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Financialization in Mexico - Dr. Gregorio Vidal

Financialization in Mexico - Dr. Gregorio Vidal


262 JOURNAL OF POST KEYNESIAN ECONOMICS have been ushered into the globalized financial sphere, their economic reliance on international financial actors and markets has increased. Yet, as mentioned, these have also undergone significant changes. After the dot-com bubble burst, the subsequent rise in credit was accompanied by the multiplication of derivatives and structured products and a renewed widening of the use of off-balance-sheet operations as well as M&As, in which cross-border operations played a large role. The normal functioning of the economy has therefore become more dependent on the quickly exhausted financial profits of financial agents and the largest nonfinancial corporations, creating a dynamic in which economies are at once more prone to speculative collapses, yet more reliant on speculative gains. Since 1982, the global economy has witnessed three consecutive asset bubbles, one per decade, with each one creating initial boom conditions followed by spectacular collapses (Guttmann, 2010, p. 193). As will be shown in the following section, changes in the U.S. financial system have had profound global effects and in the case of Mexico have been part of the domestic financial system’s transformation. However, while the most notable alterations in capital markets, including the creation of the Eurodollar market, the rise of institutional investors, and the ascent of structured finance, have been creations of the largest global financial institutions, financialization has developed in a passive fashion in Mexico. In much of the developing world, including Mexico, trade and financial openings have allowed national economies to become profitrealization spaces for foreign-based companies. The transformation of productive investment into assets through which financial rent can be extracted and wealth transferred has certainly presented the Mexican economy with severe conflicts, but they are in large part the result of external pressures. As a passive and largely external process, the financialization of the Mexican economy has not created the same internal conflicts of financialization as seen in the U.S. economy, which have arisen from the aforementioned dynamics of shareholder maximization and the rise of the managerial class. Rather, the limits of financialization in Mexico have resulted from an insertion into global markets that polarizes wealth, fractures internal economic structures, and creates large capital outflows. The evolution and characteristics of financialization in Mexico The trajectory of financialization in Mexico can be traced back to the end of the 1970s together with the accelerated growth of externally sourced syndicated credit and the petrolization of the country’s exports (and later

FINANCIALIzATION IN MEXICO: TRAJECTORY AND LIMITS 263 of the public budget). From this point onward, financialization has been steadily developing in Mexico, reaching a high degree of maturity by 2010 and strongly spurred on by three financial crises. As will be shown, since the late 1970s, we can identify gradual yet very notable changes in the generation of salaries and profits as well as the country’s insertion into the global economy, all of which over the past three decades have molded the process of financialization in Mexico. In the present, the financialization of Mexico has reached every sector of the economy, including the largest local firms, foreign banks, the labor market, health care, social security, public banks, enterprises, and budgets. Additionally, diverse links can be made between the process of financialization and the growth of illicit economic activities, although this issue will not be addressed in this article The process of financialization has gone hand in hand with trade and financial opening for developing countries in addition to a transformation of local dominant groups and their relationships with governments and other important national actors. In this sense, financialization in Mexico (as well as in other developing countries) has been a peculiar process of domestic accommodation to the dominant tendencies in the global economy—and not a self-centered process dictated by domestic competition—as financialization can be defined in much of the developed world, particularly in the United States. Financialization in Mexico has nonetheless been shaped by its own internal dynamics, in large part created by new associations within the global economy, the internationalization of local firms, and, most important, successive financial crises, many creating and/or reflecting moments of sharp political confrontation within the local political and economic elite, which to date continue to undergo drastic and rapid changes (Guillén Romo, 2007). In Mexico, these transitions have been hastened by financial and trade insertion into the global economy, always hurried in themselves, which were supposed to increase competitiveness and were in all moments dominated by the application of Washington Consensus policies (Guillén Romo, 2007). This has translated into a rapid rolling back of the public sphere in the economy (Vicher, 2010) as well as a very high level of participation of transnational firms in the most important sectors of economic activity. In an attempt to construct a chronology of financialization in Mexico, we now proceed to the principal processes of transition toward a regime of accumulation under financial dominance. The creation of the Eurodollar market during the latter part of the 1960s can now be seen in hindsight as the first clear step toward financial globalization. Much like global markets in later days, the rise of the

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