Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism

4

Bank loans used to be the dominant element of debts until recently, but now bonds account for the lion’s share. Between 1975 and 1982, bonds accounted for only about 5% of total net private debts contracted by developing countries. The share rose to about 30% between 1990 and 1998, and to nearly 70% between 1999 and 2005. The data are from World Bank, Global Development Finance, the 1999 and the 2005 issues.

5

The distinction between portfolio equity investment and FDI is, in practice, ambiguous. FDI is usually defined as an investor buying up more than a 10% stake in a company in a foreign country, with the intention of getting involved in the management of the company. But there is no economic theory that says that the threshold should be 10%. Moreover, there is a hybrid form emerging that blurs the boundary even more. Traditionally, foreign direct investment has been made by transnational corporations (TNCs), which are defined as productive corporations with operations in more than one country. But recently what the UN calls ‘collective investment funds’ (such as private equity funds, mutual funds or hedge funds) have become active in foreign direct investment. FDI by these funds differs from traditional FDI by TNCs because it does not have the potentially infinite commitments of TNCs. These funds typically buy up firms with a view to selling them off after 5–10 years, or even earlier – without improving their productive capabilities, if they can get away with it. On this phenomenon, see UNCTAD (2006), World Investment Report, 2006 (United Nations Conference on Trade and Development, Geneva).

6

For an up-to-date literature review on the aid issue, see S. Reddy & C. Minoiu (2006), ‘Development Aid and Economic Growth: A Positive Long-Run Relation’, DESA Working Paper, no. 29, September 2006, Department of Economic and Social Affairs (DESA), United Nations, New York.

7

The data on capital flows in this paragraph are from World Bank (2006), Global Development Finance 2006, (World Bank, Washington, DC.), Table A.1.

8

Foreigners bought $38 billion worth of developing country bonds in 1997, but, during 1998–2002, the sum fell to $23 billion per year.During 2003–2005, the amount went up to $44 billion per year. This means that, compared to 1997, bond purchases during 1998–2002 was 40% lower, while the 2003–5 purchase was double that of the ‘dry’ period and 15% higher than in 1997.

9

Portfolio equity investment into developing countries fell from $31 billion in 1997 to $9 billion per year during 1998–2002. In 2003–5, it averaged $41 billion per year. This means that, during 1998–2002, the average annual portfolio equity investment inflow into developing countries was less than 30% of what it was in 1997. In 2003–5, it was 30% higher than in 1997 and 4. 5 times more than in the ‘dry’ period of 1998–2002.

10

The Asian crises are well documented and analysed by J. Stiglitz (2002), Globalization and Its Discontents (Allen Lane, London). Also see the chapters in H-J. Chang, G. Palma and H. Whittaker (eds.) (2001), Financial Liberalisation and the Asian Crisis, (Palgrave, Basingstoke and New York).

11

In 2005, the US stock market was worth $15, 517 billion. The Indian market was $506 billion. http://www.diehardindian.com/overview/stockmkt.htm.

12

In 1999, the Nigerian stock market was worth a mere $2.94 billion, whereas that of Ghana was a mere $0.91 billion. http://www.un.org/ecosocdev/geninfo/afrec/subjindx/143stock.htm

13

B. Eichengreen & M. Bordo (2002), ‘Crises Now and Then:What Lessons from the Last Era of Financial Globalisation’, NBERWorking Paper, no. 8716, National Bureau of Economic Research (NBER), Cambridge, Massachusetts.

14

This is the title of chapter 13 of J. Bhagwati (2004), In Defense of Globalization (Oxford University Press, New York).

15

The new, more nuanced view of the IMF is set out in detail in two papers written by Kenneth Rogoff, a former chief economist of the IMF (2001–2003), and three IMF economists. E. Prasad, K. Rogoff, S-J. Wei & A. Kose (2003), ‘Effects of Financial Globalisation on Developing Countries: Some Empirical Evidence’, IMF Occasional Paper, no. 220, International Monetary Fund (IMF), Washington, DC, and Kose et al. (2006).

16

Kose et al. (2006), pp. 34–5. The full quote is: ‘premature opening of the capital account without having in place well-developed and well-supervised financial sectors, good institutions, and sound macroeconomic policies can hurt a country by making the structure of the inflows unfavourable and by making the country vulnerable to sudden stops or reversals of flows’.

17

World Bank (2003), Global Development Finance, 2003 (World Bank, Washington, DC.), Table 1.1.

18

World Bank (2006), Table A.1.