Community Development Journal

Finnegan,, Fergal;McCrea,, Niamh;Chasaide, Nessa, Ní

doi: 10.1093/cdj/bsaa057pmid: N/A

Abstract The current period of finance-driven capitalism, which can be broadly dated from the mid-1970s, has had profound implications for community development. Yet there is relatively little sustained engagement with research on financialized capitalism in community development circles. Bringing together writers and activists from a variety of contexts, the purpose of this special issue is to demonstrate the significance of financialization and its connections, on various levels, to community development globally. This introductory article synthesizes the insights of our contributors with scholarship from the fields of critical political economy, economic and historical sociology, and social movement studies, among others. In doing so, it analyses the diverse and variegated ways financialized capitalism is affecting communities’ access to public resources, affordable housing, safe and stable livelihoods, and a clean and healthy environment. We also highlight how the complexity and depth of financialization, and the extent to which it relies on highly specialized and inaccessible forms of knowledge to reproduce itself, impacts on community development as a form of praxis. The institutional cover provided to the system of finance by states and international financial institutions, and by certain NGOs and community organizations, has deeply embedded financialization at macro, micro and meso levels of the economy and society. However, while financialization places profound and often insurmountable constraints on community development’s democratic ideals, some of our contributors have pointed to possible ways forward. These are characterized by intensive popular education, political engagement and action. We also outline these in the hope that the special issue will contribute to more discussion of these vital processes and stimulate further purposive action. Introduction Financialization can be regarded as one of the ‘grand transformations’ in how capitalism is organized (Ó Riain et al., 2015). The deep significance of this transformation has prompted widespread interest and scholarly research (see Mader, Mertens, and van der Zwan, 2020 for a useful overview). Much of this research emerged in the wake of the 2007–2008 financial crisis, when the economic instability associated with the growth in global finance, and its dramatic effects on people’s lives, came painfully into view1. In assembling this special issue, we started from the conviction that this period of finance-driven capitalism, which can be broadly dated from the mid-1970s2, has had profound implications for community development. It is our view that without an understanding of financialization, the source of many of the economic, political, and affective3 inequalities that impact communities globally will remain largely obscured, and our responses to those inequalities, inadequate. Yet there is relatively little sustained engagement with research on financialized capitalism in community development circles. In fact, despite a commitment to the values of equality, anti-oppressive practice, redistribution, and sustainable development, many community development practice manuals do not mention capitalism at all (e.g. Federation of Community Development Learning, 2015; All Ireland Endorsement Body for Community Work Education and Training, 2016; International Association for Community Development, 2018). The overall purpose of this special issue is to demonstrate the significance of financialized capitalism and its connections, on various levels, to community development. The subordinate aims are 3-fold. Firstly, we want, through the selected articles, to illuminate the diverse and variegated ways financialized capitalism has developed and some of its most important features. This includes identifying where financialization is intensely at work and where it is working differently, if at all, or in more ‘subordinated’ ways. Secondly, we want to trace some of the ways the structures of financialized capitalism constrain, enable, or even eviscerate the potential for community development. Thirdly, we want the special issue to give some sense of the vitality, diversity, and main lines of inquiry within the interdisciplinary research on financialization. As our various contributors make clear, while there is widespread agreement on the significance of financialization, there is considerable debate between researchers about what precisely is driving it, how significant it is in different locations, and how exactly we should respond to its effects. The secular transformation of financialization is described in different ways. One of the best-known definitions has been that offered by Gerald Epstein (2005, p. 3) who characterizes financialization as ‘the increasing role of financial motives, financial markets, financial actors, and financial institutions in the operation of the domestic and international economies’. The value of Epstein’s description is that it facilitates exploration of the diverse and multi-levelled drivers, and effects, of the phenomenon that is financialization. Other theorists have focused more specifically on financialization as a process of economic restructuring involving changes in the way profits are accumulated in the global economy. Of particular influence has been Greta Krippner’s (2011) seminal study, which shows that by 2001, profits of the financial sector of the US economy represented 40 percent of total profits in the US economy. Financialization has effected changes well beyond the financial and banking sector and has altered how non-financial firms4 and households operate as well (Lapavitsas, 2013)5. Indeed, Krippner highlights that the profits of non-financial firms in the productive sector6, supplement, or increasingly ‘substitute for earnings from traditional productive activities’ (Krippner, 2011, p. 3, emphasis in original). The evolution of financialized capitalism is intertwined with neoliberalism, albeit in ways that continue to be debated (Sawyer, 2013). The promotion of the neoliberal idea of ‘market freedom’ has led to global economic deregulation, with financial deregulation arguably constituting its most central project (Cahill et al., 2018). Despite the association with neoliberalism of the ‘rolling back of the state’, neoliberalism has in fact involved active ‘market construction’ as a result of state action (Cahill et al., 2018). This has been driven by the interventions of leading capitalist states reconfigured by neoliberal politics (especially the United States and United Kingdom), albeit along varied, historically dependent paths (Jessop, 2013; Lapavitsas, 2013)7. States that are less fully integrated into the financialized economy have more limited options and choices, not least due to their dependency on the conditions of available external finance and investment (see in this issue, Gilbertson; Escobar and Grubbauer; Kvangraven et al.; and Amanor). Robert Guttmann (2017, pp. 859–860) outlines how deregulated finance has become embedded within and across multiple scales via two modes of actions, which he terms ‘financial centralization’ and ‘financial concentration’. ‘Financial centralization’ relates to the increase in financial assets on the balance sheets of households and firms along with corresponding increases in debt (because higher debt levels became expected and acceptable, including for goods such as education that have previously been publicly provided). This, he argues, coincides with ‘financial concentration’ that describes the global increase in institutions and markets providing finance. These institutions and markets were empowered by the deregulation of finance, its computerization, and globalization. Thus, finance is much more than a ‘sector’. Rather, it has become a system that connects ‘macro’ economic events, such as financial crises and housing shortages (Blakeley, this issue), meso-level institutional logics and practices such as audit and investment strategies (Chiapello, 2020; Huckfield; Ní Chasaide; Kvangraven et al., this issue), and micro-level mechanisms among individuals, households, and communities such as pensions8, mortgages, or other forms of debt (Sayer, 2015; Soederberg, 2014; Dukelow and Kennett, 2018; Huckfield; Escobar, and Grubbauer, this issue). For Cédric Durand (2017), the depth and extent of financialization is such that it is not only shaping the present but is also ‘appropriating the future’, that is to say that, if unchecked, the dynamics and contradictions of financialized capitalism will have disastrous social and economic consequences (see also Sayer, 2015; Gilbertson, this issue). In the remainder of this introductory article, we elaborate on how these structural changes go to the heart of enduring concerns within the community development field relating to political and economic equality and consider in particular the ways in which financialization impedes the realization of community development’s democratic ideals. We then outline, with reference to the articles in the special issue, and to the wider literature, some of the specific and varied ways in which financialization is reconfiguring the contexts in which community development is currently practiced. The penultimate section explores some of the challenges faced by movements and community activists in resisting financialized capitalism and how they are responding through organizing, democratic knowledge production, and popular education. Financialization, equality, and democracy Financialization is central to two significant and closely related phenomena that present major challenges for progressive community development. Firstly, this period of capitalism has been marked by the sharp growth in economic inequality9 (Sayer, 2015; Piketty, 2017). And secondly, we have seen a weakening of the capacity of democratic institutions, and movements of people, to challenge inequality and, consequently, the shape of life in their communities (Mair, 2013; Revelli, 2019). The era of financialized capitalism and neoliberal politics has presented what Eoin Flaherty (2017) views as a historically specific regime of inequality. He writes that ‘the rise of finance has also been identified as a stressor of both personal income inequality, and of the division of national income between capital and labour’ (2015, p. 418). Flaherty (drawing on Foster and Holleman, 2010) argues there is a ‘financial power elite’ who are ‘deriving their wealth from financial profits, real estate and executive compensation’ (2015, p. 418). For example, he points out that, in OECD countries from 1979 to 2005, CEO pay increased from 38 times that of the average worker to 262 (2016, p. 15). The top corporate executives are rewarded for increasing shareholder profits that they achieve through intensified financialized corporate activity (such as increased use of tradable financial instruments) (see also Kay, 2015; Sayer, 2015). Financialized corporate activity, while rewarding high corporate earners and shareholders, has happened alongside a drive towards cost cutting with ‘downward pressure on real wages’ (Lapavitsas, 2013, p. 190) and less employment protection, which has ‘hit those at the bottom half of the income distribution hardest’ (Sayer, 2015, p. 186). A number of commentators trace this to the weakening of labour relative to capital due to the mutually reinforcing effects of deregulated financialized activity, the expansion of the labour market, increased capital mobility, technological change, and a diminished organized labour movement (Brown, Lauder, and Ashton, 2011; Harvey, 2011; Flaherty, 2015). In addition, Olivier Godechot (2020) argues that there is cumulative evidence to show that growth of high-wage financial sectors in the Global North is linked to increasing indebtedness of low-income households. Rising economic inequality associated with financialization is therefore intertwined with political inequality and weakening of democracy. Nolke (2020) has linked the unprecedented political influence of the financial sector to its size, its deeply networked character, and the technical complexity of its operations. This gives it massive lobbying power in influencing regulatory rules (Pagliari and Young, 2020). The dense institutional linkages within the financial sector heighten the risk of systemic contagion. It also results in the sector being deemed ‘too big to fail’, thereby constricting the range of possible political responses to it, making it subject to state bailouts, whether there is public support available for that or not (Nolke, 2020). A further challenge to democratic equality is that, since the 1980s, governments have relied on borrowing from financial markets, and on financial innovation, to fund public spending to a greater extent than before. These constraints have a direct effect on social policy, welfare expenditure, and economic development strategies. It also means that states are increasingly vulnerable to the disciplining effects of investor interests including the decisions of credit-rating agencies (that evaluate the level of risk involved in lending and so help to determine the cost of borrowing). The ‘Great Recession’ that followed the 2007–2008 financial crisis is studded with examples of democracy being constrained by supranational bodies and ratings agencies. Greece is a devastating example, where crippling austerity measures and the sale of public assets were implemented despite widespread popular opposition to the proposals of the ‘troika’ of lenders—the European Commission, European Central Bank, and International Monetary Fund (Jessop, 2013; Karwowski, 2019; Nolke, 2020). A further example is the case of Argentina that has endured years of legal action against it from private lenders (so-called ‘vulture funds’) causing it to borrow very significantly to simply pay these particularly profiteering lenders (Jubilee Debt Campaign, 2020). The tensions between popular sovereignty, public welfare, and financial market power also play out at the level of municipal governance such that, in many cities, creditors have become what Peck and Whiteside (2016, p. 245) call a ‘second constituency’. Such trends have led Jessop (2013) to discern the emergence of a ‘post-democratic’ version of capitalism. The technical complexity of financial processes and instruments creates other difficulties in democratic decision-making that involve financial expertise. This is evident for example, in the increased role of financial sector representatives in regulatory and advisory bodies at national and international levels, or in advising multinational corporations (MNCs) on their financial strategies (see Ní Chasaide, this issue). As this suggests, the political and economic power of finance is not just sustained by the owners of capital or their political allies. Financialization involves a whole host of unaccountable professional and managerial intermediaries whose roles are defined by access to, and use of, specialist forms of knowledge (Folkman et al., 2007; Ban, Seabrooke, and Freitas, 2016). For example, the fundamental role of lawyers within this nexus has been powerfully illuminated by Katharina Pistor (2019, pp. 2–4) who explains that law is ‘the very cloth from which capital is cut’. Without its legal ‘coding’, an unadulterated asset is ‘just that: a piece of dirt, a building, a promise to receive payment at a future date, an idea for a new drug …’. It is the law that converts it into a source of wealth, backed up by the coercive power of the state. As Pistor (2019) amply illustrates, the extraordinary power wielded by private lawyers in global wealth distribution is a crucial factor in mediating relations between states and the interests of capital. Financialization and community development In the last two sections we outlined some of the constitutive features of financialization, as well as the political, economic, and epistemic inequalities that are generated as a result. While these general trends are important for community development, in this part of our introductory article, we discuss their significance with greater specificity and link them to the insights offered by the contributors to this issue. Firstly, we emphasize how financialization affects the day-to-day lives of people in communities globally, both directly and indirectly. To make sense of this we need to bear in mind that communities are not simple entities with clearly defined territorial boundaries. Rather, they are produced relationally and structured and transformed by both proximate and distant powers and mechanisms (Bhaskar, 1979; Massey, 2005; Appardurai, 2013). Every specific community emerges through the complex intermeshing of processes on various scales through both space and time (e.g. the ways in which family and neighbourhood cultures are shaped by industrialization and housing policies). All the articles in the special issue illuminate the varied and significant impacts of financialization and the complex processes involved. An account of their main arguments in this respect is provided in the subsections ‘The multiple impacts of financialization on the welfare of communities’ and ‘The uneven impact of financialization globally’ below. Secondly, we highlight how financialization is influencing community development as a purposive practice of collective action. Community development aims to shape aspects of community life in a consciously chosen direction. It assumes that in the face of structural barriers, communities can act and make material differences in people’s lives. To do this effectively means making sense of what is happening and why. This is what Paulo Freire called ‘reading the world’ (Freire and Macedo, 1987) at various levels so that community members can come together and democratize social relationships within and beyond the state (Popple, 2015; Ife, 2016; see Escobar and Grubbauer; Silver et al., this issue). However, financialization places profound, wide-reaching, and often insurmountable constraints on the democratization of expertise and the mobilization of community agency. This is because, as Pistor (2019) argues, many important processes that are shaping community life, and which are driven or influenced by financialization, are so arcane and complex and/or actively hidden or mystified that they remain poorly understood (see also Ní Chasaide; Silver et al.; Blakeley, this issue). Moreover, even where the arcane processes are revealed or explained, it remains the case that finance is characterized by relationships of domination (see in this issue Amanor; Gilbertson; Escobar and Grubbauer; Kvangraven et al.). It structures societies in particular ways, conferring asset holders with the prospect of huge wealth and power, undermining the democratic claim of equality before the law (Pistor, 2019) and inhibiting the ‘empowerment’ to which community development aspires. All the articles in the special issue demonstrate the significance of these challenges. Despite these barriers, the special issue contains two articles that analyse instances where communities have sought to defy the logic of finance-driven development. These are elaborated upon in the subsection ‘Democratic knowledge production and resisting financialization’. After this, we turn to a brief concluding discussion in which we draw out some implications of such resistance for community development praxis against financialized capitalism and towards the creation of a more egalitarian and sustainable social, political, and economic order. The multiple impacts of financialization on the welfare of communities Four of the articles featured in the special issue highlight the intended and unintended consequences of the complicated, highly mediated, and obscured processes on four fundamental issues of public welfare impacting communities, namely, taxation, housing, community services, and the environment. Nessa Ní Chasaide looks at corporate tax avoidance and the complex way this ‘game’ is played. Ireland, a key node in corporate tax avoidance internationally, is offered as a fascinating case study of how this is facilitated and achieved. Ní Chasaide outlines how this evolved and the extent to which this is now deeply embedded in economic policy in the Republic of Ireland. She details the main ways MNCs achieve this, via intra-company financial transactions alongside the reorganization of internal corporate functions. It illustrates the scale, as well as the organizational, legal, and regulatory sophistication of the global tax games. This not only advantages the MNCs and Irish intermediaries but also has profound implications for communities living in different types of corporate tax jurisdictions. Ní Chasaide highlights a combination of a kind of denialism and lack of awareness that is present in such a low-tax state. In other words, there is a denial by the state of its problematic role, and its consequences for communities elsewhere, as well as uneven awareness among people living in the state of the mechanisms and effects of the international tax game. As Aalbers (2009) has explained, contemporary housing markets are characterized by a ‘chain’ of financial contracts and effects. The chain starts with the local (e.g. where a mortgage is taken out on a property), goes national (via lenders), then turns global by means of mortgage-backed securities10, before going local again. This raises questions about the effects of these interrelationships on cities, local governments, and neighbourhoods. Grace Blakeley provides a coherent national example of such a global ‘chain’, in this case, relating to the financialization of housing in the United Kingdom. Blakeley explores the successive economic and monetary policy changes globally, and in the United Kingdom, since the 1980s that have caused housing to become a speculative commodity or to be treated as ‘just another asset class’ in the United Kingdom. She argues that the global financial crisis accelerated the problem as distressed real estate was bought up by investors and loose monetary policy in the United Kingdom pushed up house prices. Blakeley deftly outlines how a key issue internationally—housing—and one that has profound implications for everyday life and development strategies in communities is enmeshed in the logic of financialization. Blakeley also sounds a warning signal that the COVID-19 pandemic is likely to exacerbate these problems, with a potential evictions crisis on the horizon, in addition to continued unaffordable house prices in the longer term in the United Kingdom. The result of this financialized housing model is >300,000 homeless people living in England (of which over one-third are children), and areas of the United Kingdom, such as London and Manchester, have become unaffordable cities to live in for many. Leslie Huckfield examines the impact of social impact bonds on the community sector in the United Kingdom. Social impact bonds (SIBs) are a form of social finance under which investors receive a return if certain social outcomes are secured. Huckfield situates the ongoing financialization of the third sector within a longer history of neoliberalism promoted by both the left and right over the past forty years. This article foregrounds how important the reconfiguration of the state has been in this process and how neoliberal ideas permeated into the community and voluntary sector. This occurred not only through the activity of policy advisory boards, parliamentary committees, and think tanks, but also through the actions of third sector bodies who adopted a ‘policy entrepreneur’ role as the field became increasingly marketized. Huckfield presents the adoption of ideas of financial inclusion and microcredit, and later social impact bonds, as the result of this long revolution. Huckfield’s reconstructive policy history traces the adoption, embedding and deepening of the hold of financialized capitalism on community bodies. He concludes this account with three case studies of community-based organizations tasked with supporting people who are experiencing loneliness or other challenges to their well-being or who are in receipt of end-of-life care. This is a striking example of the ‘financialization of everyday life’ and more specifically of how affective relations, and in particular (typically feminized), forms of social reproduction, which take place at the level of community, have become regarded as legitimate forms of financial yield11. Tamra Gilbertson explores the global schemes that have been agreed by states and international organizations to allow corporations and governments to buy and sell ‘units’ of pollution on financialized markets. Gilbertson deftly outlines the policy context for this and links it to literature on the dynamics and development of capitalism. From a Marxist and feminist perspective, she critiques the financialization of nature that treats resources and the health of ecosystems as commodities to be sold in financial markets. She presents a case study of two Afro-Colombian communities in the coal mining region of Cesar, in northeast Caribbean, and related Reducing Emissions from Deforestation and Forest Degradation (REDD+) projects on the Pacific coast of Colombia. Gilbertson highlights the impact of long-term policies on the environment and local communities and the fact that carbon offset agreements being used by states and MNCs have been used to ensure coal mining continues in this region, in addition to providing tax breaks to the MNCs involved. Gilbertson gives a compelling, detailed, passionate, and concerning account of how ‘[t]he Afro-Colombian communities near the mine sites continue to experience serious health impacts, dispossession, water and air contamination, and scarcity, as well as the loss of their cultural and ethnic rights, while the existential threat of climate change remains unaddressed.’ This is perhaps the starkest example in the special issue of what is at stake in current developments in the world system. It is also a telling illustration of one of capitalism’s core contradictions: by jeopardizing the natural resources that sustain life, its drive to endless accumulation undermines the capitalist system’s own conditions of possibility (Fraser, 2014). The uneven impact of financialization globally While common drivers of financialization and some of their similar effects have been outlined here, it is imperative to note that financialization has taken hold to different degrees, and in varied ways, across locations around the world. This can depend both on the way in which a country is integrated into the global economy, and on its national institutions and political and cultural specificities (Ó Riain, 2014). For example, Ní Chasaide in this volume contrasts low-tax states, such as Ireland, with higher-tax jurisdictions. However, her case study shows the specificities of the Irish style of ‘corporate tax games’, that may differ from the types of tax games supported in other states. Fernandez and Aalbers (2020) point out that when it comes to analyses of Global North and Global South states, it is important to recognize that the mechanisms underlying financialization are very different. Through their study of the financialization of housing, they argue that theories of 'uneven and combined development’ should account for how financialization, driven from centres in the Global North, is shaping Global South states in different ways. Similarly, Allami and Cibils (2018, p. 89–90) argue that ‘general definitions for financialization in the periphery are not available or even desirable, since different levels of development of productive and financial sectors impose specificities which make generalizations difficult’ (2018, p. 89). Fernandez and Aalbers (2020) call for the study of nations both individually and comparatively. They argue for a sort of rethink of the ‘varieties of capitalism’ approach to include exploring what might be viewed as ‘types’ of Global South states, which they argue might potentially be termed ‘state-led market economies’ and ‘less financialized market economies’. Allami and Cibils (2018, p. 90) advocate for specific studies of ‘different forms of financialization’ in the Global South. In this issue, Kvangraven, Koddenbrock, and Samba Sylla take up the challenge for greater specificity and the need for comparative case studies, especially in relation to African states. They present an important study of how financialization is unfolding on the African continent focusing on four countries—Mauritius, Nigeria, Zambia, and South Africa. The authors show the continuing relevance of African thinkers, such as Nkrumah and Amin, who point to the historic problem of a foreign-dominated banking sector on the continent. Drawing on the key concepts of financial depth, financial subordination, and financial connectedness, the article’s analysis shows substantial variety and unevenness in financial activity, emphasizing the national specificity of forms of financialization. They see no ‘general shift’ in the way capital accumulation is organized as a result of financialization and conclude that financialization ‘is not taking place across the board’. Where they find financialization has occurred, they show that it has diversified relations of dependence between states, corporations, and communities. Their article underlines the need for such empirical studies, which show the varied trends in financial flows into and out of African national economies. As Allami and Cibils (2018) argue, these financial flows, especially in relation to Global South states, can be large in volume, short term, and lead to instability. Harvold Kvangraven et al., underline the pressing need for research that explores the connections between such financial flows, their institutional intermediaries, and the provision of essential community resources such as housing or healthcare in African states. Kojo Amanor focuses on the impact of financialization on cocoa farmers in the West African states of Côte d’Ivoire and Ghana. He traces the complex public and private relationships that are shaping the financing of cocoa production in West Africa. Also responding to the call for greater specificity in case study research, Amanor challenges the narrative that financialization is globally dominant or represents a decisive move away from tangible production. Instead he argues that financial activity in West African cocoa is driven by an unrelenting drive by cocoa MNCs to increase production yields. Echoing Kvangraven et al., Amanor highlights the historic damage of structural adjustment policies dating from the 1980s onward, which have resulted in undue control by MNCs of the West African cocoa industry, and the creation of very influential ‘country platforms’ i.e. public–private bodies, which set development priorities and investment strategies in key sectors. Amanor underlines the central importance of key international financial institutions, namely the Commonwealth Development Corporation and International Finance Corporation, as facilitators of involvement of a wider set of financial players in the cocoa sector. For the West African cocoa farmers in the case study, the results of such a mix of financial investments and externally imposed farming standards include increased indebtedness, poverty, and land degradation. This is a sober reminder to focus on those on the frontline of real production (in this case of cocoa) while tracing changes in the global economy. Amanor provides a detailed picture of the complex institutional interrelationships between international financial institutions, states, Global North donors, private sector actors, and non-profit groups in Côte d’Ivoire and Ghana. His piece provides a sharp critique (echoed in Huckfield, this issue) that even the most economically disadvantaged people can be incorporated into financialized relationships in their everyday lives. Democratic knowledge production and resisting financialization In addition to the impact of macro-structural changes on communities’ access to public resources, affordable housing, safe and stable livelihoods, and a clean and healthy environment, we wish to highlight, with reference to the work of our contributors, the significance of financialization for community development as a form of praxis. As we noted earlier, community development is premised on the exercise of agency, however constrained, with conscious aims in mind. It is an obvious but important point that we need language and concepts that accurately grasp what is happening in our world to take informed action. On a basic level, this requires research, information sharing, and educational initiatives. On a deeper, more challenging level, informed collective action in the current period requires a type of sustained democratic knowledge production in which research and education are linked to the systematic exploration of strategies for egalitarian change (Choudry, 2015). Arising from her long-standing research with community-based movements in diverse contexts, Hilary Wainwright (1994, 2009, 2018) offers a complementary perspective to Choudry. She contends that democratic knowledge production is very distinct from traditional academic, commercial, and scientific ways of developing knowledge. Wainwright documents and advocates for a mode of socialized practical knowledge that is created through participatory, collaborative processes and has relational, emotional, symbolic, and theoretical dimensions. This form of knowledge production, she argues, can be a major ‘source of transformative power’ (2018, p. 11). Given the complexity and depth of financialization, and the extent to which it relies on highly specialized and inaccessible forms of knowledge to reproduce itself, there are very obvious challenges to developing collective understanding and action in this field. Two of the articles in the special issue speak directly to these aspirations and concerns in stimulating ways. Escobar and Grubbauer examine self-organized housing in Mexican housing policies. They present a study of the relations between the World Bank, the Mexican state, and civil society actors with respect to housing design and delivery in low-income Mexican communities. In contrast to the complicity of civil society organizations in normalizing financialization that is outlined by Huckfield, Amanor, and Gilbertson, these authors trace the processes through which housing organizations, guided by principles of the solidarity economy, succeeded in contesting the ‘financial rationalities’ of the World Bank and the Mexican state. They not only engage critically with these successes but also warn of the huge challenges involved. These include the difficulties of scaling up cooperatively produced housing in the context of the dominant financial logic of international financial institutions and the fragility of sustaining successful advocacy in certain national contexts. Two things in the article are especially noteworthy in terms of democratic knowledge production in the present period. First, the variegated and uneven nature of neoliberalization and financialization meant that political and social structures in Mexico were never completely ‘colonized’. Instead, they retained ‘counter-logics’ that create possibilities for intervention for communities and activists. This is important in a period where there is a tendency to treat neoliberal capitalism as a ‘total’ and complete system that is impossible to resist (Tett and Hamilton, 2019). Second, and more significantly, democratic knowledge produced in early waves of social struggles was ‘held’ by individuals and organizations, and through national and international alliances, before being codified and shared as a resource in order to develop self-managed housing in a period of financialization. This is a striking example of the power of socialized practical knowledge and the importance of maintaining knowledge over time. The second article that directly addresses resistance to financialization through community activism is that by Silver et al. Composed by writers involved in both academia and activism, this article deals with housing in the city of Manchester, United Kingdom and outlines an account of housing that overlaps with Blakeley’s article on the same topic. The focus is somewhat different, however. In the face of ‘the storied complexity of finance [that] serves as a means of obfuscating popular understanding, and evading critical inquiry’, they ask ‘what strategies might be employed by activists and academics to help advance public knowledge of the housing crisis and support communities to contest financialization?”. Silver et al. detail the genesis and activity of a popular education effort initiated by Greater Manchester Housing Action and focus on the development and experience of popular education walking tours in the financialized city. They argue that this initiative served to heighten awareness and share information, create alliances between affected residents and activists, and support ongoing struggles. This offers a glimpse of what can be done to build democratic knowledge in small but significant ways. Perhaps most notably, it indicates how academic researchers, who have the time and training to make sense of the complexities of financialized capitalism, can be deployed in ways that can contribute to the socialization of knowledge. In the context of the inequalities we have earlier outlined, this is no small feat. Egalitarian community development in the era of financialized capitalism: concluding reflections As the articles in this special issue indicate, there are no simple or immediate answers regarding how to resist the varied, negative effects of financialization on communities. The challenges are manifold. The authors’ contributions to this issue emphasize the need for a progressive multilateralism (e.g. in the areas of climate, trade, debt, and corporate taxation); reduced state dependence on MNCs (e.g. in cocoa production, natural resource extraction, or technology); and scaled up non-financialized alternatives for the public good (e.g. in the provision of affordable, secure housing). Pursuit of these goals leads us to the far bigger challenge of limiting the power of financialized capitalism. In this respect, we concur with Burawoy (2015) who argues that ‘social movements need to be at the very center of a new sociology of critique’ (p. 7) as they are key to countering the ‘destructiveness of the market’ in the present period. Like Burawoy (2015), we believe that multiple initiatives at community level linked to a variety of egalitarian movements, and which are internationally networked, are necessary to act as a ‘countermovement’ to financialized capitalism and ‘the looming environmental catastrophe that threatens the whole earth’ (p. 24). There are examples from around the world of social movements applying counter-hegemonic principles in their resistance to financialization. For instance, the international tax justice movement has arguably de-commodified the knowledge base of tax expertise, not least through ex-‘insiders’ of the financial sector becoming activist ‘outsiders’, and popularizing their analysis alongside socially engaged academics, journalists, and activists (Tax Justice Network, n.d.). Housing movements, connected globally, have effectively de-commodified housing in certain situations by opposing evictions (such as in the work of La PAH in Spain, see García-Lamarca, 2017) or by pressuring for provision of affordable, housing and services (e.g. the shanty dwellers movement in South Africa Abahlali baseMjondolo—see Johansson, 2019). But these remain relatively weak countertendencies rather than a global countermovement. One of the key questions facing us is how to build solidarity between communities and construct sustainable ways of supporting this? In light of the contributions to this issue, this is a daunting prospect. We think Patrick Bond’s research is very suggestive and a brief overview is an appropriate conclusion to the special issue. Drawing lessons from the campaign led by the Treatment Action Campaign in South Africa, which succeeded in expanding people’s access to HIV/AIDS medicines, Bond (in Elwood et al., 2017, p.682) calls for what he terms ‘de-commodification’; ‘de-stratification’; ‘de-globalization of capital’; and ‘global solidarities’. We interpret his meaning as opposing the unaffordable pricing of public goods (de-commodification); enabling popular access to such goods (de-stratification); ensuring more local, or regional, democratic control over capital investment, or the influence of capital (de-globalization of capital); and building global solidarity against damaging multinational forces. In relation to building ‘global solidarities’, Bond urges that activists ‘jump scale’ in their actions to reach beyond community and national levels. As shown in the articles of this special issue, the inherent complexity, and intentional and unintentional mystification of the workings of finance capital, has partially protected financialization from critique. Further, the institutional cover provided to the system of finance by states and international financial institutions, and certain NGOs and community organizations, has deeply embedded financialization at macro, micro, and meso levels of the economy and society. The long-term effects of these developments impact on nature and are ‘planetary’. Some of our contributors have pointed to possible ways forward. These are characterized by intensive popular education, political engagement, and action. We hope that this special issue will contribute to more discussion of these vital processes and stimulate further purposive action. Footnotes 1 It must be stressed of course that people in the Global South had been campaigning against the adverse effects of financial power for decades prior to the 2008 financial crisis, particularly in relation to unjust debts and associated structural adjustment programmes and there is a substantial academic literature on this (see Kvangraven et al.; Amanor, this issue). Allami and Cibils (2018) also highlight that since the 1990s there have been financial crises in Mexico (1994), Southeast Asia (1997), Russia (1999), Brazil (1999), Turkey (2001), and Argentina (2001–2002). 2 Taking a long view, Arrighi and Silver (1999) argue that contemporary financialization is not a new phenomenon. Rather they see the rise of finance as coinciding with the search of a declining hegemon for additional wealth and power. While there is debate about whether contemporary financialization qualifies as a new ‘epoch’ or ‘stage’ in the long view of capitalist history, there is little doubt that we are living in a period intensely shaped by a financialized form of capitalism (Sawyer, 2013). 3 Affective equality refers to equality in relations of love, care, and solidarity. It has both relational and distributive aspects (Baker, 2015). 4 By way of illustrative examples, UK supermarket chain Sainsbury’s now sells insurance and banking services, whereas Tesco, another supermarket company, may buy up land with the intention of speculative accumulation, rather than using it as a site for building a store. Enron, the infamous corporation that went bankrupt in 2001, was originally involved in the sale of natural gas and electricity before branching out into the trade of financial assets, in particular weather and energy derivatives (derivatives are financial contracts that derive their value from the performance of some underlying asset or benchmark such as commodities or interest rates) (Dutta, 2018). As Dutta (2018, p. 12) points out, ‘although the Enron scandal is usually taken to be an example of criminal fraud and governance failure, it is also illustrative of the wider process of financialization’. 5 Lapavitsas (2013) argues that we can trace the rise of accumulation through finance empirically in mature capitalist economies in a number of ways, including the share of profit accrued through finance and the ratio of financial assets relative to gross domestic product. This occurs unevenly and in varied ways, but he links this to systemic problems in capital accumulation across leading mature capitalist economies. This draws on a Marxist theory of crisis and a critical reading of Arrighi’s (2009) history of capitalism. 6 The ‘productive’ or so-called ‘real’ economy refers to those sectors involved in the production and sale of goods and services as distinct from intangible financial assets. 7 For example, a key deregulatory measure in the United States included the repeal of the Glass–Steagall Act in 1999 that reversed the separation of retail and investment banking by allowing bank holding companies to earn up to 25 percent of their revenues in investment banking (Sherman, 2009). See Blakeley (this issue) for a discussion of some examples of financial deregulation in the United Kingdom. 8 As Sayer (2013, p. 173) explains, the top 40 percent of households in the United Kingdom have their savings invested in the stock market through pensions and life assurance polices. Such households own the majority of shares in the United States and United Kingdom via institutional investors like pension and insurance funds, a situation that contributes significantly to inequalities in retirement. Sayer also highlights these people’s dual or ‘contradictory’ class location: most of their income derives from wages or salaries, while at the same time, they are indirectly engaged in wealth extraction by means of their rentier income ‘from a largely parasitic stock market’. 9 As Milanovic (2016) points out, while inequalities in wealth have risen, this has been accompanied by the growth of the size and wealth of the middle class in significant portions of the world especially in Asia. 10 In essence, securitization involves the trade of illiquid assets such as credit card debt or car loans, but as Dutta (2018) points out, it can be applied to ‘anything with a regular income’ and cites as an example the ‘Bowie Bond’, the sale of which, provided rock star David Bowie with immediate income based upon future royalties. Mortgage-backed securities involve bundling up residential mortgage loans and selling these on as an asset with a view to generating income from interest repayments. Securitization has been described by The Guardian as the ‘crack cocaine of the financial sector’ (cited in Dutta, 2018, p. 5). 11 Of course, the commodification of care in the form, for example, of privately owned, for-profit hospitals or care homes (e.g. Mercille, 2018) has been well in train prior to the introduction of social impact bonds and related kinds of social investment. The difference is that the latter involve repayable finance models, which can be seen as part of a wider financialization of the welfare state. As Dowling (2017, p. 295) points out, this has resulted in the introduction of a financial calculus into policy making and increased exposure on the part of the state and community and voluntary organizations to financial market logics and risks. SIBs, she suggests, comprise a ‘new form of privatisation marked by the transfer of public assets to private investors as interest payments on the money lent to governments to fund these social policy initiatives’. 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Gilbertson, Tamra, L

doi: 10.1093/cdj/bsaa052pmid: N/A

Abstract The use of financial instruments for climate change mitigation puts communities and nature at risk. Success is measured by capital accumulation rather than the ability to protect or enhance human and non-human nature. From cap and trade programmes that allow corporations to buy and sell ‘units’ of pollution on financialized markets, to forest offset credits, the financialization of nature presupposes the separation and quantification of the Earth’s cycles and functions with carbon, water, and biodiversity. Financialization causes these cycles to be treated as units to be sold in financial and speculation markets. This article reviews the theoretical frameworks of financialization of nature and proliferating climate change policies. I explore the flaws of the new carbon pricing and carbon tax platform in Colombia and its impacts on Afro-Colombian communities in the coal mining region of Cesar, in northeast Caribbean and related Reducing Emissions from Deforestation and Forest Degradation (REDD+) projects on the Pacific coast of Colombia. Introduction Over the past thirty years of neoliberal globalization, the rise of financialization has paralleled the rise of finance in conservation and climate change policy. The same market-based and financialized pathways that have been implemented to address global economic development are also being used in attempts to mitigate climate change. This article questions whether this type of financialization is effective to protect nature, and slow climate change, when the process requires the expansion of markets for capitalist accumulation. I begin with an overview of aspects of the literature on financialization. I then focus on showing the link between the ideology of financialization with the development of financial instruments intended to mitigate climate change. Following this, I explore the 2016 Colombian carbon tax policy and demonstrate how it allows Glencore, a major multinational mining corporation, to receive a tax break through purchasing credits from a Reducing Emissions from Deforestation and Forest Degradation (REDD+) project, a programme under which forests are identified as sources of carbon sequestration and against which corporations can claim carbon neutrality. Drawing on fieldwork with Afro-Colombian mining-impacted communities over a fifteen month period, I then analyse the implications of this programme for Afro-Colombian communities both in the northeast Caribbean near the mining sites and the implications for communities at the REDD+ projects on the Pacific coast. The financialization of nature Perhaps the most widely cited definition of ‘financialization’ is that of Epstein (2005, p.3) who states that ‘financialization means the increasing role of financial motives, financial markets, financial actors, and financial institutions in the operation of the domestic and international economies’. Epstein focuses on economic and political transformations since 1975, arguing that financialization is a relatively new phenomenon. Yet, this broad definition has been critiqued for lacking an indication of time or place and a broader historical understanding of the cycles of capital (Sawyer, 2013). A more historically situated analysis was provided by Baran and Sweezy (1966), who saw the financialization process as an older phenomenon inherent to capitalist accumulation. They posit that the monopoly capitalist economy that emerged in the United States in the early twentieth century generated huge surpluses for a minority of monopolists/oligopolists. Their dilemma was what to do with large surpluses of accumulation in a context of low investment in the productive economy. The solution became an expansion of money capital leading to trusts or monopoly capital. Alongside expanding (often US driven) Foreign Direct Investment (FDI), supported by a plethora of damaging free trade and loan agreements with the Global South (Robinson, 2001), the neoliberal era saw a rise in financial products or instruments through which profit could be accumulated from trade in paper assets such as futures, derivatives, and so on. The results have seen a rapid increase in financial speculation since the 1980s and 1990s at a scale never before witnessed in a capitalist system—i.e. buying and selling to make a financial gain, rather than to use something (Sayer, 2015). However, I argue later that financialization in climate change policy is both for buying and selling for financial gain, and to use something (material). As highlighted by Polanyi ([1944] 2001), markets require the state to use legal and judicial power to set up economic infrastructures for markets, as well as to protect sectors in crisis. The role of powerful states and their capitalist allies are central to the process of expanding capital accumulation through financialization. Indeed, this is the case for climate change policy corralled into financialized markets. Following a Marxian analysis, in the following section, I explore how climate change policy, and approaches to conservation, have been financialized through mechanisms that convert pollution and nature processes into commensurably tradable ‘units’. As I will explain, this is not an entirely new phenomenon. What is new is how the proponents of ‘nature’ markets falsely claim to neutralize pollution (viewed as an externality in economic terms, or as waste) by pricing it and making it a financialized commodity, while at the same time claiming to protect nature and slow climate change. Arguably, the ‘financialization of nature’ is a confusing term from a Marxian perspective, because Marxists have always understood capitalism to be about transforming nature through labour into a commodity. Marx (1875) was clear in several passages in his work that humans and labour are also nature and all constitute use value. Material ecofeminists have brought unrecognized and unpaid reproductive labour into the Marxian framework, including that of campesinos, Indigenous people, Afro-descendant communities, and fishers (or fisherpeople) of all genders (Mies, 1986; Shiva, 1988; Salleh, 1994). From this perspective, capitalist firms, such as extractive industries, exploit human and non-human nature for profit through enclosure and by subsuming the time, energy, and power of Indigenous peoples, campesinos, fishers, and nature (Federici, 2004, 2019; Moore, 2015). But even if it was possible to put a price on everything—including unpaid women’s labour, emotional labour, birth, a river, the flow of a river, cultural connection to the river, collective care, love, and on and on—those human and non-human natures have intrinsic value outside of what can be measured in monetary and accounting systems (Fraser, 2014). However, the threat to capitalism of withholding human and non-human nature’s labour has often historically led to capitalist elites using violence. Here, it is useful to illustrate this argument with a historical overview of how climate change policy came to be financialized. I follow these sections with a contentious case study of carbon pricing policy in Colombia. Setting the stage to commodify nature The 1992 United Nations Conference on Environment and Development (the Earth Summit), in Rio de Janeiro, Brazil built an agenda around sustainable development. Two international UN bodies were created to address the environmental crises: The United Nations Framework Convention on Climate Change (UNFCCC) and the United Nations Convention on Biological Diversity (UNCBD). The shift to marketized environmental policy is apparent in the final document of the conference that encouraged ‘mobilizing public financing complemented by the private sector’ in order to ‘promote the contribution of the private sector to support green economy policies’ (UN, 1992). Public–private partnerships encouraged by the UN, conservation NGOs, and other International Finance Institutions (IFIs) satisfied the interests of states and extractive corporations under the rhetoric of sustainable development. In this process, new financial instruments for the commodification of nature were developed (Lohmann, 2012). These instruments, backed by governments and the UN, were often written, guided, lobbied for, and organized by representatives of fossil fuel corporations and northern-based conservation NGOs (Kill, 2014). Although the idea behind putting a price on nature is at the heart of capital accumulation as explored above, the concept of ‘innovative financial mechanisms’ for pricing biodiversity was popularized at the 2010 United Nations Convention on Biological Diversity (CBD). In parallel, the Economics of Ecosystems and Biodiversity (TEEB) project, led by the Deutsche Bank, was launched, advancing the idea of incorporating the economic ‘value’ of ecosystems into governmental and corporate decision-making. Funded by the EU Commission, Germany, the United Kingdom, the Netherlands, Norway, Sweden, and Japan, TEEB was welcomed by the CBD. The consequence of such schemes is that nature is transformed into financialized products: tradable ‘units’ which construct apparent equivalences between different biodiversity types, locations, times, and contexts. The argument then goes that destruction in one place can be compensated with supposed protection, or re-creation, in another, so that there is no net loss in biodiversity. After the UN Framework Convention on Climate Change (UNFCCC) was established and negotiations advanced, the US government began to design a carbon trading proposal, announcing in 1996 that this kind of ‘flexibility’ would be ‘the key requirement for [the United States] accepting binding targets’ (Stowell, 2005, pp. 15–16). In December 1997, the third Conference of Parties (COP)—the decision-making body of the Convention—took place in Kyoto, Japan, and resulted in a protocol that was to become the first major international agreement on climate change. Under a great deal of pressure from the United States, the other parties eventually capitulated to US interests and included provisions for carbon trading, in order to ensure that the planet's biggest historical polluter would back an international agreement on climate change (Gilbertson and Reyes, 2009). As a result, the Kyoto Protocol introduced the first international market for trading emissions. The Kyoto Protocol included six greenhouse gases: Carbon dioxide (CO2), Methane (CH4), Nitrous oxide (N2O), Hydrofluorocarbons (HFCs), Perfluorocarbons (PFCs), and Sulphur hexafluoride (SF6), and created a carbon equivalence for each gas so that one ton of CO2e unit could be sold covering all gases. The Protocol required countries in the global North to reduce emissions by 5.2 percent based on 1990 levels. As part of the Kyoto Protocol, the Clean Development Mechanism (CDM) was introduced as a global offset programme to allow polluting corporations unable to meet their reduction goals in the global North to buy credits from emission reduction programmes in the global South. By 2003, the World Bank ‘jump started’ the CDM using an in-house Prototype Carbon Fund (PCF) with pilot projects in the global South (Rich, 2013). By 2005, the EU built the biggest emissions trading system in the world—a ‘cap and trade’ system—the European Union Emissions Trading System (EU-ETS). The CDM became operational that same year allowing polluting corporations to buy their way out of reducing pollution. In 2005, building on conservation compensation programmes, a prototype programme was initiated at the UNFCCC called Reducing Emissions from Deforestation and Forest Degradation (REDD). In 2007, at the COP in Bali, Indonesia, the programme was referenced as REDD+ and added the plus to include sustainable management of forests, conservation of forest carbon stocks and enhancement of forest carbon stocks (UNFCCC 2007). REDD+ is a conservation programme that turns forests into spaces valued for carbon sequestration through the creation of units of equivalence and provides carbon offsets for polluting industries to compensate for their pollution. Conservation organizations such as Conservation International and the World Wildlife Fund (WWF) supported the establishment of REDD+. They argue that by putting a price on the carbon capturing potential of the forest, it can reduce fossil fuel emissions in the atmosphere and provide forest-dependent communities with revenue and incentives to protect the forest. However, Indigenous Peoples’ organizations and forest-dwelling communities have argued that REDD+ is a colonial mechanism that allows corporations to take control of forests by putting a price on nature (Gilbertson, 2017). Further, REDD+ projects commodify forests, monetize conservation, and financialize forests in ways that go against Indigenous Peoples spiritual and cultural cosmologies. In an interview with Tom Goldtooth, Executive Director of the Indigenous Environmental Network (IEN), he told me that, I have had many dialogues with our relatives within the Amazonian forests that they call, the ‘living forests’. The relationship within those forests is a deep, profound spiritual one with expressions of duty and responsibility to protect the sacredness of the sacred Woman Guardian of the Forest. They tell me they do not need money to manage their forests. All they are requesting is to have their rights recognized, have land title to their lands, and be left alone. When I explain what REDD+ is, many have said they do not want groups coming into their forests with offers to buy and trade the carbon-air in their trees. They say the sky and their trees are not for sale. If the global capitalists and extractive industries really wanted to stop climate change, they would focus their efforts on stopping extraction and addressing the large-scale drivers of deforestation. This is another colonialist scheme to take control of Indigenous Peoples’ lands and sell credits to extractive industries so they can pollute more, while earning money from financialized markets at the expense of Indigenous Peoples’ survival (interview 2020). By the end of 2012, both the EU-ETS and the CDM financial markets were so flooded with permits and credits, they were worth almost nothing. The market cycle had quickly grown and would fail in an inevitable crisis of overproduction (Victor et al., 2011). Rather than states stepping in to build regulation to keep fossil fuels in the ground, they built up the financialization infrastructure to trade pollution units with incommensurable offset credits. By 2013, the inevitable crisis of overproduction was underway and new ways to expand the busting carbon markets were necessary in order to re-establish another accumulation cycle. At the UN Secretary-General’s Climate Leadership Summit in September 2014, seventy-four countries, twenty-three states, provinces and cities, and over 1000 businesses and investors with more than $24 trillion in assets met to discuss a series of fresh initiatives to ‘price carbon’ (World Bank, 2014). This move was despite overwhelming evidence that carbon markets failed to reduce emissions (Böhm et al., 2012; Cavanagh and Benjaminsen, 2014). The architecture was a plan to link emissions trading with carbon taxes and REDD+ on a global scale in order to increase the ‘flexibility’ of the financial markets for the largest polluting industries and most powerful industrialized governments in the world. Countries in the global South were encouraged to build their own national carbon pricing systems that could link into the trading systems in the global North. The result was an expansion of national and subnational carbon pricing systems, for example in British Columbia, California, Chile, China, Colombia, Mexico, Quebec, Kazakhstan, and South Korea. This happened alongside sectoral markets including international aviation, an expansion of REDD+ programmes, green bonds, more international private finance for new funds, and increased funding linked to climate mitigation for the newly minted carbon pricing schemes (World Bank, 2014). In 2015, the Paris Agreement was signed, the international climate change agreement that is due to supersede the Kyoto Protocol at the end of 2020. At the recent 2019 UNFCCC COP in Madrid, the negotiations broke down over Article 6 of the Paris Agreement. Article 6 outlines the rules and regulations of carbon pricing, carbon trading, and offsets regulation. After lengthy meetings, the policymakers did not agree to the terms of carbon pricing. One of the most contentious debates stalling the agreements was how the CDM would be transferred into the new Sustainable Development Mechanism (SDM) under Article 6. Based on the future of CDM projects and their credits, delegates disagreed whether to cancel them, sell them off, start over, or transfer them to the SDM. Many technical questions are still unanswered regarding the international markets, but if the major market players have their way, a global carbon pricing market linked to jurisdictional (municipalities and local governments) and sectoral markets (for example, Carbon Offsetting and Reduction Scheme for International Aviation), nature-based solutions (land and soil carbon offsets) and other schemes could be at the centre of the Paris Agreement. However, because of COVID-19, the UNFCCC cancelled all meetings, including the annual COP scheduled for Scotland in November 2020. The meeting has been postponed until 2021, when Article 6 and global carbon pricing will be up for negotiation once again. However, carbon markets continue to proliferate in and out of the UNFCCC. With Kyoto due to end, and the Paris Agreement under construction, carbon traders have shifted a lot of business into the loosely regulated voluntary carbon markets. In fact, 2019 saw, for the first time, voluntary markets out-trade the compliance markets1 (World Bank, 2020). By the end of 2019, in the compliance markets there were thirty-one emissions trading systems (cap and trade with offsets), and thirty carbon tax systems operational worldwide, estimated to have traded over US$45 billion in 2019 (World Bank, 2020). Each one of the financialized trades represents real money for real traders and corporations—many large fossil fuel corporations (e.g. Shell) have in-house trading platforms. Carbon pricing in Colombia As carbon pricing has shifted across the globe, countries in the global South have become more involved since 2015. One example is Colombia, hailed as a Carbon Pricing Champion (IETA 2018). In 2015, within the framework of the Paris Agreement, Colombia committed to reduce 20 percent of its emissions by 2030. In order to do this, commitments were made to extend protected areas, reduce deforestation, protect the páramos (wetlands), increase conservation of the river basins, and build up a programme for climate change mitigation and adaptation frameworks. Since 2015, a series of laws for carbon pricing have been introduced in Colombia. The first of these was Law 1753 (2015), where Article 175 created a Greenhouse Gas Emissions Inventory. The law includes REDD+ to be regulated by the Ministry of the Environment and Sustainable Development (MADS). In 2016, the government passed an overarching tax reform law that included a carbon tax (1819). The law applied a CO2 tax to the combustion of gasoline, kerosene, jet fuel, ACPM and fuel oil, but notably not coal. Natural gas is also taxed but only for use in industry from hydrocarbon refining and petrochemicals, and liquefied petroleum gas (LPG) and only for sale to industrial users. The emissions from these fuels represent about 27 percent of the country's total emissions (Minambiente, 2017). The tax was initially set at 15,000 pesos (US$5.5) per ton of carbon dioxide equivalent (tCO2e) and is scheduled to increase annually until it reaches around US$11 per tCO2e (Martin and Carranza, 2019). The first voluntary exchange carbon market was inaugurated in Colombia in 2016. The Colombian platform will sell carbon credits and environmental services, such as payments for environmental services schemes, in Colombia, but the market will be both national and international. The registration methodology is connected to an international registry and focuses mainly on forest offset projects. In 2017, Colombia, as part of the Pacific Alliance Countries (Chile, Mexico, and Peru), signed the Cali Declaration to reaffirm the Paris Agreement and to intensify verification in the voluntary markets of the region. That same year, Colombia joined the World Bank Carbon Pricing Leadership Coalition (CPLC) to link developed and developing countries in the carbon pricing markets. Colombia joined the One Planet Summit in Paris with Canada, Chile, Mexico, Costa Rica, and the states of California, Washington, Alberta, British Columbia, Nova Scotia, Ontario, and Quebec to launch the Carbon Pricing in the Americas cooperative framework and build a trading platform to link carbon markets across the hemisphere (Carbon Trust et al., 2018). Led by the big conservation NGOs and the extractive industries, the government passed Decree 926 (2017) which amended the carbon tax law of 2016 and built in a carbon offset provision. If corporations abide by the offset provisions, they are able to claim ‘carbon neutrality’ and avoid full taxation. These carbon offsets must have been generated after 1 January 2010 and implemented inside of Colombia. The Colombian carbon tax programme has thereby encouraged the development of more REDD+ projects (Krause, 2020). Through Decree 926, instead of paying the carbon tax, the companies can instead pay for a carbon offset through the CDM, REDD+, or through voluntary carbon markets, and in return receive a tax break (Monge, 2018). Originally, the tax revenue was to go into the Fondo Colombia Sostenible (FCS—Colombia Sustainability Fund). The FCS is an initiative of the Government of Colombia financed by Norway, Sweden, and Switzerland which carries out conservation programmes, including REDD+, in 277 municipalities throughout Colombia (Pardo Ibarra, 2018). The fund is administered by the Inter-American Development Bank (IDB) based on a Joint Declaration of Intent (DCI) signed by Colombia, Norway, the United Kingdom, and Germany at the UNFCCC COP 21 in Paris 2015. In 2019, at COP 25 in Madrid, the Fund was renewed (FCS, 2020). Two additional laws were created in 2018 to integrate the domestic carbon pricing programme. Law 1931 of 2018 is Colombia's Climate Change Law that includes, among other things, in Article 30, the Programa Nacional de Cupos Transables de Emision de GEI (PNCTE—National Programme of Tradable Emission Quotas of Greenhouse Gases) operated by the National Government. The law allows for one CO2 ton equivalent unit to be recognized and paid into the carbon tax offset scheme, thereby linking carbon trading, carbon taxes and carbon offset systems. Colombia is considering how to link the expanding domestic programmes to international markets. However, as mentioned, Article 6 of the UNFCCC Paris Agreement, which would govern such international trading, has yet to be agreed. Each of the trades represents real pollution and real material impacts on local communities at the pollution and extraction sites. The next section will explore the impacts on local Afro-Colombian communities near the largest open pit coal mines in the Western hemisphere, in addition to the proliferation of carbon markets in Colombia that allow coal mining to continue with impunity under the guise of ‘carbon neutrality’. The Glencore-Prodeco Corporation: ‘Getting ahead of conflicts’ Glencore operates two mines in the northeast mining region in the Department of Cesar2 through its Colombian subsidiary, Prodeco. In addition, Glencore owns one-third of Cerrejón in the neighbouring Department of La Guajira with the international mining companies BHP and Anglo American. Although much attention has been paid to Cerrejón’s operations on Indigenous Wayúu lands, less has been researched on Glencore’s subsidiary Prodeco and its impacts on Afro-Colombian and Indigenous communities in Cesar (Solly 2020). The multinational mining corporations operating in Cesar export the coal by railway to ports near Santa Marta. Approximately, 95 percent of the mined coal is exported, around half of it to Europe. The impacts of the large-scale mines are devastating to human and non-human nature. Nearly all of the intact forest has been destroyed in Cesar near the mines, the underground aquifers have been permanently damaged from the deep mining pits, rivers have been diverted away from communities, and there are dangerous levels of air and water pollution, as well as resulting food insecurity (Cardoso 2015). One Afro-Colombian resident stated, The water table has been damaged by mining. They have diverted the underground water channels. Here, we practically do not even find groundwater. We used to find water at a depth of five metres but now we can dig a well thirty metres and sometimes we do not find water (interview 2018). During the Colonial era, the Camino Real passed through Cesar, a road from the coast of La Guarjira to the massive Magdalena River. Many slaves passed through the region and many stayed and set up Palenques. Today, Law 70 outlines Afro-Colombian territorial rights to collective land titles and ensures the right to manage the land and resources. However, in order to be recognized by the state, Afro-Colombian communities must register at the local and national levels and many communities are not registered in the system (personal observation 2018). Some communities near the mines told me they have been denied their rights, others did not know they must register in two places. Near the multinational mining operations in Cesar, Afro-Colombians are greatly impacted by coal mining operations (Gilbertson, 2020). My research between 2018 and 2019 near the coal mines in Cesar found that Afro-Colombian communities are impacted by structural violence from paramilitary activity in the 1990s and 2000s that increased in parallel with US multinational foreign direct investment. Afro-Colombian communities I interviewed live close to the large open-pit coal mines, in some cases, within just one kilometre. Afro-Colombian communities are at the frontlines of direct and structural violence, racism and discrimination. One Afro-Colombian woman leader fighting against mining pollution in a nearby river stated: We consume water from our wells. Look at the state of the Peraluz River. It is a river where we did everything. This is our territory. The environment is everything for us, our home, our political passion, our life, it is everything. Today, we cannot enjoy this because they have damaged all of it (interview 2018). Criticism against the multinational mining corporate practices has increased in the last decade (Ulloa, 2020). In addition, as coal is recognized as the dirtiest fossil fuel and climate change impacts become more extreme, the coal mining industries operating in the region have begun to develop deeply suspect corporate social responsibility programmes to clean up their images. For example, one of the steps Glencore-Prodeco has made to improve its public image and secure a tax break is through the offset provision in the carbon tax law. The company can claim it is offsetting diesel pollution at the mining site in Cesar through a REDD+ project on the Pacific coast of the country, also in Afro-Colombian territories. Many activists and scholars have criticized REDD+ projects for gaining control of land rights and forests, as well as controlling cultural and spiritual practices (Collins, 2019; Cabello and Gilbertson, 2012). In an interview with a researcher (2019) conducting field research in Choco, I learned that one of the crisis points of the Pacific coast REDD+ projects is how many of the forests are being deforested by illegal logging from armed rival gangs, not the Afro-Colombian communities, which puts high-stakes pressure to stop deforestation in the region on the Afro-Colombian communities. Attempting to stop the deforestation by the gangs can put the communities at greater risk. Communities often protect the forests and used them for many cultural and subsistence practices, but these practices were also at risk because of the REDD+ contracts (interview 2019). For example, Krause and Nielsen (2019) found a provision in the USAID Colombian BioREDD+ programme contract which states that communities must restrict their hunting and fishing. The problem is that the contract assumes the problem with endangered species and biodiversity loss is the fault of the Afro-Colombian communities, not the fault of rival gangs or extractive industries like gold mining in the Pacific region. Prodeco has taken advantage of Colombia’s carbon offset and taxation policies, opting to pre-purchase REDD+ credits instead of paying the full carbon tax on its diesel fuel emissions. The company purchased carbon credits from the COCOMASURE and BioREDD+ projects which are located on the Pacific coast where a stronghold of Afro-Colombians have land rights to more than 5 million of the 10 million hectares of tropical forest (Davies, 2008). The COCOMASUR conservation project began in 2011 and is located in the Choco-Darien Corridor in the Urabá Antioqueño. In 2013, USAID developed the BioREDD programme with the Colombian NGO, Fondo Acción as the contract operator. The BioREDD project replicated the COCOMASUR REDD+ project in eight other communities. A representative of Prodeco explained that the corporation was directly involved in the policy negotiations to build the carbon tax legislation but it had also been informed by conservation NGOs: The carbon tax started here in 2016 and began to be implemented in 2017. Really, let us really call it, this opportunity. It arose from us …. we participated in everything regarding the emergence and discussions of this legislation. We consulted on the birth of all of this legislation. But it really was a theme that for the mining industry in Colombia was relatively new. It took us a while to understand it and finally it was through allies like Conservation International because we already have several projects with them (interview, 2019, emphasis added). The Prodeco representative described how Conservation International (CI) encouraged Prodeco to get in touch with USAID through Fondo Acción to purchase the credits. Fondo Acción has been involved with compensation and conservation finance for many years. For example, they were the implementing NGO involved in the 2004 debt-for-nature-swap with the US government. The Prodeco representative explained to me in 2019 that Fondo Acción acted as a facilitator between Prodeco and the communities because ‘it is more difficult for a client, for a buyer like us to make an agreement with each of those communities. It would generate risks’. Prodeco, the first large-scale buyer in Colombia, purchased 40,000 tons of CO2e from four of the nine projects. The three-year contract indicates that in the first verification phase they will purchase the credits from COCOMASUR and from three of the eight BioREDD projects. Four of the other five projects will sell the REDD+ credits in the market, while one projects did not generate credits (personal communication 2019). According to the Prodeco representative, when Fondo Accion approached communities to sell REDD+ credits to Prodeco, the communities resisted and said they would not be involved with a multinational coal corporation. However, the Prodeco representative explained to me in an interview that it was Fondo Acción who argued on behalf of Prodeco: Because in fact they [the community consejo] said, ‘No, it is a mining company that is going to buy them. It is a mining company.’ But Fondo Acción, said, ‘They are not just any mining company, it is a responsible company …’. And we left with the commitment and we made the agreement, but we still have to explain who Prodeco is [to them] and learn more about them [the community]. That is a process we are in (interview 2019). The director of the programme at Prodeco noted the purchase of the REDD+ credits reduced the firm’s carbon tax by two-thirds. He framed it as a win–win solution, but win–win did not necessarily mean that the community was winning. Instead, Prodeco would garner not only tax benefits but positive public relations for being ‘carbon neutral’. He explained that it would boost their image in their European market. When the environmental director of Prodeco was asked about some of the criticisms of the programme and whether he was concerned about how that might damage the reputation of Prodeco, he was unsurprisingly enthusiastic about REDD+ achieving its stated conservation goals. More importantly, it was notable that he viewed the ultimate purpose of compensation is to fulfil their obligations to the state, to their corporate reputation and shareholders—not the communities, not human and non-human nature, not to the climate: In the municipalities where we work our compensation is more or less the same but they are not REDD projects. We work with peasant communities and fishing communities on conservation schemes … because in the long run what is also behind the compensation systems is to fulfil our obligations …. So when ecosystems begin to decrease the production of ecosystem services like fishing, like water, and soil productivity, obviously due to climate change, but they immediately begin to target the mining sector. It is not that there is no fishing, well of course at the ports the fishing ended. It is that there is no water, and they generate reputational pressure and conflicts on us. So what we are doing is getting ahead of that conflict because behind that conflict are the tutelas, the demands, the road blocks (interview, 2019). In my interviews with coal company officials, the representatives did not acknowledge the violence of large-scale coal mining that has damaged water, soil, biodiversity, and local Afro-Colombian communities. Instead, they used compensation, conservation programmes, and the new carbon tax programmes as a convenient tool. Prodeco was ‘getting ahead’ of any resistance from the communities to defy the coal industry through the use of the new carbon pricing mechanism and it was just the beginning. According to the director, the conservation programmes had great expansion potential. He explained that the company had already begun exploring expansion into other territories, including Indigenous lands: We see tremendous potential in Colombia for the carbon market issue, especially land-based carbon because we really have very sensitive ecosystems, which are being put under a lot of pressure and it is not just forests. I'm talking to you about mangroves, we are talking about sea grass. For example, in these marine ecosystems there is a Blue Carbon initiative, which Conservation International has been working on. There is already a pilot project in Cispata to generate carbon credits through mangroves. For example, I see tremendous potential in generating carbon credits in the Cienaga Grande de Santa Marta … At least we are buying Choco carbon credits basically because they are the only carbon credits on the market … we bought in Choco but we want this type of project to be implemented in the Caribbean. We have great potential in the Sierra Nevada with the Indigenous communities. In fact, we are working with Conservation International on a prefeasibility project with the Arhuaco people to implement those projects in the Sierra Nevada. It is no surprise that the multinational Glencore subsidiary is enthusiastic to expand carbon offset projects throughout Colombia. Perhaps even more troubling is the fact that REDD+ and carbon tax policies allow the coal corporations to receive a tax reduction and the conservation organizations a paycheck. With a boost from REDD+, the coal will continue to be mined. The Afro-Colombian communities near the mine sites continue to experience serious health impacts, dispossession, water scarcity and contamination, and loss of their cultural and ethnic rights. Afro-Colombian communities near the mining and REDD+ project sites are struggling for their territorial, ethnic, and cultural rights while one of the largest mining corporations in the world benefits—all under the guise of altruism for the climate. Conclusion Financialization of nature takes on various meanings. I argue that financialization of nature is connected to real material processes at sites of extraction having impacts on human and non-human nature. In addition to transforming human and non-human nature (labour and coal) from use value, to exchange value and accumulation, carbon pricing systems create another level of financialization for capital accumulation by commodifying a waste product into a fictious commodity. Carbon pricing systems are proliferating in the twenty-first century and have real impacts on local communities. The carbon pricing projects exist within a developmentalist modernization rhetoric, much like the coal mines themselves, and perpetuate a culturally Eurocentric and androcentric rationale of neoliberal globalized capitalism, inevitably failing to understand its incommensurability with the limits, boundaries, and metabolism of human and non-human nature (Salleh, 2020). Financialization requires the state to intervene and set up the legal frameworks, contrary to the free market tropes proponents claim. The compensation programmes are backed by an array of legal policies upheld by the state and by international policy. Compensation transforms human and non-human nature, from use value, into exchange value by creating monetary ‘units’ and an ‘equivalence’ framework. The state benefits through its collaboration with capitalist development from the global North by reinforcing hierarchies and power (Giacomini, 2020). The carbon tax system in Colombia allows a tax break for one of the most polluting industries in the world—coal mining. Cheap and unpaid work that produces labour is capitalism’s most important commodity (Moore, 2015). The Afro-Colombian communities who continue to fight for their cultural and ethnic rights in Cesar hold a line on value that would otherwise be subsumed and garner accumulation for their ‘units’. The market fundamentalists argue the refrain of ‘too big to fail’, while carbon pricing such as carbon taxes with offsets, nature-based solutions, and net-zero emissions (i.e. carbon offsets) are being implemented all over the world, including by climate change activists in Green New Deal proposals and other green economy platforms. Confronting carbon pricing systems is important to the future of the planet if we are to confront the ‘never ending accumulation of dead money’ (Bennholdt-Thomsen and Mies, 1999, p. 5). With carbon pricing systems the crux of the problem still remains—fossil fuels are not being kept in the ground and overall emissions are not being reduced at the rate required to address climate change. According to my research, carbon pricing really is not about the climate or ‘nature’ at all, but more related to institutional public images and profit through financialization of nature in the current era of neoliberal capitalism. In this moment of climate change threat and violence, it is critically important to support impacted communities and resist the projects and programmes that financialize nature. Research Funding This research was funded and supported by: J. William Fulbright US Student Program, Research, Colombia; W.K. McClure Fellowship for the Study of World Affairs; The University of Tennesse Department of Sociology; and The Universidad de Magdalena, Colombia Footnotes 1 Voluntary markets work alongside compliance offset markets driven by government-mandated caps (or limits) on greenhouse gas emissions. Compliance carbon markets are marketplaces that regulated pollution traders obtain and surrender emissions permits (allowances) or offsets emissions in order to meet predetermined regulatory targets. 2 Department is a region or state in Colombia Tamra L Gilbertson is a Lecturer at the University of Tennessee, Department of Sociology in Knoxville, TN, US. She mainly works on environmental and climate justice, social movements, and extractive industry research, as well as carbon pricing, forests, and land policies related to development policies. Tamra is the carbon pricing education coordinator and climate change policy advisor of the Indigenous Environmental Network. References Baran , P. 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( 2014 ) 73 countries and over 1,000 businesses speak out in support of a price on carbon , accessed at : https://www.worldbank.org/en/news/feature/ 2014 /09/22/governments-businesses-support-carbon-pricing (11 June 2020) . World Bank . ( 2020 ) State and Trends of Carbon Pricing 2020 , accessed at : https://openknowledge.worldbank.org/handle/10986/33809 (11 June 2020) . © Oxford University Press and Community Development Journal. 2020 All rights reserved. For permissions, please email: [email protected] This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model)

Ní Chasaide,, Nessa

doi: 10.1093/cdj/bsaa054pmid: N/A

Abstract The phenomenon of financialization has given rise to new modes of corporate profit accumulation. This includes the creation of global channels for corporate tax avoidance that are embedded in the operations of global firms. Due to a lack of transparency by multinational companies (MNCs), these channels, and their tax implications, are not easily identified or understood. This article sets out the workings of the ‘global tax games’ which operate via intracompany financial transactions alongside the reorganization of the functions of MNCs. The article highlights the consequences for communities of corporate tax avoidance, whereby corporate shareholders and tax haven states profit at the expense of other states and communities. Thus, people living in tax havens, often unknowingly, benefit from tax revenues that should have been paid elsewhere. It offers a case study of Ireland, an understudied case, but which is repeatedly identified as a key node in the global network of corporate tax avoidance. It emphasizes that, in the case of Ireland, a precursor to a potential alternative development path is the acknowledgement of its problematic role. Introduction Since at least the 1990s, tax avoidance1 among non-financial multinational corporations2 (MNCs) has increased and become more aggressive (Saez and Zucman, 2019). ‘Aggressive tax planning’ (ATP) has been defined by the European Commission as ‘taking advantage of the technicalities of a tax system or of mismatches between two or more tax systems for the purpose of reducing tax liability’ (EC, 2012). ATP results in artificially engineered profits, or ‘paper profits’, being declared in low tax jurisdictions, subject to no, or low, levels of tax (Tørsløv and Zucman, 2018). These under-taxed profits are then shared via dividends among a relatively small group of corporate shareholders. The effect is artificially high profits for corporate shareholders, a reduction in the tax revenues of many nation states around the world, and an artificial inflation of the revenues of a small number of tax havens. Corporate tax avoidance thus raises important concerns of distributive justice (Gamage, 2014). This is because what is lost is the potential use of unpaid tax revenue to serve some communities for the public good. At the same time, people living in tax havens, often unknowingly, benefit from tax revenues that should have been paid elsewhere. The scale of tax avoidance is contested. It is difficult to measure due to the lack of publicly available corporate financial data. However, credible estimates of lost tax revenue stand between US$500 and US$600 billion per year to governments globally (Cobham and Janský, 2018). That is at least US$70 per person on the planet per year. The first section of the paper outlines the concept of ‘game-playing’ in tax and the key channels of global corporate tax avoidance, or what I call the ‘global tax games’. The second section provides a case study example of Ireland. Ireland is an understudied case, but a jurisdiction that is repeatedly identified as a key node in the global tax games. The final section discusses some implications from Ireland’s tax model. Financialization and ‘game playing’ in corporate tax Greta Krippner describes financialization as ‘a pattern of accumulation in which profits accrue primarily through financial channels rather than through trade and commodity production’. For Krippner, ‘financial’ refers to activities relating to the ‘provision (or transfer) of liquid capital in expectation of future interest, dividends or capital gains’ (Krippner, 2005, pp. 174–5). This focus on financial channels is helpful in examining some of the tax avoidance mechanisms used by MNCs. Legal scholar, Sol Picciotto (2007, p.14), describes methods of aggressive corporate tax avoidance as ‘game playing’. He describes ‘game playing’ as the pursuit of tax minimization through ‘creative compliance’ with tax law. By this, he means ‘complying with the letter while avoiding the spirit or policy of the law’, resulting in ‘contrived complexity’ in corporate tax practice. Kamin et al. (2018, p.1442) refer to ‘tax gaming’. They use the term to refer to ‘both legal tax avoidance and illegal tax evasion, as well as to the large grey area of tax planning transactions that are neither clearly legal nor clearly illegal’. This article focuses on this ‘grey area’, i.e. tax configurations which, as a result of their core features, have the scope to achieve aggressive tax deductions. Those shaping the ‘grey area’ are accounting and legal firms, especially the so-called ‘Big 4’ firms (PwC, Deloitte, EY and KPMG). As Sikka and Hampton (2005, p.339) point out, the crisis of corporate tax avoidance has been accelerated by such firms shifting from offering traditional one-to-one tax advice to ‘designing and mass marketing tax shelter products’ with questionable chances of being deemed legal in courts of law. The widespread use of such products reflects the rise in private legal advice in influencing both the tax strategies of MNCs, and the tax policies of certain nation states (Pistor, 2019; Ajdacic et al., 2020). Aggressive tax avoidance structures operate via intracompany financial transactions and the reorganization of corporate functions within the same parent firm (Beer et al., 2020). These transactions are often complex, can be used separately or in tandem, vary by sector and firm type and are not declared publicly. As a result, the practices underlying the structures are difficult to describe definitively. However, studies in this area tend to identify two dominant areas of practice. Firstly, that of ‘profit shifting’. Profit shifting takes place between subsidiaries of the same MNC group and aims to increase profits booked in low tax jurisdictions to reduce tax payments. A key strategy here includes the mispricing of activities, termed ‘transfer mispricing’. ‘Transfer pricing’ is a normal practice in intracompany trade whereby subsidiaries of the same parent group must set the price of goods or services being traded between them at ‘arms-length’, i.e. at a fair market rate, as if they are trading with a separate, unrelated entity. Transfer mispricing, however, involves profits being moved between subsidiaries of the same parent group to different tax jurisdictions using price manipulation. This is deemed an illegal practice by taxing authorities, though there are huge difficulties in enforcing adherence to the rules (Picciotto, 1992). Tracking the accuracy of a transfer price is increasingly difficult given the growing importance of intangible products. For example, intellectual property (e.g. a company brand) is particularly difficult to price because such products are inherently unique (Lips, 2019). Political frustration with the low effective tax rates being paid by large digital companies (on average, only 9.5 percent compared with 23.2 percent for traditional business models (EC, 2018)) has resulted in pressure from certain governments to increase taxation on digital firms. This is happening alongside counter measures in lower tax states to entice such firms to do business in their jurisdictions through the provision of tax reliefs such as capital allowances and tax deductions on research and development (R&D) (OECD, 2018). Other, linked, profit shifting strategies include the strategic geographical placement of risk or debt and the changing of company functions within the global MNC group to serve these transactions. For example, in the aviation finance and aircraft leasing industry, determining the arm’s length interest rate on intragroup loans is dependent on a number of intangible organizational judgements (Perry, 2018). The second dominant practice is the exploitation of ‘mismatches’ between tax codes. This happens by exploiting differences in legal definitions between states. These mismatches can enable ‘hybrid transfers’ whereby the same asset is treated as debt (with tax deductible interest) in one jurisdiction, and equity (non-taxable income) in another, resulting in no taxation in either jurisdiction, i.e. ‘double non-taxation’. Mismatches can also enable the exploitation of tax residency rules whereby MNCs exploit the regulatory gaps between different jurisdictions. Both of these strategies, of profit shifting and exploiting tax code mismatches, result in the artificial placing of activities in low tax jurisdictions as a method of aggressive tax avoidance (IMF, 2009; Dharmapala, 2014; Johansson et al., 2017). Ireland’s tax games A number of studies focusing on global financial flows identify Ireland as a key node in the global network of states enabling corporate tax avoidance. They find Ireland to be active across a significant portion of the ‘suite’ of global tax games. For example, Ireland is identified as a centre for ‘strategic’ transfer pricing, debt shifting, net royalty payments, the placement of IP, financial leasing and as a location for head offices or holding companies (EC, 2017; Garcia-Bernardo et al., 2017). Reurink and Garcia-Bernardo (2020) further find that offshore centres can be split between 'profit centres' (largely in the Caribbean) and 'co-ordination centres' (namely 6 countries—Ireland, Netherlands, Luxembourg, UK, Singapore and Switzerland). They show that ‘co-ordination centres’ tend to be richer states, low tax, function as conduits to profit centres, host regional MNC management and host high value adding operations. Given this context, the question arises, what are the ‘real-life’ structures of corporate tax avoidance in Ireland over time and what are the institutional arrangements that enable them? Corporate tax avoidance strategies are complex and vary according to sector and firm (Stewart, 2018a). Broadly, there appears to be four dominant tax configurations that provide scope for aggressive avoidance, at least those that are publicly known (summarized as ‘types’ in Table 1). The timeframes of their use can be difficult to identify and some configurations can be used as complements or substitutes to other configurations, although this can also be difficult to identify in practice (Beer et al., 2020). The configurations are compiled by reviewing academic scholarship, literature from the Irish Central Statistics Office, the Central Bank of Ireland and other public authorities, civil society literature and media leaks and coverage. Table 1 Ireland’s tax games: summarised ‘types’ Open in new tab Table 1 Ireland’s tax games: summarised ‘types’ Open in new tab Ireland’s tax-free exporting zone and state grants Ireland’s shift away from industrial protectionism in the late 1950s was characterized by the establishment of an Export Profits Tax Relief, also called the Export Sales Relief (ESR) along with a nation-wide industrial grants scheme (Barry and O’Mahony, 2017). The ESR offered a 100 percent tax relief on export sales of manufactured goods made in Ireland. It was open to all companies but was mostly used by exporting MNCs and became a key factor in attracting FDI into the country (Killian, 2013a). This was ultimately phased out (by 1990) due to pressure from the European Economic Community (EEC). A customs free area at Shannon Airport in the West of Ireland was also established with additional customs duty reliefs for goods made for export. It was the first export free zone in the world (Killian, 2013a). Barry and O’Mahony (2017, p.14) find that state grants had been awarded to 359 foreign-owned manufacturing plants between 1955 and 1972. Manufacturing of products In the Finance Act 1980, a 10 percent corporation tax on profits from sales of goods from manufacturing was introduced. As the term ‘manufacture’ was not defined in legislation, it led to tax abuse (Killian, 2011). The rate was accompanied by a range of tax expenditures, notably a system of accelerated capital allowances on plant and machinery which increased from a 20 percent rate at its introduction in 1956 to 100 percent by 1972 (Coffey, 2017, p.14). The interactions of these tax deductions created ‘tax-based financing and tax-based leasing’ incentives (Coffey, 2017, p.16). This involved Irish financial institutions purchasing plant and machinery, claiming accelerated capital allowances along with state grants and providing cheap loans to recipients of the ESR relief, to lease the machinery, that were tax free for both the lender and the borrower (Killian, 2013b; Coffey, 2017). A number of studies in the 1980s and 1990s find indications that MNCs were engaged in profit shifting as a result of the manufacturing relief (for example see Stewart, 1989). A 1982 report commissioned by the National Economic and Social Council (NESC) indicated that 80 percent of FDI firms surveyed for the report were in Ireland ‘primarily because it provided a tax shelter for penetrating the EEC’ (NESC, 1982, p. 21). Conroy et al. (1998, p. 5) identify four sub-sectors of manufacturing, which had unusually high profits in Ireland. These included speciality chemicals, software reproduction, computers and certain food products, ‘specifically the production of cola concentrate’. They highlight that these sectors have an ‘extremely high net output per employee – over £1 million in 1994 for the cola concentrate companies, with lesser but still very high figures in the other two’. They also note that Ireland was attracting the leaders in these subsectors in Ireland including Coca Cola, Pepsi Cola, Microsoft and Lotus, among others. In 1999, in light of the ending of the manufacturing relief, which became ultimately seen by the EEC as a form of state aid, the Finance Act scheduled the incremental introduction of a single 12.5 percent corporation tax rate on trading income to commence in 2003. This was introduced alongside a 25 percent tax rate on passive income (unearned income such as interest and dividends) and is still the case today. While the rate was viewed as too low by some on the state-appointed advisory group, it was introduced nevertheless (Sweeney, 2018). The 12.5 percent rate is one of the lowest in Europe (on a par with Cyprus and higher only than Hungry and Bulgaria) (EC, 2019, p.41). Financial services An International Financial Services Centre (IFSC) was established in Ireland in 1987. It introduced a tax regime offering a 10 percent corporate tax rate on profits from internationally traded services, which was later aligned with the 12.5 percent rate. Since its establishment, Ireland has become one of the leading centres globally for ‘market-based finance’ (meaning where equity and debt are raised through financial markets rather than through the banking system). Ireland is dominant globally as a host for investment funds and special purpose entities (SPEs) (Lane and Moloney, 2018). Investment Funds and SPEs engage in a diverse, and often opaque, set of activities in Ireland.3 This section focuses on some of the non-financial corporations’ use of the tax regime laid out in Section 110 of the 1997 Taxes Consolidation Act. Special Purpose Entities: SPEs are described by the Central Bank of Ireland as legal entities, with little or no physical presence and narrow, specific, and/or ring-fenced, objectives, such as the segregation of risks, assets and/or liabilities, or as a cash conduit. The directors of an SPE typically have limited or no discretionary powers; rather activities are strictly defined by the terms of the SPE contract or arrangement. An SPE is often, though not exclusively, a satellite company of another financial entity and forms an ancillary part of the associate entity’s business by warehousing particular assets or risks. (Golden and Hughes, 2018 p.3–4). Because of this ‘warehousing’ function, SPEs are often known as ‘brass plate’ or ‘shell’ companies. The Central Bank estimates that about 2265 SPEs avail of Section 110 (Central Bank of Ireland, 2020). These are a subset of a larger number of SPEs in Ireland. These SPEs are further sub-divided, by Irish Central Bank definitions, into financial vehicle corporations (FVCs) and special purpose vehicles (SPVs). FVCs are ‘securitisation vehicles’, effectively dealing with the repackaging of assets as new forms of transferable securities. SPVs (termed ‘other SPEs’ by the Irish Central Bank) are understood to be linked to non-financial MNCs engaged in, among other activities, intragroup financing (see next section), external financing, and companies involved in aircraft leasing (Golden and Hughes, 2018; Cima et al., 2019). The Irish Central Bank indicates that large MNCs in this grouping of ‘other SPEs’ have their headquarters in Ireland (Golden and Hughes, 2018 p.14). It is possible that they are ‘inverted’ holding companies (see section on `inversions'), i.e. that they may hold the majority of assets of the MNC group while de facto being directed from abroad yet benefit from the host tax environment. Doyle and Stewart (2020 p.6) highlight that Section 110 firms can achieve a ‘tax neutral’ position by eliminating taxable profits through deducting expenses as if they are trading companies. There is also no withholding tax, and interest payments are deemed as ‘distributions’ already subject to tax, ‘giving rise to the possibility of double-non taxation’. The Section 110 firms also do not require special tax rulings or other authorization (Stewart and Doyle, 2017). The Section 110 reliefs are significantly availed of by the aircraft leasing industry, one of Ireland’s largest industries. The Finance Act 2011 designated aircrafts and aircraft engines as qualifying assets and allows tax treatment as a trading entity, ‘creating a new class of aircraft financing structures’ (Osborne-Kinch et al., 2017). Before the COVID 19 pandemic, 60 percent of the world’s aircraft were leased through Ireland (IFS, 2018), though this does not mean the aircraft ever physically passed through the country. Along with the Section 110 advantages, Ireland offers a specific aircraft leasing tax regime, including generous reliefs on withholding taxes, stamp duty or transfer taxes, the use of the depreciation regime and the entitlement to VAT refunds on its purchases (Greene and Cosgrove, 2017). The advantage to Ireland is a relatively small number of jobs (1482) for such a significant investment (CSO, 2017a). The Irish Revenue authority report that Section 110 companies paid €62 million overall in tax in 2019, a tiny fraction of the billions of euro that pass through them. Debt shifting via intra-company loans A significant part of the logic behind the establishment of the OECD Base Erosion and Profit Shifting (BEPS) global reform initiative was the desire to tackle the problem of ‘hybrid mismatches’ which often involves strategic ‘debt shifting’. The European Commission (EC) (2015, p.38) indicates that debt shifting is likely to be happening through Ireland via a tax structure relating to the provision of interest free intra-company loans. The EC describes the scope of the structure as potentially involving four jurisdictions. The parent MNC places equity in a subsidiary in a low tax jurisdiction like Ireland. The Irish MNC extends an interest free loan to a subsidiary in a third jurisdiction. This third jurisdiction assumes an arms-length interest payment was made by the subsidiary there and deducts tax accordingly. This subsidiary (in the third jurisdiction) then on-loans the funds to a subsidiary in a fourth jurisdiction, with interest charged. This fourth jurisdiction deducts tax on interest payments made on the loan. The subsidiary in the third jurisdiction (that extended the second loan) has the interest payments received offset against the deemed interest paid on the first loan. A profit has thus been created in the third jurisdiction and it is returned to the parent as a dividend. The IMF also indicate that ‘hybrids feature heavily in US tax structures involving Irish operations, particularly as a result of those structures’ reliance on ``check-the-box''4 planning’ (IMF, 2019 p.36). Hybrid arrangements featured significantly in the so called ‘Luxleaks’. This was a leak of a large volume of confidential tax rulings by the Luxembourg tax authorities, drafted by the auditing company PWC. Irish MNCs were identified among the leaked documents. Even a cursory examination indicates incidences of intra-company financing involving Ireland.5 The Irish Times (6 November 2014) reports an example involving Ireland from the Luxleaks relating to the media company, Northern and Shell. It was reported to operate as follows. A subsidiary of Northern and Shell in Luxembourg loaned funds to a subsidiary in Ireland. The Irish subsidiary then paid the money back to the subsidiary in Luxembourg after 4 years. The funds were then re-classified as non-Luxembourg resident and therefore not subject to a Luxembourg wealth tax. Overall, the ‘financial services tax games’ appear to be very significant in the Irish tax games. Galstyan (2019) estimates that, in addition to IP transfer and inversions (see next section), aircraft leasing, investment funds and SPEs form the dominant basis for distortions in Ireland’s FDI. Corporate location Re-domiciled firms (or ‘inversions’) This configuration involves the relocation of group headquarters to Ireland by US MNCs. Inversions are carried out by a US parent company acquiring (or merging with) an Irish subsidiary. The parent company then moves its place of incorporation to the Irish company while maintaining majority ownership in the US, i.e. it effectively ‘inverts’ its legal status, making the Irish firm the parent company and the US firm its subsidiary. The US Congressional Budget Office (CBO) explains, ‘after an inversion, a multinational can effectively eliminate any U.S. taxes on its foreign income’ (CBO, 2017, p.1). The tax results can be mixed though, as inversions can trigger other tax liabilities in the US. However, the US CBO estimates that out of inversions by US companies carried out from 1994 to 2014, the worldwide corporate tax expense reported on their financial reports fell, on average, by US$45 million in the financial year after the inversion (CBO, 2017). The CBO also highlight that inversions have likely been used as a springboard to shift debt within the MNC group for tax purposes and avoid US restrictions on this practice (see also section above). The Irish Central Statistics Office (CSO, 2017b) describes inverted firms as engaging in ‘little or no real activity in Ireland’ and holding substantial investments overseas. The CSO points out that by locating their headquarters in Ireland, their profits are paid there ‘even though under double taxation agreements their tax liability arises in other jurisdictions’. The CSO show a massive growth in the net income of re-domiciled firms in Ireland, growing from €292 million in 2008 to €5786 million in 2016. Bloomberg compiled a list of 16 US firms which reorganized their legal status in this way into Ireland since 1997.6 They are largely pharmaceutical companies. Most were described as inversions. Some were described as former divisions of the group that became independent entity ‘spin offs’ or US firms with Irish addresses resulting from leveraged buyouts or ‘other ownership changes’ (Bloomberg, 1 March 2017). Interjurisdictional advantages ‘Double Irish-Dutch Sandwich’ and ‘Single Malt’: In 2010, financial journalist Jesse Drucker published an exposé on Google’s use of the so called ‘Double Irish-Dutch Sandwich’ tax structure, claiming it reduced Google’s tax bill by US$3 billion over 3 years. The crux of the scheme is based on the Irish tax code definition of tax residence (since changed in 2015, see below). This definition allowed a company to be incorporated in Ireland without actually being tax resident if its ‘effective management’ was elsewhere. The Double Irish-Dutch Sandwich structure operates via a US parent company setting up two subsidiaries in Ireland. One subsidiary is a holding company, incorporated in Ireland but tax resident in a zero tax jurisdiction, often in Bermuda. The second subsidiary is controlled by the Irish holding company and is economically operational and tax resident in Ireland. The US parent licenses non-US IP to the Irish holding company. The Irish holding company then licenses the operational Irish company to make a product. Because it is renting IP, the operational company owes royalty payments to the Irish holding company. However, instead of paying the Irish holding company directly, it pays the ‘Irish’ company that is tax resident in Bermuda, thus availing of lower tax rates. The parent company further reduces its global tax payments by routing the royalty payments to Bermuda through the Netherlands to avoid Irish withholding taxes. This is because the EU Interest and Royalties Directive waives withholding taxes on cross border interest and royalty payments in many cases. Non-US sales are also booked by the operational company. Profits from sales are subject to tax in Ireland, but the company’s tax base is close to zero due to the high royalty payments it is making. The US parent company views these three firms as one company due to the ‘check-the-box’ election system in the US tax code. The ‘check-the-box’ option allows firms to be viewed as one entity and so ignores any intrafirm transactions. The effect is that taxable income in Ireland is reduced and increased in the lower tax location (Drucker, 2010; Killian, 2011; Fuest et al., 2013). In 2014, the Finance Minister announced the closure of the ‘Double Irish’ whereby an Irish registered company could be non-Irish tax resident as long as another company in the group carried out economic activities in Ireland. When closing the scheme, the Minister, strikingly, allowed companies that were in existence before then to continue to benefit from the structure until the end of 2020. After this announcement, the structure remained open for new entrants for a further two months. The new company tax residency rules introduced in 2015 also indicate that the new rules will not apply if a firm is ‘treated as a tax resident company in another country under a Double Taxation Agreement’ (Revenue Commissioners, 2017). This allowance has given rise to what the NGO, Christian Aid Ireland, termed the ‘Single Malt’ tax avoidance structure.7 The ‘Single Malt’ structure is a simplified version of the Double Irish-Dutch Sandwich which replaces the Bermuda and Netherlands subsidiaries with one in Malta. In 2018, the Minister for Finance announced an end to the ‘Single Malt’ through a new agreement between Ireland and Malta (Irish Times, 27 November 2018). Statelessness Perhaps, the most well-known tax avoidance scheme is that used by Apple Inc., deemed a form of illegal state aid by the European Commission (EC, 2016), a decision since overturned by the General Court of the EU (2020). The EC decided that Ireland provided undue tax benefits to Apple via two tax rulings in 1991 and 2007, respectively. All products sold in Europe were contractually sold by an Irish incorporated company, owned by Apple Inc., Apple Sales International (ASI). This means that all European sales and related profits were booked in Ireland. Apple was allowed to then split its profits between the Irish branch of ASI and a ‘head office’ which had no physical presence or employees anywhere, but merely consisted of occasional board meetings. In 2011 alone, the Irish branch recorded €50 million in taxable income and the ‘head office’ recorded €15.95 billion in taxable income which was not taxed anywhere. Another Irish incorporated company owned by the Apple parent, Apple Operations Europe (AOE), also declared profits relating to the manufacture of a particular line of computers to a non-existent ‘head office’. The public backlash against profits that could be booked nowhere on earth caused the then Minister for Finance to announce that ‘Irish registered companies cannot be “stateless” in terms of their place of tax residency’ (Department of Finance, 2013). ASI and AOE also made annual payments to the Apple parent in the US for R&D (over US$2 billion was paid in 2011), which funded more than half of Apple’s research for its entire worldwide IP. These expenses were then legally deducted from profits (EC, 2016, p.38). The EC deemed the loss of tax revenue to Ireland (and potentially to other states who may wish to query Apple’s practice) to be worth up to a sensational €13 billion (excluding interest penalties). This was because, by a method of exclusion, the EC deemed the substantive control of Apple’s IP (and therefore, its call over the profits from sales) to be in Ireland, i.e. if management and control cannot be ‘nowhere’, it must be in Ireland. The EU General Court ruled that the EC had not proven this and took the view that the IP is controlled in the United States and thus that the tax is due there. This is what Apple and successive Irish and US Governments had argued that the unpaid taxes would ultimately be paid through the process of tax repatriation that was part of the US tax code at the time (Coffey, 2018; Daly, 2020).8 Many concerns remain, however (though at time of writing, it is not known whether the EC will appeal the ruling). The concerns relate to a lack of clear paperwork outlining the basis of the Irish Revenue decision-making on the tax rulings; the length of time the rulings lasted without review; and concerns that Irish Revenue acted outside of its powers as the basis for the rulings initially appeared to include non-tax-related considerations such as job creation (Daly, 2020; Donohue, 2020; Mason, 2020). And finally, while US MNCs deferring tax payments from the United State were fully lawful, MNCs have used the deferral mechanism to defer tax payments at length (CBO, 2013). It is thought that US tax deferral has led to increases in aggressive tax avoidance, especially before anticipated tax rate changes in the United States (Avi-Yonah, 2016; Beer et al., 2020). Apple is the only ‘stateless’ case connected to Ireland that has been so extensively documented. However, in a radio interview the ex-CEO of Pepsi and of Apple, John Sculley, implied that Pepsi received approval from the Irish State for a similar structure. He indicated, We never looked at it [the Apple tax arrangement] as a sweetheart deal. We looked at it as a deal that had a lot of precedent. I knew the precedent because I’d been there when we negotiated the deal decades earlier with Pepsi (RTE interview, 23 April 2018). On-shoring of assets Apple reorganized its tax structure subsequent to the decision by the Irish Government to outlaw the corporate option of ‘statelessness’. The company relocated its non-US sales and IP from ‘nowhere’ to Ireland and its undistributed cash from its Irish subsidiaries to Jersey where there would be no tax due as long as profits are not repatriated to the United States. In order to finance the purchase of the IP, loans were then extended from the Jersey subsidiaries back to Ireland, where interest payments are tax deductible (Stewart, 2018b). Indeed, the Irish national accounts show a massive increase in incoming loans to the tune of €250 billion in the first quarter of 2015 (Coffey, 2018). This contributed to an unprecedented 26.3 percent rise in Ireland’s real GDP in 2015 (OECD, 2016). Apple would have benefited from a 100 percent Irish capital allowance for depreciation of the intangible assets, introduced by the Government in 2015, coinciding with Apple’s restructuring of its ‘stateless’ arrangement. The Government subsequently reduced this allowance back to the pre-2009 level of 80 percent, but that change would not have affected Apple, as its assets were brought onshore from 2015 to 2017 (Clancy and Christensen, 2018; IMF, 2019). There was a massive spike in capital allowances on intangible assets for that year—an increase from €2.7 billion in 2014 to €28.9 billion in 2015 (Revenue Commissioners, 2018). Apple also has a contract manufacturing agreement with a company in China whereby the products manufactured in China are owned by the Irish subsidiary although never physically present in Ireland. The 2017 Irish Balance of Payments show a very significant ‘change of ownership adjustment’ to Ireland’s export figures worth €17 billion (CSO, 2018). It is possible that this is a fee for manufacturing and for the purchase of goods in other countries by Apple’s Irish subsidiaries and sent on to China (Coffey, 2018). This is because contract manufacturing involves the contracting subsidiary in Ireland retaining ownership over the inputs and end product by simply paying a fee for production work (Department of Finance, 2019). Some implications of Ireland’s tax games The Irish tax games reflect the importance of Ireland as an offshore site for US MNCs. The previous system of tax deferral in the US incentivized US MNCs to avail of the Irish low tax rate, its tax residency rules and its array of tax expenditures. These tax strategies can then be pushed to their limits alongside other complementary offerings in other low tax jurisdictions to provide greater scope for tax avoidance. The corporate presence in Ireland in 2019 raised a staggering €10.8 billion in corporate tax receipts (Revenue Commissioners, 2020) (more than doubling in scale over the previous four year period). This is equivalent to about 12.5 percent of the €86 billion9 of gross public spending for Ireland for that year. While little employment is generated from the Irish tax games, the games are tagged onto substantive, productive investment by many of the MNCs involved. Due to the highly successful attraction of FDI by the Irish state (Ó Riain, 2014), these US firms provide 229,057 jobs (IDA, 2019), the equivalent of about one in ten jobs in Ireland.10 The model is not without its hazards for the Irish economy. Ireland’s corporate tax receipts are concentrated among a small number of large MNCs and this dependence is viewed as risky by the Irish State. Employment benefits are uneven, concentrated in cities and largely shared among highly paid workers in the tech industry (Regan and Brazys, 2017). And, Ireland is criticized internationally as a tax haven or a ‘tax pirate’ (Irish Examiner, 26 February 2018). However, these are risks that have not, thus far, negatively affected the large scale of corporate tax revenue accumulated by the Irish state. Corporate tax revenue is consistently rising. Those losing revenue from Ireland’s model are states where MNC economic activity is taking place, the profits from which are being artificially booked in Ireland. Without greater public transparency from MNCs, it is not fully clear where these profits should rightfully be declared. A number of studies provide a partial picture. Tørsløv and Zucman (2018, p.22) find that higher tax EU states are the main losers of profit shifting globally (losing up to 20 percent of profits). They find that, globally, Ireland is the top location for US companies shifting profits. Specifically, they find that out of US$600 billion shifted out of the United States in 2015, Ireland alone accounts for US$100 billion. Other studies find Ireland to be a conduit for financial flows from a range of other OECD states (for example, Garcia-Bernardo et al., 2017). Research by NGOs have also shown Global South countries to be negatively affected by the Irish model due to poor regulation at the IFSC, MNC exploitation of Ireland’s tax treaty system (Action Aid, 2016) and aggressive tax treaty negotiation by Ireland (Christian Aid, 2019). This is hardly an international role that Ireland can be proud of. The consequence of the high tax revenues and job creation has been a political adherence to the low tax model in Ireland. The low corporate tax rate is frequently described as a ‘cornerstone’ of Ireland’s industrial policy. It has cross political party support coupled with vocal support from the corporate sector. As seen with the case of Apple, with the exception of a small number of civil society organizations and academics, even those groups in Ireland that wish to see increased tax payments from MNCs tend to call for increased payments to be made to Ireland and not to the countries where the economic activity which produced such profits occurred.11 This presents a challenge to building solidarity for tax justice between communities in high and low tax states. Conclusion Coe et al. (2014) point to the importance of identifying the institutional landscape of global tax avoidance. A deeper study than is presented here is required to identify the institutional drivers of Ireland’s tax games. However, the partial picture presented shows an increasingly aggressive corporate tax haven model over time, featuring structures that support aggressive tax avoidance. The recent major reforms—whether stemming from the OECD or the US—while kick-starting certain pressures for change, have not deterred the overall model. The tax games may merely change to new forms. However, the current interstate proposals—for a new formula to ensure MNCs pay tax where economic activity occurs, and for an effective minimum corporate tax rate (OECD, 2020)—signal a real challenge to Ireland’s tax games. New ‘cornerstones’ for Ireland’s industrial policy are needed. To build commitment to a path-changing national development project, a recognition of the problematic nature of Ireland’s tax games is required. These games unfairly take revenue from communities in other states. An acknowledgement of this reality would be a good basis for work on such a national project to begin. Acknowledgements This paper benefitted from feedback from a number of people: Patrick Gallagher, Sheila Killian, Seán Ó Riain, Jim Stewart, Andy Storey, Paul Sweeney and the editors of this volume. It also benefitted from discussion at the New Political Economy of Europe Winter School, University College Dublin in January 2020. Any errors are of course my own. This article forms part of PhD research which is supported by the Irish Research Council Government of Ireland Postgraduate Scholarship (Project ID: GOIPG/2019/2110). Footnotes 1 The minimization of tax payments within the law. 2 Firms that produce goods and non-financial services. 3 Some of these activities, as in a Doyle and Stewart (2020) study of some Russian firms using Irish SPEs as financial conduits, raise serious questions about potential improper financial activity. 4 The ‘check the box’ system is explained in Section 4.2. 5 For example, Vermillion oil and gas company is shown raising finance for investment in extraction of gas in the Corrib Gas field. The funding operation involves subsidiaries in Hungary; an Irish incorporated and Cayman Island resident subsidiary and a Barbados company ‘to the Lux branch’: https://www.irishtimes.com/polopoly_fs/1.1974196.1414058725!/menu/standard/file/ITS_UMBRELLA_K_VERMILION_25112009.pdf 6 Actavis; Allegion; Mallinckrodt; Perrigo; Eaton Corp; Jazz Pharmaceuticals; Pentair; Alkermes; Covidien; Global Indemnity; Cooper Industries; Weatherford International; Accenture; Ingersoll-Rand; Seagate Technology; Tyco International. 7 Christian Aid Ireland report that US tax advisors were pointing clients to this scheme since the phase out of the Double Irish in 2014 (Christian Aid, 2017). 8 The Tax Policy Centre in the United States neatly explains the US deferral system and changes since the 2017 Tax Cuts and Jobs Act: ‘Before the 2017 Tax Cuts and Jobs Act (TCJA), the United States generally taxed its corporations and residents on their worldwide income. However, a US corporation could defer foreign income by retaining earnings indefinitely through a foreign subsidiary. The US corporation would pay US tax on the foreign earnings only when they were repatriated (by a dividend from the foreign subsidiary, for example). Upon repatriation, the earnings would be subject to US taxation at a rate up to 35 percent, with a credit for foreign taxes paid. The repatriation typically resulted in a net US tax obligation because the US tax rate was usually higher than the foreign tax rate. As of 2015, US corporations accumulated more than US$2.6 trillion of earnings in foreign subsidiaries, according to the Joint Committee on Taxation. Pursuant to the TCJA, the United States now generally exempts the earnings of a US firm from active businesses of foreign subsidiaries, even if the earnings are repatriated (i.e. there now is a 100 percent dividend-received deduction). But, as a transition to the new system and to avoid a potential windfall for corporations that had accumulated unrepatriated earnings abroad, the new law taxes these earnings as if they were repatriated but at preferred lower rates’. Tax Policy Centre, May 2020, accessed at: https://www.taxpolicycenter.org/briefing-book/what-tcja-repatriation-tax-and-how-does-it-work (18 September 2020). 9 Fiscal Advisory Council Data Pack May 2020 Figure 3.10: General government revenue and expenditure. 10 There may also be significant multiplier effects form this FDI through job creation in domestic firms. A recent study estimated that three jobs are created in a county for every state supported FDI job in the same county (Brady, 2019). 11 For example: Irish Examiner, 1 September 2016, 'Snow White' to deliver Apple tax open letter signed by over 10,000, accessed at https://www.irishexaminer.com/news/arid-30752615.html (18 September, 2020). 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Amanor, Kojo, S

doi: 10.1093/cdj/bsaa046pmid: N/A

Abstract This article examines the role of financial capital in the cocoa industry of Côte d’Ivoire and Ghana. It argues that the processes of structural adjustment in the 1980s and 1990s brought two important elements into play. Firstly, transnational corporations taking advantage of the opening of global markets to gain control over the cocoa sector, and secondly, financial institutions promoting ‘country platforms’ that encouraged public–private partnerships to mobilize foreign investments and define development objectives. This has led to a distinct pattern of investment, which is intimately connected with governance reforms underpinned by a diverse set of public and private alliances at different levels. The article traces these alliances which have given rise to community development programmes. However, these programmes are underpinned by a drive towards greater intensification of production through the use of inputs supported by credit, which threatens to entangle farmers in debt and lock them into the poverty inherent in the cocoa industry. Introduction Financialization is often associated with the rise of speculative investments in global markets. This article seeks to draw attention to a different facet of capitalist investment. Namely, the financial models that have shaped the rise of a market in community services which have integrated farming communities into transnational corporation (TNC)-led agribusiness. It argues that these developments are closely tied up with the market liberal reforms of the 1970s and the expansion of global markets, which presented new opportunities for TNCs to dominate markets through takeovers and mergers. This has resulted in the increasing influence of private corporations over development policy. This has been achieved through the establishment of strategic alliances between TNCs, states, international financial institutions (IFIs) and civil society organizations. These alliances promote agribusiness, and through this, increase the control of TNCs over food value chains. This article examines recent changes in the cocoa food systems within West Africa, the investments of financial institutions in these transformations, and the impact of these investments on rural communities. This is traced through a case study of the West African cocoa sector, focusing on the two largest cocoa-producing countries in the world, Côte d’Ivoire and Ghana. Although TNCs and IFIs have exerted a major influence in shaping current production trajectories, cocoa production continues to be dominated by smallholders, high levels of poverty, and low absorption of value by these smallholder farmers. This study draws upon a large number of reports and websites of development agencies, private corporations, and financial institutions to analyse these developments. The first section of this paper examines the concept of financialization in relation to food systems in Africa. The second part traces the origins of financial investment within Africa, its relationship with international development, and the logic of its expansion from the 1980s when liberal economic reforms were first implemented. The third section examines TNCs in the cocoa sector in West Africa, and their takeover of the industry with the aid of international donors and IFIs. The fourth section examines the strategic alliances and platforms that have been established within the cocoa sector to facilitate corporate control of the food chain, and the incorporation of farmers into global markets. It traces the relationships that have been built between agricultural and financial services to farmers, which are articulated as community development initiatives. Framing financialization in relation to African agriculture Financialization refers to a theory of capitalist transformation that demonstrates how dominant investments now occur in the financial sector, generating profits in future interest, dividends, capital gains, and rents, rather than through the activities involved in production and trade in commodities (Krippner, 2011). This has led to notions that the productive sector of the capitalist economy has been captured by financial interests and is now dominated by rentier interests (Blakeley, 2019). In the context of the food sector, it has been argued that financialization and turmoil in financial markets since 2006 has encouraged investors to move into food commodities and agricultural derivatives, resulting in financial speculations influencing food prices, such as in the 2006–2008 world food crisis (Clapp and Helleiner, 2012; Clapp, 2014). In addition, financial investors have been identified as instrumental in driving global farmland acquisitions and fuelling land grabbing in developing countries (Cotula and Vermeulen, 2009; Fairhead et al., 2012; Clapp, 2014). In contrast, this paper focuses on the production process and the corporate food system. It argues that transnational food traders and food producer corporations continue to be dominated primarily by production and marketing concerns. Rabinovich (2019) makes a similar point, arguing that financial investments comprise only a small percentage of the total investment portfolios of the main corporations involved in production and trade, in which only 2.5 percent of the income of US non-financial corporations currently derives from financial investments. Rabinovich (2019) argues that although there has been a significant growth of mergers and takeovers since the 1990s on a global scale, this has largely arisen from concerns about gaining access to the latest technology, innovation, product strategy, and marketing, rather than the pursuit of financial investments and marketable assets. Kumar (2020) argues in relation to textile production in Asia and Honduras that TNCs draw upon financial services to enhance control over production and marketing, and not primarily to extract financial interests and rents. Financial investments, economic restructuring, and development policy During the 1970s there was a surplus of capital in western banks. This was a result of the investment of large revenues from oil-rich Middle Eastern countries in western banks and the downturn in the profitability of manufacturing in the United States and Western Europe, which created less demand for capital. The availability of cheap capital resulted in large-scale borrowing by African countries. By the 1980s, this had changed as the United States sought to address its economic crisis by reflating its economy through increases in borrowing, resulting in deficits of over US$900 billion by the late 1990s. This in effect meant the outflows of capital from industrial nations to the rest of the world transformed into inflows of around US$350 billion by the late 1980s (Arrighi, 2002). The scarcity of capital resulted in high interest payments that rapidly became a debt crisis for African countries. By the early 1980s, the aggregate debt of African countries lay at more than US$600 billion, of which 34 percent was held by the largest nine banks in the United States (Bracking, 2009). As a consequence of these huge liabilities, African governments found it difficult to gain further international loans, which resulted in them seeking relief from the International Monetary Fund (IMF). The donors needed to re-establish creditworthiness and encouraged international financers to continue to invest. They sought to do this through structural adjustment, that is, market reforms that would open the economy to international capital on favourable terms. Beyond this, the donors needed international financers to take up the task of promoting foreign investment by creating country platforms that would provide investors with assurances. Country platforms are coordinating bodies set up with official government recognition that enable governments, financiers, private corporations, and other partners to establish development priorities and the mechanisms to implement them. In the early period of structural adjustment, financial institutions, originally set up to build private investment in Africa from the colonial period, took up the initiative of building country platforms for investment, around which smaller corporate investors could congregate, sheltered from risks and uncertainties (Bracking, 2009). The two most prominent were the International Finance Corporation (IFC) of the World Bank Group, and the Commonwealth Development Corporation (CDC) of the United Kingdom. The Commonwealth Development Corporation The CDC was originally founded in 1947 as the Colonial Development Corporation, a statutory body promoting private commercial investments to showcase the viability of commercial agriculture in British colonies (Cowen, 1984). Following decolonization, it continued to finance development projects, provide contractual management services to independent states, and invest in private equity corporations. During the 1960s to the 1980s it largely focused on providing financial and managerial support for smallholder agriculture. With the economic crisis of the 1980s and introduction of economic restructuring measures in developing countries, the CDC began to organize country-level funds, which involved pooling investments from a number of corporations to reduce the risk of single investments, and facilitating private equity investments (Bracking, 2009). As CDC investments became increasingly profitable during the 1990s it transformed itself into a public limited company. Several parts of the CDC’s business have been privatized, including Actis, a fund management company focusing on private equity in emerging markets and Aeries, a venture capital fund focusing on agribusiness (Bracking, 2009). CDC’s forays into the world of private equity have led to accusations that its funding is motivated by financial interest rather than addressing poverty, evident for example, in its use of tax havens, and in investments such as shopping malls in Africa, private medical facilities in India, and in projects that appropriate the lands of smallholders (Northam 2008; War On Want, 2016). The International Finance Corporation The IFC emerged from within the World Bank Group in 1955 to encourage private sector investment within developing countries. The IFC has spearheaded public and private sector cooperation in development. Its investments have rapidly expanded and it now accounts for over one-third of the World Bank’s US$67 billion annual commitments (Dreher et al., 2019). The IFC came to prominence under structural adjustment where it was able to provide funds for private sector investments in what were perceived as risky environments and to organize country-level funds when other sources of funding had dried up. While its official mandate is to ‘end extreme poverty and promote shared prosperity’ (Dreher et al., 2019, p. 242), the IFC frequently facilitates investments like luxury hotels, which promote the interests of wealthy investors rather than addressing poverty (Malik and Stone, 2018; Dreher et al., 2019). Country-level funds, private equity capital, and NGOs The CDC and IFC have been instrumental in the emergence of country-level funds that encourage public–private partnerships, and networking between various investors and donors. This networking has led to a close relationship between investments, economic restructuring, policy conditionalities, and governance reforms. It has also enabled civil society organizations to play a role in the social transformations and initiatives at the community level. In Ghana, for example, private equity became established in the early 1990s when United States Agency for International Development (USAID) and the CDC sponsored the Ghana Venture Capital Fund (GVCF) to invest in private sector companies, with operational capital of US$1 million provided through USAID grants and an anchor investment of US$2 million provided by CDC Capital Group (World Bank, 2016). The Venture Capital Fund Management Company (VCFMC) was set up to manage the fund and was later acquired by Aureos Capital, a joint venture between CDC and Norfund (a Norwegian state-owned investment fund). The GVCF initially supported investments in private companies in the food processing and service sectors (World Bank, 2016). In 2004, the structure of venture capital became more strongly embedded in the national economy when the Ghanaian government created the Venture Capital Trust Fund to promote local investments in venture funds and build up local capacities in private equity investments. While there has subsequently been a significant expansion in private equity funds, most of this has come from regional and pan-African funds supported by international investors (World Bank, 2016). The main investors in venture capital in Ghana include international development-focused agencies such as CDC, IFC, the European Investment Bank, and African Development Bank institutional investors such as Public Investment Corporation of South Africa, Crédit Coopérative, Africa Sugar Industries Pension Fund of Mauritius, and Wendel; national level investors such as Agricultural Development Bank, SIC Insurance Company, and SSNIT; and foundations, including the Gates Foundation, Alliance for a Green Revolution in Africa, and the Soros Economic Development Fund (World Bank, 2016). Several NGOs have also played important roles by introducing financial services into rural areas and organizing contractual arrangements between agribusiness and farmers, including the US NGO, Technoserve, Care International and national NGOs, such as the Association of Church Development Projects (ACDEP) which has established a commercial business service for small farmers, the Savanna Farmers Marketing Company (Amanor, 2011; Guyver and McCarthy, 2011). The nature of the economic crises in Africa during the 1980s and the economic restructuring measures that aimed to attract foreign investments have effectively embedded financial services within the structure of governance reforms and development policy, which promote international capital investments and public–private partnerships. The next section analyses the growth of TNCs within the cocoa sector during the 1990s and their capture of West African markets. Transnational investments in cocoa Cocoa is one of the most important export crops in West Africa, and central to the national economies of Côte d’Ivoire and Ghana, which together produce over 60 percent of world cocoa. In Ghana, cocoa has been under the state control of the Cocoa Marketing Board, which continues to control the marketing of Ghanaian cocoa on international markets. In Côte d’Ivoire, before liberalization the Caisse de stabilisation allocated licences to private buyers, set quotas prices, and the profits of exporters above which the government extracted surpluses for its provision of services. After liberalization, cocoa marketing in Côte d’Ivoire is largely undertaken by TNCs. With the introduction of IMF restructuring during the 1980s, one of the central concerns of the IFIs and bilateral donors was to open up cocoa marketing to private control by TNCs (Fold, 2002; Losch, 2002). The pressures to liberalize cocoa occurred during a period of major global restructuring within the cocoa industry. By the early 2000s, three transnational food traders—Barré Callebaut, Cargill, and Archer Daniel Midland (ADM)1—came to control over 60 percent of total global grinding capacity through acquisitions and investments in new technology (Losch, 2002; Fold, 2002; Terazono, 2014). Both Ghanaian and Ivorian governments resisted this, since they were highly dependent upon cocoa exports for generating state revenues. In Ghana, the state acquiesced to divesting the internal marketing of cocoa to licensed buyers, but insisted on retaining control over the export trade (Losch, 2002; Lavin, 2007). Although the marketing of cocoa in Côte d’Ivoire lay in the hands of private companies, the government feared that the opening up of these to acquisition would undermine its influence over the marketing system and the revenues that derived from it.2 A highly volatile international market and declining international cocoa prices during the late 1990s, associated with the creation of large buffer stocks and future trading, forced the Ivorian government into a series of desperate measures to contain the downward fall in international cocoa prices (Losch, 2002). This only exacerbated the crisis and delivered a bankrupt government into the hands of the IMF. The restructuring imposed on the Côte d’Ivoire effectively opened up the cocoa industry to TNC domination (Crook, 1990; Losch, 2002). The economic pressures to open up Ivorian cocoa to takeover by TNCs and the ensuing economic crisis have had a considerable social toll on the Ivorian economy. It resulted in the disentangling of the finely balanced social contract within the Ivorian state that defined the roles of labour migrants, capitalist farmers, landowners, trading corporations, and social redistribution by the state (Chauveau, 2000, 2009; Dozon, 2000; Losch, 2000; Kouame, 2010). The crisis led to increasing impoverishment among farmers. As a consequence, many of the wealthier farmers exited from cocoa production, leaving small migrant farmers from Sahelian countries as the dominant farmers, operating on very small margins (Léonard and Oswald, 1997; Ruf, 2001). This exacerbated ethnic tensions and xenophobia against Sahelian migrants, who were blamed for the economic crisis of cocoa by political elites, eventually escalating into a civil war (Losch, 2000). As a result of the civil war, the cocoa TNCs temporarily relocated their headquarters to Ghana, where they began establishing processing facilities in export free zones. These developments have eased pressure on the Ghanaian state to liberalize the international marketing of cocoa. It resulted in a much greater emphasis on public–private partnership, in which the TNCs extend their control over the cocoa sector through state marketing, and the state plays an important role in the establishment of TNC governance over the cocoa value chain (Kolavalli and Vigneri, 2017). TNCs operating in the West African cocoa sector are some of the largest food traders in the world. Cargill, for instance, is the world’s largest private food trader in agricultural commodities. It has built up a highly diversified portfolio through acquisitions, which have included investments in cereals, livestock, livestock feed, aquaculture, fertilizers, and farmland. It has subsidiaries in more than 60 countries. In 2003, it established a hedge management scheme Black River Assets Management Fund (BRAMF), with assets of over US$5 billion. In 2010, BRAMF established two private equity schemes each with between US$300 and 400 million to invest in global food and farmland assets, and aquaculture. In 2011, it sold off its assets in Mosaic fertilizer company for US$24 billion (Amanor, 2012). In an interview in September 2018, David MacLennan, CEO of Cargill revealed his company’s investment strategy: We don’t make big, big acquisitions, but if it’s strategically accretive, it’s something that we think can fit very quickly and it’s in one of our areas that is consistent with our strategy, we’ll be comfortable making those acquisitions (Parker and Steel, 2018). MacLennan also revealed that Cargill acquired technical competency in new sectors through acquisitions, as it has done in the cocoa sector (Parker and Steel, 2018). Cargill, as other food traders in the cocoa sector, also builds its influence through strategic partnerships with other TNCs, financial companies, and service providers. In Côte d’Ivoire, the Cargill Cop Academy, an educational programme for managers of cocoa cooperatives, is financed by the IFC and other international donors. By building strategic alliances with the support of IFIs, cocoa TNCs are able to embed their strategies for accumulation within national governance and development infrastructures for the cocoa sector. The next section examines the strategic alliances, platforms, and engagements initiated by TNCs to build up their control of cocoa production and the ramifications of these on community development initiatives. Strategic alliances and platforms within the cocoa sector The development of new processing technologies has facilitated concentration within the cocoa industry. However, this has not been translated into a rapid expansion of production to meet the increasing demand for cocoa and chocolate products on the world market. On the contrary, there are dangers of decreasing production as farmers convert to other crops as a result of the increasing cost of cocoa production and declining profit margins to farmers, which has been most evident in Brazil, Indonesia, and Malaysia, where there has been a marked decline in cocoa production since the 1990s (Ruf, 1995). These trends have resulted in a focus in the cocoa industry on increasing the productivity of cocoa to enable production targets to be realized by smaller numbers of highly productive farmers investing in inputs. Cocoa is a frontier crop. It thrives in newly opened up forested areas in which it provides a bountiful crop for low expenditure on inputs and labour (Ruf, 1995). But as cocoa production becomes established, these advantages disappear. Cocoa becomes vulnerable to pests and diseases, and yields decline as soil fertility decreases. Historically, cocoa production has constantly shifted to new forested frontier areas, leaving behind declining older areas in which farmers struggle to produce cocoa competitively and convert to other crops (Amanor, 1994; Ruf, 1995). In the early twentieth century, cocoa production shifted from Central America into West Africa, where the Gold Coast became the dominant world producer in the 1920s. By the early 1950s, the older areas of production in the south-eastern forests of the Gold Coast began to experience swollen shoot disease and the major centres of production shifted into the Ashanti and Western Regions. By the 1970s, new frontier land in Ghana disappeared and the cocoa frontier moved into the Côte d’Ivoire (Amanor, 2011). By the 1990s, new frontier had largely disappeared in Côte d’Ivoire and farmers were faced with the high costs of rehabilitating old plantation. With the decline of forests, the cocoa industry has focused on the planting of hybrid varieties, which are bred to be tolerant of drier conditions and to be higher yielding, but depend upon application of large amounts of fertilizers, pesticides, and fungicides. The costs of inputs, declining yields, and declining profits have resulted in a movement towards more intensive production on smaller areas of land. Wealthier farmers with other economic options have sometimes abandoned cocoa (Léonard and Oswald, 1997; Ruf, 2001; Yao and Fiko, 2015). In the late 1990s, as world market prices for cocoa collapsed, the dominant social group in cocoa production in Côte d’Ivoire became small migrant farmers from Burkina Faso who operated on the smallest of margins. This increasing impoverishment of cocoa farmers led to allegations in the western media that cocoa farmers relied on exploitative child labour, giving rise to demands for governments and corporations to address child labour issues (Off, 2006; Amanor, 2011). While demands for ethical codes on child labour were not necessarily welcomed by TNCs, the effect has been to make West African governments increasingly dependent upon the skills of TNCs in negotiating standards and in positive commodity branding, which has enabled the most powerful companies to gain greater control over cocoa markets through imposing standards and certification (Cocoa and Forest Initiative, 2018; Odijie, 2018). Although the initial ethical concerns revolved around child labour, sustainable production and deforestation have become pressing recent issues. A major concern of the TNCs has been to address moral discourses about the environmental unsustainability of cocoa, its destruction of natural forests, and the impoverishment of farmers. To achieve this, the large companies have come together to create strategic alliances and platforms that encompass public–private partnerships and civil society participation to promote sustainable development and community development. However, the cocoa corporations are also intent on redefining these ethical concerns as technical issues, in which sustainable development can be addressed by boosting production and productivity, by introducing new technologies to farmers and financial support systems to facilitate the uptake of technology. These platforms seek to build a broad base of support among various organizations involved in rural development, including those that provide agricultural and financial services for farmers (Cargill, 2015; Cocoa and Forest Initiative, 2018; IFC, 2019). Platforms and community development The earliest cocoa platform was the International Cocoa Initiative (ICI), which was established in 2002. This brought together the major cocoa corporations to address child labour issues within cocoa production. It later expanded its work to address issues of education, health, water, sanitation, gender inequalities, rural livelihoods, and poverty (Nestlé, 2017). It thus refashioned cocoa corporations as initiators of community development in development discourses. The largest TNCs used their experience gained with the ICI to fashion their own independent cocoa schemes, such as the Nestlé Cocoa Plan and Cargill Cocoa Promise programmes. They repositioned child exploitative labour as rural poverty and addressed poverty as a technical (rather than socio-political) issue. Thus, Nestlé promotes its ‘three pillars of activities’: better farming, better lives, and better cocoa. We train farmers in better agricultural practices, distribute higher yielding cocoa trees, promote gender equality, address the child labour issue, and develop long-term relationships with farmer groups (Nestlé, 2017, p. 7). Similarly, Cargill (2015, p. C3) presents a vision of its Cocoa Promise programme supporting enterprising farmers whose professionalism contributes to community development: farmers will become empowered entrepreneurs who manage professional farms that generate a living income or beyond. They will maximize the profitability of their cocoa farms by optimizing cocoa production and using inputs efficiently and in an environmentally sustainable manner … To reach their full potential, and to also contribute to the community and the environment, farmers have to be part of a thriving community. These communities improve quality of life today, and enable a bright tomorrow. By participating in the Cargill Cocoa Promise, communities will acquire better social services related to education, health, and nutrition. Community members will unite to protect children from child labour and empower women. Partnerships with farmer organizations are key. They enable us to reach many smallholders. Experience shows us that helping these organizations build their capacity provides a solid foundation and engagement for farmer training, farm development, and community support activities. These subtle shifts in discourse in effect transform the publicly stated main objective of these companies, from the accumulation of profits, raising the productivity of cocoa, and securing a stable supply of production, into community development (Odijie, 2018). Cocoa TNCs have been able to shift the main thrust of sustainable development initiatives into an agenda for intensification of cocoa, enabling ‘more cocoa to be grown on less land’ (IDH, 2020). CocoaAction is the largest platform within the cocoa sector dealing with sustainable development. It was initiated in 2014 by the World Cocoa Foundation (WCF) to bring all the major cocoa processors and chocolate manufacturers together to build an economically viable and sustainable supply chain. CocoaAction builds up strategic networks of a diversity of groups that can work to transform cocoa production, including IFIs and bilateral donors, influential organizations involved in environmental standards and certification such as Fairtrade, Rainforest Alliance, and UTZ, and international conservation NGOs (World Cocoa Foundation, 2015). Cargill has also supported the formation of a Land Use and Forestry Protection Advisory Panel with representation from prominent international environmental NGOs including Tropical Forest Alliance, Conservation International, Rainforest Alliance, and World Resource Institute (Cargill, 2019). The WCF has also launched the Cocoa and Forests Initiative (CFI) with the Sustainable Trade Initiative (IDH)3. The main objectives of CFI are to promote the intensification of cocoa production to ameliorate the search for new forest land by farmers, and to introduce traceability and monitoring systems to prevent encroachment of farmers into forest lands, so that it can guarantee that cocoa within WCF supply chains are sustainably produced. The CFI also works with researchers on cocoa agroforestry practices, and in the process has shifted the main emphasis of research on cocoa agroforests from biodiversity concerns to the intensive use of inputs and hybrid seedling with preservation of trees on cocoa farms to increase yields (Ruf and Schroth, 2004; Gockowski and Sonwa, 2011). This reifies the objective of presenting sustainability as the intensification of production using more inputs to minimize expansion into new land. In Ghana, the WCF works with the Cocoa Research Institute of Ghana, the African Cocoa Breeders Group, Kookoopa (a farmer’s association), and Biodiversity International on a programme supported by the Dutch government to develop higher yielding cocoa varieties and promote commercial nurseries in rural communities to disseminate new planting materials and techniques (World Cocoa Foundation, 2019). Similarly, in Côte d’Ivoire, Nestlé and Mars work with ICRAF on on-farm trials to test new clone and hybrid varieties (World Cocoa Foundation, 2019). These initiatives have developed strategic alliances with some of the largest global input and fertilizer corporations, who also seek to shift the main sustainable development narratives towards more intensive production. Cargill and Syngenta (one of the big four seed and agricultural input producing corporations in the world) have initiated a partnership that has enabled Cargill to establish the largest crop protection programme in Côte d’Ivoire without additional investments, and Syngenta, to gain new markets for its products (Sustainable Trade Initiative, 2017). In Ghana, RMG Concept, a subsidiary of Syngenta, has acquired the agrochemical components of Wienco, a Dutch–Ghanaian corporation, which is the largest input dealer in internal Ghanaian trade. This also gives RMG Concept access to the Cocoa Abrapa farmers’ association, which Wienco set up with Yara (one of the two largest fertilizer producers in the world) to provide credits and inputs to farmers within the associations (Ghana Graphic Online, 2016). These linkages, with input distributors, serve several strategic objectives. Downstream, it facilitates the incorporation of farmers into input markets, which when combined with the distribution of cocoa seedlings provides an infrastructure for more intensive production. Upstream, these input companies also have high-level linkages into global forums on sustainable development and have also been able to influence policy deliberations towards defining sustainability by organizing several civil society lobby groups. For instance, Yara and Mosaic fertilizer company (which was acquired by Cargill but sold off in 2011 for US$24 billion) are represented on the Global Alliance for Climate Smart Agriculture with other fertilizer lobby groups, where they have vociferously campaigned for an approach to climate change based on more intensive use of fertilizers and synthetic inputs (GRAIN, 2015). Downstream, agribusiness linkages into community mobilization initiatives are often supported by equity capital. For instance the African Agriculture Trade Investment Fund (AATIF)—a fund promoting public–private partnerships, which has been capitalized by Deutche Bank and the German Development Bank (KfW), CDC, and Enco Africa Private Equity Fund, among others—has funded Wienco’s farmer initiatives.4 Civil society linkages to promote community uptake of new technologies also link into the world of microfinance. Microfinance corporations, including Advans and Opportunity International Savings and Loans (OISL), manage the provision of loans to farmer associations. These work in partnership with foundations such as Gates and Mastercard, with mobile phone operators such as MTN, and with international NGOs such as Technoserve, to develop credit and digital credit facilities to enable greater farmer acquisition of inputs. The IFC (2019, p. 62) states: ‘Giving the farmers access to financial services will increase traceability and the farmers’ loyalty…. Digital payments offer a pathway for access to formal credit as a digital footprint is created.’ In the Côte d’Ivoire, Advans works with MTN to provide 14,000 farmers organized in 90 cooperatives with mobile money accounts (IFC, 2019). These services are integrated into the dense web of national financial services and banks, foundations, and pan-African venture capital funds, which have developed a keen interest in agribusiness. Their programmes are often underwritten by large financial providers, including IFC, CDC, and IDH (World Bank, 2016). For instance, in 2016, Advans had an agreement to provide 100,000 cocoa farmers with loans with a risk sharing agreement of US$9 million underwritten by IFC and IDH (Barry Callebaut, 2016). These financial services build upon a long history of loan provision for farmers to foster adoption of new technology. This was implemented on a national scale in Ghana through the Global 2000 programme of the Sasakawa and Jimmy Carter Foundations in the 1990s (Amanor, 2010). In the early 2000s, the Ghanaian government sought to promote national agribusiness by encouraging linkages between food processors, and banks to release credit for farmer acquisition of inputs. For instance, on the Afife rice irrigation project, linkages were created between the Ministry of Food and Agriculture, Research Institutions, and Wienco to provide recommended packages of seed and inputs to farmers. The Agricultural Development Bank (ADB) provided loans to farmers, which were collected by the House of Remma, a Ghanaian processing company that was also financed by ADB. The farmers were bound by the contract to pay their loans in rice to the House of Remma, which then repaid the ADB (Danson et al., 2004). Through arrangements with microfinance and African equity capital, the cocoa TNCs are able to capitalize on the existing structures of accumulation and organizational knowledge within venture capital and apply it to the development of their own value chains. They are also able to draw upon the state to provide services to farmers, particularly in Ghana where the state has a large stake in the international marketing of cocoa and in research services. Since the early 2000s, the Ghanaian state has been spending considerable resources in subsidizing inputs for farmers, in spraying campaigns against disease, and in providing free hybrid seedlings to farmers. As a consequence, the state is also interested in mobilizing financial capital to reduce this growing burden. These interventions in production have not been a resounding success story. The data on uptake of new technology and productivity gains among farmers in Ghana and Côte d’Ivoire show mixed results. The average yield of around 500 kg of cocoa per ha in both countries is relatively low compared with the potential to raise yields to 1000 kg per ha. There is also considerable variation in yields in Ghana from around 300–1000 kg per ha reflecting various levels of use of inputs, environmental and soil conditions (Hainmueller et al., 2011; Ruf and Bini, 2011; Wessel and Quist-Wessel, 2015; Kolavalli and Vigneri, 2017). The subsidization of inputs by the Government of Ghana has enabled more farmers to adopt inputs, in contrast with Côte d’Ivoire where high costs of fertilizers make them a riskier investment for farmers. However, as Odijie (2019) points out, this has resulted in a huge expenditure for the Ghanaian state, which in 2018 incurred expenses of US$2 billion in subsidizing inputs for cocoa farmers, absorbing a substantial part of the revenues that the government gains from cocoa exports. These interventions and subsidies have not resulted in significant improvement in cocoa revenues for farmers or for the cocoa producing nations. According to Fairtrade International (2018, p. 3): For several years now, a growing consensus has emerged across the industry that it is fundamentally unfair, as well as unsustainable, that most cocoa farmers earn less than a living income. Despite many different initiatives to improve the conditions for cocoa farmers in West Africa, which often focus on productivity and increasing yields, the situation has not improved enough. Fairtrade International (2018, p. 3) estimates that only 12 percent of cocoa farmers in Côte d’Ivoire receive a living income, estimated at above the equivalent of US$2.5 per day. Fountain and Huetz-Adam (2015) suggest that over 60 percent of farmers in Côte d’Ivoire live below the poverty line. They also estimate that only 6 percent of value within the cocoa food chains ends up with farmers. The declining revenues of farmers reached a crisis in June 2019 when both governments of Côte d’Ivoire and Ghana threatened to suspend sale of the 2020 crop unless buyers raised minimum prices to US$2600 per ton. The two nations eventually lifted this suspension but decided to implement a Living Income Differential, which they would pay to farmers—the equivalent of US$400—when world market prices dropped below US$2600 per ton (Africa Research Bulletin, 2019). With declining prices for cocoa and increasing expenditure on inputs, a significant number of farmers are turning towards other crops, including rubber and oil palm (Ruf and Schroth, 2015; Odijie, 2018). The response of the cocoa industry is to encourage farmers to increase productivity by using more inputs and to build financial credit services to facilitate this. This carries dangers of entrapping farmers in escalating debt and locking them into a growing dependence on inputs and credit supplied at a profit to agribusiness (Odijie, 2018). As accusations of poverty tarnish the industry, the cocoa corporations may also attempt to increase barriers of entry to production, and abandon smallholders who are unable to make this transition to high inputs. Paradoxically, it is likely to be the smallholders who are most affected, who are dependent upon cocoa and have fewer alternatives, while larger farmers with more capital may have more opportunities to convert to other crops. While these cocoa platforms have created an image of an industry that is committed to promoting community development and investments in the community, they have been less successful in transforming the poverty and structural inequality that is embedded in the very nature of its production and surplus extraction. Conclusion This paper questions perceptions that in recent years financialization is displacing productive capital and resulting in new forms of investments that undermine the productive sector. In contrast, I have argued that, in the context of West Africa, there are close synergic linkages between financialization and productive capital. In the West African cocoa industry this occurs in four distinct venues. Firstly, in the structures of governance reforms and development policy formulation that sought to open up African economies to foreign investment. These created ‘national platforms’ to attract foreign capital and kick-start venture capital investments in Africa. They facilitated the public–private partnerships and civil society linkages that have very much defined the ways in which cocoa TNCs have invested in West Africa and built strategic linkages into community development. Secondly, the abandonment of antitrust legislation enforcement and promotion of open global markets that were initiated in the United States from the 1970s have enabled the global expansion of transnational food traders through acquisitions and mergers and their recourse to international financial capital to realize these acquisitions. These acquisitions have been dominated by productive concerns of capturing new technology and specialized knowledge to achieve market domination rather than in speculative investment in liquid assets. Thirdly, cocoa TNCs have invested in building strategic linkages with input suppliers who have also gained control over input markets through acquisitions of corporations with economic and organizational linkages to farmer associations. Fourthly, there have been downstream linkages into national financial markets established by dense webs of international and pan-African venture and equity capital, which also have links to national stock exchanges, development banks, digital monetary services, and microfinance—all of which see agribusiness as a lucrative field for investment. These initiatives have resulted in a complex web of productive and financial capital and civil society organizations working to develop cocoa supply chains integrated with transnational food traders and input suppliers. While the cocoa platforms present their interventions as making a significant impact on community development and poverty alleviation, large numbers of farmers in the cocoa value chain suffer from impoverishment and receive a very small percentage of the value generated in production and marketing Footnotes 1 ADM’s cocoa business was subsequently acquired by Olam International of (Singapore) in 2015. See https://www.reuters.com/article/us-cocoa-olam-intl-archer-daniels-idUSKCN0SA24Y20151016. 2 For instance, Losch (2002) reports that the Ivorian state attempted to prevent Cargill acquiring subsidiary companies throughout the 1990s. 3 IDH is a Dutch government supported financial organization that seeks to build coalitions between TNCS, civil society organizations and government agencies in commodity value chains. See https://www.idhsustainabletrade.com/about-idh/. 4 See https://www.cdcgroup.com/en/our-investments/fund/atlantic-coast-regional-fund/; https://www.cdcgroup.com/en/our-investments/underlying/rmg-concept-limited/; and https://www.aatif.lu/objective-of-the-fund.html (all accessed on October 3rd 2019). Kojo Amanor is a professor at the Institute of African Studies University, Legon, Ghana. 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Blakeley,, Grace

doi: 10.1093/cdj/bsaa056pmid: N/A

Abstract In the UK, financialization has transformed many areas of the economy, including the housing market. The deregulation of financial markets that took place from the 1980s onwards, combined with the privatization of social housing, has transformed UK real estate from an ordinary good, insulated to some extent from consumer and financial markets, into a valuable financial asset. The financialization of real estate has had a largely negative impact on the UK’s housing market, the wider economy and individual communities; wealth inequality, financial instability, gentrification and homelessness have all increased as the role of the financial sector in UK property has increased. The financial crisis only accelerated many of these trends as distressed real estate was bought up by investors in its wake, and as loose monetary policy pushed up house prices in the period after the crisis. The COVID-19 pandemic is only likely to exacerbate these issues; the UK is sleepwalking into a potential evictions crisis, and ongoing loose monetary policy is likely to prevent a significant and necessary correction in house prices over the long term. Introduction Over the past forty years, the UK economy has undergone a process of financialization, understood as ‘the increasing role of financial markets, financial motives, financial actors and financial institutions in the operation of the domestic and international economies’ (Epstein, 2005, p.3). This process has been particularly visible in the UK’s housing markets. Financial deregulation, combined with the privatization of the social housing stock, has meant that financial institutions and investors are increasingly able to speculate over housing and other financial instruments collateralized using housing. This has transformed real estate into ‘just another asset class’ (Van Loon and Aalbers, 2017). The resultant increase in house prices has generated significant capital gains for landlords and homeowners while pushing up rents for those in the private rented sector. The financialization of UK real estate has compromised the affordability of housing, while also generating financial instability and inter-generational, regional and wealth inequality (Blakeley, 2019). As the UN Special Rapporteur on Adequate Housing has noted (Rolnik, 2013), the impact these processes have had on many communities has been disastrous, with many families forced to live in inadequate housing, and many others forced out of areas subject to gentrification due to rising rents (Yee, 2020). Outside of the cities, regional communities have also been affected by the growing disparity between house prices in the capital and those in other parts of the country, which has increased wealth inequality and compromised geographic mobility (Roberts et al., 2018; Blanchflower, 2019). The financialization of UK housing began in earnest in the 1980s when successive Conservative governments introduced significant changes to the ownership and regulation of both housing and the financial systems. The increase in consumer lending catalyzed by the policies of the Thatcher government has created a regime of ‘privatized Keynesianism’. This means an increasing share of aggregate demand (the demand for all goods and services in the economy) has come to rely on the availability of easy credit to households—particularly mortgage lending (Crouch, 2009). Rather than supporting employment through government borrowing—a macroeconomic approach that became increasingly unpopular with the rise of neoliberalism—governments preferred to facilitate private borrowing. Household debt in the UK increased to a record 95 percent of GDP in 2008 (Bank for International Settlements, 2020). With the financial deregulation of the 1980s, credit became much more easily available at the same time as the government introduced the right to buy scheme, which allowed middle and working-class households to purchase their council houses from the state. The rise in mortgage borrowing led to an increase in house prices as it assisted speculative purchases of housing, creating a cycle of rising asset prices driven by expectations of future price increases (Wray, 2011). The ease with which households were able to release the equity from their homes in order to finance consumption spending generated yet more instability. The fact that much of this debt was being securitized; a process whereby ordinary mortgage contracts were turned into financial securities (i.e. tradable assets) that could be sold and traded on financial markets was a significant factor leading to the financial crisis of 2008 (Shabani et al., 2014). As noted, real estate has become ‘just another asset class’ (Van Loon and Aalbers, 2017). This is evident around the world, especially in the most financialized economies. Mortgage lending and securitization has become central to the business models of most international banks and has deepened the links between housing and finance (Aalbers, 2016). It is now easier than ever to invest in real estate without purchasing a particular property through the housing market, but instead by investing in funds that purchase a portfolio of property on investors’ behalf. Real estate—and particularly residential property—has become an asset over which financiers can speculate, rather than the simple commodity it once was. The human right to housing—enshrined in international law—has now been eclipsed by the right of investors to speculate over property values (Rolnik, 2013). In the period since the financial crisis, the housing crisis has—if anything—deepened. In the period since 2008, financial institutions have bought up distressed real estate, which quickly recovered its value, at least in part, as a result of the asset purchasing programmes introduced by central banks around the world (Beswick et al., 2016). The Bank of England’s quantitative easing (QE) programme—under which the UK’s central bank, along with those in other major economies, has created new money in order to purchase existing assets, particularly government bonds (i.e. government debt)—has prevented the reduction in asset prices that otherwise might have been expected in the wake of the crash. Central bank purchases of government bonds have pushed down the returns investors receive from those bonds and encouraged investors to invest in other assets, such as property, pushing up prices (Deleidi and Mazzucato, 2018). While credit conditions have loosened, this has primarily benefitted those with existing assets; it has become more difficult for those without existing wealth to take out a mortgage: one study found that 41 percent of homeowners aged 18–24 had had a mortgage application rejected (Kelly et al., 2019; Clark, 2019). Wages have stagnated for over a decade, and home ownership among young people has fallen sharply: those born in the late 1980s have a 25 percent chance of owning a home at age 27, compared with 43 percent for those born in the late 1970s (Cribb et al., 2017). When housing costs are taken into account, many people in the nation’s capital are now living below the poverty line, despite being in employment (Trust for London, 2020). Covid-19 is only likely to increase the inequality between owners and private renters in the UK (Furceri et al., 2020).This is because the extremely loose monetary policy (low interest rates and QE) pursued by the Bank of England will maintain high house prices over the long term. As unemployment increases, many people will find themselves unable to pay rent and poverty and homelessness could increase as a result. As the evictions ban imposed by the government comes to an end, the UK is also facing a potential evictions crisis, in which those who have lost their jobs, or suffered a reduction in their incomes as a result of the pandemic, may find themselves unable to pay their rents (Hammond, 2020). These inequalities are not inevitable. Prior to the liberalization of financial markets in the 1980s, many more people rented in both the private and social rented sectors. Private rents were controlled by the state and tenants had many other protections (Wilson, 2017). If states wish to tackle the problems associated with the financialization of housing, steps must be taken to insulate the housing market from both financial markets and from consumer markets. Mortgage lending must be controlled, and a significant stock of housing must be provided at below market rents for social renters. In the first section of the paper, I chart the history of the financialization of housing in the UK back to the monetary and housing policy reforms of the 1970s and 1980s, and in the second section, I look at how these changes were reinforced by the growth of financial globalization. In the third section, I analyze how the relationship between finance and housing has shifted since the financial crisis of 2008, arguing that the crisis did not arrest, and in fact deepened, the financialization of housing. In the fifth and sixth sections, I look at how financialization has affected the UK housing market, and its economy and society, respectively. In the final section, I interrogate the impact the COVID-19 pandemic is likely to have on the financialization of housing, arguing that without significant reforms, the pandemic could lead to an increase in wealth inequality and deepen the housing crisis. The origins of the financialization of housing In the UK, the modern era of financialization in the housing market began in 1979, with the election of Margaret Thatcher. One of Thatcher’s first policy announcements was to remove the restrictions on capital mobility that had been in place for most of the post-war period. The result was a significant outflow of capital from the UK as investors moved their capital abroad in search of higher returns. These outflows also began to undermine other areas of the UK’s financial regulatory architecture—most notably, the bank ‘corset’ (the supplementary deposits scheme, under which banks were required to hold reserves against any new loans they issued with the Bank of England) (Financial Times, 2014). Thatcher’s government removed the bank corset in 1981, thereby loosening controls on credit creation. The combination of the removal of restrictions on capital mobility and the loosening of credit controls facilitated an increase in bank lending throughout this period (Aron et al., 2010). The broad money supply rose substantially owing to this rise in lending and stood at 85 percent GDP in 1990, next to 40 percent in 1985 (World Bank, 2020). Bank lending provided by financial institutions more than doubled as a percentage of GDP during this same period. Reforms to the UK’s building societies also contributed to the loosening of credit in the UK in the mid- to late-1980s. Prior to the 1986 Building Societies Act, building societies dominated the mortgage market (Bank of England, 1990). Unlike traditional banks, building societies did not have the capacity to create new money through their lending; they simply lent out the savings deposited with them by certain members to other members looking to borrow. As such, the building societies were forced to keep interest rates relatively high to equilibrate flows of saving and lending, which made mortgage borrowing relatively more expensive than it is today. The 1986 Act introduced provisions to allow building societies to demutualize (i.e. change from a mutual organization to a publicly traded company) and offer traditional retail banking services. The societies were then able to lend much more prodigiously while providing current members with large windfall gains through the demutualization process (Cook, Deakin, & Hughes, 2001). Former building societies continued to play a significant role in mortgage lending, operating as ordinary retail banks—at the same time as traditional retail banks were able to lend much more freely. Former building societies such as Northern Rock were ultimately those most involved in the expansion of the sub-prime market in the UK (Klimecki and Willmott, 2009). Reforms to the housing market itself were also introduced during this period, most notably through ‘right-to-buy’. ‘Right-to-buy’ was introduced via the Housing Act of 1980, which introduced measures that allowed local authorities to sell social housing to social tenants, often at a significant discount below market price. Reforms to the finance sector and the UK’s monetary policy framework ensured that credit was readily available for those seeking to purchase homes through right-to-buy. Many were able to take out zero-deposit mortgages. Right-to-buy remains the largest privatization ever undertaken by the British state: 6 percent of the nation’s stock of social housing was sold between 1980 and 1987 (House of Commons, 1999). Many of these homes would ultimately end up in the private rented sector, where rents were rising owing to the removal of rent controls in 1977 (Wilson, 2017). Between 1988 and 1996, private rents increased by more than 100 percent (Wilson and Morgan, 1998). With lending rising, and much of this new money being directed towards the purchase of housing, house prices rose substantially (Blakeley, 2018). Rising house prices drove a speculative feedback loop, whereby investors would borrow to invest in British real estate based on the expectation that it would continue to increase in value (Ryan-Collins et al., 2017). Towards the end of the 1980s, however, real interest rates began to rise, which increased the cost of debt servicing and limited credit availability among less well-off households. As a result, the housing bubble burst, leading to a recession which lasted until 1993. But in the mid-1990s, the boom began once again. Bank lending increased, and house prices rose with it. Low interest rates, regulatory loopholes and bank deregulation conspired to create a boom in mortgage lending (Aalbers, 2016). The same trend was evident in US housing and financial markets and in those of several other financialized economies, such as Ireland, Iceland and Latvia (Hudson, 2015). In the United States, and to a lesser, though still significant extent, the United Kingdom and other European countries’ banks would issue mortgages and ‘securities’ them, turning them into financial securities that could be traded on capital markets (Tooze, 2018). Securitization allowed banks to continuously increase their lending while still conforming to the letter of international regulation. A number of complex financial instruments were created through this process, most of which were ultimately based on mortgage lending. These included mortgage-backed securities, collateralized debt obligations and credit default swaps (further explained in Tooze, 2018). Higher lending meant higher profits for retail banks, and US investment banks made large profits from the fees charged during the securitization boom (Lapavitsas, 2019). The revenues derived from securitization gave banks an incentive to continuously increase mortgage lending, reduce their underwriting standards and issue mortgages to less creditworthy borrowers. While the so-called ‘subprime’ crisis originated in US mortgage markets, UK banks had also increased their mortgage lending to less creditworthy households and become involved in the securitization of this lending (Scanlon and Whitehead, 2011). By the late 2000s, banks such as Northern Rock were issuing mortgages worth 125 percent of the home’s value (Dunkley, 2017). Buyers’ optimistic expectations about future returns drove asset prices far higher than models based on rational expectations, and efficient markets would have predicted (Wray, 2011). The ultimate result was the emergence of a bubble. Mortgage lending increased 20-fold in absolute terms between 1997 and 2008, rising from 20 percent of GDP in 1990 to nearly 70 percent in 2008 (Ryan-Collins et al., 2017). Rising home ownership—which peaked at around 70 percent in the early 2000s—allowed the state largely to withdraw from the housing market. Social house building fell substantially and housing associations were set up at arm’s length from local authorities to manage the stock of social housing. The capital gains that homeowners were accruing in their homes made them feel much wealthier, encouraging them to spend more which fuelled a consumer boom (Shabani et al., 2014). Rising levels of private wealth helped to justify an ideological shift away from the collective provision of social security and to promote an individualized model of risk management (Montgomerie, 2014). Many homeowners came to rely far more on the wealth stored up in their homes to insulate them from risk than they did the state, which meant that the opponents of the welfare state were able to cast these benefits as handouts reserved solely for the poor rather than a social safety net that everyone would come to rely on at some point in their lives (Montgomerie, 2014). UK housing and financial globalization The process of financialization that took place in the UK economy was inseparable from the wider process of financial globalization taking place at the international level. Capital account liberalization was associated with a sharp rise in capital flows, which rose three times faster than global trade flows from the mid-1990s to 2007, representing around 5 percent of world GDP in the mid-1990s compared with 20 percent in 2007 (Lane, 2012). Also associated with financial globalization was the emergence of ‘global imbalances’ between creditor countries, with persistent current account surpluses, and debtor countries, with persistent current account deficits (Lane, 2012). Neoclassical theory suggests that large imbalances between countries should not persist over the long term (Mankiw, 2014). An economy with a large current account deficit should witness outflows of capital—unless these outflows returned to the country through, for example, demand for a country’s imports, then its currency would depreciate. A depreciating currency would make the country’s exports more competitive internationally, increasing demand for the currency and stimulating economic growth. Higher growth rates would, in turn, attract more investment flows from abroad. The inverse pattern should apply to economies running large current account surpluses, ultimately leading to global equilibrium. Prior to the financial crisis, however, no such equilibrium was forthcoming. Deficit countries such as the UK were able to run huge current account deficits without seeing a depreciation of their currencies. Several observers cast UK Sterling as the most overvalued currency in the world for this very reason (Ping Chan, 2015). But in the pre-crisis period, economists were puzzled as to the origin of these imbalances. Ben Bernanke (2004), then chairman of the Fed, accused a number of emerging economies of ‘hoarding’ savings to protect themselves from future crises, preventing the global economy from reaching equilibrium. In fact, these global imbalances emerged directly from the way in which financial globalization restructured relationships between core and peripheral states in the world system (Blakeley, 2019). From the 1980s onwards, the volume of capital flowing out of the global South has exceeded the volume of capital flowing into it in the form of foreign direct investment; the capital that flowed back in the financial centres of the global North was then used to support the domestic processes of financialization (Benigno et al., 2020). Deficit countries were able to maintain strong currencies because, even though there was relatively little demand for their goods, there was strong demand for their assets—particularly financial assets. The main reason for the high demand for UK and US assets was the financial deregulation undertaken by neoliberal governments in these states in the 1980s, which facilitated an expansion in the provision of private credit to individuals, businesses and financial institutions (Blakeley, 2018). Financialization since the crisis In the wake of the crisis, policymakers realized that monetary policy could rapidly become a blunt tool for stimulating demand after ‘balance sheet recessions’ (Koo, 2014). With households and businesses attempting to deleverage (i.e. reduce their debt levels), cutting interest rates to record lows was like ‘pushing on a string’: even extremely cheap credit could not encourage households to borrow more (Koo, 2014). Central bankers found their efforts hampered even further when, several years after the crash, governments started to impose harsh austerity programmes that sapped demand from the economy (Stirling, 2018). Interest rates eventually fell to zero, or near zero, in many countries, and yet central bankers found that inflation was still below their target range. When Japan found itself in a similar situation after their housing boom had ended, the Bank of Japan developed a new set of monetary policy tools the central bank could use to stimulate demand—QE was first used by the Bank of Japan in the early 2000s and has since been adopted by the world’s three other largest central banks. The implementation of QE has differed from place to place. In 2009, the asset purchases facility (APF) (known as QE)—was introduced by the Bank of England. The APF uses new money—created by the Bank—to buy up assets on the open market. The central bank has mostly bought up government bonds of varying maturities, but it has also purchased private sector assets. Central bankers initially argued that the increase in the money supply associated with large-scale asset purchases would boost bank lending (Positive Money, 2020). But since the financial liberalization, bank lending has been determined primarily by banks’ risk appetite and demand for lending in the wider economy, not the availability of deposits (Jakab and Kumhof, 2018). The Bank of England now accepts that QE works by reducing bond yields, reducing borrowing costs and increasing ‘a wide range of financial asset prices’ (Bank of England, 2020). This wide range of asset prices includes house prices. The financialization of housing has meant that UK property—and particularly London property—is a central part of many investors’ portfolios (Aalbers, 2016). As house prices fell in the wake of the financial crisis, cash rich investors were able to buy up relatively cheap properties knowing that prices would start rising quickly once the economy returned to growth. With returns in both bond and equity markets relatively low, and in the context of a British housing market that remained commodified and heavily financialized, investment in UK property increased substantially, driving up house prices (Aalbers, 2016; Hale, 2018). This process was aided by the re-emergence of financial products that allowed investors to put their money in real estate without directly purchasing it. Investment in Real Estate Investment Trusts (REITs)—companies, often publicly listed, that own and operate real estate portfolios—has increased substantially since 2008 (Waldron, 2018). The rise of REITs has deepened the financialization of real estate and has further transformed UK property into ‘just another asset class’ as investors are able to invest in REITs just as they do in many other liquid financial assets (Van Loon and Aalbers, 2017; Waldron, 2018). The impact of financialization on the UK Housing Market How have these changes affected communities in the UK? Mortgage lending remained subdued in the immediate aftermath of the crash. Households were attempting to deleverage so demand for credit was low, and banks had become more risk averse and were subject to more regulation, so were less willing to lend (Harari, 2018). But as house prices started to pick up, mortgage lending began to increase once more. Low demand in the rest of the economy made lending to small businesses relatively risky, but with house prices rising, mortgage lending was once again seen as very safe. Wages, however, had stagnated; so much of this borrowing was undertaken by the already wealthy meaning that the distribution of housing wealth is increasingly skewed towards the wealthiest (Roberts et al., 2018). Today, the number of homeowners with a mortgage is 13 percent lower than it was a decade ago (UK Finance, 2019). Homeownership has therefore been placed out of the reach of many households. At the same time, social housing stock as declined, rents have risen and conditions deteriorated in the private rented sector. As a result, as a signatory of the UDHR, the UK is currently failing to meet its legal obligations to support the human right to adequate housing. In 2013, the UN special rapporteur on adequate housing—Raquel Rolnik—visited the UK to determine how the UK was progressing on this objective. She pointed out that house prices had increased by 200 percent between 1997 and 2012, while median full-time earnings rose just 55 percent. Prices in the UK had, at that point, ‘risen at a rate double the European Union average for the last 30 years’ (Rolnik 2013, p. 8). Rolnik writes ‘homeownership and the financialization of housing had a strong impact on the role of housing in the United Kingdom, transforming it from a social good into a financial asset’ (Rolnik 2013, p. 6). She argues that social and affordable housing is especially scarce, pointing out that ‘waiting lists for social rental housing have grown, homelessness rates have increased, and the private rented sector has expanded to become the only option for many despite its insecure tenure’ (Rolnik 2013, p. 8). Much housing also fails to meet the standards of adequacy set out by the UN: as many as 35 percent of properties in the private rented sector do not meet the government’s ‘Decent Homes Standard’. Research from Shelter has shown the human impact of this crisis on ordinary people. Shelter (2018a) points out that the rising housing costs—the average home now costs eight times the average annual income—has led to falling home ownership—home ownership is down five percentage points on a decade ago, and on current trends, only half of today’s young people can expect to own their own home. Meanwhile, the provision of social housing at affordable rents has been steadily eroded—in 1997/8, ‘75% of all affordable housing delivered in England was at social rent. In 2017/18, this had fallen to just 14%’ (Shelter, 2018a, p. 4). As a result, the average share of income that young families spend on housing costs has trebled over the last fifty years (Shelter, 2018b). About 22 percent of the population, and 30 percent of children, are now classified as living in poverty in the UK after housing costs (Francis-Devine et al., 2019). Nearly 320,000 people in England are now homeless, including 130,000 children (Shelter, 2018). Unequal ownership of property has meant that some people have benefitted from the capital gains associated with rising house prices, while others have lost out. The UK is already a highly wealth-unequal society, with the richest 10 percent of people owning 44 percent of the nation’s wealth and the least wealthy half owning just 9 percent (Roberts et al., 2018). Wealth is twice as unequally distributed as income in the UK—the Gini coefficient for wealth is 0.62, while that for income is 0.32 (Roberts et al., 2018). And, the disparities are growing. Between 2010/12 and 2012/14, the wealth of the top 10 percent increased by 21 percent, while that of the bottom 50 percent increased by just 7 percent (Roberts et al., 2018). Half the increase in the country’s wealth over this time period was therefore monopolized by the top 10 percent (Roberts et al., 2018). Prior to the crisis, young people were able to get onto ‘the housing ladder’ by taking out larger mortgages at low interest rates, but after the crash, that option has been less readily available—a trend witnessed across European countries (Kelly et al., 2019). Rather than going to first time buyers, the houses that are built today have tended to end up in the hands of those who already have access to much of the capital needed to purchase the home, or the up-front cash needed to secure a mortgage. For the bottom half of the population by income, the property ownership rate went down from 55 to 52 percent, while for the lowest decile, it fell from 46 to 36 percent (Office for National Statistics, 2018b). For the top half, it stayed the same at 84 percent. Landlords have profited handsomely from this change. The average gross rental income for landlords is £33,000—more than half the average salary (Ministry of Housing, Communities and Local Government, 2018). In London, this figure rises to £41,000. The other side of the coin to rising landlord incomes is the rising costs associated with housing for those who do not own their homes outright. According to the English Housing Survey conducted by the Office for National Statistics (2018a), the average private renter spends a third of their income on housing costs, next to 28 percent for social renters and 17 percent for owner-occupiers with mortgages. For private renters aged 16–24, this figure rises to 48 percent of household income—for those with families, the figure rises to 78 percent of head tenant and partner income. Housing costs for the average renter in London are nearly as high as those for the average 16–24 year old, standing at 43 percent of household income. Most private renters are therefore unable to afford to save for a home. About 64 percent of those living in the private rented sector have no savings at all, next to 83 percent of those living in the social rented sector. About 71 percent of private renters who do not expect to buy say that this is because they are ‘unlikely to be able to afford it’ (among other reasons). Only 14 percent say that they ‘like it where [they are]’. The Impact of Financialization on the UK’s Economy and Society The financialization of housing, driven by its use as collateral for the issuance of loans, has not simply priced many buyers out of the housing market; it has been a significant source of financial instability. Housing is one of the most significant forms of collateral in modern financial systems (Aalbers, 2016). During the upswing of the financial cycle, a large amount of lending is collateralized against housing. Anticipating continuous future increases in house prices, banks will lend at ever-higher loan-to-value ratios, sometimes granting mortgages worth more than the value of the property itself (Ryan-Collins, 2018). But when the financial cycle turns, credit dries up, house prices begin to fall and some homeowners find themselves in negative equity. People sell their homes anticipating future price falls, creating a self-reinforcing cycle of falling house prices. Defaults escalate and foreclosures rise. In the pre-crisis period, rising lending secured against dwellings pushed up asset prices—particularly house prices—which led to the emergence of a wealth effect that encouraged yet more borrowing. As the banks became more optimistic, underwriting standards deteriorated and more people were able to access much larger loans (Aalbers, 2016). As argued in a paper from the European Financial Stability Board (Kelly et al. 2019), countries that experienced a property boom before 2008. Exhibited significantly higher loan-to-value (LTV) and loan-to-income (LTI) ratios… and an increasing tendency towards longer-term loans compared to borrowers in other countries… Credit easing persisted when house prices increased and consequently induced high indebtedness and more credit expansion, which resulted in substantial pockets of risk before the Great Financial Crisis hit. Capital flows into booming asset markets in financialized economies like the UK’s have also created significant regional and sectoral imbalances. The UK has had a large and persistent current account deficit for over thirty years—in 2017, the current account deficit reached a peacetime peak of 6 percent of GDP (Blakeley, 2018). This persistent current account deficit, without an associated weakening in the Sterling exchange rate, was explained by high demand for British assets, including property and assets derived from lending against property (Blakeley, 2018). The result has been the emergence of an acute ‘Dutch disease’. This refers to the suppression of Dutch manufacturers that occurred after the discovery of natural gas pushed up the value of the currency. ‘Dutch disease’ has created significant sectoral and geographical imbalances in the British economy. By repressing demand for exports, this has exacerbated the process of deindustrialization that began in the 1990s and 2000s. Between 1970 and 2007, manufacturing declined from 27 percent of gross value added to just 10 percent (Rhodes, 2017). Today, the UK is highly import dependent. What manufacturing remains is also dependent upon imports and global supply chains (Jacobs et al., 2017). Over time, this Dutch disease has become locked in, meaning that a currency devaluation will not reverse the problems caused by the appreciation (Mitchie, 2014). The impact that this deindustrialization has had on the economic geography of the UK has been stark. Manufacturing accounts for 10.2 percent of jobs in the North East, 9.4 percent in the North West and 9.7 percent in Yorkshire, next to 2.4 percent of jobs in London (Blakeley, 2018). Deindustrialization has therefore had a significant impact on the UK’s regions and the UK is now one of the most regionally unequal countries in Europe (Blakeley, 2018). Deindustrialization has been reflected in differences in real estate values across the country, creating a self-reinforcing cycle of investment flowing out of the regions and into London. Between 2006 and 2016, for example, the average household in London saw their property wealth rise by 140 percent, while it fell by 40 percent in the North East and 10 percent in the North West and Yorkshire and the Humber (Office for National Statistics, 2018b). Over the same period, rents in London rose twice as much as they did in Yorkshire and the Humber and three times as much as they did in the North East and the North West. The result has been the emergence of two housing markets—London and the South East and everywhere else. Financialization during the Covid-19 pandemic The recovery from the last financial crisis provided an opportunity for investors all over the world to buy up distressed real estate and profit from rising prices facilitated by central banks in the years that followed (Beswick et al., 2016). As a result of QE and the further consolidation of the housing stock in the hands of a small number of investors, private renters suffered while those with existing wealth benefitted from large capital gains. In the United States, asset managers like Blackstone bought up entire communities in the name of profiting from ‘distressed’ real estate (Action Centre on Race and the Economy, 2020). The rise of corporate landlordism has transformed many communities, particularly in states like Ireland where so-called ‘vulture investors’ bought up billions of euros worth of distressed mortgage debt before ‘repossessing underlying property assets to develop, refurbish or sell’ (Byrne, 2015 p.9). Since then, campaigners have been fighting constantly against rising rents and the gentrification of their neighbourhoods; Covid-19 has only witnessed an intensification in this struggle (Action Centre on Race and the Economy, 2020). Today, Blackstone has raised $US10 billion to buy up distressed property throughout Europe in the wake of the economic devastation left by the pandemic (Singh, 2020). Governments like the UK’s claim to promote a ‘tenure-neutral’ approach to housing policy. In practice, more often than not, this means privileged support for owner-occupiers (Shelter, 2009). The same trend has been evident with the onset of Covid-19. As soon as the pandemic was declared, it became clear that significant support would be needed to prevent the economic crisis associated with the pandemic from deteriorating into a financial crisis as households and businesses defaulted on their loans (Roubini, 2020). Central banks stepped in to provide near-unlimited liquidity for the financial and wider corporate sectors, while homeowners were given a break on mortgage repayments. Initially, private renters were not even mentioned by the government—but the Chancellor eventually agreed that evictions would not be permitted during the pandemic. Not only is it clear that evictions have been taking place anyway, protections for renters are set to end soon and hundreds of thousands of renters are currently in arrears (Shelter, 2020). Many groups have warned of an impending ‘evictions crisis’ as the government’s evictions ban comes to an end (Hammond, 2020). One might expect property prices to fall as a result of the contraction in economic activity and rise in unemployment the pandemic is likely to bring about. In the second quarter of 2020, GDP is estimated to have contracted by between 20 and 25 percent, and when the furlough scheme comes to an end, official estimates suggest that unemployment could reach 10 percent (NIESR, 2020; Office for Budgetary Responsibility, 2020). Such levels of unemployment will undoubtedly have an impact on the housing market and could depress prices in many parts of the country over the short term; though in areas like London where there is significant pent-up demand, the impact of COVID-19 is likely to be less significant. But over the long term, the government and the Bank of England seem intent on ensuring that house prices continue to rise as they have risen over the past several decades. UK Chancellor, Rishi Sunak, announced a cut to stamp duty on purchases of homes worth up to £500,000 in his mini-budget in July 2020—a measure that could keep prices in the middle of the market up. Perhaps, even more significantly, extremely loose monetary policy—which is now likely to continue for the foreseeable future—is likely to prop up house prices for years to come. The Bank of England will, along with central banks around the world, pump billions of dollars into financial markets in exchange for government debt, leaving investors flush with cash and looking for somewhere to invest it. Given that returns are likely to be depressed all over the world, the UK—and particularly London—property looks like a good investment, given the government’s clear commitment to propping up house prices. As investors continue to reach for yield, much of this new money will find its way into London property markets, sustaining prices—particularly for the most valuable properties. The money flowing into London’s real estate is likely to accelerate the processes of gentrification that have transformed the nation’s capital over the past several decades (Yee and Dennett, 2020). Communities that have occupied a particular area of the capital for many decades may find it harder to afford increasing rents, forcing many families further out of London and disrupting cultural, social and political networks. Recent battles over landmarks like Brixton’s arches, Elephant and Castle’s shopping centre and Seven Sisters’ Latin Village show both the damage inflicted by gentrification on many communities and their fierce resistance to it (Corporate Watch, 2019; Evans, 2018; Yeung, 2020). Gentrification has had a particularly stark impact on black, Asian and minority ethnic (BAME) communities in the UK (Barrow, 2020). Disproportionately impacted by the economic downturn and the virus itself, BAME households are likely to suffer as a result of gentrification even as the crisis ebbs. In the UK’s regions, where unemployment is already higher than the national average and where Covid-19 is likely to lead to many job losses in sectors such as retail, hospitality and manufacturing, many homeowners may see their wealth fall significantly as house prices decline or stagnate while pent-up domestic and international demand keeps prices high in the capital, exacerbating regional inequality. The disparity in house prices between the most and least well-off regions of the country will also have an impact on regional mobility: those who have purchased houses in the regions will find it increasingly difficult to move to London and other major cities such as Manchester, where house prices have increased much faster (Blanchflower, 2019). While lower house prices in the regions could be seen as good news for young people seeking to get on ‘the housing ladder’, the fact that this fall will be driven by rising unemployment will counteract this potential benefit. Young people tend to be impacted disproportionately by recessions—and those who enter the labour market during the recession experience a permanent ‘scar’ on their lifetime earnings (Cribb et al., 2017). If house prices fall but incomes fall just as much, this will do little to solve the UK’s housing crisis. The only way to tackle the injustices created by the UK’s financialized housing system is to de-financialize and de-commodify housing. On the first point, the links between the housing market and financial markets must be weakened. As I have argued previously, macroprudential regulation can be used to curb financial flows into housing by imposing limits on residential and commercial mortgage lending during the upswing of the financial cycle (Blakeley, 2018). Given that many economists have argued that central banks are already implicitly targeting asset prices, asset price targets could be formally incorporated into the central banks’ framework and used to prevent—rather than encourage—excessive house price inflation (Watson, 2014; Blakeley, 2018). On the second point, the government must take steps to provide housing to those who need it at significantly below market rents, limiting the role of the market mechanism in allocating housing. Social housebuilding must increase substantially; the government could provide local authorities with grants to build new, environmentally friendly housing as part of a recovery package to absorb the economic impact of the Covid-19-induced downturn. At the same time, rents in the private sector should be controlled. Rent controls exist in many economies throughout Europe, resulting in a significantly more even balance between owner-occupation and private renting. And during the pandemic, the Chancellor should be providing relief to renters just as he is offering mortgage-holders a payment holiday. Conclusion Over the last forty years, UK housing has been transformed from an ordinary consumer good into a valuable financial asset. The right of investors to speculate over property prices has been placed ahead of the right of every human being to a decent home. The financialization of UK real estate has led to significant financial instability, inequality and uneven patterns of development. The already wealthy have benefitted from this system, while the least well off have faced unaffordable rents, which has limited their chance of owning their own homes. With the social rented sector facing significant cuts, homelessness has increased substantially, and the UK is now failing to meet its human rights obligations as enshrined in international law. The financial crisis did not put an end to financialization. Instead, the state stepped in to prop up house prices in an attempt to re-start the pre-crisis debt-driven boom. The UK economy was left fragile and unequal as a result. When the Covid-19 pandemic hit, millions of people were living in poverty after housing costs—many struggling to pay their rent while servicing problem debts and earning less than minimum wage in insecure jobs. Rather than supporting these people through the crisis, the government has instead chosen to ignore private renters while providing support to owner-occupiers. As the crisis ebbs, loose monetary policy will be used to fuel yet more growth in property prices, particularly at the top end of the market. The financialization of UK real estate resulted from political choices made by policymakers, and it can be undone in the same way. By insulating housing from financial markets, controlling rents and increasing the stock of social housing, the government could de-financialize and de-commodify the housing system, ensuring that housing is seen as a human right rather than a speculative financial asset. While there are strong economic arguments for this course of action, it is political economy that is likely to stand in the way. The UK’s consumption-driven growth model relies on a kind of privatized Keynesianism that requires high levels of household debt and continuous rises in house prices. Political action and organizing among those communities most affected by the processes of financialization will be needed to facilitate a transition towards a more sustainable economic model. Acknowledgement This article includes extracts from a forthcoming report by Grace Blakeley and Shreya Nanda for the Institute for Public Policy Research. 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Kvangraven, Ingrid, Harvold;Koddenbrock,, Kai;Sylla, Ndongo, Samba

doi: 10.1093/cdj/bsaa047pmid: N/A

Abstract The financialization debate has not paid enough attention to the African continent. The continent’s populations and governments have found creative ways of dealing with the capitalist world market and political power relations since decolonization in the late 1950s. However, several forms of structural dependence and subordination persist. We ask in this article how the global process of financialization has unfolded across the continent and what it means for relations of dependence. We understand financialization as the global expansion of financial practices, and, in particular, the financial sector, that followed the end of the Bretton Woods era. We consider to what extent it has occurred at all in the four case study countries of Mauritius, Nigeria, Zambia, and South Africa. The empirical analysis of aggregate country data shows that financialization is, at best, an uneven and patchy process on the continent, not a general structural shift in the way capital accumulation is organized. Rather, where financialization occurred, it appears to have diversified the relations of dependence that states, corporations, and populations have found themselves in. Introduction Financialization has become a buzzword, and hotly debated, over the past decade. How it works specifically in relation to African countries’ political economy has, however, been left relatively unexplored. We provide a primarily descriptive overview of the financial sector on the continent at large, with particular attention to the four case study countries of South Africa, Nigeria, Mauritius, and Zambia whose external debt to private actors is comparatively high. We do this in conversation with Epstein’s (2005) signature definition of financialization as the increasing role of financial motives, markets, actors, and institutions in the operation of domestic and international economies. The study of financialization matters for community development in Africa to the extent that it ordinarily entails reorganizing social relationships of production, exchange, and consumption as well as weakening traditional solidarities in line with the preferences of the financial sector. Our analysis of aggregate data reveals that financialization is by no means a uniform process across the region. In some cases, the expansion of financial practices occurs through novel financial instruments such as local currency bonds or debt to commercial banks, while in other cases ‘traditional’ ways of using finance to extract profits from the continent predominate, such as through foreign direct investment (FDI) or through banking sectors dominated by foreign actors. Overall, we find that the degree to which financialization is occurring (if at all), and the nature of financial subordination, differs substantially across the region in general, and particularly across our four case study countries. The debate on financialization and financial subordination: an overview While money and finance have always been at the heart of capitalist accumulation, the debate about financialization often includes claims that, structurally and systemically, we have arrived at a new stage of capitalism—'finance capitalism’—that operates differently to the capitalisms of yesteryear (Christophers, 2015). Some have cast doubt on the relative rise of the financial sector. This is because, after the crisis, large multinational corporations (MNCs) have amassed significant retained earnings, which makes them less dependent on banks (Ivanova, 2019). Contemporary MNCs ‘have evolved into financial centers’ themselves (Ivanova, 2019: 710). For Ivanova, these changes are just shifting expressions of the capitalist compulsion to secure corporate profits. Strategies have shifted, but the underlying profit imperative has remained the same (Ivanova, 2019). The debate about whether there have been secular changes in the relations of capitalist accumulation, or whether we are simply witnessing cyclical changes, is not yet settled (Bonizzi et al., 2020). Staying clear of these thornier questions, we adopt a modest approach in this article by using financialization as a concept to describe the global expansion of financial practices and, more concretely, the expansion of the financial sector. We are especially interested in the period that followed the end of the Bretton Woods regime that was characterized by fixed exchange rates and limited capital mobility. This is in conversation with Epstein’s (2005) signature definition that financialization refers to the increasing importance of financial markets, motives, institutions, and elites in the operation of the economy and its governing institutions, both at the national and international levels. Krippner’s (2005) early work on the financialization of the US economy focused on the increasing profits of the financial sector relative to others. Since then, conceptual debates have abounded alongside calls to return to empirical analysis (Karwowski, 2019). This focus on the empirics is what we do in the present article. The financialization debate has branched out in all kinds of directions and, increasingly, the implications for the Global South are being considered (for an early review see Bonizzi, 2013). There is a range of empirical differences between economies in terms of how financialization manifests itself. In advanced economies, financialization has been associated with rising levels of household indebtedness, for example. For developing economies, important constraints include policy space and structural imbalances—in terms of both power and production. Recognizing this differentiation, an instructive research strand has emerged in recent years that analyses financialization in the Global South as ‘subordinate financialization’. This financial subordination literature draws upon the theory of imperialism, dependency theory, and Post-Keynesian debates on currency hierarchies and liquidity premia. While still somewhat ambiguous, the term ‘subordination’ denotes the need for actors in the Global South to react and adapt to actors, practices and financial flows originating in the Global North. Subordination in this sense is close to Theotonio dos Santos’s (1970: 231) classic definition of dependency as economic development being conditioned by the expansion of another economy. The most recent contributions have focused on the need to react to the ‘wall of money’ (Vishnoi, 2019), global liquidity (Bonizzi et al., 2019), or ‘hot money’ (Bortz, 2016). This is particularly relevant in times of unimpeded capital flows coupled with quantitative easing and low-interest rates in the Global North. Analyses have become increasingly fine-grained. They have moved beyond well-known arguments about ‘original sin’ (countries’ inability to borrow abroad in their own currency at affordable rates) and resulting USD denominated debt traps with exchange rate and interest rate risks (Tavares, 1985; Eichengreen et al., 2005). Local currency debt, private sector debt, and the ‘financial inclusion’ of households have come into view. Kaltenbrunner and Painceira (2018), for example, trace how Brazil’s USD dependency influences household-level debt. The financial subordination perspective also analyses the locations of firms in global production networks and their relations to financial markets (Bonizzi et al., 2020). Countries with more developed industry will be able to attract financial flows for productive purposes, while countries in the periphery attract financial flows to primary commodity or low-tech sectors, as well as for speculation (Bortz, 2016). Financial subordination in Africa: an overview One of the first critiques of ‘financial subordination’ avant la lettre in decolonizing West Africa, was Nkrumah’s (1965) analysis of the (post-) colonial banking sector. Nkrumah argued that political independence might have been reached but that economic colonialism persisted, for example, in the foreign dominance of the still highly concentrated banking sectors. We take a fresh look at this diagnosis in the four case study countries. Nkrumah’s perspective—harkening back to Lenin and other early theorists of imperialism—was picked up by Samir Amin (1976; 1974), who saw the monetary problem of underdeveloped countries in the workings of their foreign-dominated banking system. According to Amin, in auto-centric (i.e. self-determined) societies possessing policy space, financial institutions transform savings into long-term investments, while in peripheral countries, they are used for short-term financing of the economy or for state expenditure. These insights have not lost relevance. As we demonstrate in our case studies, domestic African financial sectors still show these characteristics, some of which are unfavorable and ensure structural dependence (Amin 2011; Taylor 2016). Four decades of financial liberalization, marketization, and intrusion We see three main ways in which financial practices and motives have spread and broadened. They are through financial liberalization, marketization of new financial instruments, and the intrusion of financial corporations into previously public, not-for-profit governmental policy areas or household level financial activity. The expansion of financial practices and flows started with the financial liberalization agenda pushed by the IMF and the World Bank in the 1980s. This agenda was a departure from the development framework prevalent during the ‘dirigiste’ period (1960–1980). During this period, African governments promoted industrialization and economic development through domestic resource mobilization and an active role for the state. The financial liberalization agenda marked a ‘paradigm shift’ (Mkandawire, 1999: 323) built on the ‘financial repression’ literature (McKinnon, 1973; Shaw, 1973).1 In the African context and elsewhere, the financial liberalization agenda consisted essentially of the elimination of credit and interest rate controls, the privatization of the banking sector, easier entry into the domestic financial sector, and the liberalization of capital flows. One consequence of this, as we will see, is the increase in the degree of connectedness, both in terms of foreign investment and debt flows. Free trade agreements and bilateral investment treaties have often led to more liberalization of the capital account vis-à-vis partner countries (Waibel, 2009). Beyond the crusade against ‘financial repression’, the development of ‘missing markets’—like stock markets—was another item of the financial liberalization package of the Bretton Woods Institutions (Yartey and Adjasi, 2007:3).2 In advanced economies, financial liberalization has been associated with an increase in the size of the financial sector relative to the real economy. The next section will explore to what extent that is the case in Africa. Starting in the 2000s, financial practices spread and brought new financial instruments and actors. These included households in new kinds of financialized relationships under the catchy labels of ‘financial integration’ and ‘financial inclusion’ (see e.g. Dafe, 2019). We call this marketization (Godechot, 2016). African governments increasingly integrated into the circuits of money and finance capital by issuing foreign and locally denominated governments bonds. International financial institutions have made bold claims about the poverty-reducing powers of financial inclusion policies. Emerging evidence suggests that increased indebtedness among the poor results from making credit widely available in communities with few profitable investment opportunities and without tackling structural issues of poverty, low productivity, and unemployment (see e.g. Bateman and Chang, 2012; dos Santos and Kvangraven, 2017; Mader, 2018). Destructive effects of financial inclusion policies, with regard to community development, have recently been documented in South Africa (Bateman, 2019) and Kenya (Bateman et al., 2019). The third observable form of financialization has been the increasing intrusion of financial actors and profit motives into the non-financial economic sphere. This includes intrusion into, for example, product markets, not-for-profit projects, and policies for social provision (for example the delivery of public goods), and international development agendas. This trend also involves finance’s command over the ‘real economy’, both in quantitative terms (i.e. financial flows oversizing flows of real goods and services) as well as in qualitative orientation (i.e. banking and financial systems oriented toward the financing of speculative activities rather than long-term economic growth and development). The generalization of the extractive and short-term rationality of global finance works to increase its share of the global economic pie intensively. This happens through squeezing production and trade activities and through the creation of new investment markets. The new markets are often created through full or partial privatization of public services worldwide (e.g. Bayliss and Van Wayenberge, 2018). Also relevant here, especially for community development, are the discussions about the financialization of public goods, of housing, of public infrastructures, of epidemics, of development policy, of ‘everyday life’, etc. (Lauerman and Vossos, 2019; Staritz et al., 2018; Gabor, 2018; Clapp and Isakson, 2018). Today: quantitative and qualitative changes to financial flows At the aggregate level, the most important development we can observe is the increase in financial flows in general and the shift from public to private actors involved in these transactions. Financial flows in sub-Saharan Africa have become increasingly dominated by private flows, including migrant remittances and FDI (AfDB et al., 2017). For example, the stock of inward FDI as a share of GDP nearly increased threefold between 1990 and 2000, from 9.7 per cent to 27.2 per cent. It stood around 40 per cent in 2017 (see Table 1). Although sub-Saharan Africa represents a very small share of global FDI flows, for most African countries, FDI as a share of GDP or of domestic investment constitutes a major mechanism of global economic and financial integration. Table 1 Inward FDI stock by regional groupings (per cent GDP) . 1980 . 1990 . 2000 . 2007 . 2010 . 2017 .  Sub-Saharan Africa 7.1 9.7 27.2 26.9 31.7 39.6  Developing economies 10.9 12.8 23.5 27.9 28.0 32.5   Developing economies: Africa 7.3 10.8 23.3 27.5 31.2 40.3   Developing economies: America 5.3 9.6 22.1 26.9 30.9 37.0   Developing economies: Asia 15.5 14.9 24.1 28.4 26.5 30.7 Developing economies excluding China 12.3 13.7 25.2 33.5 35.1 45.3 LDCs (Least developed countries) 5.2 6.6 18.3 19.3 24.6 30.9  Transition economies 0.2 14.1 34.0 32.9 37.8 World 9.6 22.5 30.9 29.9 40.6 . 1980 . 1990 . 2000 . 2007 . 2010 . 2017 .  Sub-Saharan Africa 7.1 9.7 27.2 26.9 31.7 39.6  Developing economies 10.9 12.8 23.5 27.9 28.0 32.5   Developing economies: Africa 7.3 10.8 23.3 27.5 31.2 40.3   Developing economies: America 5.3 9.6 22.1 26.9 30.9 37.0   Developing economies: Asia 15.5 14.9 24.1 28.4 26.5 30.7 Developing economies excluding China 12.3 13.7 25.2 33.5 35.1 45.3 LDCs (Least developed countries) 5.2 6.6 18.3 19.3 24.6 30.9  Transition economies 0.2 14.1 34.0 32.9 37.8 World 9.6 22.5 30.9 29.9 40.6 Source: UNCTAD online data on FDI, accessed October 2019. Open in new tab Table 1 Inward FDI stock by regional groupings (per cent GDP) . 1980 . 1990 . 2000 . 2007 . 2010 . 2017 .  Sub-Saharan Africa 7.1 9.7 27.2 26.9 31.7 39.6  Developing economies 10.9 12.8 23.5 27.9 28.0 32.5   Developing economies: Africa 7.3 10.8 23.3 27.5 31.2 40.3   Developing economies: America 5.3 9.6 22.1 26.9 30.9 37.0   Developing economies: Asia 15.5 14.9 24.1 28.4 26.5 30.7 Developing economies excluding China 12.3 13.7 25.2 33.5 35.1 45.3 LDCs (Least developed countries) 5.2 6.6 18.3 19.3 24.6 30.9  Transition economies 0.2 14.1 34.0 32.9 37.8 World 9.6 22.5 30.9 29.9 40.6 . 1980 . 1990 . 2000 . 2007 . 2010 . 2017 .  Sub-Saharan Africa 7.1 9.7 27.2 26.9 31.7 39.6  Developing economies 10.9 12.8 23.5 27.9 28.0 32.5   Developing economies: Africa 7.3 10.8 23.3 27.5 31.2 40.3   Developing economies: America 5.3 9.6 22.1 26.9 30.9 37.0   Developing economies: Asia 15.5 14.9 24.1 28.4 26.5 30.7 Developing economies excluding China 12.3 13.7 25.2 33.5 35.1 45.3 LDCs (Least developed countries) 5.2 6.6 18.3 19.3 24.6 30.9  Transition economies 0.2 14.1 34.0 32.9 37.8 World 9.6 22.5 30.9 29.9 40.6 Source: UNCTAD online data on FDI, accessed October 2019. Open in new tab The composition of sub-Saharan African public external debt has also changed dramatically over recent years, with declining concessionality (the grant element of the loan) and a relative increase in borrowing from non-traditional official and private lenders (Mustapha and Prizzon 2018; Bonizzi et al. 2019). Because of debt relief through multilateral initiatives, the region’s debt-to-GDP ratio was trending downwards until 2012. But because of increased borrowing and exchange rate depreciation since then, it has gone on to increase from 37 to 56 per cent of GDP between 2012 and 2016 (World Bank, 2018).3 The composition of lenders, investors, and trading partners on the African continent has also shifted from being dominated by European and American actors, to what Taylor (2016) has called ‘diversified dependence’ as actors from China and elsewhere have become important. China’s presence in Africa can be traced to its demand for commodities. It received 11 per cent of all African exports in 2017, making it the region’s largest trading partner. This is also reflected in a dramatic increase in Chinese investment flows in the region and loans to African governments (Christensen and Schanz, 2018). Beyond changes in bilateral debt, other substantial changes regarding debt instruments have occurred. Here, we can observe why Olivier Godechot argues ‘financialization is marketization’, i.e. the ‘growing amount of social energy devoted to the trade of financial instruments on financial markets’ (2016: 1). Between September 2006 and June 2017, 16 sub-Saharan African countries issued Eurobonds, most of them for the first time. The market for African government bonds expanded substantially, African state debt becomes marketized and, thus, financialized. African countries’ sovereign bonds have now been included in the major international bond indices, as have the private issues that have followed the official ones (Bonizzi et al., 2019).4 In the mid-2000s to the early to mid-2010s, this borrowing boom was often associated with an ‘Africa Rising’ narrative (e.g. The Economist, December 3rd, 2011; for a critique see Sylla, 2014), and often presented as profitable investment opportunities for foreign investors5. By the mid-2010s, however, it was becoming increasingly clear that the borrowing boom on the continent, and elsewhere in the developing world, was largely driven by global liquidity. This was starting to contract, as was the commodity boom, which was coming to an end (see e.g. Shin, 2012; Gevorkyan and Kvangraven, 2016; Presbitero et al., 2016; Alves and Toporowski, 2019). In order to go beyond this aggregate picture of Africa’s external debt, some researchers have started using the distinction between financially connected (FC) and not-connected countries, drawing inspiration from the definition of ‘commodity dependence’ by UNCTAD.6 This heuristic distinction speaks well to our understanding of financialization as the increase in spread and breadth of financial practices. Indeed, the difference in debt composition between these two groups is substantial, with the ‘FC’ group experiencing a decline in the importance of official debt in their external debt, and a rise in private and non-guaranteed (PNG) debt and PNG bonds (World Bank, International Debt Statistics). There has been an increased presence of the private sector in African debt, both on the borrower and creditor side—for financially ‘connected’ countries. Between 2000 and 2017, the importance of private non-guaranteed debt increased from 9 to 36 per cent for that group. Eighty-six per cent of that debt is commercial bank debt, while private sector bonds have also increased over the period (from 0.3 per cent of total external debt to 5 per cent). However, for the financially non-connected group, PNG bonds made up 0 per cent of the external debt during the same period, and commercial bank debt remained stable at 6 per cent of total external debt. The increase in private actors is a part of the trend toward increased financial integration of countries into the global economy, as public and private African debt have become accessible to global investors. Local currency bond markets also belong to the list of ‘missing markets’ to be marketized in sub-Saharan Africa as a part of the intrusion of financial profitability motives into previously non-marketized realms. Though they had been high on the agenda in international financial reform circles already in the 1990s (Hardie and Rethel, 2018), there was a renewed focus on their development at the G20 Cannes Summit in 2011. Since then, the IMF and the World Bank have promoted the local-currency bond markets as a tool for financial deepening that is thought to lead to growth and stability (Goyal et al., 2011, IMF and World Bank, 2013). They identify an increase in such bonds to be important for a sustainable market-oriented debt management strategy and an important generator of economic growth (IMF and World Bank, 2013; IMF, 2016; Gabor, 2018). Local currency bond markets have since developed, reaching 21 per cent of GDP for the continent on average recently, but the growth has been uneven across the region (Dafe et al., 2018). Despite increases in domestic debt issuances and financial deepening, the stock of government securities in Africa is significantly lower than in other developing countries, allegedly due to the lack of developed capital markets (Berensmann et al., 2015). In sub-Saharan Africa countries, government securities made up around 90 per cent of total outstanding local currency-denominated bonds in 2010, which is an indicator of the shallowness of the market. African local currency bond markets tend to be marked by illiquidity, very few corporate securities, and narrow, bank-dominated investor bases (Essers et al., 2015). Nonetheless, while interest rates on external debt tend to channel financial flows out of African countries, interest payments on domestic debt may remain in the hands of domestic actors. Furthermore, foreign investor participation in local currency bond markets may broaden the investor base and can give a boost to domestic bond market development. However, it may also increase the volatility of international capital flows and attract speculative investors searching for high yields (Berensmann et al., 2015). While new financial securities/debt markets demonstrate that forms of financialization have occurred on the continent, one of the traditional channels of profit repatriation has shown more drastic developments: the mundane practice of FDI. Despite the focus generally laid on Africa’s external debt, it must be stressed that FDI income is more significant economically than interest payments on external debt.7 For example, between 2000 and 2016, 28 African countries representing 85 per cent of sub-Saharan Africa’s GDP, cumulated annual flows of FDI income of 500 billion USD, compared to 100 billion USD for the cumulated annual flows of interest payments on external debt. Commercial payments, profits, and capital repatriations from foreign investors as well as external debt payments are also important sources of illicit financial flows (Ndikumana and Boyce 2011; Kar and Cartwright-Smith 2010; African Union/Economic Commission for Africa 2015) (Figure 1). Figure 1 Open in new tabDownload slide Interest payments on external debt and FDI income for 28 SSA countries (Nigeria and South Africa included), in billion USD14. Source: World Development Indicators (World Bank) Figure 1 Open in new tabDownload slide Interest payments on external debt and FDI income for 28 SSA countries (Nigeria and South Africa included), in billion USD14. Source: World Development Indicators (World Bank) To sum up, on the one hand, the African continent has witnessed a massive increase in FDI flows in recent decades. In line with our understanding of financialization as an expansion of the financial sector, this represents a simple quantitative change of amount: FDI flows have increased. On the other hand, new markets for financial instruments have been created in the fields of foreign-denominated and local currency denominated government bond markets. The changes are qualitative in nature. Not only have new kinds of financial instruments been marketized, but we can also observe a shift toward an increased relative role of private lenders in lieu of public ones in those African economies that can be seen as ‘FC’. Case Studies: financialization as a patchy and uneven process In this section, we further disaggregate the continental data and the analysis distinguishing between FC and non-FC African countries by focusing on four countries: Mauritius, Nigeria, South Africa, and Zambia. Our case study countries are among the most ‘FC’ countries on the continent, according to the amount of external debt held by private sector actors in 2017.8 We will explore to what extent they are ‘financializing’ and we link this back to the financial subordination perspective, which focuses on the qualitative aspect of these new practices, i.e. which dependencies they bring, with a particular focus on domestic credit creation and the banking sector more broadly. South Africa, Mauritius, Nigeria, and Zambia have different profiles in terms of financial integration into the global economy. The fact that Mauritius is a rich African tax haven and financial platform and Nigeria and South Africa are the biggest African economies also make them of particular interest. As we highlight below, financialization is not taking place across the board. It is a highly uneven and patchy process. What has remained the same, is these four countries’ financial subordination with a lack of credit for productive activities, oligopolistic, and mostly foreign-dominated banking sectors. Financial market development and the real economy One quantitative measure of financialization is financial depth, which in turn is judged based on various measures of the money supply as a share of GDP.9 Liquid liabilities to GDP is one way of measuring this. As Figure 2 illustrates, the financial depth of Nigeria and Zambia is considerably lower than Mauritius and South Africa, and Mauritius is the only economy among the four with a steady increase in financial depth over time. Indeed, the ebb and flow of financial depth in Nigeria, South Africa, and Zambia appear to be cyclical rather than secular. Figure 2 Open in new tabDownload slide Liquid liabilities to GDP. Source: World Bank, Global Financial Development Figure 2 Open in new tabDownload slide Liquid liabilities to GDP. Source: World Bank, Global Financial Development Another quantitative measure of financialization is the size of the financial sector relative to the real economy, which can for example be measured by assets of both banks and non-bank financial institutions as a share of GDP (Powell 2013). Figures 3 and 4 indicate that there is a substantial difference between the case study countries with respect to their degree of financialization, with South Africa and Mauritius clearly financializing, and Nigeria and Zambia showing no such secular trend. Figure 3 Open in new tabDownload slide Financial system deposits to GDP. Source: World Bank, Global Financial Development Figure 3 Open in new tabDownload slide Financial system deposits to GDP. Source: World Bank, Global Financial Development Figure 4 Open in new tabDownload slide Deposit money bank assets to GDP. Source: World Bank, Global Financial Development Figure 4 Open in new tabDownload slide Deposit money bank assets to GDP. Source: World Bank, Global Financial Development Other interesting differences relate to the share of financial assets and portfolio investments relative to other assets. Data from the Global Financial Development database illustrate that while South Africa has seen an explosion in the amount of portfolio investment (though direct investment is still higher), there is no such trend in the other countries. Generally, portfolio investment in these countries appears to move cyclically rather than secularly, although, notably, South Africa, Mauritius, and Nigeria do show a clear trend toward increased capital account volatility since the 1990s (see also IMF Balance of Payments Statistics). Furthermore, while there has been an increase in domestic credit provided by the financial sector as well as domestic credit to the private sector in Mauritius and South Africa, this has not been the case in Zambia and Nigeria, again suggesting that the domestic financial systems of Nigeria and Zambia are not financializing (see Figures 5 and 6). Figure 5 Open in new tabDownload slide Domestic credit provided by financial sector. Source: IMF, International Financial Statistics Figure 5 Open in new tabDownload slide Domestic credit provided by financial sector. Source: IMF, International Financial Statistics Figure 6 Open in new tabDownload slide Domestic credit to private sector. Source: IMF, International Financial Statistics Figure 6 Open in new tabDownload slide Domestic credit to private sector. Source: IMF, International Financial Statistics As Figure 7 illustrates, productive lending to GDP has increased for South Africa and Mauritius since the 1980s (although South Africa’s ratio has flattened since 2009), but the financial system does not appear to be working to spur production in Zambia and Nigeria, suggesting that the real economy is under-financed (in line with Amin’s assessment of financially dependent economies).10 Similarly, data from the World Bank Global Financial Development database illustrates that firms in Zambia and Nigeria are unlikely to access credit from the traditional banking sector and that over 40 per cent of firms in Nigeria and Mauritius identify access to finance as a major constraint (approximately 20 per cent of South African and Zambian firms said the same according to the same database). Figure 7 Open in new tabDownload slide Deposit money banks’ claims on domestic non-financial sector to GDP. Source: World Bank Financial Structure Dataset Figure 7 Open in new tabDownload slide Deposit money banks’ claims on domestic non-financial sector to GDP. Source: World Bank Financial Structure Dataset As mentioned, one aspect of the development of missing markets in Africa was the development of stock markets. African stock exchanges, despite their quick proliferation since the 1980s, are characterized by a low number of listed firms, low market capitalization and low liquidity. The major exception to the rule is the Johannesburg Stock Exchange which had a total market capitalization of 1 trillion USD in 2017, which is 73 per cent of the total continental market capitalization (Schiereck et al., 2018: 24). Despite their relative underdevelopment, African stock exchanges provide good returns on investment, with many of them having already been crowned ‘best performer of the year’ (Yartey and Adjasi, 2007:3). Banking sector development: in a subordinate position? During the colonial period, foreign banks were the main agents that ensured the peripheral monetary and financial integration of the continent within the world capitalist system (Nkrumah, 1965). They were not interested in the economic development of the colonies where they were operating. Their role was rather to finance (export) products needed by the metropolitan centers and to facilitate the repatriation of capital and the income of metropolitan enterprises (Amin, 1976; Uche, 2012). This ‘extractivist’ financial pattern has continued for most African countries after their achievement of formal independence despite efforts to nationalize the banking sector during the ‘dirigiste’ period. The restructuring of the banking sector since the 1980s has generally been associated with the liquidation of public development banks, a greater openness to foreign banks, and an increase in the degree of oligopoly (Mkandawire, 1999; Fowowe, 2011; Nyantakyi and Sy 2015). With regard to credit policy, ease of entry, and the share of public banks in bank assets, the financial sector in sub-Saharan Africa on average (excluding Ethiopia) became more liberalized compared to those of South-East Asia and Latin America (Abiad et al., 2008; Rashid, 2013).11 Theoretically, the increased presence of foreign banks could increase competition in domestic markets and thereby widen access and lower costs. However, in practice, foreign bank entry to developing countries has tended to shift (productive) lending from small and medium-sized enterprises over to household lending and to increase cross-border fragilities (dos Santos, 2012). Despite international financial institutions recognizing the fragility associated with the presence of foreign banks in the wake of the 2008 financial crisis, these institutions have continued to tailor their conditionalities to minimize domestic regulatory challenges and encourage the entry of foreign banks (Gabor, 2012). According to the Global Financial Development database, while the percentage of foreign banks among total banks is very high in Zambia and Mauritius (around 75 per cent), it is relatively low for South Africa and Nigeria (around 25 per cent). Considering the competition in the banking sector can help us further understand that sector in these countries. The H-statistic12 suggests that Zambia and South Africa have seen an increase in the degree of monopolies in their banking sectors, while the Lerner Index13 indicates that the banking sector in all four countries has become less competitive. However, the banks’ net interest margin as well as their non-interest income to total income has remained fairly stable over time. While this brief data analysis does not present definite evidence of the banking sector becoming more subordinate, it does suggest that they operate from a subordinate position. For example, Mauritius and Zambia’s banking sectors are especially heavily dominated by foreign banks (and by just a few of them), in line with Nkrumah’s (1965) observation over half a century ago. Generally, all four countries have banking sectors with high bank concentration. For Zambia and Nigeria in particular, very few firms are able to use banks to finance investments (around 10 per cent for Zambia, around 5 per cent for Nigeria), while in South Africa and Mauritius only 30 per cent of firms are able to use banks to finance investments (Figure 8). This is in line with dos Santos’s (2012) observation that a large presence of foreign banks in developing countries’ banking sectors tends to be associated with a low prioritization of financing of domestic firms. Figure 8 Open in new tabDownload slide Firms using banks to finance investments (per cent). Source: World Bank, Global Financial Development Figure 8 Open in new tabDownload slide Firms using banks to finance investments (per cent). Source: World Bank, Global Financial Development The degree of banking sector orientation toward household lending demands further exploration. While in advanced economies, financialization has been characterized by rising levels of household indebtedness, this is not a characteristic that can be observed at the aggregate of these four countries. However, when dealing with low-income and middle-income economies with large degrees of poverty and low degrees of access to formal banks, we would need to investigate the effects of microfinance initiatives to get a better understanding of the degree of household financialization and its impact on community development. For example, while loans to households from commercial banks to GDP have fallen in Zambia, outstanding loans to microfinance institutions have skyrocketed, according to the IMF’s Financial Access Survey. A similar observation can be made in relation to South Africa, where there has been a fall in the aggregate amount of household debt since 2008 (IMF Financial Access Survey). Yet we know from in-depth case studies that microfinance in South Africa has led to unsustainable levels of indebtedness in pockets of communities in the country, especially affecting the poorest (ECI Africa 2015; Bateman 2019). A closely linked topic, also relevant for community development, is the financialization of land and housing. Financial practices and motives constitute a growing threat to the right to adequate housing. South Africa, as the most financialized African country, provides a good case. Beyond their limited access to affordable mortgage loans that have become a new asset class for the financial sector, poor and middle-class communities in South Africa are sometimes evicted from their neighborhood following asset bubbles and high rents prices, two phenomena linked to the corporate intrusion in the housing sector (Migozzi 2019; Karwowski 2018). Conclusion The basic argument of this article is that there is no easy answer to how ‘financialization’ works specifically on the political economy of African countries which are characterized by a longstanding structure of economic dependency, exposure to foreign financial flows, and oligopolistic and foreign-dominated banking systems. Indeed, the extent to which African economies are ‘financializing’ depends on the economy in question. Financial liberalization, as an ongoing global project of financial systems restructuring, has taken place across the region and across sectors since the 1980s. Yet, the brief empirical case studies presented show that there is a substantial variety between countries. For the four countries with the highest amount of external debt held by private sector actors (one indicator of connectedness to global capital markets), Mauritius was the only one with a steady increase in financial depth over time. Indeed, the ebb and flow of financial depth in Nigeria, South Africa, and Zambia appear to be cyclical rather than secular, and Nigeria and Zambia in particular are relatively under-financed by traditional measures, despite their increase in financial “connectedness”. The banking sectors of our case countries suggest that several countries experience continued dominance of foreign banks. This confirms that the old characteristics of subordination, observed by Nkrumah, Amin, and others are still a strong trend. This includes the lack of ability of the case study countries to build financial systems that transform savings into long-term investments in the real economy and address the under-financing of domestic firms. Some African countries have developed local currency bond markets and have seen an increase in investment in their external debt by private sector actors, which may lead to increased vulnerability and volatility, associated with financialization as a destabilizing force in the region. The increasing dependence on global liquidity is a new source of vulnerability that many African countries have become exposed to as the result of financial integration. This is most relevant for ‘financially-connected’ African countries. The increasing global push for financial inclusion of non-banked African populations requires further investigation, though some worrying cases of household indebtedness have already been identified. More generally, there is much to be explored with regard to how the spread of financial practices and motives weakens community development in Africa in areas such as housing, food, healthcare, education, and infrastructure building. Footnotes 1 Financial liberalization, defined as ‘the process of giving the market the authority to determine who gets and grants credit and at what price’, was supposed to be the antidote to ‘financial repression’—a situation where ‘the government decides who gives and gets credit and at what price’ (Williamson and Mahar, 1998, p. 2). 2 Most of the current African stock markets were created after 1980. Before that, only seven stock exchanges existed, while now there are thirty in operation (Schiereck et al., 2018, pp. 3–4). 3 With public external debt levels on the rise, the IMF has identified that the number of countries at high risk of debt distress in the region has more than doubled (Mustapha and Prizzon, 2018). 4 Sovereign borrowing usually paves the way for subsequent private flows (Mecagni et al, 2014). In such cases, the sovereign bond serves as a benchmark for corporate issuances. Often, the sovereign issues complement domestic bond issuances. In line with this, corporate bonds have also been issued by several African countries, including Angola, Ghana, Nigeria, and South Africa. 5 See e.g. Cohn, 2013, ‘Bond yields too low? There’s always Rwanda’, Reuters 5 March 2013 or Kenny, 2013. “How to Save Your 401(k): Invest in Africa,” Businessweek 21 October 2013. 6 Inspired by Bonizzi et al. (2019) and UNCTAD’s (2014) definition of ‘commodity dependence’, we define countries as financially connected (FC) if their reliance on concessional debt is less than 60 per cent of total external debt. Note that all African countries are financially integrated with the global capitalist system, for example through their banking systems. There are ways of being FC other than through borrowing money in hard currency from external private entities, for example through foreign direct investment. Using other measures of financial connectedness will therefore inevitably lead to different groupings of countries. Nonetheless, for our purpose of seeing how debt dynamics have changed on the continent, this categorization is a helpful one. 7 FDI income denotes the returns foreign (direct) investors make on their investments each year. 8 According to the World Bank’s International Debt Statistics, in 2017, these countries’ external debt held by the private sector was at 70 per cent (Mauritius), 51 per cent (Nigeria), 42 per cent (South Africa) and 40 per cent (Zambia), which are the four highest ratios on the continent. 9 This is what King and Levine (1993) refer to as financial development. 10 In terms of bank-based finance and its relation to the real economy, banks’ claims on domestic non-financial sector to GDP is a good indicator, as this ratio excludes claims on the financial sector and international claims, by definition limiting itself to what is generally considered productive lending (Powell 2013: 154). 11 For example, the financial sectors of Cote d’Ivoire and Mozambique were much more liberalized than those of Brazil, China, and India in the mid-2000s. 12 Based on a neoclassical understanding of competition, the World Bank defines the H-statistic as follows: ‘A measure of the degree of competition in the banking market. It measures the elasticity of banks revenues relative to input prices. Under perfect competition, an increase in input prices raises both marginal costs and total revenues by the same amount, and hence the H-statistic equals 1. Under a monopoly, an increase in input prices results in a rise in marginal costs, a fall in output, and a decline in revenues, leading to an H-statistic less than or equal to 0’. Read more here: https://datacatalog.worldbank.org/h-statistic. 13 Higher values of the Lerner index indicate less bank competition. More here: https://datacatalog.worldbank.org/lerner-index 14 Angola, Benin, Botswana, Burkina Faso, Cabo Verde, Cameroon, Congo Republic, Cote d’Ivoire, Eswatini, Ethiopia, Ghana, Kenya, Lesotho, Madagascar, Malawi, Mali, Mauritius, Mozambique, Niger, Nigeria, Rwanda, Senegal, Sierra Leone, South Africa, Tanzania, Togo, Uganda, Zambia. These twenty-eight countries represented 85 per cent of SSA nominal GDP in 2016. 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Escobar,, Luisa;Grubbauer,, Monika

doi: 10.1093/cdj/bsaa051pmid: N/A

Abstract Housing microfinance schemes for self-organized housing have been incorporated into Mexican housing policies since 2007. This is the result of World Bank loans to Mexico but also of housing activists who for decades have advocated for the development of financial instruments to support the ‘social production of housing’—a concept defined by them as a type of housing production geared to meet families’ shelter needs rather than to enhance capital accumulation. While these World Bank housing loans were mainly oriented to strengthen the housing finance sector, the housing activists pushed for the inclusion of saving and credit cooperatives as housing microfinance providers. These cooperatives seek to promote at the local level, alternative development projects built on solidarity economy principles. Taking inspiration from critical literature on the co-optation of progressive actors by international financial institutions we highlight the activists’ agency and examine their role at the community level. We argue that processes of co-optation pushed by international financial institutions can always be contested and negotiated at a local level. We propose that, in this case, the engagement of progressive actors such as saving and credit cooperatives working according to principles of the solidarity economy could open political opportunities to subvert financial rationalities inscribed in the housing finance schemes of the World Bank. Introduction Since their emergence in the 1980s, neoliberal policies and practices have experienced several rounds of modification (Brenner et al., 2010; Aalbers, 2013; Carroll and Jarvis, 2015). As Carroll and Jarvis (2015) point out, these policy shifts have sought to ‘fix’ crises of accumulation but also crises of legitimacy of the neoliberal project. These crises result from political contestation and tensions derived from the critical social effects of market-oriented development policies. These ‘political fixes’ include significant changes in the development discourse of international financial institutions, illustrated for instance by the incorporation of concepts such as the commons (Caffentzis and Federici, 2014), the formulation of goals such as community empowerment (Kane, 2006), or even the acceptance of criticisms of neoliberalism itself. They also include the engagement (and sublimation) of progressive actors (such as NGOs) in policy and practice, and the consequent exclusion or repression of those who oppose them (Wallace, 2004; Carroll and Jarvis, 2015). However, such ‘political fixes’ are often regarded as little more than a ‘rebranding’ of neoliberalism (Kane, 2006). Thus, the shifts in mainstream development policy of the past decade, framed by a ‘pro-poor’ agenda of financial inclusion (Clegg, 2017; Bigger and Webber, 2020), are in fact considered to be deepening marketization processes (Aalbers, 2013; Waeyenberge, 2018). Seen in this light, the recent interest by the World Bank in community-based initiatives associated with the social and the solidarity economy, such as saving and credit cooperatives (World Bank, 2007; Cuevas and Buchenau, 2018; Mauerman and Douglas, 2018), raises critical questions. Among them, it is the crucial question whether and to what extent the engagement of these saving and credit cooperatives in a ‘financial inclusion’ policy framework can potentially serve to ‘marketize previously closed … spaces and make them available to private capital’ (Carroll and Jarvis, 2015, p. 296). Against this background, in this article, we examine how the incorporation of saving and credit cooperatives into development programmes promoted by international financial institutions has played out in the field of housing in Mexico. The World Bank has, since 2004, pushed for changes in housing programmes in Mexico, recognizing that market-based housing policies (recommended by the same World Bank from the mid-1990s onwards) had failed in reaching the poorest segments of the population (World Bank, 2004). The housing programmes implemented since 2007 have used a different approach to finance. Specifically, they involved new financial schemes for low-income housing programmes that incorporated private financial institutions as credit providers (Grubbauer and Escobar, forthcoming). However, in a context of alleged openness to civil society participation, the formulation and ensuing implementation of these housing microfinance schemes also engaged local progressive housing activists. These activists, in turn, pushed for the incorporation of saving and credit cooperatives as financial and technical assistance providers in the new housing programmes. These saving and credit cooperatives are guided by principles associated with the solidarity economy and promote local development projects that seek to represent an alternative to neoliberalism. In our analysis, we draw upon critical literature which has emphasized the co-optation of progressive actors by international financial institutions as part of the financial inclusion agenda in mainstream development policy (Kane, 2006; Aalbers, 2013; Caffentzis and Federici, 2014; Carroll and Jarvis, 2015). Nevertheless, we highlight the agentic role of activists at both the meso-policy and community levels. We argue that these processes of co-optation pushed in a top-down manner by international financial institutions can be contested by progressive actors and, to a certain extent, subverted at the community level. This subversion, in the case of housing policy in Mexico, results crucially from the long-term engagement and social memory of housing associations and activists who have been working on housing issues since the 1970s. This is enhanced by their willingness to network with other organizations within the country and beyond and by their ability to learn over time from their own and others’ experiences and to elaborate alternative approaches. We propose that by drawing on such long-time experiences and strong networks, progressive actors can seize the alleged openness of development institutions to grassroots organizations and create political opportunities (Giugni, 2009) at the community level. In our case, this provided opportunities to subvert financial rationalities inscribed in housing finance schemes of the World Bank. Through our analysis, we aim to recover the experiences and lessons provided by local activists in their long-term engagement around housing solutions for the poor, acknowledge their gains, as well as sympathetically identify their shortcomings and highlight the challenges they face. Empirically, our arguments are based on an analysis of the Mexican housing microfinance programmes initially formulated and partially supported by the World Bank since 2004, and the implementation and adaptation of these programmes by the saving and credit cooperative Cosechando Juntos lo Sembrado. This cooperative operates in the state of Querétaro, Central Mexico, with an alternative community development project rooted in a solidarity economy model. We base our study on data collected between 2014–2015 and in 2019. The empirical research consisted of a series of qualitative interviews carried out by the authors with former representatives of housing institutions, key housing activists, housing organizations and board members of Cosechando Juntos lo Sembrado, plus participant observation of some of Cosechando’s main organizational activities. In addition, we carried out an analysis of documents on World Bank policy and loans, housing regulation and programmes, and literature produced by Cosechando. This paper is organized in the following way: the first section outlines the work of key housing associations in Mexico and the changes they introduced into the World Bank’s housing microfinance programme. The following section presents the work of Cosechando Juntos lo Sembrado and discusses how the cooperative transformed and adapted this World Bank supported housing programme to fit their alternative economy project. The third section discusses the potential of Cosechando’s housing model to crack financially driven development logics but also points out how such subversion processes are exceptional and fragile, in danger of being captured by mainstream institutions and limited by internal factors. The conclusion draws out the findings related to the possibilities and limitations of community projects in addressing the housing needs of low-income families. Housing associations in Mexico and the Ésta es tu casa programme After the Mexican government signed a housing sector adjustment loan with the World Bank in 2004, different national state bodies started to push forward legal reforms as well as a new housing programme for the lowest-income population, based on the World Bank guidelines. In response, associations and activists promoting self-organized housing production and the right to housing lobbied for the inclusion of non-market driven regulations and solutions. In order to understand how the activists’ previous work influenced their ability to introduce changes in this World Bank supported programme, we first describe some key moments in their trajectory and then detail the main changes they introduced into the housing programme. The evolution of housing associations in Mexico The work of key associations that promoted changes in the World Bank’s proposal can be traced back to the efforts of COPEVI,1 an NGO supporting housing production by low-income groups that has been active since the 1960s. COPEVI offered technical, financial and sometimes political advice (for negotiations with government officials) to low-income groups in the development of their housing projects. During the 1970s, COPEVI supported a number of influential projects in Mexico City based on a cooperative model in which the land was collectively owned. In part, COPEVI’s work was based on John Turner’s ideas around self-help housing production as a form of housing provision (Connolly, 2004; Ortiz, 2016). Partly, it was inspired by historic examples of German and Uruguayan housing cooperatives (Interview with Enrique Ortiz, 11 January 2019). During that decade, COPEVI also lobbied for changes in housing policies at an international level, most importantly by participating in the United Nations Human Settlements Conference in Vancouver in 1976. In sum, in this first period, these organizations and activists gathered relevant experience related to what they later labelled the ‘social production of housing’, that is the collectively organized production of housing managed and developed by families as well as communities or collectives. They also built networks that allowed them to open a communication channel with high-level officials from the Mexican government (Ortiz, 2016, p. 78). The next relevant moment in the trajectory of COPEVI was their participation in the creation and implementation of a new housing fund named FONHAPO (Mexican National Popular Housing Fund or Fondo Nacional de Habitaciones Populares) in the early 1980s. Some of the main characteristics of the FONHAPO housing model were inspired by the work of former COPEVI activists (Ortiz, 1996; Connolly, 2004). The goal of FONHAPO was to serve the poorest segments of the population that were not covered by the two other housing funds (INFONAVIT for private sector workers and FOVISSSTE for public sector employees). FONHAPO also aimed to support the ‘social production of housing’. This type of housing production aimed to empower communities by fostering solidarity, mutual aid, self-management and autonomy. The fund offered state-subsidized credit for different stages of housing production, from land purchase, technical assistance, to housing construction and expansion. Additionally, the fund gave a central role to collectively organized housing production and provided collective credits to grassroots organizations such as cooperatives, civil associations, housing organizations, rural organizations and trade unions (Ortiz, 2016). By the end of the 1980s, with the arrival of a new national government clearly aligned with neoliberal doctrine, FONHAPO started to be dismantled. Key officers—former COPEVI activists—were dismissed; FONHAPO’s budget was reduced; and by the beginning of the 1990s, some of its alternative features such as collective credits, which had strengthened grassroots organizations, were eliminated (Connolly, 2004; Puebla, 2006). The World Bank had an important role in these changes (Boils, 2004). The Bank criticized the fund for not being financially sustainable and interfering with free-market processes and for failing to reach the lowest income households. However, according to FONHAPO’s figures, 93 percent of the loans had been repaid, more than in programmes of any other public institution providing loans at that time (Ortiz, 2016, p. 125). During the 1990s, some of FONHAPO’s key officers continued their work in other organizations within the Habitat International Coalition (HIC). This is a global network of non-profit housing organizations, founded after the UN’s Habitat I Conference of 1976, with the aim of pressuring governments and international agencies to follow-up their recommendations. After the dismantling of FONHAPO, the HIC team in Mexico continued to promote the ‘social production of housing’ with research, networking with urban movements and NGOs, and lobbying with government bodies. In 1997, a left-leaning government took office in Mexico City and member organizations of HIC-Mexico2 together with members from the Popular Urban Movement (Movimiento Urbano Popular—MUP)3 formulated a new programme for self-organized housing that, until 2015, served around 10 percent of the inhabitants of Mexico City (Ortiz, 2016). Opening political opportunities: Ésta es tu casa and changes introduced by housing associations In 2000, a new right-wing national government, headed by Vicente Fox from the party PAN (Partido Acción Nacional), came to power promising democratic change. HIC activists provided input on the development of a National Housing Programme, and later on, some participated in the Consejo Nacional de Vivienda, an advisory body inside the newly created national housing institute, CONAVI. Through the Consejo, the activists managed to introduce socially oriented criteria into housing policies for self-organized housing, and in the new housing programme launched after the 2004 World Bank’s loan. Following World Bank recommendations, this programme, named Ésta es tu Casa and coordinated by CONAVI, included a new financial scheme for self-organized housing, which had been neglected since the late 1990s by the World Bank and previous national governments. This new scheme combined three sources of finance: micro-loans provided by public and private financial institutions, direct demand subsidies and savings from low-income households. The purpose of this scheme was to open a market for private financial institutions as intermediaries offering credit for housing to the poor (Grubbauer and Escobar, forthcoming). The activists’ advocacy work opened the following political opportunities within the new housing policy and programme for self-organized housing. First, they succeeded in ensuring that a section dedicated to the ‘social production of housing’ was included in the new Housing Law issued in 2006. This was a result of their lobbying, evident also in the definition in the legislation of this type of housing production as ‘carried out under the control of self-producers and self-builders operating on a non-profit basis and geared primarily to meeting the housing needs of low-income populations’. This would ‘include self-managed and solidary production processes that prioritize housing’s use value over its market value, mixing resources, building procedures and technologies according to families’ own needs and their management and decision-making capacity’ (Congreso de la Unión, 2006, Article 4-VIII; authors’ translation). Second, to implement these ideas, activists and associations—now organized as the Committee for the Social Production of Housing (Comité de Producción Social de Vivienda)—pushed for the creation of a ‘Social Production of Housing Unit’ inside CONAVI in 2007 (Ortiz, 2016). Through close relations with this Unit, they were able to encourage the implementation of the ‘social production of housing’ within the Ésta es tu casa programme over the next decade (Almazán, 2015). Third, they achieved a range of modifications to the rules of the programme. This included the easing of the conditions for poor families to qualify for housing credits and CONAVI’s subsidies, such as the recognition of labour and construction materials as a type of saving. In sum, the abovementioned changes introduced by housing activists and associations in World Bank-supported housing programmes can only be understood within the context of their longstanding prior work in this field. This occurred at the community and the policy level, as well as through their networks with urban and rural grassroots organizations within the country and beyond. As we show in the following section, this long-standing work and, more specifically, the collaboration with saving and credit cooperatives allowed for the emergence of housing finance models that provide some alternatives to the market-oriented approaches proposed by the World Bank. The saving and credit cooperative Cosechando Juntos lo Sembrado and their community-based housing model The savings and credit cooperative Cosechando Juntos lo Sembrado was founded in 1989, in the state of Queretaro, central Mexico, as a Social Solidarity Society4 named Unión Regional de Ahorro Campesino (URAC). Its origins date back to 1983 as the Unión de Esfuerzos para el Campo (Union of Efforts for the countryside—UDEC A.C.), a civil association which sought to collectively organize peasants and to establish an ‘alternative rural economy’ oriented to improving the living conditions of communities in the region while contributing to the creation of ‘a more just society’ (Castillo, n.d., cited in Martínez García, 2017, p. 34). In line with this goal, in its initial phase, the association worked with peasants to produce agricultural goods such as milk, cheese, tortillas and bread, and to set up consumer and saving groups. Over time, these projects declined but its savings groups continued to grow. Therefore, the association decided to restructure its activities and in 1989 created the financial cooperative named URAC. In 2001, after the issuance of the new Popular Savings and Credit Law, it transformed itself into a rural financial cooperative and changed its name to Cosechando Juntos lo Sembrado. Today, the cooperative operates in five municipalities5 and seventy-two communities of the state of Queretaro, and in 2017, it had 13,699 active members and a total income of MX$53.778.000 (USD $2,674,140/€2,369,326) (Ortiz et al., 2015). Community organization through finance The financial cooperative was regarded by its founders as a vehicle to foster community organization and push forward their ‘alternative economy project’ without having to depend on external resources (Ortiz et al., 2015). Thus, beyond providing financial services, the cooperative has also sought to promote community development inspired by solidarity economy ideals. Solidarity economy is viewed as an emancipatory development model (Marques, 2014; Kratzer et al., 2017). It is conceptualized in various ways by Latin American scholars and practitioners: its main characteristic is that, in contrast with capitalist models, it does not aim to operate according to the logic of capital reproduction but of the ‘amplified reproduction of life’ (Díaz-Muñoz, 2015, p. 44). In accordance with this, solidarity economy seeks to foster collective forms of property ownership and local patterns of production, distribution and consumption structured around the satisfaction of needs (Díaz-Muñoz et al., 2019). This is based on the principles of solidarity, equity, collective self-governance as well as respect for cultural diversity and the natural environment (Utting et al., 2014; Caracciolo et al., 2017). In line with these ideas, the cooperative grants loans, collects savings, offers insurance and transfers remittances. However, in contrast with profit-oriented financial institutions, the cooperative offers credit for productive or commercial activities and embeds them into programmes that seek to benefit individual households but also to strengthen the local economy while trying to take care of the environment and promote community organization, cooperation and empowerment. For example, one programme seeks to improve agricultural production by facilitating the purchase of seeds and investment in agricultural machinery. Another programme—named the ‘good business programme’—aims at strengthening and diversifying the local economy in the context of rural crisis and significant levels of migration from the region to the USA. It consists of a credit line to cooperative members that want to start or improve their local business and is accompanied by training workshops and networking activities. A third programme focuses on improving food security for the community by supporting subsistence farming activities and establishing mechanisms by which production and consumption can be coordinated (it operates under the slogan ‘produce what the peasant consumes, consume what the peasant produces’). In addition, various networking activities such as the ‘multibarter market’, installed during the cooperative’s monthly meeting, allow members to exchange goods produced by other members. In sum, by offering credit programmes oriented to rural production and local commercial activity, integrated with technical advice, members’ training and networking efforts, Cosechando seeks to channel their members’ resources (savings) into the local economy in a way that improves the communities’ living conditions while respecting the environment (Cosechando Juntos lo Sembrado, 2011). Apart from promoting economic security and development, the cooperative also seeks to encourage empowerment and solidarity and maintain the cooperative’s embeddedness in the community. The organizational model, according to its creators, does not reduce its members to mere beneficiaries of the projects or clients of their services but turns them into ‘true subjects of the processes they personally manage and lead’ (Ortiz et al., 2015, p. 7). In accordance with this, the principal condition for receiving a loan is to live in one of the communities where the cooperative operates and to be part of a savings and credit group. Apart from the individual requirements,6 the members of Cosechando must also comply with certain collective commitments to apply for credit. They have to pay a one-time fee to register with the cooperative and to have attended the last three community meetings. In addition, there are other conditions that depend on the trust and solidarity within the savings and credit group. These principles of social collateral—the founders of the cooperative use the term ‘co-responsibility’—require that the cashier of a group has attended the monthly meeting of the cooperative, that there are no overdue loans in the group and that at least ten members of the group approve the credit application. The cooperative’s board regularly informs the collective about the financial situation of the cooperative and fosters discussions on broader issues affecting communities, the region, the country or even the globe in their monthly regional and community meetings. Cosechando’s community-based housing projects After the global financial crisis of 2008, which resulted in a drastic reduction of liquidity in the housing sector, CONAVI’s Social Production of Housing Unit invited popular financial institutions such as savings and credit cooperatives to take part in the recently created housing programme Ésta es tu casa. Cosechando participated in the programme and developed an innovative housing construction and improvement model linked with their alternative community development project. Cosechando’s housing model makes use of the microfinance schemes pushed by the World Bank and implemented by CONAVI since 2004. However, it also builds on two other sources: experiences of ‘social production of housing’ developed by activists and associations considered in the previous section, and the solidarity economy approaches advanced by the saving and credit cooperative over the past decades described above. This offers interesting insights into the elements that allow socially driven community organizations to subvert or, at least, open cracks in financially driven development programmes formulated by the World Bank. These programmes consider the growth of financial markets and the provision of credits as the fundamental mechanism to address the basic needs of the poor. In our case, the current housing programmes consider the expansion of finance into self-organized housing as a way to address the housing needs of poor families. Table 1 Credit and subsidies for housing provided by Cosechando 2009–2018 in the context of Ésta es tu casa programme. Source: Cosechando Juntos lo Sembrado, 2011 Credits and Subsidies provided by Cosechando Juntos lo Sembrado 2009–2018 . . 2009 . 2010 . 2011 . 2012 . 2013 . 2014 . 2015 . 2016 . 2017 . 2018 . Total . # Credit + subsidy 387 877 1010 1349 531 647 493 252 259 385 6190 Subsidy ~227.015€ ($5,833,000) ~321.082€ ($8,250,000) ~284.694€ ($7,315,000) ~414.731€ ($10,656,229) ~207.684€ ($5,336,304) ~298.833€ ($7,678,301) ~246.194€ ($6,325,787) ~145.092€ ($3,728,026) ~163.405€ ($4,198,564) ~262.713€ ($6,750,228) ~2.571.444€ ($66,071,439) Credit ~242.544€ ($6,232,000) ~360.119€ ($9,253,000) ~369.382€ ($9,491,000) ~569.463€ ($14,631,943) ~285.561€ ($7,337,278) ~410.894€ ($10,557,638) ~338.516€ ($8,697,941) ~246.139€ ($6,324,359) ~224.680€ ($5,773,000) ~361.231€ ($9,281,584) ~3.408.529€ ($87,579,743) Total Credit + Subsidy ~469.559€ ($12,065,000) ~681.202€ ($17,503,000) ~654.075€ ($16,806,000) ~984.194€ ($25,288,173) ~493.245€ ($12,673,582) ~710.505€ ($18,255,939) ~584.711€ ($15,023,728) ~391.230€ ($10,052,385) ~388.085€ ($9,971,564) ~623.944€ ($16,031,812) ~5.980.751€ ($153,671,183) Credits and Subsidies provided by Cosechando Juntos lo Sembrado 2009–2018 . . 2009 . 2010 . 2011 . 2012 . 2013 . 2014 . 2015 . 2016 . 2017 . 2018 . Total . # Credit + subsidy 387 877 1010 1349 531 647 493 252 259 385 6190 Subsidy ~227.015€ ($5,833,000) ~321.082€ ($8,250,000) ~284.694€ ($7,315,000) ~414.731€ ($10,656,229) ~207.684€ ($5,336,304) ~298.833€ ($7,678,301) ~246.194€ ($6,325,787) ~145.092€ ($3,728,026) ~163.405€ ($4,198,564) ~262.713€ ($6,750,228) ~2.571.444€ ($66,071,439) Credit ~242.544€ ($6,232,000) ~360.119€ ($9,253,000) ~369.382€ ($9,491,000) ~569.463€ ($14,631,943) ~285.561€ ($7,337,278) ~410.894€ ($10,557,638) ~338.516€ ($8,697,941) ~246.139€ ($6,324,359) ~224.680€ ($5,773,000) ~361.231€ ($9,281,584) ~3.408.529€ ($87,579,743) Total Credit + Subsidy ~469.559€ ($12,065,000) ~681.202€ ($17,503,000) ~654.075€ ($16,806,000) ~984.194€ ($25,288,173) ~493.245€ ($12,673,582) ~710.505€ ($18,255,939) ~584.711€ ($15,023,728) ~391.230€ ($10,052,385) ~388.085€ ($9,971,564) ~623.944€ ($16,031,812) ~5.980.751€ ($153,671,183) Open in new tab Table 1 Credit and subsidies for housing provided by Cosechando 2009–2018 in the context of Ésta es tu casa programme. Source: Cosechando Juntos lo Sembrado, 2011 Credits and Subsidies provided by Cosechando Juntos lo Sembrado 2009–2018 . . 2009 . 2010 . 2011 . 2012 . 2013 . 2014 . 2015 . 2016 . 2017 . 2018 . Total . # Credit + subsidy 387 877 1010 1349 531 647 493 252 259 385 6190 Subsidy ~227.015€ ($5,833,000) ~321.082€ ($8,250,000) ~284.694€ ($7,315,000) ~414.731€ ($10,656,229) ~207.684€ ($5,336,304) ~298.833€ ($7,678,301) ~246.194€ ($6,325,787) ~145.092€ ($3,728,026) ~163.405€ ($4,198,564) ~262.713€ ($6,750,228) ~2.571.444€ ($66,071,439) Credit ~242.544€ ($6,232,000) ~360.119€ ($9,253,000) ~369.382€ ($9,491,000) ~569.463€ ($14,631,943) ~285.561€ ($7,337,278) ~410.894€ ($10,557,638) ~338.516€ ($8,697,941) ~246.139€ ($6,324,359) ~224.680€ ($5,773,000) ~361.231€ ($9,281,584) ~3.408.529€ ($87,579,743) Total Credit + Subsidy ~469.559€ ($12,065,000) ~681.202€ ($17,503,000) ~654.075€ ($16,806,000) ~984.194€ ($25,288,173) ~493.245€ ($12,673,582) ~710.505€ ($18,255,939) ~584.711€ ($15,023,728) ~391.230€ ($10,052,385) ~388.085€ ($9,971,564) ~623.944€ ($16,031,812) ~5.980.751€ ($153,671,183) Credits and Subsidies provided by Cosechando Juntos lo Sembrado 2009–2018 . . 2009 . 2010 . 2011 . 2012 . 2013 . 2014 . 2015 . 2016 . 2017 . 2018 . Total . # Credit + subsidy 387 877 1010 1349 531 647 493 252 259 385 6190 Subsidy ~227.015€ ($5,833,000) ~321.082€ ($8,250,000) ~284.694€ ($7,315,000) ~414.731€ ($10,656,229) ~207.684€ ($5,336,304) ~298.833€ ($7,678,301) ~246.194€ ($6,325,787) ~145.092€ ($3,728,026) ~163.405€ ($4,198,564) ~262.713€ ($6,750,228) ~2.571.444€ ($66,071,439) Credit ~242.544€ ($6,232,000) ~360.119€ ($9,253,000) ~369.382€ ($9,491,000) ~569.463€ ($14,631,943) ~285.561€ ($7,337,278) ~410.894€ ($10,557,638) ~338.516€ ($8,697,941) ~246.139€ ($6,324,359) ~224.680€ ($5,773,000) ~361.231€ ($9,281,584) ~3.408.529€ ($87,579,743) Total Credit + Subsidy ~469.559€ ($12,065,000) ~681.202€ ($17,503,000) ~654.075€ ($16,806,000) ~984.194€ ($25,288,173) ~493.245€ ($12,673,582) ~710.505€ ($18,255,939) ~584.711€ ($15,023,728) ~391.230€ ($10,052,385) ~388.085€ ($9,971,564) ~623.944€ ($16,031,812) ~5.980.751€ ($153,671,183) Open in new tab Even though Cosechando’s housing credit model was supported by CONAVI’s Ésta es tu casa programme and follows the institution’s operational rules, it was explicitly designed to adapt CONAVI’s scheme to the cooperative’s alternative community development project described above. Cosechando’s housing model was named the ‘Sustainable and Productive Housing Programme’. During the nine years in which it has been operating (2009–2018), more than 6000 subsidies were granted and a total of $153,671,183 pesos (€6,003,164.76) were invested in the community (see Table 1). In addition, according to Cosechando’s board, the programme also fostered the growth of the cooperative in terms of members, increased its legitimacy and therefore contributed to the strengthening of its community development project. This was achieved through the adaptations of the CONAVI’s programme established by the cooperative. Cosechando’s housing finance scheme differs from CONAVI’s in several important aspects. This concerns, first, the use and provision of the loans. CONAVI’s programme consists of three elements: saving, subsidy and credit. The subsidies are provided by CONAVI and credit can come from public housing institutions or from financial intermediaries. The latter may be profit or non-profit oriented, an example of the second type of intermediaries is saving and credit cooperatives. Cosechando’s financial scheme also includes the same three elements (with the cooperative being in charge of the granting of credit), but the specific purpose of the resources obtained by the families is decided by the cooperative. According to its scheme, the subsidies pay for the construction process and the loan is dedicated to the purchase of building materials. Second, the loan granted by Cosechando is provided in a very innovative way. In accordance with the cooperative’s broader aim, half of this loan is granted in cash and half in vouchers. The latter can only be traded in local businesses owned by members of the cooperative and participating in other cooperative programmes such as the abovementioned ‘good business programme’. This is meant to ensure that the resources benefit the local economy rather than being channelled into the larger national and international building material suppliers catering for the Mexican market of self-builders (Interview with Alfonso Castillo, 03 June). The third specific feature of the cooperative’s housing programme is its environmentally sustainable character. The credit programme allows families to take important decisions—supported with technical assistance—about the housing but requires them to include two eco-technologies in its construction. These eco-technologies are solar water heaters, firewood-saving stoves, rainwater storage cisterns, dry toilets, greywater eco-filters and ecological henhouses. The programme also includes 80 hours of workshops for the masons of the cooperative that will be hired by the families to build their housing. The workshops focus on the use of eco-technologies and new materials and the provision of building manuals (HIC-AL/Grupo de trabajo de PSH, 2017, p. 112). According to the cooperative board, these workshops encourage participants to exchange knowledge about the newly learned techniques as well as new ideas or experiments for their use, making them protagonists in the production of their housing. This feature of the model served as an inspiration to CONAVI that later incorporated a requirement that families include eco-technologies in the construction of their housing into its housing programme regulations. To summarize, the cooperative couples housing credit with specific mechanisms that meet families’ housing needs in an environmentally sustainable way while strengthening the local economy and encouraging community organization, solidarity and empowerment. Limitations and potential of Cosechando’s model Limitations Despite the ambitions and engagement of the cooperative members, the success of Cosechando’s innovative model was limited due to several external and internal factors. Among the most important ones was the interim halt of the programme in 2012/2013, after a new government took office at the national level. This government belonged to the PRI (Partido Revolucionario Institucional), a different party than the one that preceded it, although with a similar political orientation. During the first year of this new government, CONAVI’s Social Production of Housing Unit disappeared, the housing activists and associations were excluded from CONAVI and the programme was suspended. In 2014, the programme was reinstalled but its rules became stricter and the involvement of profit-oriented finance providers was reinforced. This situation also affected Cosechando, which had grown with the programme, even though they did not depended on CONAVI’s resources to develop the rest of their activities. Another important problem was the relatively small size of the cooperative and their wariness of scaling up the programme to deliver it to more communities. The latter assessment is based on the consideration that a rapid growth of the cooperative in terms of members would not only provoke management problems and higher administrative costs but would also entail an oversight of their community project, subsuming qualitative aims to quantitative ones (Interview with Alfonso Castillo, 03 June 2019). This wariness is justified since, according to Utting et al. (2014), (p. 22), ‘solidarity finance schemes have tended to operate best at a local and small scale and have been prone to failure when scaled up rapidly … [T]here are difficulties associated with sustaining the required high levels of trust and developing effective regulations needed when scaling up’. Limited awareness of financial leeway also impeded the success of Cosechando’s model in reaching the lowest income households. Limited knowledge of financial technicalities and levels of risks and margins within the cooperative board prevented them from charging even lower interest rates for housing credit (which by that time was 2.2 percent per month) (Interview with former member of Cosechando’s board, 28 June 2019). Finally, the regulations established by the new Savings and Credit Law are very strict and bureaucratic, which costs the cooperative time and resources in dealing with them. According to the board, the possibility of reaching poor households was further limited when the operational rules became more restrictive. Instead of enabling households to apply for smaller loans, they were obliged to access larger ones. Cracks and potential As mentioned in the introduction, critical scholars have pointed out how international financial institutions have appropriated the discourses and practices of progressive actors and have even co-opted these actors and their organizational infrastructure in their new development policies (Kane, 2006; Aalbers, 2013; Caffentzis and Federici, 2014; Carroll and Jarvis, 2015). In doing so, these institutions legitimize their neoliberal project and ‘reconfigure social relations in ways that support capital and market exchange relations’ (Carroll and Jarvis, 2015, p. 238). However, from a perspective that seeks to emphasize the role of activist agency, we argue that, by introducing changes into the Ésta es tu Casa programme and adapting it at the community level, progressive activists have opened political opportunities (Giugni, 2009) to subvert housing finance policies promoted by the World Bank. These opportunities build on their long-standing work and experience in both community projects and policy advocacy, and on their networks with different civil society actors. Furthermore, we argue that these political opportunities were seized at the community level. Indeed, at the policy level, reforms in self-organized housing programmes pushed by the World Bank have contributed to deepening marketization and financialization processes since they have opened the door to the institutionalization of private credit in self-help housing. However, activist’s lobbying opened the door for community actors working in the frame of the solidarity economy to participate in the programmes. Thanks to this, these solidarity economy actors to some extent subverted marketization and financialization logics at the local level, rather than supported or deepened them. This 2-fold argument is substantiated below to show how Cosechando’s housing model is not ‘[reconfiguring] social relations in ways that support capital and market exchange relations’ (Carroll and Jarvis, 2015, p. 238, emphasis added). Rather, we point out in what ways the cooperative might be fuelling solidarity relations and a type of housing production not guided by the logic of capital accumulation, but by environmentally and socially sustainable patterns. First, commodification of housing has not only affected social housing but also self-organized housing. The Ésta es tu Casa programme has to some extent contributed to commodifying self-organized housing. Evidence of the latter is the emergence of companies taking part in the programme that promote standardized housing models that do not match with household needs but with companies’ priorities to reduce costs and maximize profit. However, since the cooperative Cosechando is not configured around the logic of capital accumulation, their programme is able to prioritize families’ needs and environmental protection in the production of housing. The role of the cooperative is, on the one hand, to encourage families to build their housing in an environmentally sustainable way and to assist them in the construction process through advice from architects, workshops and manuals. According to the cooperative’s board, the active involvement of households in the design of their homes makes families feel more attached to their housing and to conceive it more as a home than an asset. As one of the founders of the cooperative points out: For example, those [new social housing] apartments… people pay CONAVI or INFONAVIT, and they get their apartment. But they have not done anything, they have not decided anything. Here, people love their home. Because they have visualized it. They have taken decisions over it: if it is made out of cement, blocks… That makes people feel like that is their house … A lot of decisions are in people’s hands … [The house] just needs to fulfil liveability requirements (Interview with Alfonso Castillo, 03 June 2019). Second, neoliberalism alienates individuals from the collective, making them responsible for their own well-being (Lemke, 2001). Financialization processes fit very well with this model since they have been replacing state welfare with private debt, benefiting financial capital (Soederberg, 2014; Kaika, 2017). The Ésta es tu Casa programme is also in line with this logic since one of its core features is the fact that it replaces financial schemes based on public (subsidized) credit by others structured around private credit. The programme replaced the FONHAPO model that allowed, and even fostered, collective credit and the organized production of housing with an approach that is ‘based on the individualization of needs’ (Grubbauer, 2020, p. 17). However, as mentioned in the third section, Cosechando’s founders created the cooperative to promote community organization and community empowerment. Their efforts to connect the cooperative’s activities with critical reflection on contemporary social problems and the design of the credit programmes, among others, are aligned with these goals. In this sense, their housing model, even though supported by the Ésta es tu Casa programme, is also embedded in this logic of promoting exchange relations based on solidarity. Hence, as mentioned in the third section, Cosechando’s model connects the improvement of families’ housing conditions with the improvement of the community’s local economy. Alfonso Castillo, founder of the cooperative, confirms this point: We could have left it [CONAVI’s programme] as it was… so that everyone can buy their [construction] materials wherever they want… there are no vouchers, here is your money and you spend it however you want… But here we combined two factors: in the first place, you make sure that most of the money [that is, of the credit], is going to be spent in the [construction] of the house … [Additionally] the economic drive that it generates in the communities (Interview with Alfonso Castillo, 03 June 2019). Third, neoliberalism has reinforced dependence on debt and the insecurity that results from this, turning citizens into ‘indebted objects who lost their political agency’ (Kaika, 2017, p. 1277). While the Ésta es tu Casa programme has contributed to families’ dependence on financial markets, Cosechando’s cooperative model and its housing programme offers ways out of this dependence. As mentioned earlier, Cosechando’s housing model rests on a financial scheme that is partly based on an alternative currency, namely vouchers, which, in contrast with conventional money, cannot be subject to speculative logic. Moreover, the cooperative does not provide credit based on fictitious capital but on member’s savings. This contrasts with other finance providers that try to benefit from families’ indebtedness. Cosechando tries to prevent this by promoting and prioritizing savings over credit; financial education; through establishing certain requirements and controls inside saving groups to allow credit acquisition; and by restructuring loans when problems of indebtedness arise (Interview with Alfonso Castillo, 3 June 2019). In other words, Cosechando tries to prevent people’s dependence on their credit and, rather, aims to empower them through collective organization. This is complemented with the programmes and instruments described in the third section, aimed at improving food security, strengthening the local economy and limiting large economic powers such as large building material companies. Conclusion This article has focused on an innovative and alternative housing finance and construction model developed by a saving and credit cooperative in the context of a housing programme and policy framework dominated by the World Bank. In order to analyse the factors that made this possible, we gave a historical account of the work of key housing associations in Mexico and presented the case of the saving and credit cooperative Cosechando Juntos lo Sembrado and their housing finance model. We argue that the emergent character of the housing programmes of the past decade has also allowed greater scope for action among housing associations and financial cooperatives. In the case of Cosechando, this has enabled the subversion of some aspects of the housing programme at the local level to favour the community, rather than private companies or international financial institutions. However, we have also pointed out challenges and limits due to external and internal factors that the cooperative has faced. Drawing on our analysis, we suggest three points of wider relevance for community-driven housing projects that employ novel financial instruments. First, housing associations and community-based financial organizations working in the field of housing, especially in Latin America, have a long history in advocacy and community empowerment (Connolly, 2018). They employ socially oriented rather than profit-oriented approaches and have direct experience of the challenges and opportunities presented by housing-related community development. In critical reflections on problems of housing provision in developing contexts, these organizations’ conceptualization of community-led housing models that seek an alternative to dominant financialized approaches should be taken into account. Second, a particular challenge for the success of housing associations is the fragility and instability of the national political contexts. This is particularly true for the field of housing policy in Mexico which has seen repeated ruptures as a consequence of political changes in national governments. Yet, the consistent work of these associations over decades and the political, social and technical learning they have accumulated over the past years has allowed them to navigate these challenges and introduce some social criteria into market-based housing policies. Third, in terms of limits to the activities of housing and community-based financial organizations, it is vital to recognize that they act in a field strongly dominated by the influence of international financial institutions. These organizations have been able to adapt some of the rules of the Ésta es tu Casa programme at the local level, making them work for the well-being of their communities rather than of financial capital accumulation. However, they are still far from changing the overall rules of the game, that is the aim of prioritizing capital growth. Hence, in the light of current World Bank strategies of incorporating community-based organizations, the ability of these organizations to maintain their independence and hold on to their own agenda appears to be critical for the realization of their goals into the future. Acknowledgments The authors would like to thank Niamh McCrea, Fergal Finnegan and Nessa Ní Chasaide for their helpful feedback and careful editorial work. We are also grateful to our interviewees, in particular Alfonso Castillo and Enrique Ortiz for their valuable insights. Declaration of conflicting interests The authors declare no potential conflicts of interest with respect to the research, authorship, and/or publication of this article. Funding Research for this article was funded with a grant from the German Research Foundation (DFG). Footnotes 1 Centro Operacional de Vivienda y Poblamiento AC, or Operational Centre for Housing and Human Settlement. 2 Casa y Ciudad, Cenvi, Copevi, Fomento Solidario de la Vivienda (Fosovi). 3 An array of left-wing grassroots organizations emerged during the 1970s fighting for better housing conditions, urban services and local democracy. 4 The Social Solidarity Society was a legal entity established in the 1970s in Mexico to regulate cooperatives. 5 Cadereyta de Montes, Colón, Ezequiel Montes, San Juan del Río, Tequisquiapan. 6 These requirements include to have been a saver for at least three months, have saved at least six times in the last two months, have saved 20–33 percent of the amount of the credit to be applied for and not to have another active loan. Luisa Escobar is currently Research Associate with the Chair of History and Theory of the City at HafenCity University Hamburg, Hamburg, Germany. 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Silver,, Jonathan;Fields,, Desiree;Goulding,, Rich;Rose,, Isaac;Donnachie,, Siobhan

doi: 10.1093/cdj/bsaa044pmid: N/A

Abstract How do communities understand the highly abstract process of housing financialization? In this paper we argue that walking tours offer the capacity to develop new forms of mobile, public education to learn about the capitalist urbanization process, especially as the financialization of housing accelerates. Based on walking the city of Manchester we show that this type of learning may improve public literacy concerning the opaque and extended ways in which housing in central areas has increasingly been shaped by new types of real estate finance. Although many people in Manchester have understood the outline of these dramatic transformations, and could connect the new skyscrapers to their struggles for everyday survival, there remained a gap in detailed literacy of the actors, finances and dynamics that had changed the city so quickly. We contextualize the rapidly changing global landscape of housing since the global financial crisis of 2008 before showing how these transformations have reshaped housing in Manchester. We then describe the motivations for developing the tour, and the details of the walk itself. We conclude by suggesting that the walking tour offers new types of possibility in necessary learning and subsequent action to address capitalist urbanization. Introduction A vertical spectacle of towers and cranes is currently remaking central Manchester, United Kingdom at a furious pace. A housing boom, funded largely by private equity funds, investment firms, and other financial actors is expanding the city with tens of thousands of new, high-density housing units. Simultaneously, financialization is constricting the place of marginalized populations and activism in the city. As academics and activists involved in Greater Manchester Housing Action (GMHA) we have observed how homelessness becomes criminalized as a threat to securing investment, spaces for collective action are squeezed out in favour of regeneration towards higher rents and corporate uses, and policing and surveillance techniques serve to intimidate populations that might compromise the smooth flow of capital. In these rapidly transforming urban conditions, we ask how wider publics can make sense of these highly abstract processes of housing financialization that have come to shape the urban experience. Concurrently, we ask what strategies might be employed by activists and academics to help advance public knowledge of the housing crisis and support communities to contest financialization. In this article, we explore a specific method which has been used to make the processes of financialization more visible and understandable, namely walking tours. We argue that this mobile method of public education provides the basis for a wider discussion about who is able to assert claims to urban space in the context of financialization, and the role of grassroots activism in making and substantiating these claims. In April 2019, GMHA organized an event called ‘Who is the City For?’, in the Methodist Hall, central Manchester. The event was part of a broader programme of public education on housing aimed at supporting growing resistance to the housing crisis in the city. A panel discussion responded to the question: Massive wealth is pouring into the UK’s major cities, private investment and large-scale development projects are reshaping our urban centres, but who really benefits from this transformation? (GMHA, 2019). Speakers critically examined how this city in northern England had joined cities across the world in becoming financialized. The panel was followed by an audience-led discussion on how communities could take action to address the issues raised. On the day a planned walking tour was scuppered by the (in) famous Manchester rain and the tour was rearranged. In the weeks that followed GMHA ran two tours with over fifty participants that explored financialization in various parts of the city. In this paper we reflect on the organizing and experience of these walking tours of the financialized city. We advance literature on walking as methodology in urban studies, arguing that this mobile method can support communities to navigate the complex, highly abstract process of financialization. It can also support housing movements in resisting capitalist urbanization. The paper offers a reflection on how we undertook this activity as part of a sustained programme of public education by GMHA. Although this was not a smooth or unproblematic process, it did offer learning opportunities and generated reflections that we think have wider relevance in bringing together the abstract with the everyday. By hitting the streets we were able to leave the meeting room and explore up close how the ownership of buildings had been off-shored to tax havens, historic buildings destroyed, neighbourhoods gentrified, and short-term rentals normalized. We conclude by calling for academics and activists to find new ways to open up the process of financialization, to incorporate walking tours into public education and to explore and contest the financialized city from the streets. The financialized city What do we mean by the financialized city? Financialization is a term initially developed to capture the growing power of finance in the economy since the 1970s. The term refers to the way that capital accumulation increasingly happens not only through producing and trading commodities, but through financial channels—via the production and trade of financial instruments, the proliferation of debt, and the expansion of the stock market (Lapavitsas, 2011). This means that financial actors such as stockbrokers, banks, payday lenders, investment firms, and private equity funds all play a bigger role in the economy—and so does their way of seeing the world. And because the economy, society, and politics are so intertwined, financialization is also spilling over into our cities, homes, and lives in all kinds of ways (Fields, 2017a). Financialization is an increasingly important dynamic in the way cities grow and change. As Louis Moreno (2014, p. 255) argues, the built environment of infrastructure and real estate that define cities are the ‘material basis for economic decision-making’ in a capitalist system. Real estate and infrastructure development projects always rely on access to financial capital because credit is needed to spread out the high costs of these projects over time. However, the dramatic growth of global financial assets managed by institutional investors and investment companies in recent decades (Christophers, 2011) has made urban space an increasingly important means of absorbing financial capital: financial actors on the hunt for yield can invest in development projects and earn interest, dividends, and rents on their investments. And the expansion and ‘improvement’ of the urban landscape also supports future capital accumulation. But this process can be risky. As competition for profitable investment in the built environment heats up and the mobility of finance intensifies, the role of capital in urbanization becomes increasingly speculative and prone to setting off a property crisis (Kalman-Lamb, 2017), thereby dramatically devaluing assets and igniting a broader economic breakdown—this is exactly what we witnessed in 2008. Since the 2008 crisis, the process of housing financialization has changed considerably, moving beyond homeowners and mortgages to private and social rented housing (Fields, 2018; Nethercote, 2019; Rolnik, 2019; Wijburg et al., 2018). As finance capital expands its role in rental housing development and provision, the imperatives of markets, investors, and shareholders increasingly shape residents’ experience of housing, home, and community. Of special concern is the way that financialization of the city via housing creates tensions ‘between shareholder interests and renter needs’ (Nethercote, 2019, p.857). Particularly where tenants lack robust legal protection, these tensions may ultimately threaten claims to place and belonging by contributing to the violence of displacement, especially for poor and working-class residents (Fields and Uffer, 2016; August, 2020). Yet the public lacks understanding of how the global operations of finance capital touch down in particular places. Although the world of finance is often framed as complex in ways that exceed comprehension, the storied complexity of finance also serves as a means of obfuscating popular understanding and evading critical inquiry (La Berge, 2014). A core challenge to public understanding of financialization is the relations of distance that characterize this process and heighten its abstract quality: the many layers of intermediaries necessary to realize the investment of a sovereign wealth fund in overseas property markets, the way that this kind of investment enables actors working from afar to have a stake in local housing markets, and how questions of responsibility and accountability are muddied by the proliferation of middlemen carrying out the mundane processes of financialization (Fields, 2017a). The 2008 financial crisis reignited stigmatizing discourses that blamed individuals for taking on problem debt. However, the continued role of finance capital in remaking our cities demands a different kind of financial literacy: a critical, collective effort to build public understanding of how financialization is transforming the very fabric of our cities, and to build the power and movements necessary to contest this process. We now move on to consider how housing in Manchester became financialized, generating the need to develop literacy of these processes for communities. Figure 1 Open in new tabDownload slide New build to rent developments are transforming central Manchester Figure 1 Open in new tabDownload slide New build to rent developments are transforming central Manchester Manchester as financialized city The city region of Greater Manchester, and particularly its centre, has experienced an unprecedented urban development boom since the turn of the Millennium as the process of suburbanization was reversed, with speculative development resuming since 2014 following years of post-2008 stasis. National and local media celebrated the construction underway, the rise in house prices and the billions of pounds of investment into the built environment (see Figure 1). At the same time the cranes and construction workers, new towers and luxury accommodation, the numbers of homeless people continued to grow, with over 80,000 on social housing waiting lists across Greater Manchester (Froud et al., 2018) and many families in substandard rental properties. Although the roots of the housing crisis date back to the neoliberal restructuring of the 1980s, the financialization of housing in the city centre is relatively recent. Collective and public literacy of these financial processes therefore remain in its infancy. Since 2014 Manchester has become a space in which large flows of capital from the United Kingdom, and increasingly internationally, supported a property-led regeneration model, which had long been pushed by a neoliberal city council and ‘stakeholders’ (Quilley, 1999; Harding et al., 2010). The pace and scale of the urban development boom was dramatic. Deloitte (2017) reported a 133 percent increase in the number of residential units under construction in the city centre between 2016 and 2017. And in 2018, seventy-nine development sites were identified with over 25,000 new apartment units either on site or with planning permission and estimated to be worth billions of pounds (Silver, 2018). Much of this growth had emerged from local and national government efforts to restructure the private rented market away from the ‘Buy to Let’ sector to the larger scale, institutionally friendly, ‘Build to Rent’ (BTR). In the United Kingdom, the BTR sector is financed, designed, and built for investors such as pension funds and is managed by specialist operating companies. Data from the British Property Federation (2020) shows that, since 2014, BTR has increased from approximately 25,000 units to over 150,000 units completed or in the planning pipeline. Manchester is a major site for much of this BTR development. These changes showed how housing in the city had followed other cities, such as London and San Francisco, in encouraging pension and sovereign wealth funds, billionaires, private equity groups, and other institutional investors to take ownership of new housing development. The model transformed housing in Manchester into an asset to be speculated on, traded, and profited from. If the roots of the current flow of speculative capital into land and housing date back to the early 1970s, it is now at a much bigger scale, embedded into transnational capital flows and with little public house building to compensate or act in a counter-cyclical manner to stabilize the housing market. The current wave of BTR in the Manchester region can be understood as a kind of 2-fold financialization. The first is at the point of production, through the role of offshore finance capital from sovereign wealth funds, private equity funds, holding companies, and other types of financial actors. The second is through housing provision, either by small-scale investors purchasing units off-plan, or at the scale of entire buildings being brought online by the developers and institutional investors. These developments can be explained by a number of factors including new national guidance, favourable fiscal conditions, a property industry that has developed its own fiscal and legal models such as REITs (Real Estate Investment Trusts)1 to enable corporate investment, and an enthusiastic city council dropping affordable housing requirements. The opportunities to profit from housing in Manchester therefore differed considerably from the past because it was now relatively straightforward for large financial actors to invest in the private rented sector in the city (Haughton et al., 2016). Furthermore, financialization has been aligned with the pursuit of a neoliberal growth model by Manchester City Council, and their active pursuit of global real estate investment shown through their large presence at the MIPIM property fair in Cannes and heavy promotion to expanding investment markets in China and South East Asia. A range of implications open up as financialization shapes the fabric of the city. The surge of finance capital created pressures on neighbourhoods inside and outside the centre. The avoidance of affordable and social housing requirements in these developments, despite planning guidance stipulating that developers should contribute towards a 20 percent affordable target for new builds in the city, meant that central neighbourhoods lacked tenure or income diversity. The result was increasing housing-driven segregation as inner-city communities in areas such as Hulme and Ancoats faced indirect displacement through rising private rents and an eroded social housing base (Davidson, 2008; Luke and Kaika, 2018). In the city centre, new housing developments owned and operated by global financial actors offered a plethora of services and facilities in privately owned, fenced-off enclaves, surveyed by various forms of security. At the same time nearby inner-city communities remained among the most deprived in the country.2 High financial returns and the increasing competition for urban land for development meant important parts of the historic built environment were being destroyed for profit. Alongside these spatial transformations, there have been growing concerns about transparency given the involvement of companies which are based in tax havens, the worrying lack of democratic oversight over the planning process and public–private partnerships between the Council and international governments and firms. Against the financialized city GMHA was established in late 2015, formed through three principal drivers. First, at that time the issue of housing and homelessness had been thrust into the spotlight by diverse campaigns across the city. These included high-profile ‘tent cities’ and occupations in Manchester from 2010 as the growing homeless population organized to protect themselves; campaigns against estate demolition; and community organizing led by Generation Rent, which in the previous year had fought for, and won, a landlord licensing scheme in a number of neighbourhoods in the city. Second, there was the context of major local government reform. The devolution deal initiated in 2015 to give more powers to city regions such as Greater Manchester was seen by some activists as a political opportunity to shift the political discourse to the left (Hodson et al., 2020). GMHA was part of a broader milieu of campaigns that were working to take advantage of that moment in the context of what we have already described as a highly neoliberal, developer-, and landlord-friendly council. Third, there was the impact of developments in the housing movement in London. In the years preceding, there had been a number of high-profile campaigns that began to repoliticize the question of housing in Britain, most notably perhaps those by the Focus E15 mothers (Gillespie et al., 2018). Jasmine Stone from E15 spoke at GMHA’s launch, and the group initially conceived of itself as a Manchester version of the Radical Housing Network. In the years since, GMHA has sought to fight the housing crisis along multiple fronts. It advances a systemic critique of housing under the current system—connecting the issues of homelessness, private renting, and the financialized economy, and creating bridges and links between different organizations in a wider movement, as well as proposing community-based alternatives such as through the ‘Housing Futures’ project.3 Over time the organization increasingly articulated and contested the divide between the ‘people’ of the city and the financial interests behind its redevelopment, posing the question: ‘Who is Manchester for?’ The accelerating flows of finance into Manchester generated significant challenges for the housing movement in helping decipher the often less than transparent urban development trajectory of the city. GMHA worked with Silver (2018) to develop a report that would make public the financing of these transformations and the neoliberal planning logics of the council. The report was released into a contentious political landscape, attacked by the Leader of Manchester City Council and the pro-developer lobby. Subsequent to the release of the report a number of public events, various pieces of writing and media attention, activism within and outside the Labour Party, and a growing public literacy on financialization meant that the role of financial actors in housing moved to the centre of efforts to contest the future of the city. In the run up to the public education event of April 2019, a further GMHA report was produced by Silver and Goulding (2019) that showed the council was continuing its focus on neoliberal and financialized urban development, despite much public outcry. The walking tour sat within a wider programme, ‘Let’s Talk About Housing’, conceived in late 2017. At that time there was much discussion on the socialist left in Britain about the necessity of political education. The unexpected surge in support for the Labour Party and its radical programme in and after the 2017 General Election had added a new impetus to efforts to organize political education and capitalize on a moment of political opportunity. Left-wing organizations working inside and beyond the Labour Party, like The World Transformed, crystallized in this period, as did Manchester Momentum, a local group operating as part of the national Momentum organization and which shared some key organizers with GMHA. It was in this context that we decided upon the necessity of a programme of political education focussing on the housing question and submitted a funding application to the Barry Amiel and Norman Melburn Trust to resource this work. The funding bid argued: We believe that the issue of housing has great educative potential. Perhaps more than any other issue, the housing question manages to link the global political economy of capitalism with the basics of people’s lived experience—a roof over their head and a community to call home. By using housing—and the associated issues of gentrification, homelessness and displacement—as the theme, we want to build spaces for radical popular education. Developing the walking tour In an early 1970s survey of rent strikes in radical journal, the Socialist Register, it was argued that future housing struggles may demand of their participants greater theoretical knowledge of the complexities of housing finance and policy (Moorhouse et al, 1972 cited in Gray, 2018). From the perspective of today’s financialized city, this now appears astonishingly foresighted—as the nexus of finance and housing has grown ever closer and complex, and the new skyline of the centre sits uncomfortably with outlying housing estates and towns such as Oldham where material poverty and overcrowding have contributed to some of the worst Covid-19 outbreaks in the country outside of London. We wanted to take these concepts out of the usual pedagogic environment and onto the streets. Specificities of which financial actors had funded particular developments; which neighbourhoods had been displaced or destroyed; how the city had physically changed, could then be easily tied to a more theoretical discussion of how the city’s economy had shifted. The inspiration for developing the walking tour came from a number of sources. These included the writing of Engels (1993) and Elizabeth Burns on capital and housing, and on slums such as Angel Meadows in 1840s Manchester, writing of which arose out of their walks in the city. We were also inspired by historical walking tours, in particular the antifascist history walking tour led by Manchester community group 0161, and the long-standing psychogeographic walks facilitated by the Loiterers Resistance Movement (Rose, 2015), which aim, ‘to decode the palimpsest of the streets, uncover hidden histories and discover the extraordinary in the mundane’ (Loiterers Resistance Movement, 2016). Although walking tours may be used to commodify urban space or to make a spectacle of poverty and ruination (Lyons et al. 2018; Jones and Sanyal, 2015; Slager, 2020), they can also pursue more emancipatory aims such as transgressing and appropriating dominant productions of space, and bringing to light marginalized and overlooked narratives of urban landscapes (Robinson and McClelland, 2020). In making visible ‘the hidden relations of power that produce the contemporary city’ (Lyons et al., 2018, n.p.) collective walks become a means of reclaiming the public sphere via critical inquiry into top–down processes of urban change. They are a form of public pedagogy (Springgay and Truman, 2019). Akin to how artist Walis Johnson’s Walking Brooklyn’s Redline (2019) employed public walks to encourage understanding and reflection on the legacy of redlining and its production of racialized geographies of exclusion, our walking tour sought to engage ‘others in understanding their political, historical, and material relationship’ (Johnson, 2019, p. 214) to the financialized city. The tour gave space for attendees’ own experiences, stories, and memories to intersect with the narrative that we developed. In so doing, the concept of financialization itself became clearer, not as flows of capital to be understood in the abstract but something concrete. The tour itself was designed to last for less than two hours which meant we had to be selective in where we could visit and what we could discuss. We decided to focus on the northern and eastern edges of Manchester city centre and surrounding inner-city neighbourhoods as they provided a range of case studies on how financialization was proceeding (see Figure 2). Figure 2 Open in new tabDownload slide Map of walking tour (Source: J Silver/Johny McQuade) Figure 2 Open in new tabDownload slide Map of walking tour (Source: J Silver/Johny McQuade) (1) We started in the popular central neighbourhood of the Northern Quarter. Standing in front of a half-demolished set of old weaver cottages, we used this site to outline the key ideas of Neil Smith’s theory of the ‘rent gap’ which described the disparity between current rents and potentially higher rents that might be achieved by landlords. We did this in order to explain the ways in which gentrification (Lees et al., 2013) was detrimentally transforming the neighbourhood. Older, historically important buildings were being demolished and a range of long-standing, independent businesses were being evicted at a furious rate as developers became increasingly aware of the accumulation opportunities generated through growing rent levels. As a group we discussed the implications of this transformation, how attempts at saving historic buildings struggled under an unsympathetic planning regime and the limited options available for their protection. (2) We stopped on the High Street, where residents and groups such as the Northern Quarter Forum are facing the growing menace of Airbnb and other short-term rental operators (Wachsmuth and Weisler, 2018). We explored how this phenomenon represented a particular type of financialization in which new platform technologies have facilitated opportunities to secure rental income from short-term visitors to a city. We reflected on the evidence of hundreds of homes now transformed into short-term stay units for tourists and other visitors to the city, how this was putting pressure on rents, and creating antisocial problems for longer term residents forced to navigate the ubiquitous stag and hen parties. We considered cities that were further along in the experience of Airbnb, particularly thinking about the ways it had reinforced gentrification and displacement in cities in the southern Mediterranean (Jover and Díaz-Parra, 2019). We discussed whether similar dynamics might happen in Manchester, the lack of council action on short-term rentals, what it would mean in different parts of the city, and what a campaign to resist these processes would look like. (3) We visited a development, Smithfield Square, to explore the ways in which ownership of its buildings was increasingly held in secret offshore jurisdictions, with this particular development being nearly 50 percent owned by companies based out of an office in the British Virgin Islands. We considered the risks of Manchester becoming a secondary centre in the United Kingdom for the type of investment and offshore capital that has made London one of ‘the biggest tax haven[s] in the world’ (Minton, 2017, p.11). This meant also thinking about the differences with the London experience, especially the smaller size and scale of the Manchester setting, and the weaker density of the transnational networks involved in investment, bringing out the hollowness of this process as an investment strategy when the wealth of the centre was compared with the material poverty in the housing estates just a few blocks away. (4) We then crossed the inner ring-road, visiting Angel Meadow to consider the strategic regeneration plan to transform this part of the city, now called the Northern Gateway. We began by thinking about the neighbourhood history, first as a middle-class enclave for merchants, before becoming what Engels (1993) described as ‘Hell upon Earth’ and a notorious slum for many decades. Over recent years this neighbourhood has become incorporated into the city centre and now development activity threatens to spill beyond the area’s boundaries into surrounding working-class neighbourhoods. On one of the tours we heard from a resident of nearby Collyhurst about the community fears of being displaced, the lack of openness by the Council and the lack of transparency concerning how a Hong Kong-based, Cayman Island-registered company, Far East Consortium, had been given huge amounts of public land to develop. Such a compelling account from a resident provided an important moment to reflect on how the financialized city was creating profit for the few at the expense of the many, and a moment of learning for all. (5) The tour then proceeded to Victoria Square, Ancoats to consider alternatives to the financialized city and learn from Nigel de Noronha about the traditions of municipal house building in the later 19th and early 20th centuries (Boughton, 2018) which had transformed some of the worst slum housing in the area. Considered the first municipal housing in the city, Victoria Square now operates as a supported housing scheme for elderly residents, with nearby Anita Street locally renowned for the first indoor toilets for municipal tenants. Both these examples provided powerful cases in which to consider the importance of a local state focused on housing provision for residents unable to afford market rents. We discussed alternative housing futures beyond financialization that could draw on these histories within the context of new waves of municipalism that have emerged across Europe in recent years (Russell, 2019). Support for these may come from an unexpected source; the recent Housing Strategy endorsed by Greater Manchester local authorities includes recommendations to explore Community Land Trusts (CLTs) as a non-speculative model of housing development in areas experiencing gentrification. This would enable local communities to democratically retain land value uplift for genuinely affordable homes, community gardens, meeting venues or other resources (GMCA, 2019). Although Manchester still lacks established CLTs in comparison to its neighbouring cities of Liverpool or Leeds, this could be one example of counter-veiling pressures against neoliberal urbanism both inside and outside official governing structures. (6) We then stood in Cotton Square to consider the partnership between Manchester City Council and Abu Dhabi United Group through the venture Manchester Life, thinking through how the partnership reflected the emergence of ‘financialized municipal entrepreneurialism’. Beswick and Penny (2018, p. 612) developed this term to highlight: the state-executed financialization of public housing in the UK with the use of speculative council-owned special purpose vehicles (SPVs) that replace existing public housing stock with mixed-tenure developments, creating ambiguous public/private tenancies that function as homes and the basis for liquid financial assets. We shared reflections on the implications of a local authority becoming involved in these deals with finance capital, a debated topic with some tour attendees arguing that bringing back old industrial buildings into active use for bars and restaurants was worth the price of private land deals. This discussion pointed to how the abstraction of finance can hide the relations of power and wealth that produces these spaces of consumption, in this case through the recycling of petro-capital. We hoped that by exploring some of the international actors operating in the financialized city we could draw attention to the human rights and environmental records of the various regimes, individuals, governments, and companies profiting out of Manchester. This included highlighting how campaigning groups beyond the housing movement, such as Amnesty International and Human Rights Watch, were expressing concern about the close relations between Manchester City Council and the Abu Dhabi United Group. To do this we considered how groups including Amnesty Manchester and The Public Meeting had run a local campaign focused on the imprisonment of Ahmed Mansoor, a human rights lawyer in Abu Dhabi, whose mural had recently been painted in nearby Stevenson Square. (7) We next considered the destruction of heritage, standing next to a new non-descript block of apartments that had previously been the site of the Smiths Arms, a pub built in 1775 which had been the focus of an unsuccessful campaign against its demolition. One tour participant laughed with horror at the old doorway which was now a fake fireplace for this new apartment block and considered the developer’s words that they were respecting the heritage of the site through such ghastly interior design. We again turned to the rent gap theory to explain why much of the city’s heritage was being replaced by new, bland architecture. (8) We finished by looking over Central Retail Park, a site recently closed as a big box retail centre and purchased by Manchester City Council for tens of millions of pounds of public money. We talked about the future of the city and the importance of fighting for affordable housing and public space, and against financialization. In the months following the tour, this land would become a site of intense contestation over council plans to operate a car park in the short-term, despite illegal air pollution and an adjacent primary school, before developing it as offices for the technology sector. This tour of the financialized city was re-run later in 2019 with slightly different routes and foci. This included the MISTRA urban futures conference which hosted visitors from South Africa, Kenya, and Sweden to explore the contested city. Working with the ‘Whose Knowledge Matters’ project4 we concluded the walk with a meeting in a community venue in Miles Platting, a working-class neighbourhood facing a range of pressures in relation to financialization, at which ideas for how to connect different communities in the city were discussed. Conclusion In this article we have reflected upon the global phenomenon of housing financialization and how it has begun to transform the city of Manchester. We argued that walking the financialized city as a tool of public education offered the opportunity to move from the meeting room onto the streets as an alternative pedagogical strategy. We described the tour itself in Manchester showing how various buildings, developments and neighbourhoods provided the context in which to explore concepts that could help explain these transformations. This included notions such as the rent gap, gentrification, displacement, and financialized municipal entrepreneurialism. We highlighted growing contestation of the financialized city by diverse activist groups inside and outside the housing movement, and offered participants ways to access these campaigns and help in fighting this wave of capital accumulation into Manchester. We feel that the walking tour methodology offers a number of beneficial lessons for community-based housing movements. Firstly, the walking tour provided a way to open up the abstract patterns and dynamics of financialization in ways that helped to overcome the difficulties of developing critical, collective financial literacy. On one hand, financialization is inherently an abstract process of seeking commensurability via quantitative grouping, representation, and differentiation, necessarily smoothing out the textures of the social and lived experience. Financialization also involves actors working from a distance (albeit facilitated by local actors and institutions), frequently through corporate structures and tax havens that obscure beneficial ownership. On the other hand, financialization is deeply material, touching down in and reshaping the urban landscape in ways that also unsettle lives. Rather than privileging and fetishizing the abstraction and complexity of financialization, the walking tour helped us to foreground this material aspect, allowing us to explain concepts such as the rent gap, gentrification, displacement, and financialized municipal entrepreneurialism by rooting them concretely in buildings, developments, and neighbourhoods around Manchester. In so doing, we were able to communicate and discuss urban theory in a far more inclusive way than traditional, classroom-based approaches that often exclude or put off those who are most directly impacted by financialization. In terms of implications for movements and activist knowledge production, such an approach is valuable in its own right. Additionally, it may set the scene for further participatory inquiry by helping to establish a collective to apprehend and interrogate some of the more abstracted actors and processes involved in financialization. Second, and linked to the point above about an inclusive mode of urban theory, our approach also enabled participation by activist groups from inside and outside the housing movement, and local residents. Although financialization is immediately relevant to activists and residents, knowledge production about it often circulates primarily amongst academics, and can sometimes be divorced from experiences on the ground. By deliberately opening up financialization and rooting it in place, the walking tour meant that learning was not a one-way process: rather the rolling conversation, the opportunity to hear from different speakers, including residents in neighbourhoods facing uncertain futures, was invaluable to us all. In particular, the exchanges with the resident of Collyhurst, and the later visit for the MISTRA conference to Miles Platting to meet a church leader and local resident, suggested the potential for a different type of pedagogical experience pertaining to housing financialization. These moments helped to connect the poverty of inner-city neighbourhoods to the extractive wealth in central Manchester. The same kind of walking tours would probably not be appropriate in such a context (i.e. a large group walking around a residential neighbourhood such as Miles Platting). However, we see great potential in facilitated exchanges between different communities and campaigns, a strategy already being developed in the city by other campaigning groups such as CLASS and Greater Manchester Savers. Finally, as we have been writing this article in March/April 2020, we have been reflecting on how the Covid-19 crisis may impact on processes of financialization in Manchester and beyond. We have also considered the current lack of capacity to undertake group walking tours due to pandemic-related restrictions. In response GMHA are considering how to develop a self-guided walking tour from the material developed out of this process, utilizing smart phone technology. Finally, we wish to encourage activists and academics to consider further the opportunities present in developing walking tours, to establish new ways of communicating and discussing urban theory that are more inclusive, and help build public literacy in order to assert claims to urban space in the context of financialization and capitalist urbanization. Acknowledgements The authors would like to acknowledge the hard work of members of Greater Manchester Housing Action in putting together the funding, events and walking tour itself. This included speakers such as Nigel de Noronha and Victoria Habermehl who joined us for at least one of the walks. We would also like to express thanks to the Barry Amiel and Norman Melburn Trust for funding the public education series. Jonathan Silver would also like to acknowledge funding by the Leverhulme Trust to pursue research on financialization in Manchester. Jonathan Silver, Urban Institute, University of Sheffield Desiree Fields, Geography Department and Global Metropolitan Studies at the University of California, Berkeley Richard Goulding, Independent scholar Isaac Rose, Greater Manchester Housing Action Siobhan Donnachie, Greater Manchester Housing Action Footnotes 1 A real estate investment trust (REIT) is a company specifically set up to purchase, hold and in the majority of cases operate developments that produce income through rent and incorporate various different types and forms of real estate. They are normally listed on stock exchanges. 2 See for instance this 2013 news report on Harpurhey being the most deprived place in England. Source http://www.manchestereveningnews.co.uk/news/greater-manchester-news/harpurhey-the-worst-place-in-england-1108111 3 A range of documents from the Housing Futures are available here: http://www.gmhousingaction.com/housing-futures/ 4 Whose Knowledge Matters was an ESRC-funded research project which investigated and valued citizen-based knowledge in spatial planning processes within Greater Manchester and its local neighbourhoods. We worked with Victoria Habermahl on this particular tour. See https://whoseknowledgematters-rjc.org References August , M. ( 2020 ) The financialization of Canadian multi-family rental housing: from trailer to tower , Journal of Urban Affairs . doi: 10.1080/07352166.2019.1705846 . Google Scholar OpenURL Placeholder Text WorldCat Crossref Beswick , J. and Penny , J. ( 2018 ) Demolishing the present to sell off the future? 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Jones,, Tim

doi: 10.1093/cdj/bsaa036pmid: N/A

On 22 May 2020, Argentina defaulted on its government debt for the second time this century. It followed Lebanon which stopped paying debts in March. Both countries were already facing severe debt payment difficulties before the coronavirus crisis began. The impacts of the COVID crisis on top of existing debt burdens mean Angola, Ecuador, Pakistan, and Zambia are all expected to default—or through threatening to do so, reach agreements with lenders to reduce debt payments. As the latest sovereign debt crisis sweeps across many countries in the global South, Jerome Roos’ engaging epic Why not default? could not be more timely. Roos investigates why governments do not default on their debts more, and why default happens less in times of crisis now than in past periods, such as the 1930s, 1830s, and back to the time of medieval kings. These are questions that are as vital now as they have ever been. Roos emphasizes that the decision over whether or not to pay is social and political as well as economic. In times of crisis, decisions are made not as to whether lenders should be repaid, but who across the whole of society should bear the costs. Debt repayment or default is inherently political, with huge social consequences. As Vera Songhwe, Head of the UN Economic Commission for Africa, said in June this year ‘Our leaders have two choices, you either pay obligations to the bondholders or you buy medicine, food, and fuel for the population.’1 Of the choices Songhwe gives us, many would choose medicine, food, and fuel over payments to already rich bondholders, especially faced with a global pandemic. Yet that is not what governments in the global South are doing. Most are continuing to pay, including many heavily indebted countries. Roos’ answer to the ‘Why not default?’ question is that the current structure of the global economy gives lenders structural power over debtors. This power comes from the ability of lenders to ‘withhold the short-term credit lines on which all economic actors in the borrowing countries – states, firms and households alike – depend for their reproduction’ (p.10). Roos makes his case through three of the most famous sovereign debt crises of the last forty years—Mexico in the 1980s, Argentina at the turn of the millennium, and the Greek debt crisis in the 2010s. In 1982, Mexico stunned financial markets by announcing it had run out of the foreign exchange to pay its debts. A Mexico default, especially if followed by other Latin American countries, could have bankrupted several US banks. It was in the US’s interest to stop the defaults, which was done through a combination of new IMF loans—effectively paying off the US banks, rolling debts over while keeping interest repayments, and the imposition of vast austerity programmes. Poverty rates across Mexico and Latin America rose sharply—it was the people who paid for the crisis, not the lenders. But why did Mexican leaders go along with this strategy? Roos argues the Mexican state and economy was dependent on foreign credit and investment, and this was ultimately controlled by the same banks who owned the debt. Meanwhile, Mexican banks themselves were potentially exposed to major losses from any default, but globalized finance meant that it was difficult for the Mexican government to discriminate between defaulting on US and Mexican banks. And major losers from a domestic banking collapse would be Mexican elites. The Mexican crisis was repeated in Greece in the 2010s. This time it was European banks who faced going under if the Greek government defaulted on its debt. European public money was mobilized for the effective bailout of the banks ‘in return’ for harsh austerity measures forced on Greece. The people paid again, the banks were paid off. The structural power of finance was even greater in the case of Greece, where membership of the Euro meant outside lenders had even more tools to turn off credit. Even the election of the ‘radical leftwing’ Syriza government and an overwhelming referendum result against austerity conditions did not lead to a change of strategy. Argentina’s default at the turn of the century is the exception which Roos claims proves his rule. After being a poster child for implementing IMF austerity and paying off debts in the 1990s—suffering a severe recession as a result—the South American country stopped paying its debt at Christmas 2001. The default lasted until 2005 when most creditors agreed to accept less than 30 percent of what they claimed was owed. Roos argues that the usual circumstances which create the power of finance existed in Argentina during the period of repayment and recession in the 1990s but collapsed to enable the default. By the time of the default, creditors were a diverse group of atomized bondholders—including large numbers of European pensioners who had unwittingly bought the debt off Wall Street banks. The IMF and USA no longer had an interest in keeping the debt payments flowing, and actually wanted a default and restructuring so they could lend more in the future. And there was large domestic resistance and a crisis among the Argentine elite. Whatever the cause, Argentina’s default may have added to the short-term pain, but it was only a few months until the economic recovery began, and the following decade when Argentina was effectively shut-off from financial markets was one of the most economically stable in the country’s recent history. Roos’ structural power of finance is real because governments believe it. I have been involved in numerous conversations where IMF officials or private lenders do not understand why a government keeps paying, but it is the government itself which thinks defaulting is the one thing which must be avoided at all cost. But how exceptional is a case like Argentina? If more governments did take the plunge and default, would they suffer the consequences, or find that the structural power of finance was only real because they believed in it? It may be my optimistic bias, but I am less convinced than Roos that the power of finance is real hard power they have, rather than soft power they have made us believe they have. In his concluding chapter, Roos goes go on to outline ways in which the current overwhelming bias in favour of lenders could be challenged, building on cases such as the global Jubilee movement’s push for debt cancellation in the 2000s, to Ecuador threatening default and secretly buying back its debt cheaply in 2008. We are only a few months into the latest sovereign debt crisis. So far, much of history is repeating. The IMF is lending more, enabling debtor governments to keep paying high interest to private lenders. Those private lenders are warning governments that they will not be able to borrow again unless lenders are paid in full. But from Argentina and Lebanon’s defaults, to Ecuador and Zambia seeking write-downs on their debt, there are small cracks in the power of finance. Burkina Faso’s revolutionary leader, Thomas Sankara, called for a ‘united front against debt’. Roos concludes his book saying such an international movement is needed ‘to make serious inroads against the ascendancy of finance and the turbulent world it has created in its image’ (p. 310). Whether the power of finance is real or imagined, the same movement is needed to confront it. Footnotes 1 https://www.bloombergquint.com/businessweek/africa-will-be-the-next-debt-explosion-after-coronavirus. © Oxford University Press and Community Development Journal 2020. All rights reserved. For permissions, please email: [email protected] This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model)