Problems of Growth and Stability
Edited by Pier Carlo Padoan, Paul A. Brenton and Gavin Boyd
Chapter 1: Economic structures and finance
Gavin Boyd The real economies of the industrialized and industrializing countries are the structural foundations of international finance. Savings resulting from their productive activities and exchanges flow into financial systems which fund further production, with investments in new technology that increase efficiencies and thus make available further savings for use by financial enterprises. The productive dynamic, however, has been changing, with large increases in speculative operations by the financial firms, and with extensions of their operations across borders to form an international financial system. Within this system a strong concentration trend has developed, through mergers and acquisitions, and financial corporations assuming prominence in this trend have become more active in global speculative operations. These involve massive financial flows, driven by quests for rapid large-scale gains with reduced tax exposure, and far exceed the funding of productive activities in the real economies. That has to be regarded as a problem of market failure, and it is all the more serious because the speculation tends to become destabilizing, because of information problems, high risks and irrational investor optimism. The USA, because of the size of its economy, its extensive structural links with the rest of the world, and the global reach of its financial corporations, is at the centre of the international pattern, and its multidimensional involvement is expanding, especially because of a strong speculative propensity in its financial sector. This is increasingly significant because that sector is very prominent in an international oligopolistic trend, which is linked with a similar trend...
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