Peripheral Financialization and Vulnerability To Crisis: A Regulationist Perspective

competition and change, Vol. 14 No.
3–4, December, 2010, 225–47
Peripheral Financialization and

Vulnerability to Crisis: A Regulationist
Perspective
Joachim Becker
Vienna University of Economics and Business, Austria
Johannes Jäger
University of Applied Sciences BFI Vienna, Austria
Bernhard Leubolt
Vienna University and University of Applied Sciences BFI Vienna, Austria
Rudy Weissenbacher
Vienna University of Economics and Business, Austria
The current crisis confirmed that highly financialized regimes of accumula-

tion are extremely crisis-prone. Most of the literature on financialization is
focused on the economies of the centre. This paper analyses the peculiari-
ties of financialization in the periphery, which is characterized by a high
degree of extraversion and/or by considerable socio-economic heterogen-
eity. The theory of regulation permits analysis of different forms of financiali-
zation and the social dynamics linked with them. In contrast to Keynesian
approaches, the state, international organizations and social forces shaping
norms and policies are an explicit part of the theory. This allows for looking
at policy-making within the analysis. Such an analysis enables us to explain
policy changes (or lack of them) that are crucial for the processes of
financialization and de-financialization in the periphery.
keywords Financialization, Financial crisis, Regulation approach, Periphery
Introduction
The current crisis confirmed that highly financialized regimes of accumulation are
extremely crisis-prone. Most of the literature on financialization is focused on the
© W. S. Maney & Son Ltd 2010 DOI 10.1179/102452910X12837703615337

PERIPHERAL FINANCIALIZATION AND VULNERABILITY TO CRISIS 226
economies of the centre. We shall investigate, in contrast, the peculiarities of finan-

cialization in the periphery and their impact on crisis processes. On the basis of
dependency theory, we refer to the periphery as a wide range of countries, character-
ized by a high degree of extraversion (and import dependence in key areas) and/or by
considerable socio-economic heterogeneity (cf. Becker, 2008). The periphery is not
uniform, but characterized by different regimes of accumulation, extraversion and
socio-economic heterogeneity. Some countries can be characterized as being semi-
peripheral. These countries have either achieved partial industrialization or have deve-
loped a significant financial sector responsible for specialized services (Worth, 2009,
pp. 10–11). Diversities within this heterogeneous group of countries will generally be
grasped by a regulationist typology, inspired by dependency theory (Becker, 2002).
On this basis, we shall first try to systematize forms of financialization from the
perspective of the theory of regulation. This theory not only provides analytical con-
cepts for accumulation processes, but also links prevalent forms of accumulation to
the socially contested emergence of social and legal norms and forms of state inter-
vention. Thus, accumulation and regulation are dialectically linked. Second, we shall
illustrate the linkage between different forms of financialized accumulation and regu-
lation as well as their vulnerability to crisis with four short case studies — two in
Latin America (Brazil and Chile) and two in Eastern Europe (Serbia and Slovakia).
While Latin America was a pioneer of the recent phase of financialization, Eastern
Europe was a latecomer, which, in some respect, copied key aspects of the Latin
American experience. The case studies are not confined to an analysis of the forms
of financialization in the periphery, but explore too the political initiatives that
brought about financialization and, later, tried to contain or partially reverse it.
Financialization and regulation: origins, forms and consequences

In line with the growing importance of financial markets, a considerable body of
literature on financialization has developed from post-Keynesian, Marxist and regu-
lationist perspectives since the 1990s (cf. Erturk et al., 2008). We shall focus on the
regulationist concepts. The theory of regulation originated in the 1970s in France as
a specific current of Marxist political economy. It originally emerged from the Marx-
ist tradition (Aglietta, 1982; Bernis, 1983), but later, many regulationist economists
referred increasingly to post-Keynesian and institutionalist theories (Boyer, 1986,
2004). Regulationist economists have sought to explain how the inherently contradic-
tory capitalist economy can be stabilized over limited periods. It has been argued that
specific regimes of accumulation can be stabilized through a fitting set of structural
forms of regulation (wage relation, competition relation, monetary restriction, eco-
logical restriction) that deal in a historically and spatially specific way with contradic-
tions and tensions of capitalism (cf. Aglietta, 1979; Becker, 2002; Jessop & Sum, 2006,
p. 13). The notion of regulation goes beyond a technical understanding of regulation
and state intervention and encompasses social norms too. The regulationist main-
stream has moved in the direction of an institutionalist approach with a (post-)Keynes-
ian imprint which still maintains some links to the Marxist origins (Becker, 2002;
Jessop & Sum, 2006). The strength of this current is the way in which it deals with
the links between strategies of accumulation and social norm-making. Its analysis of
227 JOACHIM BECKER et al.
the current crisis is primarily focused on the financial sphere. The strength of Marx-
ist currents is drawn from their foundation in a theory of society and in the way in
which it tackles the links between the productive and financial circuit. Civil society
is the terrain of struggle over social norms and over the pre-formation of legal norms
and forms of state intervention that sustain specific forms of accumulation and social
reproduction.
While Boyer (2000) provided an abstract model for a finance-led growth model, we
provide here a more concrete perspective to address financialization in the periphery.
Accumulation processes cannot be characterized only by one dimension alone. For
the analysis of accumulation processes, three typological axes of accumulation can be
distinguished: productive/financialized accumulation, extensive/intensive accumula-
tion and introverted/extraverted accumulation (Becker, 2002, p. 64; Becker & Jäger,
2010, p. 5). The first axis is the most fundamental. Investment can either be geared
towards productive processes or be channelled into the financial sphere. Financialized
accumulation is either based on the expansion (and price increases) of financial assets
or on very high spreads between active and passive interest rates. Though the second
circuit of financial accumulation might gain some apparent autonomy from accumu-
lation in the productive sphere, it cannot be completely divorced from production.
Financial assets and credits represent claims on surplus produced outside the financial
sphere (Becker, 2002, p. 75; Husson, 2004, p. 136). The distinction between extensive
and intensive accumulation noted by Aglietta (1982, p. 60) in his pioneering work
refers to the form of productive accumulation. A precondition for intensive accumu-
lation is that the consumption of wage earners actually consists mainly of goods
bought at the market. In peripheral economies, it is usually only a rather limited
sector of the population that mainly depends on wage incomes. Intraverted accumu-
lation is centred on the domestic market, whereas extraversion implies a strong out-
ward orientation of trade as well as flows of productive and money capital. In the
case of extraverted accumulation, the direction of extraversion matters a great deal.
Export-orientated, active extraversion is a characteristic of dominant economies,
whereas peripheral economies are usually characterized by high import dependence
at least in key areas (cf. Beaud, 1987, p. 76). Even a mixture of some elements of
export-orientation and import dependence might exist. A regime of accumulation is
not characterized by only one of the three axes, but by a specific combination of ele-
ments of the three axes of accumulation. Therefore, accumulation is multidimensional.
Here, we shall focus on a specific trait of accumulation: financialization.
Within the Marxist tradition, Arrighi (1994, p. 221), Harvey (1984, pp. 304, 324)
and more recently Johsua (2009, p. 53) identify the origins of an increasingly finan-
cialized accumulation in a blocked productive accumulation. Capital is confronted
with limited investment opportunities that are viewed as being sufficiently profitable.
Thus, capital looks for highly liquid capital placements in a context that is character-
ized by an elevated degree of uncertainty (Arrighi, 1994, p. 221). Financial assets meet
these criteria. However, a rapid expansion of financial assets and an increase in their
prices require changes in regulation, including changes in the institutional set-up of
relevant decision-making bodies. Most authors highlight the de-regulation and liber-
alization of financial markets (e.g. Boyer et al., 2004, p. 115). However, the changes
in monetary restriction usually go beyond this. They might include, for example, the
switch from an inflationary to a disinflationary (or even deflationary) monetary

regime that enhances the difference between the rate of inflation in the productive
sphere (which is kept low) and the rate of inflation in the financial sphere (whose
growth is encouraged) or the way the state budget is financed. Thus, the securitiza-
tion of public debt might contribute to the upswing of financial markets, as Coriat
(2006, p. 77) underlines. This goes hand in hand with the change of social norms that
is promoted by relevant interest groups and intellectuals close to them (cf. Lordon,
2000a). However, the changes of the mode of regulation are usually not confined to
the monetary constraint. They often concern the form of competition (e.g. by priva-
tizing public companies and encouraging their stock listing) and the wage relation.
The wage relation concerns not only fixing of wages (and work conditions), but also
social wages, including pensions. The introduction of pension systems based on capi-
talization implies the forced integration of wage workers into the financial market
and a great push towards financialization (cf. Huffschmid, 2009, p. 61; Lordon,
2000b). The commercialization of the pension system is a major, though not the
only means, of expanding the financial markets through changes in the wage relation.
The redistribution of incomes — through a polarization of incomes — might have a
double impact on financialization: on the one hand, the upper middle class earns
increasing incomes which it wants to invest financially; on the other hand, restrictive
wage policies might make wage workers incur debts in order to maintain consump-
tion standards and/or acquire flats or houses (cf. Huffschmid, 2009, p. 58; Lordon,
2008, p. 186). Housing policies play a role in financialization as well (Aglietta &
Berrebi, 2007, p. 56). Consumption propelled structurally by increasing private debt
conceals the tendency towards overproduction (cf. Aglietta & Rigot, 2009, p. 342).
Even changes in the ecological restriction impact on financialized accumulation stra-
tegies. For example, the introduction of tradable pollution rights incorporates the
exploitation of nature in the financial sphere (Smith, 2006, p. 31).
Thus, financialization requires far-reaching changes in regulation. These changes
are socially and politically contested and encompass both legal and social norms. In
some countries, the long-term trajectory has a stronger slant towards financialization
than in others (cf. Amable, 2005). Thus, there seems to exist some degree of path-
dependence. However, this path-dependence is not absolute. In times of crisis, shifts
from productive to rather financialized accumulation and vice versa are possible.
When hitherto somewhat productively orientated countries shift to a more finan-
cialized regime of accumulation, they do not necessarily copy the institutional set-up
of the countries with the most advanced forms of financialization. Though external
actors often play a larger role in promoting financialization in (semi-)peripheral
countries than in countries of the centre, domestic actors are not irrelevant in the
periphery either (Zhang, 2009, pp. 387, 392).
Two main forms of financialization can be distinguished: financialization based on
the take-off of a second circuit of ‘fictitious capital’ (Marx, 1979, p. 482, 510), i.e.
securities, and financialization based on interest-bearing capital and, thus, on high
interest rates. The most common channel of financialization is the take-off of the
second circuit of capital that consists of ‘fictitious capital’ (ibid.). The term fictitious
capital refers to securities in their different varieties and includes capitalized land rent.
Fictitious capital represents a claim on the profits produced in the productive circuit
of capital (Chesnais, 2000, pp. 307, 318). Therefore, the two circuits of capital are not
independent of each other. The autonomy of the second circuit of capital is of a
relative nature. Prices in the second circuit might increase much more rapidly or fall
much more steeply than in the first circuit. Thus, a bifurcation of the price system
might emerge (Foster & Magdoff, 2009, p. 16). A strong inflation of financial asset
prices is a central feature of booming financialization (Lordon, 2008, p. 97). Increas-
ing prices attract additional demand for financial assets (Aglietta, 2008, p. 12). Finan-
cial investors and institutions tend to revise their expectations upwards and tend to
take the upward movement of asset prices as ‘natural’, overlooking the fundamental
character of uncertainty as well as the endogenous sources of instability (cf. Aglietta
et al., 2010, p. 134; Orléan, 1999). Thus, their profit norms change during booming
financialization. However, dividends and profits tend to lag behind price dynamics in
this phase of the cycle (cf. e.g. McNally, 2009, p. 53). Aglietta (1982, p. 296) terms
the valorization of private labour through inflationary price increases in the produc-
tive sphere as ‘pseudo-validation’. However, this pseudo-validation comes to an end
when actors in the financial market finally perceive how much of a gap has developed
between prices of financial assets and underlying profits in the productive sphere.
Thus, financialization might postpone the exposure of problems of over-accumulation
or overproduction. However, it does not solve these problems and, in the end, exacer-
bates them. Because of the underlying contradictions, financialization based on the
disproportionate expansion of the circuit of fictitious capital is inherently unstable
and crisis-prone (cf. Aglietta, 2008; Chesnais, 2000).
However, financialization based on the expansion of fictitious capital is not the
only form of financialization. It can be centred rather on the mechanisms of interest-
bearing capital and, thus, on banks and interest rates as well. This is related to ano-
ther key feature of financialization in the periphery; namely, its generally extraverted
character. In most (semi-)peripheral countries, financialization is critically dependent
on capital inflows, but structural outflows may also be observed. Thus, policies are
geared towards attracting foreign capital through appropriate economic policies. One
key feature of these policies is usually a rather rigid and overvalued exchange rate
and high interest rates. These policies serve as a temporary guarantee for interest-
bearing capital against a depreciation of their assets and for capturing a huge share
of surplus. Social forces favouring such policies usually invoke the fight against infla-
tion as a legitimization for these policies. However, such a policy has its own contra-
dictions. The productive capacities are usually eroded. The deteriorating current
account results in an increasing dependence on capital imports. External debt soars.
When domestic and external financial investors perceive the enormous size of exter-
nal imbalances, capital inflows dwindle or give way to outright capital flight. The
financialized model collapses (Becker, 2007; Salama, 1996). The crisis usually takes
the form of a foreign exchange crisis. However, the underlying tensions go deeper
than that (Yaman-Öztürk & Ercan, 2009, p. 64).
Interest rate differentials might enable banks to appropriate a considerable share
of surplus. It is often the central bank that sustains very high interest rates. In the
name of combating inflation and/or capital flight, high prime rates are fixed. For
productive activities, these interest rates are often prohibitive. Thus, their impact on
investment is negative and the private sector needs to be very restrictive in taking
credits. This leaves the public sector as an extremely important debtor. And it usually
plays exactly this role (Bruno, 2008). This financialized model has its own inherent
contradiction. On the one hand, it imposes a very heavy burden on the budget
because servicing the public debt is extremely expensive. Thus, fiscal crisis is a
common permanent phenomenon. On the other hand, the high interest rates slow
down productive activities (Faria, 2007, p. 98). Thus, they impact negatively on the
fiscal basis of the state as well. With the state debt usually being concentrated in few
hands, this model of financialization is usually characterized by a highly unequal
distribution of income (Bruno, 2008). Notwithstanding, financialization may also be
based on low (real) interest rates in the context of fixed exchange rates and lead to
substantial inflows of capital and soaring private debt.
In addition, processes of informal or incomplete dollarization or euroization in the
periphery even exacerbate the contradictions of peripheral financialization. (Becker,
2007, p. 227). (Semi-)dollarized or euroized models are even more dependent on capi-
tal inflows and leave fewer policy spaces. Lower interest rates for credits denomi-
nated in a foreign currency serve as an additional incentive to incur debts in dollars
or euros. Lower interest rates often entice the middle strata to be more inclined to
incur debts in order to finance consumer durables or real estate. The credits are in
US dollars or euros, but the incomes of the debtors are usually denominated in the
national currency. Thus, any major devaluation or depreciation of the national cur-
rencies implies an imminent disaster for debtors and the risk of a banking crisis.
Through the informal mechanism of their foreign exchange debt, the middle strata
are bound to the dollarized financialization (cf. Heymann & Kosacoff, 2000, p. 17).
If the capital inflows dry up, the effects of the crisis are even more devastating than
in the non-dollarized peripheral financialization (Becker, 2007). Thus, dollarization
or non-dollarization makes a crucial difference in relation to the vulnerability to crisis
of peripheral financialization in the context of passive extraversion characterized by
dependence on inflows of capital. Moreover, there are a few (semi-)peripheral coun-
tries that are characterized by export-orientation and show a very specific form of
financialization. Several peripheral countries responded to their own financial crises
of the 1990s by achieving positive trade balances by devaluing their currencies in
order to build up huge foreign exchange reserves so as to be better shielded from
crises in future (Aglietta & Berrebi, 2007, p. 302; Brender & Pisani, 2009, p. 46).
Although this type of extraverted financialization decreases vulnerability to financial
crisis, it is often associated with high external costs in the form of net capital
outflows.
The size of the social base of financialization is another useful distinction for ana-
lysing developments in the core (Erturk et al., 2008, p. 27; Montgomerie & Williams,
2009, p. 101), as well as in the periphery (Becker & Jäger, 2010, p. 6). In the past,
it was mainly the bourgeoisie and the upper middle strata that were involved in
financialized accumulation. Such a type of accumulation might be dubbed elite finan-
cialization. However, wage workers have been increasingly involved in financialized
accumulation in many countries over the last three decades. This involvement has not
been completely voluntary. Many wage workers have been made partly dependent
on financialized accumulation by way of the privatization and commercialization of
old-age pensions. On the other hand, they have been part of financialized accumula-
tion by way of incurring debt in order to finance the acquisition of real estate or
consumer durables in the face of stagnating or declining real wages (cf. Huffschmid,
2009; dos Santos, 2009). This type of financialization can be characterized as popular
financialization. In this case, large sectors of the population are bound to the finan-
cialized model. This implies that they are directly hit by a financial crisis. In turn, this
has consequences for the way in which wage workers and the lower middle strata
take political positions in the crisis. Due to the dependence of their pension on the
ups and downs of the financial market, they might be much more inclined to accept
anti-crisis policies that privilege the financial sector.
Financialization can take different forms in different times and in different spaces
and be based on different social groups. It is not uniform. Thus, there is no single
indicator that universally defines a financialized accumulation. Aglietta and Berrebi
(2007, p. 62) propose the financial assets/financial + real assets ratio as an indicator
for financialization. This might serve as a first approximation. However, it is most
suitable as an indicator for financialization based on the expansion of fictitious capi-
tal. In that regard, the changes in the stock capitalization/GDP ratio are another
useful indicator. For financialization that is based on interest-bearing capital (and
banks), the growth of the banks loans to private sector/GDP ratio (cf. Frangakis,
2009, p. 57) and the spread between the active and passive interest rates would be
more suitable. Mass-based financialization might be gauged by changes in the private
household debt/disposable income (or GDP; cf. Stockhammer 2009, p. 7) ratio or
rapidly increasing house prices. High current account deficits and a rising external
debt are indicators of a peripheral financialization. This assumes a particularly frag-
ile character if it is accompanied by a high ratio of foreign exchange credits in all
credits. Unfortunately, not all the indicators are readily available and easily interna-
tionally comparable. It is an indication of the inherent instability of financialization
that some of the indicators commonly serve as indicators for a looming crisis. How-
ever, not all indicators of financialization are indicators of vulnerability to crisis as
well. For example, an extremely high spread indicates a high degree of financializa-
tion, which does not per se produce advanced vulnerability to crisis, though it does
decelerate investment and is a severe burden to the budget. We shall relate to some
of the indicators in our case studies. However, not all indicators are pertinent to all
case studies since the forms of financialization vary. In addition, not all desirable data
is readily available.
Financialization in the periphery: four illustrating cases

The following brief cases illustrate how the theoretical apparatus developed above
can be applied to the analysis of financialization in the periphery. This makes possible
showing the different forms of financialization and the heterogeneity of development
paths in the periphery, and also the common patterns. Many of them are character-
ized by a rather strong role of interest-bearing capital, elements of mass-based finan-
cialization and a high reliance on inflows of capital. Since we regard financialization
processes as being intimately linked to changes of regulation, we shall pay particular
attention to political processes that helped to bring about financialization and
attempts to reduce financialization in post-crisis times or after changes in the political
correlation of forces. This requires an analysis of the ‘conjoncture’ and the social
and political forces at play. We will focus on the national level. The processes at the
national level are influenced by external forces, which are especially influential in the
periphery.
We selected two cases each from Latin America and Eastern Europe to illustrate
our political regulationist approach: Chile, Brazil, Slovakia and Serbia. Latin America
has been a pioneer of the present phase of financialization, while Eastern Europe has
been a latecomer. The former cases can therefore be used to deal with vulnerabilities
which led to crises of peripheral financialization in the 1980s and 1990s, while the
latter experienced their crisis of financialization only recently. It will be interesting to
see how far symptoms of peripheral financialization such as passive extraversion or
currency substitution resembled each other. Furthermore, the differences between the
examined cases shall help to clarify factors leading to vulnerabilities: while both Chile
and Serbia were characterized by far-reaching financialization and by a significant
degree of currency substitution (dollarization or euroization) at least in the first phase,
the productive sectors have remained important in both Brazil and Slovakia, which
have avoided open currency substitution too.
Chile: the ambivalence of financialization and de-financialization

Financialization began in Chile three and a half decades ago. The country is widely
known as a successful follower of the neo-liberal model. A closer look shows that
accumulation and regulation have experienced several substantial changes. Thus,
the country is a highly illustrative example of the ambivalences of financialized
development in the periphery.
The background for financialized development was a military coup in 1973. This
stopped ISI-based growth and the democratic path towards socialism by refunding
capitalism and restoring traditional class power. The social basis for the policies of
the military regime became a faction of capital which had already emerged during the
inflationary period of the 1960s and was based on finance and the export business
(Calderón, 1981). In 1975, a new era of financialized growth based on an abrupt
opening and a liberalization of the productive and financial sectors of the economy
started. Whilst between 1960 and 1975 the share of total assets relative to GDP had
declined steadily from about 25 per cent to around 15 per cent in the context of high
GDP growth rates, it increased within six years to peak in 1981 with almost 100 per
cent relative to GDP (Gallego & Loayza, 2000, p. 8). From 1977 onwards, a corner-
stone of this policy was to fix the exchange-rate to the US dollar in order to reduce
inflation. Against the background of low international interest rates and a relatively
higher domestic inflation rate, this led to a soaring inflow of capital. Most of
this inflow took the form of US dollar bank loans, which were channelled through
Chilean banks. A consequence of this was the first financialized boom, which was
followed by a bust in 1981/82 in the context of the Volcker shock and ended in a
severe recession as real interest rates rose to 35.4 per cent in 1982 (Valenzuela Cornejo,
1985, p. 12). Such a development was not only observed in Chile, but also in many
other Latin American countries that had adopted similar policies with similar results.
Nevertheless, due to the very radical liberalization, the Chilean economy also expe-
rienced the most drastic crisis. During the crisis, banks and their losses were nation-
alized and private debt was turned into public debt. This first boom-and-bust-cycle
in the era of financialization was based on the inflow of credit money that led to a
sharp increase in external debt from US$4854 million in 1975 to US$17153 million in
1981 (Banco Central de Chile, 2001).
The crisis of the specific financialized mode of development led to substantial
changes in the regulation of money. Exchange rate policy became much less dog-
matic, capital outflows were partially restricted and speculative capital inflows were
discouraged by implementing a control on inflows (unremunerated reserve require-
ment). These policies turned out to be highly effective (Gallego et al., 2002, p. 397).
Moreover, policies to avoid a dollarization of the economy were applied by imple-
menting bank deposits and contracts guaranteeing real interest rates. The crisis caused
decreasing financial assets, which started to recover but did not regain their peak
level until 1988. Contrary to the first period, this second economic phase was not
based on the inflow of financial capital and increasing financial assets at banks but
on its stabilization. Economic recovery was mainly export-led, while a devalued cur-
rency favoured export. This went hand in hand with growing construction and a
boom in foreign direct investment inflows, which were directed to domestic mono-
polies such as electricity and telecommunication, but mainly to the copper-extracting
industry. During the 1990s the booming economy was characterized by a sharp
increase in asset prices totalling almost 200 per cent of GDP in 1994 (Gallego &
Loayza, 2000, p. 8). Assets were inflated by the steady demand stemming from the
pension system which had been privatized in the meantime. Notwithstanding these
factors, the economy was not driven by asset price inflation because the majority of
shares were in the hands of the large economic groups and ‘young’ private pension
funds established in the 1980s (Fazio, 2000) and therefore did not contribute signifi-
cantly to increasing effective demand. Hence, although some indicators show aspects
of financialization, it was rather an export-led period of growth. This may be
explained by the specific structure of the Chilean political economy that was charac-
terized by the dominance of large economic groups, which in most cases had their
roots in the real economy (export, import, construction) and also owned banks, pen-
sion funds and other financial firms, but there was no strong independent financial
sector as such. Thus, after the crisis policies aiming at purely speculative and finance-
led growth were discouraged. It was obvious that an (extensive) expansion of surplus
in the productive sector would turn out to be a more sustainable source of growth
(Correa & Jäger, 2007, p. 146).
A substantial shift in these policies did not occur with the end of the military
dictatorship in 1989 but was a reaction to the Asian crisis. At the end of the 1990s,
restrictions on international short-term capital flows were abandoned in order to
appear more attractive to international capital and to avoid capital flight. Thus,
another modification of the monetary constraint occurred which initiated a third
phase of economic development. This stage was characterized by more modest growth
rates and a steadily increasing household debt, which increased from 23 per cent of
GDP in 2000 to 36 per cent in 2008. Relative to household income, debt increased
from 35 to 70 per cent in the same period (Fuenzalida & Ruiz-Tagle, 2009, p. 36),
which proved to be an important component of internal demand growth. Neverthe-

less, exports (copper accounting for around two-thirds of all exports) fuelled by the
commodity price boom remained the backbone of economic growth until the 2008–09
crisis. External debt showed a very low variation in absolute terms until the crisis of
2001 but increased sharply from US$43 billion in 2004 to US$74 billion in 2009 (Banco
Central de Chile, 2010). Since 1998 net capital inflows have started to turn into
increasing net capital outflows, mainly because high profits obtained by externally
owned firms during the boom were repatriated but also because external reserves
(part of them in a stabilization fund) increased considerably (Correa & Jäger, 2007,
p. 149). Hence, contrary to the first period of financialization, development was
characterized by net capital outflows during the boom period.
The different phases of development characterized by various higher and lower
degrees of financialization benefited the owners of capital and some sections of the
upper middle classes, while the vast majority of people struggled to survive, being
modestly supported by a liberal welfare state. Although the Chilean economy has
shown, in part, dramatic aspects of financialization, at the core of accumulation
strategies, at least since the collapse of the 1980s, not financial capital but productive
oriented accumulation strategies are dominant. Overall, the different periods of
development are characterized by an increasing share of profits and a very unequal
distribution of income (Banco Central de Chile, 2010). Financialization contributed
to restore class power and the limitation of financialization led to relatively steady
and high growth rates after the mid-1980s. In 2008–09, a collapse of the economy
could be avoided because of strong counter-cyclical measures. But aspects of finan-
cialization — now in the form of a soaring external (short-term) debt — are on the
rise again. The liberalized wage relation and the related lack in productivity growth
do not provide the basis for a sustainable development model. On the contrary, the
contradictions and limits were overcome only temporarily by specific forms of finan-
cialization. Ultimately, it is a question of the correlation of forces whether a different
wage relation (including changes in the welfare state) will be implemented. Increasing
labour power could provide the basis for a more inclusive and sustainable growth not
led by financialization. This is hard to obtain in the context of bilateral agreements
which have been signed with the US and the EU in the meantime. These agreements
force Chile to no longer adopt controls on the cross-border movement of capital,
which had proven crucial for a partial de-financialization during the 1980s and the
first half of the 1990s.
Brazil: State-driven financialization, based on high interest and

foreign exchange rates
Brazil can be characterized as a ‘latecomer’ when considering the neo-liberal reforms
which effectively began in 1990. Before this, the country was a classic example of
‘peripheral Fordism’. The wage relation was characterized by structural heterogen-
eity, as intensive patterns of accumulation only affected parts of the population, lead-
ing to one of the highest rates of wage inequality worldwide. External dependency
was internalized in the wake of industrialization, and continued via the monetary
channel, which proved to be the weakest link of the import substitution strategy,
as the debt crisis of the 1980s showed. The neo-liberal period has been marked by
continuities of these dependencies as well as by trends of extensive, extraverted and
financialized patterns of accumulation. Although the Brazilian economy preserved its
strong industrial traits longer than other Latin American economies, the first elements
of financialization could already be observed in the 1970s. At that time, the Brazilian
government resorted to a relatively overvalued currency in order to reduce the rate
of inflation. Exporting companies could indebt themselves abroad at low interest
rates and could place the funds at high interest rates in Brazil (Furtado, 1983, p. 48).
High interest rates have been a feature of the Brazilian economy for several decades.
They have been motivated inter alia by the desire to stem capital flight and prevent
an open dollarization of the Brazilian economy (Fritz, 2002). Therefore, financial
capital was already strengthened during the years of the ‘economic miracle’ in the late
1960s and early 1970s, which was based on manufacturing (de Oliveira, 2003, p. 106).
Contrary to other Latin American countries, neo-liberal reforms only began at the
end of the 1980s and were less pronounced than anywhere else on the continent.
Nevertheless, financialization was a central feature of these reforms. The model has
been mainly based on interest-bearing capital, beginning with liberalizations of the
capital market at the end of the 1980s (Sicsú, 2006, p. 364). In contrast to the import-
substituting industrialization model in place until the 1980s, the focus shifted towards
State-driven export promotion, along with the ‘structural reforms’ of privatization
and liberalization. These reforms were legitimized as unavoidable in the wake of the
effects of the debt crisis of the 1980s, which was accompanied by hyper-inflation.
Regulation aimed at transforming the intensive and inward-oriented pattern of
unequal ‘peripheral’ Fordism into an extensive export-oriented accumulation regime
(Novy, 2001, p. 75, 106).
The cornerstone of neo-liberal reforms was the inflation-targeting programme
Plano Real, introduced in 1994 by President Fernando Henrique Cardoso. This turned
out to be paradigmatic for financialization based on the mechanisms of interest-
bearing capital, extremely high interest rates and an overvalued currency. On the
other side of the coin were problems for domestic productive capital, as high interest
rates negatively affected investment capacities, further aggravated by the overvalued
currency which favoured imports. This led to a chronic deficit of the current account,
resulting in external vulnerabilities, as the inflow of foreign capital was necessary to
sustain the situation. External debt soared from US$148.3 billion in 1994 to US$223.8
billion in 1998 (Cepal, 2002, p. 120, Table A-16). In 1998, Brazil had to spend 31.6
per cent of its forex earnings from the export of goods and services on interest pay-
ments (ibid., p. 123, Table A-19). The socio-economic results were rising rates of
unemployment and informal wage labour. Wage inequalities stagnated at one of the
highest rates in the world (Gimenez, 2008, pp. 138, 202). Financial capital gained
ground to the detriment of productive capital. Within the latter, foreign capital could
obtain the dominant position vis-à-vis domestic capital (Gonçalves, 2006).
In the aftermath of the Asian crisis of 1997, external vulnerabilities led to a severe
financial crisis by the end of 1998. In the wake of these events, the real had to
be devalued substantially. Since open dollarization had not been permitted by the
government, the private sector was not severely hit by the devaluation. However, the
state incurred a substantial burden, as state bonds were indexed to the US dollar.
Directly and indirectly (via State-owned banks), losses by banks were covered by the
State, which therefore not only functioned as the main promoter of financialization
but also as the safety net for financial capital (Fritz, 2002). This led to the near dou-
bling of the rate of state debts to GDP between 1994 (30.4 per cent) and 2002 (57.2
per cent). Even though the tax quota was also raised, traits of a fiscal crisis were
obvious. As interest rates on state bonds have continued to be among the highest in
the world, money has been redistributed from the middle classes towards financial
capital (Gonçalves, 2006, p. 208).
The resulting elite financialization has been countered by efforts focused on poverty
reduction and an expansion of social policies, which resulted from popular struggles
during democratization and the participatory drafting of the constitution in 1988.
From 2000 onwards, income inequalities began to fall, whereas the functional distri-
bution of income between capital and labour continuously deteriorated to the detri-
ment of labour. Social inclusion of marginalized people went hand in hand with
worsening living conditions for the middle classes until 2004 (Gimenez, 2008). From
then onwards, high commodity prices were a factor favouring accelerated economic
growth. While the Lula government, which was voted into office as a result of social
discontent after the 1998–99 crisis, has pursued industrial policy and strengthened
domestic demand by increasing the minimum wage and social transfers, the policies
of high interest rates as a major feature of financialization have been continued.
These measures further protected the government from popular resistance to the
elite pattern of financialization, but the main legitimization has always been eco-
nomic stability. Brazil was relatively mildly affected by the recent financial crisis. The
main channel has been declining exports, while the financial sector was primarily
affected by high losses incurred as a result of currency speculation. External vulner-
abilities had been reduced considerably by current account surpluses since 2003, high
foreign currency reserves and reduced external debt. The strong inward-orientation
of the Brazilian economy and anti-cyclical policies adopted by the government
enabled Brazil to overcome the recession rapidly. The main mechanism of elite finan-
cialization — the extremely high interest rates — was weakened during the crisis
(Barbosa & de Souza, 2010, pp. 80–91). Brazilian governments have been hesitant to
promote mass-based financialization, especially in the field of social security, in face
of the enormous social polarization. The only reform initiatives in this respect, the
pension reforms of the private and public sectors, only marginally forced wage earn-
ers into the private pension market (Matijascic & Kay, 2008). Thus, reluctance to
introduce mass-based forms of financialization — together with the strengthening of
the social wage — reduced Brazil’s vulnerability to the recent financial crisis.
Peripheral Europe: the case of Serbia

Peripheral Europe is not a homogeneous category. Otto Holman (2002, p. 408) argued
that concepts of ‘dependent industrialisation’ (Nicos Poulantzas) and ‘peripheral
Fordism’ (Alain Lipietz) would fall short of fully explaining the ‘South European
“miracle”’, and pointed out the more difficult initial condition and setting of Eastern
compared to Southern enlargement of the EU (Greece, Spain, Portugal). Recent years
of financialized capitalism, however, have brought back classification of ‘so-called
peripheral countries’ (Ewing, 2010, p. 17) for EU members like the Southern European
countries and Ireland.
The disintegration of socialist and then federal Yugoslavia has delayed Serbia’s
peripheral integration into the European capitalist system and the remaining European
integration model European Union. Serbia was still part of Yugoslavia when the end
of the Bretton Woods system brought deregulation of financial markets, followed by
a cycle that first delivered overwhelming liquidity (credits) to peripheral (and also
State socialist) countries before US economic decisions caused financial drought and
the credit crisis of the 1980s (Weissenbacher, 2007, p. 70). The first rapid expansion
of the post-war flow of private capital to peripheral countries was stopped, to expand
again in the 1990s, followed by a setback during the financial crisis of 1997. ‘An
important proportion of private capital has taken the form of non-debt creating
flows, notably but not exclusively FDI’ (Akyüz & Cornfeld, 1999, p. 8). In 2000, the
era of Slobodan Milošević ended, which cleared the path for possible integration
into the system of financialized capitalism. And international savings (foreign direct
investments (FDIs), remittances and credits) were the important grease for the high
growth rates in Serbia during the pre-crisis years of the twenty-first century (Serbia
was hit by the crisis in the fourth quarter of 2008), such as 6.9 per cent in 2007 and
5.4 per cent in 2008 (Vienna Institute for International Economic Studies, 2009, p. 4).
They facilitated import-stimulated growth, driven by domestic consumption. The
structural imbalances were clearly visible before the crisis. Compared to 1990, when
de-industrialization during the IMF-guided restructuring in former Yugoslavia had
already begun, industrial production had just reached the 50 per cent level in 2008
(Statistical Office of the Republic of Serbia, nd). Such industry is primarily in the
low-tech sector (Bukvić & Kovačević, 2008, p. 61). The result: export covered imports
were never more than 58.05 per cent (2006) before the crisis of 2009, and caused
a deficit of the current account balance, as large as 19.54 per cent in 2008, before
imports shrank as a result of the crisis (National Bank of Serbia, 2009, p. 71; 2010,
p. 71; Statistical Office of the Republic of Serbia 2009a, pp. 123, 291). As in many
other countries, FDIs were seen as the means to fill the capital gap, bring technology
and create positive effects on the labour market. These hopes were mostly shattered
(Arandarenko, 2009, p. 202; Weissenbacher & Becker, 2010). Investors ‘rarely set up
export-oriented projects, therefore the Western Balkan countries have not yet suc-
ceeded in becoming part of international production networks as have the [new EU
member states]’ (Hunya, 2009, p. 7). Liberalization and privatization transformed the
system of social capital in Serbia, built the framework for the formation of a Serbian
capitalist class, and admitted international financial actors into the country. Early
privatization of collective property dates back to the IMF-sponsored programmes of
the last prime minister of Socialist Yugoslavia, Ante Marković. After similar decisions
in the other republics, Serbia adopted its own privatization law in 1991. The follow-
ing years saw a struggle over social and state property, and a privatization process
dominated by ‘“self-management” and war profiteers’ (Obradović, 2007, p. 50) that
‘succeeded in achieving massive conversion of previous monopolistic social position[s]
into economic (private) capital’ (Lazić, 2007, p. 117). Shifting loyalties of the capitalist
class in the making helped provide the grounds for the end of the Milošević-era. Both
groups seem to have withdrawn their support for the ruling party, because it was
unable to provide stable conditions of reproduction, and tried starting to reduce the
power of organized crime networks. The beneficiaries of the old system seem to have
struck deals with the opposition which secured them privileges and benefits in the
post-Milošević era (Gould & Sickner, 2008, p. 761; Lazić, 2007, p. 118). The sale of
collective property in the post-Milošević era left ‘the weakest of the state and
socially owned firms . . . to be privatized’ (IMF, 2006, p.17), and was — against
repeated propositions — not completed when the financial crisis curbed interest in
further sales (EBRD, 2009, p. 216; European Commission, 2009, p. 26).
Privatization was also the opportunity and motive for international financial actors
to be involved in Southeastern Europe; in the pre-crisis years ‘privatization-linked
projects remained the main drivers of FDI flows’ (UNCTAD, 2008, p. 66) and were
associated with economic reforms in preparation for EU or NATO accessions (ibid.,
p. 70) In Serbia, ‘greenfield investments were almost symbolic’ (Republic of Serbia,
2007, p. 20) and by far the main share of FDIs was aimed at the banking and finance
sector (‘financial intermediation’): 2005 — 39.8%, 2006 — 45.7%, 2007 — 36.9% and
2008 — 46.9% (Hunya, 2009, p. 96). The direction of monetary policies has been
contested in Serbia. A hard currency policy had been the cornerstone to bring down
inflation after 2000 but ‘[l]arge current account deficits have unsettled the focus of
monetary and exchange rate policies, which have alternated between disinflation and
exchange rate objectives’ (IBRD, 2007, p. 39). Shifting weight between real exchange
rate, inflation and income policy has been an election issue (Gligorov, 2009, p. 182).
Money was lent increasingly via affiliates of foreign banks. When reserve require-
ments were tightened, corporations began borrowing directly from foreign banks,
leading to a rise in consumer lending from domestic banks. However, 9.01 per cent
of Serbian households have also taken out loans denominated in foreign currencies,
and 4.75 per cent have taken out loans mixed with dinars. Consumer lending has
tripled since early 2006, which has led to rising external debt despite declines in public
debt: €21.8 billion in December 2008 and €23.4 billion at the end of 2009 (Dvorsky
et al., 2010, p. 85; IBRD, 2007, p. 9; IMF, 2010, p. 45). It is obvious that paying back
euros if one earns dinars can become a difficult task if the dinar depreciates. What
aggravates the situation is the distortion of wage relations: less than 45 per cent of
the working age population is employed, and about 18 per cent of the active popula-
tion is unemployed (Statistical Office of the Republic of Serbia, 2009b, p. 10; Vienna
Institute for International Economic Studies, 2009, p. 5). The ‘issues of the vulnerabi-
lity of the financial sector to capital flow reversals and exchange rate risks’ (IBRD,
2007, p. 9) materialized in the current crisis. With percentages in the high eighties
(Autumn 2009 — 88 per cent), Serbia appears to have had a particularly high ratio
of euroization (euro cash and deposits in relation to total cash and deposits) in recent
years (Dvorsky et al., 2010, p. 88). There were fears that subsidiaries of international
banks would transfer funds from Serbia to support their home institutions (Pöschl,
2009, p. 63). Heavy activity on the part of international financial institutions was
necessary to prevent a collapse of the banking system in the region. The main banks
were asked to pledge their support for their affiliates (European Commission, 2009).
The joint rescue package of the EU and the IMF for Eastern Europe was estimated
at €52 billion (Ewing, 2010a, p. 13).
In Serbia, the debate on the conflicting currency issues (monetary stability versus
development of the export base) will very likely continue. International discussions
seem to centre on whether regional currencies will be promoted at all, whether domes-
tic savings can deliver sufficient capital to develop a crisis-hit region, and whether the
local capital markets are sufficiently developed (EBRD, 2010a, 2010b). For Serbia, the
most difficult spending cuts, agreed with the IMF, are yet to come, including a reform
of the pension system that reduces the net spending of pension funds to about 10 per
cent of GDP by 2015 (Republic of Serbia, 2010, p. 15).
Slovakia: late, mass-based financialization

Until 1989, Czechoslovakia had a state socialist economy. Thus, the focus was on
production and quantitative growth (cf. Smith, 1998, p. 124). Money served mainly
as a numéraire. Credits were allocated to productive units according to an adminis-
trative logic. Consumer credits did not play any role. It was the availability of goods
rather than incomes that served as a restriction to consumption.
The 1990s saw a capitalist transformation of the economy. However, both the
Czech and the Slovak economies continued to display a focus on manufacturing
during the 1990s. Privatization was a major economic and political stake in the trans-
formation process. Both in the Czech Republic and Slovakia, the respective dominant
political forces — Občanska demokratická strana (ODS) and Hnutie za demokratické
Slovensko (HZDS) — wanted to control the privatization process in their respective
parts of the county in order to build a national bourgeoisie. This interest seems to
have been one of the driving motives of dividing Czechoslovakia into two states. In
addition, disintegration was favoured by the divergent socio-economic consequences
of transformation processes in Slovakia and the Czech Republic and the two distinct
party systems.
In the early post-independence years, privatization interest was focused on the
productive sphere, particularly manufacturing. At that time, the interest of foreign
investors was rather limited. Groups closely linked to the governing HZDS were
particularly favoured by privatization. Several private industrial groups emerged (cf.
Brzica, 2006, p. 774; Smith, 1998, p. 204). Banks remained mainly State-owned during
the Mečiar years. The administrative logic of state socialism had imposed commit-
ments on the banks that proved burdensome during the 1990s. Bad debts accumu-
lated. The banks tended to increase interest rates, and the growth of domestic credit
was rather irregular (Barto & Kmeť, 2000, p. 351). In addition to banks, so-called
‘non-banking subjects’, built on the model of Ponzi schemes, emerged and crashed in
the early transformation period (Brzica, 2006, p. 775). Whereas domestic credits in
nominal terms increased from SKK 368.0 billion in 1993 to SKK 468.7 billion in 1997,
external debt almost tripled, from US$3.6 billion to US$10.7 billion in the same
period (Němec, 2004, p. 204, fn 6). Monetary policies tended to be restrictive and
favoured an overvaluation of the Slovak currency. A huge current account deficit
(11.0 per cent of GDP in 1996; Tkáč, 2004, p. 191) emerged that had to be financed
by inflows of external capital, which were attracted by relatively high interest rates.
The overvalued currency contributed to reducing the rate of inflation that had helped
to legitimize the Mečiar government. Its other legitimizing devices were accessible
social services, the construction of a conservative welfare state, pro-growth policies
and a nationalist discourse (cf. Becker, 2006, p. 401). The regime of accumulation of
the Mečiar years was based on productive rather than financialised accumulation.
Dependence on the imports of goods and capital constituted its main economic vul-
nerability. Inside Slovakia, political criticism focused on clientelist practices and
heavy-handedness vis-à-vis oppositional forces. The EU and the US government were
unhappy about the Mečiar government’s favouring of domestic firms and seeking a
close relationship with Russia.
In 1998, both domestic and external actors mobilized in order to create a broad
opposition alliance encompassing both hardcore neo-liberals and social liberals, to
win the parliamentary elections. They were successful in this undertaking. This elec-
tion signalled the first phase of a shift towards a more financialized regime of accu-
mulation and neo-liberal forms of regulation. The new government faced a critical
situation in regard to both the current account and the bad shape of the banking
sector. It enacted austerity measures that impacted negatively on the evolution of
GDP and living standards. Then Minister of Finance, Brigita Schmögnerová, was
particularly associated with the austerity policies, which had negative consequences
for the electoral preferences of her party, the social-liberal SDĽ. In addition, SDĽ
could at best slow down the neo-liberal social and economic policies advocated by its
major coalition partners. In 2002, the party was not returned to parliament. This gave
the neo-liberal government forces a free reign during the second Dzurinda govern-
ment, from 2002 to 2006. A radical programme of neo-liberal restructuring had been
prepared by a plethora of US-funded neo-liberal think tanks that were intimately
linked to the neo-liberal governing parties (Becker, 2004). On the one hand, they tried
to attract industrial FDI, which proved to be a central pillar of the new Slovak growth
model. Automobile production became the central plank of export-orientated manu-
facturing production, which at the end of the first decade of the twenty-first century
permitted a reduction of the extremely high current account deficit (8.5 per cent of
GDP in 2005) to a more moderate level (6.6 per cent of GDP in 2008; Národná Banka
Slovenska, 2010a). It was argued that extremely regressive tax policies (a flat 19 per
cent income tax and VAT) were conducive to FDI. On the other hand, the govern-
ment promoted large-scale privatization (infrastructure and, previously during the
Dzuinda I government, banks) and opened new venues for financialized accumula-
tion. Domestic financial groups (e.g. Penta, J&T), which were intimately linked to
the governing parties and flourished on privatization and tendering policies, emerged
as central new players (Brzica, 2006, p. 776). In huge privatization bids, they made
their offers jointly with transnational corporations, whereas they acted on their own
in smaller tenders. They entered the fields opened by the commercialization and
privatization of social security. Its main elements were privatizations in the health
sector and the introduction of capitalization in the pension system, which was inspired
by the Chilean model. This implied a change from a conservative to a liberal welfare
regime or from a ‘universal’ to a ‘minimal’ welfare regime (Gerbery & Kvapilová,
2006, p. 122).
The Slovak accumulation model has been based on relatively low wages. Wage
workers have compensated insufficient incomes by financing consumption and the
acquisition of flats by incurring debt. Starting from a low level, the stock of house-
hold liabilities/disposable income ratio roughly tripled between 2000 and 2007, reach-
ing about 60 per cent (Ahmadanech Zarco, 2009, p. 4, Figure 3). The increase in
household indebtedness has continued even during the present crisis. Household debt
increased by 25.3 per cent in 2008 and by 11.0 per cent in 2009 (Národná Banka
Slovenska, 2010a). Much of the household debt served to acquire flats in the absence
of any meaningful public housing policies. Housing prices displayed strong increases
— usually between 15 and 25 per cent per annum — until 2008. Thus, a housing
bubble has emerged (Národná Banka Slovenska, 2010b). Mass-based financialization
enabled banks in Slovakia — 97.0 per cent foreign-owned (according to assets in
2006; Frangakis, 2009, p. 72, Table 3.14) — to expand business in a fairly conven-
tional way. Even before Slovakia’s adoption of the euro, domestic private debts used
to be denominated predominantly in the national currency.
The social policies produced significant resentment against the Dzurinda II govern-
ment, which lost the 2006 election. The new government continued basic traits of the
existing regime of accumulation, but tried to soften the financialized traits. It stopped
privatizations and reformed the pension system. First, it permitted and advocated a
return to the pay-as-you-go system, but was not very successful in the face of intense
media propaganda for the capitalized model. Later, it changed the rules pertaining to
covering losses by the insurance companies. This measure was deeply resented by
insurance companies (Ďurana et al., 2010, p. 446).
In fact, pension funds were one of the first sectors to be affected by the current
global crisis. The banking sector was only affected when the recession began to bite
(Morvay et al., 2010, p. 6). The recession was primarily caused by the steep decline
of manufacturing exports, especially in the automobile sector. Thus, the export chan-
nel proved to be the foremost channel of crisis diffusion in Slovakia. The financial
sector has clearly been of secondary importance to the crisis dynamics. Credits to
households continued to grow even in 2009, while credits to non-financial companies
were reduced (ibid., p. 61). Construction was negatively affected by more restrictive
credit policies. However, the real estate bubble had not been deflated in any signifi-
cant way. Housing prices decreased only by slightly more than 10 per cent in 2009
(Národná Banka Slovenska, 2010b).
Productive accumulation has continued to be central to the Slovak regime of
accumulation, though financialization has gained in importance. The recent electoral
victory of a coalition of neo-liberal parties in the wake of the current crisis is likely
to strengthen the financialized elements in the near future.
Conclusions
The theory of regulation allows us to analyse different forms of financialization and
the social dynamics linked with them. In contrast to Keynesian approaches, the State,
international organizations and social forces shaping norms and policies are an
explicit part of the theory. This allows the examination of policy-making within the
analysis. Such an analysis enables us to explain policy changes (or the lack of them)
that are crucial for processes of financialization and de-financialization and the agents
involved. In this context, the rather broad concept of financialization was further
differentiated between mass-based and elite financialization.
Furthermore, the analytical approach proposed in this paper gave special emphasis
to the structural form of the monetary constraint and its interplay with the wage
relation and the form of competition in situations of external dependency. Questions
pertaining to dollarization/euroization and international influences were raised in this

respect. Internationally, peripheral financialization has been critically dependent on
over-liquidity in the centre. Such over-liquidity and the desire of the financial inves-
tors to place money in the semi-periphery existed in both the 1970s and the period
from the early 1990s to the current global crisis. However, it has been domestic sec-
tors, especially financial groups, which have pushed for policies favouring financiali-
zation as well. Their agenda has been supported by intellectuals closely linked to
neo-liberal projects.
The pace and form of peripheral financialization have differed from country to
country, depending on the domestic constellation of interests and the international
context. In all four cases, the fight against inflation was invoked in order to promote
pro-financialization policies and helped to legitimize them. In the early phase, an
overvalued currency and the reliance on huge capital inflows was a central feature of
financialization. Considerable deficits of the trade and current account and rising
external debt proved to be the Achilles’ heel of passive extraversion and increased
vulnerability to crisis. They constrained the development of productive sectors too.
At least initially, financialization has been focused on interest-bearing capital. In
Chile and Slovakia, the privatization of the pension system was a crucial opening
towards the accumulation of fictitious capital. This agenda was promoted both by
local and international actors and implied a profound change in the wage relation.
However, the Brazilian and Serbian governments have been hesitant so far in vigor-
ously promoting this way of mass-based financialization. The reason might be that
the introduction of a pension system based on financialization increases social risks
considerably. Brazilian society is very socially polarized; Serbian society is, as a post-
war society, very politically polarized. However, the Serbian government is presently
under considerable pressure from the IMF to reform the pension system. Whereas
both Latin American and East European countries displayed a tendency towards
increasing household debts as a central plank of mass-based financialization, elite
financialization has been much more pronounced in Brazil and Chile as a result of
their more deeply ingrained social polarization.
Financialization has not been a linear process in the four cases. The first phase of
Chilean financialization, which was based on an overvalued currency, informal dol-
larization and high capital inflows, resulted in a severe crisis which shook the regime
to its foundations. The crisis reconfigured the correlation of forces in the ruling mili-
tary regime. The regime modified some key aspects of the model in order to achieve
a higher degree of economic stability. These measures reduced the dependency on
capital inflows and, thus, external vulnerability. The other three countries have not
yet experienced such a deep crisis as Chile in the early 1980s. Nevertheless, parties
that were partly critical of financialization were voted into office in Brazil and Slo-
vakia due to dissatisfaction with the social situation. In these two cases, social mobi-
lization from below was not strong, while domestic and external forces exerted strong
pressure in order to preserve key features of regulation that enabled financialized
accumulation. Steps towards de-financialization have been quite limited in these two
cases. Without an acute crisis, de-financialization seems to be very difficult even in
the case of a shift in the correlation of forces. However, a crisis might also be used
in order to promote peripheral financialization. This is presently the case in Serbia,
where the IMF and some, though not all, parties in the governing coalition promote
such an agenda.
Acknowledgements
Research for this paper benefited from support by the Anniversary Fund of the
Austrian National Bank (OeNB projects 13157 and 13621).
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Notes on contributors
Joachim Becker, Associate Professor, Department of Economics, Vienna University
of Economics and Business. Johannes Jäger, Professor of Economics, University of
Applied Sciences BFI Vienna. Bernhard Leubolt, Researcher and External Lecturer,
Vienna University and University of Applied Sciences BFI, Vienna. Rudy Weissen-
bacher, Researcher and Lecturer, Vienna University of Economics and Business,
Institute of International Economics and Development, Vienna.
Correspondence to: Johannes Jäger, Professor of Economics, University of Applied
Sciences BFI Vienna, Fachhochschule des BFI Wien, Wohlmutstraße 22, A-1020 Wien,
Austria. Email: johannes.jaeger@fh-vie.ac.at

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competition and change, Vol. 14 No.

3–4, December, 2010, 225–47

Peripheral Financialization and

The current crisis confirmed that highly financialized regimes of accumula-

keywords Financialization, Financial crisis, Regulation approach, Periphery

© W. S. Maney & Son Ltd 2010 DOI 10.1179/102452910X12837703615337

economies of the centre. We shall investigate, in contrast, the peculiarities of finan-

Financialization and regulation: origins, forms and consequences

switch from an inflationary to a disinflationary (or even deflationary) monetary

Financialization in the periphery: four illustrating cases

Chile: the ambivalence of financialization and de-financialization

which proved to be an important component of internal demand growth. Neverthe-

Brazil: State-driven financialization, based on high interest and

Peripheral Europe: the case of Serbia

Slovakia: late, mass-based financialization

pertaining to dollarization/euroization and international influences were raised in this

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