#3 What is Subordinate Financialization? — with Ewa Karwowski

The indebtedness of developing countries had reached alarming levels before the Covid-19 crisis. A wall of money, managed by investment funds seeking profits across the planet, had an endless appetite for investments in debt from the Global South. Once the panic hit capital markets in March 2020, financial flows to the Global South suddenly stopped. The drop in financial flows to developing countries was faster and larger than at any crisis seen before. Since May, money has started to flow back, leaving the Global South with even less means for coping with the consequences of the Covid-19 crisis.

This disproportionate mood swing of capital markets is a perfect illustration of the difficult position developing countries find themselves in when it comes to today’s financialised global economy. In this Crash Course series, we take a look at the different aspects that determine the subordinate economic and financial position of the Global South and why this matters. We will discuss the different mechanisms that produce unequal economic relations, and also the possible solutions for tackling the root causes of these inequalities.

In the 1980s we saw debt crises in many parts of the Global South. This was followed by ‘Structural Adjustment Programmes’ set by the World Bank and the International Monetary Fund (IMF): indebted countries had to pursue austerity policies, privatise state enterprises and liberalise their economies.

In the 1990s, global financial markets were further liberalised, creating opportunities for speculative funds to take advantage. This resulted in new debt crises in regions like East Asia. More recently we have also seen the controversial handling of the Greek debt crisis and the severe adjustment package imposed upon Greece, with the consequences that followed from it.

The Quantitative Easing (QE) programmes of central banks in the Global North injected trillions of dollars into the financial system after the global financial crisis of 2007, paving the way for another round of potential debt crises today. The surplus of capital and low interest rates in developed economies led to a rise in capital flows to developing countries. Then Covid-19 came along. Again we saw an unprecedented increase in money being injected into the financial system by central banks in the Global North. This rising tide of capital flows has the potential to result in a new period of ‘lost decades’, provoked by debt crises.

In this Crash Course series, we discuss the field of debt crises in the ‘developing world’. Has anything changed since the 1980s debt crises when a global movement called for a debt jubilee? What are the prospects for change? And how can these kinds of debt crises be prevented in future?