed this on Global South states through loan conditionalities – imposed on member states facing fiscal crises or on critical development funding, often in the form of grants or loans at discounted or competitive rates – as well as through advice and pro-business rankings. This consensus advocated economic liberalisation and deregulation to make markets work ‘more efficiently’, increasing the role of the private sector at the expense of the public and decreasing the role of the state in the economy more generally, including a retreat from development and industrial policies, as the way for Global South states to drive their development forward.
The BWIs reinforced this by imposing austerity (’fiscal consolidation’) on Global South states experiencing debt crises. Austerity shrank government budgets and created more space for the private sector, as states retreated from industry, infrastructure and service provision and deregulated labour markets, depressing wages and decreasing domestic demand. The IMF has itself recognised the damage austerity can do to economies, having recently warned Global North states against it.
The Washington Consensus gave way to the Post-Washington Consensus – little more than an agreement the Washington Consensus did not work, even if many of its policy recommendations were still imposed on Global South states.
Over time, a new, informal, consensus has emerged, which academics have termed the Wall Street Consensus. This is a systematic effort to reorganise development around partnerships with global financial interests. Global South states have been opened up to capital flows and investment opportunities maximised through privatisation, de-risking and their systematic reconfiguration, from regulatory frameworks and capital controls to tax and labour laws, to facilitate profit capture and extraction. The goal of this re-organisation has been to provide investors with consistent revenue streams that can be packaged into investments and resold in financial markets. Global South states have been transformed into investable landscapes, facilitating economic extractivism by the Global North from Global South economies.
The sheer scale of resource extraction is staggering. Increasing dramatically from the 1980s, it has reached $2.2 trillion a year – according to Jason Hickel, enough to end extreme poverty 15 times over.
Financialisation is directly or indirectly implicated in Global South states’ chronic indebtedness, commodity dependence and failure to achieve an economic transformation. This latter perhaps unsurprising, as the neoliberal policies that have enabled and driven financialisation are almost the exact opposite of those followed by successful developmental states in the Global North and the few states in the Global South that have successfully industrialised their economies.
Reconfiguring agricultural systems away from food security, toward agribusiness and profit
Decades of pro-market reforms and financialisation have produced a de-facto concentration of ownership within the global agricultural sector. The impact of this may already be visible in the reversal of progress on efforts to eliminate hunger globally over the last 15 years. The three main ways in which the BWIs have actively promoted the financialisation of agriculture are through opening markets and enabling speculation, by turning farmland into an investable asset, and by promoting agribusiness at the expense of traditional agricultural systems.
Enabling speculation regardless of the consequences
The BWIs’ push for open agricultural sectors and free trade has enabled financial speculation in agricultural products on a global scale. Speculation has been responsible for driving up the price of essential staples in global markets at least three times in the last 15 years, the latest in 2022. In that year, despite the Russian invasion of Ukraine, the UN Food and Agricultural Organisation (FAO) concluded that there was a marked disconnect between market fundamentals and prices globally as there was an “overall comfortable supply level” of key foodstuffs. This disconnect was driven by speculators including pension funds, investment banks and commodity traders, who all realised huge profits. Neither the Bank nor the Fund explicitly acknowledged the link between the food price rises and financial speculation. In a joint statement they issued with the FAO and the World Trade Organisation, they made no mention of the role of private sector speculation in the crisis, and included no suggestion that the activities of speculators and the bumper profits they made should be problematised, regulated or taxed.
Transforming land from into an asset for investors
The World Bank has long sought to turn agricultural land into an asset for investors. Its Land 2030 Global Partnership Umbrella Program works “to assist developing countries in achieving land tenure security for all men and women.” The Bank argues that secure tenure is essential for “preserving livelihoods, maintaining social stability, and increasing incentives for investment and for sustainable, productive land use.”
However, what secure tenure means in practice was made clear by the Bank’s now-defunct Enabling the Business of Agriculture rankings, which promoted the large-scale land acquisition of public land with “potential economic value” by foreign investors for commercial purposes so it could be put to its “best use”.
The forms of land tenure the Bank promotes (the rules and arrangements connected with owning and accessing land, especially land used for farming) undercut traditional forms of land tenure. According to Gail Orduna of the People’s Coalition on Food Sovereignty (PCFS), these forms of tenure, coupled with the Bank’s promotion of private markets for land, mean that “land is easily transferable, and therefore potentially alienable from the communities that depend on it for their survival.”
This easy transferability has enabled land grabs by agribusiness and financial interests as farmland emerged as a relatively safe asset after the 2007-8 financial crisis. According to PCFS, in the post-crisis decade land grabs displaced 12 million people, most in the Global South. Land grabs have also increased since the pandemic, as speculation-driven food prices have produced record profits for agribusiness. Further, according to PCFS, the International Finance Corporation (IFC), the Bank’s private finance arm, has been involved in financing the acquisition of land through financial intermediaries in over 30 countries, and this has been linked to the displacement of hundreds of thousands, including in Ethiopia, Sierra Leone, Guinea and Gabon.
Reconfiguring agriculture away from food security toward agribusiness and profit
The Bank and Fund have been instrumental in undermining traditional systems of agriculture and transforming them into opportunities for investment in the Global South by forcing the adoption of commercial seeds and fertilisers. Analysis by the Catholic Agency for Overseas Development (CAFOD) demonstrates how the Bank has used conditionality attached to its funding to expand the role of agribusiness, especially by promoting hybrid seeds and chemical fertilisers at the expense of local food systems. IMF loans, intended to help countries experiencing financial crises, have also included pro-market food and agriculture conditionalities.
The Zambian government is currently pushing through an update to the country’s Plant Variety and Seeds Act to secure a disbursement of a $300 million World Bank Zambia Growth Opportunities Program (ZAMGRO). This will bring Zambia into line with the International Union for the Protection of New Varieties of Plants’ (UPOV) 1991 revision, which according to the Zambia Alliance for Agroecology and Biodiversity (ZAAB), “significantly strengthens the rights of breeders and further erodes and, in a sense, criminalises, farmer-managed seed systems” – local systems protected by the 2018 UN Declaration on the Rights of Peasants, which Zambia has ratified.
Smallholder farmers produce around 96 per cent of Zambia’s maize, a staple crop, while commercial agriculture increasingly focuses on profitable exports, even as Zambia is facing a record-breaking drought likely linked to climate change. Eugene Ng’andu of non-governmental organisation Caritas Zambia noted, “These reforms promote commercial agriculture, but not the country’s food security.” The World Bank’s ZAMGRO promotes a one-size fits all solution to the problems of Zambia’s agricultural sector, pushing expensive fertilisers and hybrid seeds that tie farmers into relationships of debt and financial dependence, while their individual needs are ignored. There is a narrative that commercial hybrid seeds are needed to address low productivity levels, Ng’andu added, but many factors influence productivity, for instance the overuse and depletion of farmland, which can be addressed through agroecological approaches.
The notion that commercial farming is necessary to feed the world has been thoroughly debunked. Agribusinesses are for-profit enterprises and generally produce the most profitable crops for the most profitable markets – which may not be food crops at all. Smallholder farmers produce 75 to 80 percent of the world’s food supply and even the hungriest countries grow most of their own food, while only half a percent of highly commercialised US farmers’ food exports went to the most undernourished countries. The most effective way to address food insecurity globally is not by promoting profit-driven agribusiness that dispossesses and marginalises the smallholder farmers that feed most of the population of the Global South, but through advancing local or national agricultural systems run by these very farmers.
Restricting policy space, undermining sovereignty
Arguably the most serious effect of financialisation on the Global South as it has been promoted by the BWIs may also be the most insidious: the way it has systematically undermined the sovereignty of states by restricting their policy space. This has been achieved in various ways, some subtle, and some less so. Subtle control over policies has been exerted through the co-option of Global South elites by international financial interests, giving them a stake in the integration of Global South economies into the international economic architecture which has often trumped the interests of their country’s broader economic development and their own compatriots.
The less subtle varieties of influence and control have been exerted through loan conditionalities, the discipline of financial markets and investor-state dispute settlement (ISDS) procedures like the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). In 2019, ICSID awarded Tethyan Copper $5.9 billion damages against Pakistan for violating a bilateral investment treaty with Australia over its loss of future income – even though it had only actually invested $150 million. While over 3,000 investment treaties have ISDS clauses, there is no evidence they stimulate investment or actually benefit host countries – they are, however, a powerful tool international business can use against Global South states to protect its interests.
Global South states are subject to the discipline of financial markets because they are vulnerable to the whims of financial flows and dependent on external funding. This has been in no small part created and structured by the BWIs themselves, which forced Global South states to abolish controls on the free movement of capital across borders from the 1980s, imposing austerity and low tax regimes that ultimately eroded these states’ capacity to govern and raise revenues, making it necessary for them to depend on market financing.
This has given rise to a vicious cycle of fiscal precarity leading to a dependence on often predatory external financing and chronic indebtedness, recurring debt crises and consequent resort to the IMF and subjection to its conditionalities. Pakistan, for example, has taken on 22 IMF loans since 1958, and been on IMF programmes for 32 of the last 44 years. The reliance on external sources of funding, which financial capitalism as a global economic system has created, punishes any attempt to challenge the status quo or deviate from the pro-market policy orthodoxy, and this translates into a strictly curtailed ability to drive any real change and has effectively derailed their economic transformation.
This pro-market policy orthodoxy is in part administered by the BWIs themselves, which grade states based on their policies through the IMF’s regular Article IV consultations and the Bank’s rating schemes, like its profoundly flawed and mercifully defunct Doing Business report – now reincarnated as B-Ready. Unlike loan conditionalities, going against these rating schemes has no direct consequences – but is a powerful signal to global markets that a country is no longer ‘serious’ about economic reform and therefore not investment worthy, which may punish countries by discouraging investors and causing borrowing costs to rise.
What these conditionalities and procedures have achieved is nothing less than the comprehensive restructuring of Global South economies, removing or weakening capital controls, environmental protections, labour standards and protections for domestic markets and industries to facilitate the realisation and extraction of profit. Global South states have been forced to suffer through multiple rounds of punishing austerity, and privatise infrastructure and public services from basic utilities like water and electricity to services like healthcare and education. What is particularly damaging is how this privatisation is done – to maximise the profits of investors while minimising their risk. This has profound implications for the cost, quality and availability of services – marketisation of a service is often a way of redistributing it away from those least able to afford it, as there is generally little profit to be made from those with the least income and wealth. These arrangements, which normally centre on privatisation of essential services, also deprive the state the capacity of cross-subsidising for provision in deprived and unprofitable areas.
The influence the Bank and the Fund have over Global South states – and the damage this has inflicted on Global South populations – is hard to overstate. Sri Lanka is currently pushing through legislation to amend or create 60 laws incorporating IMF austerity targets even as poor Sri Lankans cannot afford electricity. Meanwhile, Pakistan is preparing its latest austerity budget “in collaboration with” the IMF as the country faces an economic crisis that could tip 10 million into poverty.
The failure of Global South states to achieve an economic transformation under the BWIs’ tutelage over the last four decades is not despite the assistance of the BWIs, it is because the BWIs have driven the globalisation of financialised capitalism. The structural vulnerabilities of Global South states described above – the undermining of their food security and food sovereignty as well as their economic sovereignty – are attendant on their peripherality in this current economic order.
Indian economist Prabhat Patnaik argues the globalisation of finance is linked to the reimposition of Western hegemony, including by curbing “the capacity of the nation-state to intervene in ways that finance did not approve.” Financialised capitalism has largely determined the modalities of the increasing integration of Global South states into the international economy in subordinate positions, reinforcing its core-periphery structure and driving extractivism and the geographic transfer of value that, according to Kai Koddenbrock, Professor of Political Economy at Bard College Berlin, display a remarkable degree of continuity with old forms of colonial domination. The key difference is perhaps that while colonial powers exerted control over their empires through trade, under the new order control is exerted through finance.
The first 80 years of the BWIs have been difficult for Global South states and their populations. The promise of development they held out has turned out to be a mirage. We now face a polycrisis – a series of compounding global crises – and simply cannot afford to continue business as usual. The policies and approaches that have created this mess will not resolve it. There have been attempts to transform development finance, giving Global South countries a chance to actually drive their own economic transformation and deal constructively with the manifold challenges they face. The UN General Assembly voted last year for a UN tax convention that could take the initiative in establishing global standards in taxation away from the rich-country dominated G20. And next year’s Financing for Development IV Conference offers a real chance of substantive change in development finance – if the Global South can successfully assert their priorities in the face of the planet’s richest states and turn away from the global order they have built.
Robert Bain is the Financialisation and Human Rights Lead at Bretton Woods Project. He previously worked on human rights and conflict in South Sudan for the Ceasefire Centre for Civilian Rights. He has also worked on human rights in the Middle East/North Africa region for Amnesty International. Robert has lived and worked in Egypt, Syria and Lebanon. He holds a Master’s Degree in Near and Middle Eastern Studies from the School of Oriental and African Studies (SOAS), University of London.