Читать книгу Global Political Cities - Kent E. Calder - Страница 37

As in social affairs, twin technological revolutions—in computing and telecommunications—have precipitated revolutionary changes in connectivity through their common digital interface. The twin revolutions have had profound ramifications in finance, linking markets instantaneously and facilitating complex, large-scale transactions in unprecedented ways. Computerized financial management, coupled with the development of new derivative financial instruments, has opened the door to huge, volatile flows of capital across the globe, as indicated in figure 3-3.

For finance, connectivity through digital advances has had especially fateful political-economic implications due to the way it has magnified the consequences of correctly perceiving and analyzing far-distant events, thus massively expanding both the operational scale and profitability of key firms. The volatility and scale of those flows have greatly magnified potential risks for both private and public actors, provoking revolutionary related changes in the financial and knowledge industries. The imperatives to know more about political-economic developments in diverse parts of the world, while simultaneously finding new technical means of hedging uncertainty, are growing ever stronger and in synergistic fashion.

Figure 3-3. Increasing Volatility of International Capital Flows

Source: John Bluedorn and others, “Capital Flows Are Fickle: Anytime, Anywhere,” IMF Working Papers 13, no. 183 (August 2013), doi:10.5089/9781484389041.001, pp. 1–36, figure 1.

The most important financial innovation flowing from the digital revolution, which simultaneously magnified information requirements for the finance industry while also enhancing their economic consequences, was the expanded use of derivatives. This powerful new tool allowed investors to hedge risk and to more actively speculate, if they had adequate information, enjoying the benefits of unprecedented leverage. In 1973 the Chicago Board of Trade opened the world’s first major financial options exchange, with London, New York, and Singapore following shortly thereafter.¹⁶ In 1992 Chicago also launched the electronic trading of derivatives. Meanwhile, the world of derivatives progressively expanded to more and more sectors—commodities, foreign exchange, and, in 2006, even housing futures. All of these developments rapidly broadened the information needs of financial specialists while simultaneously magnifying the returns to effective information management.

At the same time, derivatives were massively leveraging the fire power of private players, including hedge funds and some investment banks. The story of Black Wednesday (September 16, 1992), when speculators broke the Bank of England, forcing the British government to pull out of the European Exchange Rate Mechanism (ERM), is evocative. Until the 1990s, Britain’s pound sterling had been one of the strongest currencies in Europe, and it entered the ERM at an overvalued exchange rate. Domestic wage pressures and high interest rates that were incurred to defend sterling compounded the United Kingdom’s difficulties. Speculators led by George Soros borrowed heavily, using the new leverage offered by derivatives, and forced the pound to devalue.¹⁷

Meanwhile, as derivatives were being introduced, financial markets were both globalizing and moving from bank lending to equity finance—developments that broadened the informational needs of the finance industry still further. In 1980, for example, only 59 countries had stock exchanges. By 2010 that number had more than doubled to 134, with 13 additional countries covered by regional stock exchange arrangements in West Africa and the eastern Caribbean. Meanwhile, the number of listed companies was doubling to forty-five thousand, and the market value of outstanding traded equity was expanding fivefold, to nearly $50 trillion.¹⁸ Owing to greater volatility and unpredictability, the shift to equity finance broadened informational requirements as well as the consequences of insightful analysis.

During the same period, equity markets in developing nations were developing quickly, with those in Asia, Latin America, and Eastern Europe being of particular global importance. The most rapidly expanding domestic stock markets during the key 2002–2009 period of equity-market expansion included Russia, with a 1,150 percent increase; Brazil, 1,000 percent; India, 900 percent; China, 675 percent; and Indonesia, 610 percent.¹⁹ The market capitalization of emerging-market equities grew by 790 percent in the fourteen years between 2003 and 2017, compared with 280 percent growth in developed markets.²⁰

The number of listed companies in these markets was also growing rapidly—by 49 percent in China and 40 percent in India, for example, during a comparable period. All of these developments expanded informational needs. Meanwhile, the number of listed firms in major Western markets was declining, by 28 percent in the United States and 20 percent in Germany.²¹

Globalization and the rise of equity finance thus fundamentally transformed international financial markets between 1980 and the global financial crisis of 2008. As with respect to the emergence of derivatives, these two global structural changes greatly increased demand for risk-related political-economic information and broadened its ambit to markedly volatile third-world markets. The expansion of investor communities in the third world itself further increased demand for financially relevant information worldwide.