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11. The Invisible Leverage of the Top 1 Percent: Absentee Debtors and Their Hedge Funds

Author:
Stefano Sgambati
Publication Date:
01-2024
Content Type:
Working Paper
Institution:
City Political Economy Research Centre (CITYPERC), University of London
Abstract:
The existing literature on finance, debt and inequality depicts economic elites as a creditor class. According to a popular thesis, over the past four decades, the rich and ultra-rich households in the top 1 percent have experienced a saving glut (excess income), which they have invested in the debts of the poor and their governments. While it is undeniable that the rich have expanded their income share at the expenses of the poor, to refer to them as ‘creditors’ or ‘lenders’ is a misrepresentation of how they actually expand their wealth and income shares by financial means. For it conceals the fact that a great deal of their investments is leveraged, that is, carried out with borrowed money. This article shows that the debts generated by individuals and households in the top 1 percent easily surpass those of all other households and even exceed those of the most indebted states in the world. However, these debts are hard to estimate, and indeed they are not accounted for in statistics on household debt. This is because households in the top 1 percent do not borrow from banks, like normal households do, but they are instead absentee debtors who borrow through the hedge funds, private equity firms, personal investment trusts, and big banks of which they are dominant shareholders and ultimate beneficiaries. To gain an insight into their invisible leverage, the article looks at how much hedge funds borrow, and why their leverage matters.
Topic:
Debt, Political Economy, Inequality, Finance, Elites, Hedge Funds, and Leverage
Political Geography:
Global Focus

12. Leaving No One Behind: Inclusive Fintech for Remittances

Author:
Ravenna Shost
Publication Date:
02-2024
Content Type:
Special Report
Institution:
Migration Policy Institute (MPI)
Abstract:
Remittances are an important source of support for migrants’ families, communities, and origin countries. However, the remittance industry has long been dominated by a few players whose services have high transaction costs, blunting the development benefits of these money transfers. By easing access to financial services, mainly via mobile phones, some countries and development actors hope that financial technology (or fintech) will change this status quo. Many believe that such technologies—namely mobile money and cryptocurrencies—hold the potential to boost migrants’ inclusion in financial systems and enhance the development benefits of remittances. Yet, many obstacles remain to widening these digital tools’ reach and usability, and safeguards are needed to protect users against new risks. This report explores the growing use of digital financial services for international remittances, including changes during the pandemic and a look at gendered aspects of these technologies’ impacts. The analysis draws, in part, on insights from expert interviews as well as focus groups conducted in Nigeria and Sri Lanka with users and nonusers of digital remittance services. The report results from a multiyear research partnership between MPI and the Swiss Agency for Development and Cooperation’s Thematic Section Migration and Forced Displacement to support the development of global solutions for migration-related challenges.
Topic:
Development, Migration, Science and Technology, Finance, and Remittances
Political Geography:
Global Focus

13. Harms from Concentrated Industries: A Primer

Author:
Denise Hearn
Publication Date:
02-2024
Content Type:
Special Report
Institution:
Columbia Center on Sustainable Investment
Abstract:
Clashes between dominant firms exercising private power across the economy, and regulatory agencies tasked with preserving democracy have oscillated in ferocity throughout history. Today there is widespread recognition that in many markets, concentrated private economic and political power has yielded a range of anti-democratic, anti-innovation, and inequitable outcomes for consumers, workers, and smaller businesses. A vast literature1 now documents the macroeconomic and social harms from concentrated markets. As a 2019 International Monetary Fund (IMF) report states, “further increases in the market power of already-powerful firms could weaken investment, deter innovation, reduce labor income shares, and make it more difficult for monetary policy to stabilize output.”2 Competition policy, or antitrust, is a subset of a broader anti-monopoly agenda, and an important foundation for the functioning of fair markets. How its laws are crafted, interpreted, and enforced has substantial economic and social effects at local and regional levels, as well as national and international levels. The way that competition policy is written, interpreted, and applied has wider societal impacts beyond competition, including effects on democracy, economic inequality, growth and innovation, racial and gender imbalances, privacy, geopolitical implications and more. Competition policy also has redistributive economic effects between stakeholders, often privileging the largest corporate actors and their shareholders at the expense of other stakeholders.3 As the largest global firms have grown in size and reach, many national jurisdictions have set up competition authorities. In the last four decades, more than 120 legal systems have created competition rules, establishing National Competition Authorities (NCA) across a significant portion of countries.4 However, competition policy includes, but is not limited to, antitrust enforcement. It can also include a broader set of legislative and regulatory reforms which provide market guardrails that protect consumers, workers, independent businesses, and fair market dealing.5 The recently introduced Digital Markets Act in the EU is an example of competition policy using additional regulatory layers to protect the rights of consumers, start ups, and to spur innovation and economic growth. Today, competition policy and antitrust law are experiencing new political potency as various global jurisdictions have strengthened and enhanced their enforcement regimes.6 New market realities like digital market platform gatekeepers, the financialization of firms, the rise of private equity, resurgent labor movements, trade wars and industrial policy, and sustainability challenges, among others, have forced reconsiderations of how to adapt competition policy to meet new 21st century market realities. Competition policy’s narrow focus on consumer welfare (typically defined as low prices)7 over the last 40-50 years saw technological giants ascend to new heights with little to no scrutiny or challenges to mergers. A focus on lowering prices for consumers meant that new assetization strategies – such as monetizing a user’s attention while offering “free” products – went ungoverned by competition regulators. Non-price effects from concentrated markets like: threats to democracy or privacy, and effects on worker’s rights or the environment were mostly ignored. Mergers largely went unchallenged, leading to concentration across many sectors of the economy which is well documented in the US,8 Canada,9 and Europe10 and increasingly so in other jurisdictions. As so-called “superstar firms” have come to dominate national and global economies – in part due to a lack of strong countervailing regulatory structures and antitrust enforcement, and in part due to new network effects or economies of scale and scope in financial, digital, and other markets – many large companies are now akin to para-state institutions, which set the terms and norms of markets, acting as de facto private regulators. Global collective action problems like inequality, climate change, and biodiversity loss, which threaten the ecological and social thresholds upon which open societies are built, have also challenged the status quo of competition policy interpretation and enforcement. This presents a moment of political opportunity for a new vision, which asserts a concerted challenge to the ways in which concentrated corporate power undermines healthy economic, political, and social functioning across a range of industries. An anti-monopoly policy agenda ensures that markets operate on fair and competitive terms, that they reward innovation, create widely shared ownership and prosperity, and allow the best ideas, products, and services to flourish. Markets are public creations, governed by democratically determined rules. Anyone can be an anti-monopolist and participate in the active governance and shaping of markets, and there is now a wide global community of people who identify as such. At the end of this document we list some civil society organizations that are working to foreground anti-monopoly policy approaches and to build communities of practice, for those interested in learning more. Below, some of the harms from market concentration are outlined, as well as industryspecific or thematic considerations in technology, agriculture, and trade.
Topic:
Finance, Sustainable Development Goals, Business, and Industry
Political Geography:
Global Focus

14. Power and Financial Interdependence

Author:
Brad Setser
Publication Date:
05-2024
Content Type:
Working Paper
Institution:
Institut français des relations internationales (IFRI)
Abstract:
The link between financial self-reliance and geopolitical power has long been debated. The unbalanced Sino-American trade relationship has created asymmetric financial ties which generate potential sources of leverage for both parties and will not quickly disappear. Absent a clarifying major crisis, it will be difficult to definitively determine which party has greater leverage. Many in the United States (US) are concerned about indebtedness to its primary strategic rival, and the risks posed by a sudden Chinese withdrawal from US financial markets. US policymakers actively sought to encourage China’s top leadership not to withdraw financing from the market for US Agency securities in the run-up to the global financial crisis. Yet China also sees risks in this unbalanced financial relationship. Chinese policymakers have expressed concern about the domestic political consequences of losses on either their Treasury or Agency holdings and actively have sought to diversify China’s reserves – including by substituting the risk of lending to developing economies for the visibility associated with large holdings of Treasuries in US custodians. China increasingly worries that its dollar holdings and the dollar’s global role increase its vulnerability to potential financial sanctions. Both parties thus worry about the possibility that financial interdependence can be weaponized yet find it hard to extricate themselves from the inevitability of financial interdependence absent a clean break from an entrenched pattern of trade imbalances.
Topic:
International Trade and Finance, Bilateral Relations, Finance, and Interdependence
Political Geography:
China, Asia, North America, and United States of America

15. Tackling the UK's regional economic inequality: Binding constraints and avenues for policy intervention

Author:
Anna Stansbury, Dan Turner, and Ed Balls
Publication Date:
05-2024
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
This paper analyzes binding constraints to productivity growth in the United Kingdom’s regions outside London and the greater South East. These analyses challenge a number of common arguments about the UK’s regional economic inequality problem. The authors find little evidence consistent with the hypotheses (i) that low shares of university graduates remain the primary constraint on growth for the UK’s regions; (ii) that there is a generalized issue with access to finance for firms outside the South East; or (iii) that low or falling regional migration rates are to blame for the persistence of the UK’s regional economic inequalities. Instead, they find evidence consistent with (i) a specific relative shortage of STEM degrees; (ii) binding transport infrastructure constraints within major non-London conurbations; (iii) a failure of public innovation policy to support clusters beyond the South East, in particular through the regional distribution of public support for research and development (R&D); and (iv) missed opportunities for higher internal mobility due to London’s overheating housing market. The authors also find some suggestive evidence consistent with constraints on access to early-stage equity financing for high growth-potential small and medium-sized enterprises in certain regions.
Topic:
Finance, Economic Growth, Economic Inequality, and Productivity
Political Geography:
United Kingdom and Europe

16. Unaccountable Adaptation: The Asian Development Bank’s overstated claims on climate adaptation finance

Author:
Sunil Acharya, Rasmus Bo Sørensen, and Hans Peter Dejgaard
Publication Date:
05-2024
Content Type:
Policy Brief
Institution:
Oxfam Publishing
Abstract:
Despite positioning itself as the ‘climate bank of Asia and the Pacific’, it is difficult to ascertain the Asian Development Bank’s claims of climate adaptation finance. Oxfam analysed the bank’s 2019–2023 climate finance portfolio and conducted a detailed assessment of 15 climate adaptation projects, comprising 43% of reported adaptation finance for FY 2021 and 2022. Oxfam found that the Asian Development Bank (ADB) hugely overstates the reported amounts with potential over-reporting of 44% in average for the assessed projects. This briefing paper calls for a transformative shift in the ADB’s adaptation finance strategies. The ADB must improve the accuracy and transparency of climate finance reporting and realign financial flows with the needs of the region's most vulnerable communities.
Topic:
Climate Change, Development, Finance, Accountability, Transparency, Adaptation, and Development Finance
Political Geography:
Asia

17. The Role of Multilateral Development Banks in Financing Energy Transition in South America

Author:
Maria Elena Rodriguez, Rafaela Mello Rodrigues de Sá, Octávio Henrique Alves Costa de Oliveira, and Renan Guimarães Canellas de Oliveira
Publication Date:
02-2024
Content Type:
Policy Brief
Institution:
BRICS Policy Center
Abstract:
With the signing of the Paris Agreement in 2015, the world institutionalized the goal of keeping global temperature rise below 2ºC, based on efforts to adapt to and mitigate climate change. It is in this context that the actors involved presented their commitments to establish policies and strategies to reduce carbon emissions in different sectors of the economy. This process of reducing emissions can be called decarbonization and consists of replacing fossil energy sources with clean renewables, in addition to encouraging the use of electrification technology, such as electric cars. This movement promotes transformation toward a low-carbon economy in various sectors. In the energy sector, this transformation is called the clean energy transition, as it attempts to reduce greenhouse gas emissions in the energy matrix. For this to happen, increasing the use of renewables over using fossil fuels such as coal and oil is encouraged.
Topic:
Climate Change, Development, Finance, Multilateralism, Paris Agreement, and Energy Transition
Political Geography:
Global Focus

18. Private Finance and the Quest to Remake Modern Warfare

Author:
Michael Brenes and William D. Hartung
Publication Date:
06-2024
Content Type:
Policy Brief
Institution:
Quincy Institute for Responsible Statecraft
Abstract:
Official Washington is all in on promoting a new type of warfare based on military applications of AI and other emerging technologies. This determination was on full display last year when the Biden administration unveiled the “Replicator” initiative, an attempt to develop swarms of high-tech weapons systems at relatively low cost, and in numbers capable of overwhelming any potential adversary. But the history of so-called miracle weapons offers ample reasons to doubt Replicator’s supposedly transformative potential. Previous innovations, from the “electronic battlefield” in Vietnam to drone warfare in the Global War on Terrorism, did not, in fact, revolutionize war as we know it. Cutting-edge technology is no substitute for sound strategy or a realistic assessment of what military force can achieve. Unfortunately, so far, at least, these lessons from history have been no match for the boosterism of venture capital (VC) firms that pride themselves on disrupting industries and overturning conventional wisdom. While estimates of total VC funding of emerging military technology vary widely, it is clear that private investments in emerging weapons technologies are large and growing, driven by a handful of major Silicon Valley players, including Peter Thiel’s Founders Fund and Andreessen-Horowitz. Companies backed by these firms, including Palantir, Anduril, and SpaceX, have already landed major contracts for weapons systems that incorporate next-generation technology. These firms and their allies in the Pentagon and Congress are determined to move full speed ahead on the development and deployment of weapons based on AI and other technological innovations, despite many unanswered questions about the costs and risks involved. While the bulk of Pentagon funding still goes to the “big five” contractors — Lockheed Martin, RTX (formerly Raytheon), Boeing, General Dynamics, and Northrop Grumman — VC-backed startups aspire to become the future of military contracting, and they hope that AI and other emerging technologies will be their ticket. These startups may prove to be more nimble and innovative than the bloated, top-heavy firms that currently dominate the arms industry, but they should not be allowed to operate with impunity. Congress must establish ground rules that prevent military startups from exploiting the procurement process in ways that pad their bottom lines while providing flawed systems — outcomes that we have seen all too often from their traditional rivals. What is most important, the rush to profit from emerging military tech cannot be allowed to short-circuit the careful scrutiny and wide-ranging public debate that must precede any move toward a brave new world of autonomous warfare in which human intervention in the kill chain is significantly reduced, if not eliminated. This brief offers policymakers a framework for ensuring that unsupported promises to “reinvent” warfare don’t exacerbate the cycle of corruption and waste that has all too often plagued the Pentagon’s procurement process, to the detriment of our safety and security.
Topic:
Foreign Policy, Diplomacy, Finance, Grand Strategy, and Warfare
Political Geography:
North America, Global Focus, and United States of America

19. The Pact of the Future—Financing Issues

Author:
Betty N. Wainaina and Sarah Cliffe
Publication Date:
01-2024
Content Type:
Commentary and Analysis
Institution:
Center on International Cooperation (CIC)
Abstract:
Submissions for the Summit of the Future were requested at the end of 2023. CIC developed and submitted a short input on financing and the Sustainable Development Goals (SDGs). This note lays out our rationale and narrative concerning financing for development. Why is financing such a contentious issue? In part, this is because the events of the last few years have increased global financing needs—for pandemic recovery and preparedness, for climate, for social protection and economic development to overcome price shocks and other international pressures. In addition, global financing plays a role in escalating grievances about double standards. Double standards are, of course, a broader argument, from failure to coordinate COVID-19 vaccines to questions over different applications of international humanitarian and human rights law in Ukraine versus Palestine. Financing plays a role here, however, because of obvious inequities following COVID-19. HICs spent 24 percent of their gross domestic product (GDP) on stimulus and social protection programs in the first year of COVID-19; MICS could spend only 6 percent and LICS only 2 percent. Debt distress has risen dramatically in the last four years; 25 percent of emerging market countries are at high risk of default, while among low-income countries 60 percent are either at high risk of default or already in default. Some of the reasons financing paragraphs became contentious in recent resolutions are more process-based. Using the SDG Summit Political Declaration as an example, the draft text was too detailed in some respects and laid open challenges as to what should be decided in different governance structures. Some areas were insufficiently tailored to the current state of debate at the IFIs, G20, and other international platforms, risking being out of date at the time of publication. In some aspects, they were not specific enough, missing an opportunity to bring new ideas to the table. Last, they did not focus sufficiently on the core comparative advantage of a UN platform for these discussions, which is to link the achievement of the SDGs, global political stability, and peaceful international relations with financing.
Topic:
Development, Finance, Sustainable Development Goals, and Multilateralism
Political Geography:
Global Focus

20. The Liquidity Crisis at the United Nations: How We Got Here and Possible Ways Out

Author:
Eugene Chen
Publication Date:
08-2024
Content Type:
Working Paper
Institution:
Center on International Cooperation (CIC)
Abstract:
The United Nations (UN) is suffering from an acute liquidity crisis because its member states have not been paying the assessed contributions required to finance the budgets they have approved. A major part of the problem is the fact that the United States does not pay in full or on time. However, late payments in recent years by China and the closure of several large peacekeeping operations are exacerbating the liquidity challenges. The Secretary-General has proposed several measures to improve the financial position of the organization, but these are stopgap measures at best. The ongoing financial difficulties can only be resolved by member states paying in full and on time but getting there requires understanding the policy decisions and member state dynamics that led us to the current situation and developing recommendations designed around the constraints of the intergovernmental process.
Topic:
United Nations, Budget, Finance, and Liquidity
Political Geography:
China and Global Focus